In the U.S., trade secrets are defined as any business information which an employer or business intends to keep secret, without regard to whether the agreement is actually eligible for a patent or copyright. To qualify as a trade secret, the information must have specific economic value to the business owner such that the business would suffer if the information because public. Trade secrets are not generally known to the public and the business holding the trade secret must make a reasonable effort to maintain the confidentiality and secrecy of the information.
Trade secrets cover things like formulas, processes, specific product designs or information that is not public knowledge. Generally, trade secrets are considered ‘classified information’ and are things like special recipes, formulas or proprietary designs that in and of themselves confer a benefit on a company. Trade secrets cover things that may not be candidates for patents or trademarks, yet, they provide economic benefit by their uniqueness to the company. For example, a business may not be able to patent a certain carbonated beverage (i.e. “soda” is not patentable because it is a merely descriptive of a type of beverage), but the recipe for a special soda may be considered a trade secret.
Unlike patents and trademarks where the specifics and details of the products are disclosed during the application process, trade secrets differ in the information is never disclosed. A trade secret is not awarded or granted to a company in the same way a patent would be. Trade secrets need not be particularly unique or novel; rather, they need only confer some economic benefit on the trade secret holder and the holder must take reasonable steps to protect the secrecy of the information. There are no formal requirements or applications to file in order to obtain a trade secret – it exists if there is confidential information that a company takes reasonable steps to protect from public acquisition.
Trade secrets can be protected in a number of ways, including the requirement of employees to sign non-disclosure agreements, non-compete agreements. Additionally, federal laws apply to criminalize the disclosure of trade secrets to the public.
Non-disclosure agreements (“NDA”) or are generally signed by employees or a business who are privy to the secrets of the company. Non-compete agreements may also be signed by an employee who is aware of the trade secrets of a company. A non-compete stipulates that the employee is prohibited from taking the trade secret and leaving the company to form a competing business enterprise using the trade secret information. The NDA and non-compete agreement acts to bind the employee to keep the trade secret confidential and to avoid public disclosure. Violations of NDA’s or non-compete agreements allow the company to pursue legal action against an employee to leaks a trade secret and usually leads to heavy penalties and damages for the company.
The Uniform Trade Secrets Act (“UTSA”) was passed in 1996 and applies to most states in the U.S. and is a federal regulation that essentially criminalizes the disclosure of trade secrets. The UTSA covers information that is commercial in nature and that has an economic impact on the company from which the trade secrets were misappropriated. The UTSA also punishes trade secrets exchanged with foreign countries where the foreign power gains a benefit from the acquisition of the trade secret. Even if the person who leaked the trade secret does not benefit monetarily in a direct way, the UTSA considers the gain of a foreign power sufficient to evoke penalties under the Act. The UTSA covers the person who misappropriated the information as well as the person who knowingly conspired to receive the misappropriated trade secret. The end result of being receipt of trade secrets is similar to being in possession of stolen goods – it is a criminal offense punishable by fines up to $500,000 or imprisonment of up to 15 years.
The Economic Espionage Act of 1996 covers trade secrets related to national defense intelligence and classified information. Where the UTSA has jurisdiction over commercially classified information, the Espionage Act has jurisdiction over classified information related to national defense. The Economic Espionage Act has jurisdiction over both U.S. citizens as well as permanent residents, as well as over companies or organizations formed under U.S. law. If the act of economic espionage was committed while in the U.S., or even if a substantial act in furtherance of economic espionage was committed in the U.S., the Economic Espionage Act of 1996 will have jurisdiction. The punishment for violating the Espionage Act of 1996 includes steep fines as well as prison time.
Unlike patents which have a definite expiration date, trade secrets have the possibility of continuing on indefinitely. Trade secrets are beneficial in the sense that they can protect intellectual property of a business even if they would not qualify for a trademark or a patent; however, trade secrets do not provide as much protection as other options because they can be more easily broken. For example, if a product is reverse-engineered and the formula is deduced through a scientific process, there is no real way to prosecute for violation of a trade secret because no one with inside information of the secret misappropriated the information in any way. While trade secrets may be easier to maintain and do not require renewals or licenses, they do not provide as much protection to the organizations as other protections of intellectual property may.