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David M. Kleiman
U.S. Patent Attorney

21900 Burbank Blvd.
Third Floor
Woodland Hills, CA 91367
Tel: (818) 884-0949
Fax: (818) 332-4373





TRADE SECRET BASICS


AN OVERVIEW OF TRADE SECRETS

  • The law of trade secrets is governed by state law (e.g. California law) as opposed to U.S. federal law which governs patents and copyrights. Accordingly, one must check in a particular state to know precisely how the law of that state defines a trade secret.

    However, many states have adopted the "Uniform Trade Secret Act" (UTSA) in an attempt to provide uniformity in trade secret law across the United States. California's adoption of the UTSA defines a trade secret as:

    Trade Secret

    1. Information that has economic value on account of it not being generally known or ascertainable through proper means by others who could exploit it commercially, and

    2. which is the subject of reasonable efforts to keep secret.

  • Generally speaking, if there is any potential demand for a product idea it has economic value.

  • Reasonable efforts to keep information about a product idea or invention secret generally means disclosing the information only to those who have a legal obligation to keep the information secret and not misappropriate the information for their own benefit.

  • Licensed attorneys in the United States have an obligation under the law to keep information they obtain from clients confidential and not use such information against the client.

  • With everyone else you generally must create a legal obligation of confidentiality on their part through a contract that requires them to keep information they receive about the product confidential and not use such information for their own benefit. Such agreements should be in writing.

  • If someone has agreed to keep confidential information secret and refrain from using it, and they then misappropriate or disclose the information, you may have a legal remedy against them (and possibly others who they have disclosed the information to). This can include an award of money and also a court order requiring the offender to take certain actions, or refrain from certain actions.

  • Trade secrets can be very valuable, especially early in the product development process before the product has been publicly launched or patent protection obtained. Sometimes it is the only thing that can help your business get and keep a very valuable head start over the competition.

  • Aside from new products under development, many businesses also have valuable information that they treat as confidential. Such information can include financial information, market information, customer lists, suppliers, etc. . . Smart businesses will often take the necessary steps to protect such confidential valuable information from becoming public and/or being misappropriated by competitors, by treating it as a trade secret.

  • You don't file an application with the government to get a trade secret. Trade secret protection is established by taking the necessary steps to control the disclosure and use of information that has economic value. The expense of establishing trade secret protection is the cost of creating the valuable information and the cost of controlling its use and disclosure. Exactly how much the expense will be depends upon the type of information and what steps must be reasonably taken to control the disclosure and use of the information.

 

TRUE STORY

In one well known case, inventors approached a large company about licensing technology before their patent had been issued. These smart inventors had the good sense to treat their as yet unpatented technology as a trade secret, and required the company to sign a nondisclosure agreement.

After learning about the technology the large company told the inventors it wasn't interested, but subsequently incorporated the technology into the company product line without telling or compensating the inventors. Once the patent had issued the inventors sued for both patent infringement and trade secret misappropriation.

Ultimately the courts found the inventors' patent to be invalid, but upheld the trade secret misappropriation claim. The result was that the inventors received a multimillion dollar judgment they would have otherwise not obtained had they failed to treat their invention as a trade secret when disclosing it to the large company.

 

Frequently Asked Questions
About Trade Secret Protection

Q:
Can an invention be protected as a trade secret?
A:
Yes. Inventions that satisfy the definition of a trade secret can be protected as trade secrets.
Q:
How long does trade secret protection last?
A:
There is no time limit to trade secret protection. As long as the information qualifies as a trade secret (economic value on account of not being generally known or ascertainable, and the subject of reasonable efforts to keep secret) it will be subject to legal protection against misappropriation. The unlimited duration is one potentially big advantage that trade secret protection can offer over patent protection, which lasts for only 20 years from the filing date of an application.
Q:
How much does it cost to protect something as a trade secret?
A:
The costs associated with trade secret protection are generally those involved with the reasonable efforts to keep it secret. Depending upon the particular circumstances, such costs can be quite small (e.g. and independent inventor's costs with having non-disclosure agreements prepared, negotiated, and signed before disclosing an invention he has conceived of), or very substantial (e.g. a high technology company with many employees who must implement strict security protocols to limit access to highly valuable proprietary information and prevent loss through theft or espionage).
Q:
How do I get trade secret protection?
A:
Assuming that the information has independent economic value, you must make reasonable efforts to keep the information secret. What those efforts must be is highly dependent upon the particular situation. However, at a minimum you must not disclose the secret information to anyone who does not have an obligation to keep the information confidential.

There are certain relationships which have an inherent legal obligation of confidentiality - such as that between an attorney and his client. However, it is almost always prudent to create a contractual obligation of confidentiality with any person, including employees, who will be receiving trade secret information. This is typically accomplished through the signing of a binding non-disclosure or confidentiality agreement, which are frequently found in employment agreements.

Q:
Do I need a confidentiality agreement with my patent attorney?
A:
No. Patent attorneys are required by law to keep all information related to your legal matter confidential. Disclosure to a licensed attorney for the purpose of seeking legal advice will not compromise your trade secret.
Q:
So if an invention can be protected as a trade secret, which will last indefinitely, and involves no application costs, why would I want to bother with the expense of patent protection?
A:
There are some significant advantages that patent protection offers over trade secrets:
  1. Many inventions can't be protected as trade secrets, because when they are commercialized it is readily apparent to the public and competitors what the inventions are, and they thus lose their secrecy. Accordingly, such inventions won't be able to satisfy the requirements for trade secret protection because they won't be a secret.

  2. Even if an invention can be commercialized without revealing to competitors sufficient information to allow them to copy it, there is always the risk competitors will figure it out on their own. If competitors develop the invention independently through their own legitimate efforts, including reverse engineering of a lawfully acquired product, trade secret protection will not stop them from making and selling the invention. Later independent development by competitors does not matter with respect to patent protection. A competitor can come up with the same invention independently, but will be unable to make, use, or sell it if someone else invented it first and obtained patent protection. Indeed, a competitor can unknowingly incur substantial liability for making and selling products they independently developed, yet had no idea infringed someone else's patent rights. That is why many prudent businesses conduct patent infringement searches before investing substantially in a given product, to ascertain the risk of such infringement liability.

  3. There is always a risk that a trade secret will be lost either through misappropriation (e.g. departing employees going to a competitor), or perhaps even inadvertent disclosure. While the law provides remedies in the event of trade secret misappropriation, pursuing such remedies can involve issues of proof that may be more risky and expensive than obtaining patent protection.

Accordingly, there are situations when patent protection offers a better way, or the only way, for achieving long term exclusivity in an invention. Which choice is best for you should be decided based upon the particular situation and in consultation with a qualified registered patent attorney.

Q:
Will I lose my trade secret protection if I seek patent protection?
A:
Yes, once the patent application becomes public. This is because any information forming part of the application will not be kept secret once the patent application is published, or issues into a patent.

There are some limited circumstances when trade secret information submitted under an applicant's duty of disclosure can retain its secret status. Such limited circumstances should be discussed with your patent attorney if there is cause for concern.