Coca-Cola`s recipe is secret. Google’s search algorithm is secret. KFC’s 11 Herbs and Spices recipe is secret. The New York Times Bestseller List criteria for what qualifies a book for a bestseller is secret. WD-40`s formula is secret. Besides the secrecy behind their products, what they all have in common, is that their businesses are flourishing and that is due to their well-kept trade secrets, that maintain a strong competitive edge.
What are trade secrets and what do they protect?
First and foremost, trade secrets are intellectual property (IP) rights over confidential information that can be sold or licensed. If you think of it, trade secrets are all around us. They include a wide range of information ranging from chemical formulas, recipes, blueprints, methods, production processes, devices or pretty much any information that given your company a unique competitive advantage against competition.
Essentially, trade secrets include technical and commercial information, regarding the manufacturing process, early-stage inventions, designs and/or drawings of computer programs, test data (especially in the pharma sector) inasmuch as marketing strategies, clients and vendors lists, distribution methods, contract forms and even financial information of the company, source codes (software), all highly valuable assets regardless of whether they are taken alone, or we refer to a mix of these elements.
How are trade secrets protected?
Unlike patents, which are also a very popular method of protection used by many businesses nowadays, trade secrets are protected without registration, meaning that they do not require any procedural formalities for their protection. Trade secrets can be effectively protected for an unlimited period of time, which is very convenient as compared to other IP assets, of course, unless they exposed or acquired by legal means by third parties and made publicly available. However, there are some preconditions to be met for that particular information to be protected as a trade secret.
So, if you possess information on technology or other aspects of the business, you can protect them, provided that they qualify as a trade secret. The information must be (1) commercially valuable, (2) known by a very limited group of individuals and (3) must be subject to reasonable steps taken by the owner to keep it secret – meaning that you keep it in a safe storage (like Coca-Cola`s formula), you have signed non-disclosure agreements with anyone that has access to it or with whom you have shared any piece of information about that.
At a first glance, trade secrets seem a lot easier to protect and much more preferable than patents in terms of lower costs and longer duration, however, it is key to businesses to comply with the above-mentioned criteria in order to benefit from protection.
Why protect your company`s trade secrets?
To properly highlight the importance of trade secrets for your business, we could assume you own a manufacturing company for which you develop a manufacturing process that enhances the production capacity and is much more cost-effective, offering thus a competitive advantage. In this context, trade secrets are incremental for a business in that sector, throughout its entire supply chain system and the lifecycle of the production line. So, to make sure that you can protect those IP rights, you need to limit the number of employees, business associates etc. that have access to that secret and ensure that those that have access to it, are informed of its confidential character.
Moreover, when dealing with any third parties or when you decide to license that process, it is incremental that you sign confidentiality agreements that are binding others not to disclose any information. In fact, businesses from across all industry sectors, regardless of whether they are a small, medium-sized enterprises (SMEs) or corporations, use confidentiality as a competitive advantage inasmuch as an innovation tool, trade secrets being a source of protection for IP assets as important as patents, copyrights, design rights or trademarks.
Trade secrets offer an alternative to patenting in situations when information can be kept secret. In countries with market economy systems, ensuring fair competition is crucial in terms of stimulating research and development and supporting innovation. And, in extenso, trade secrets could mean more than that, as they could also ensure the very own survival of the business in such a competitive business environment.
With the increasingly rapid digitalization and development of cutting-edge technologies, trade secrets are also becoming increasingly relevant for many companies that want to safeguard their know-how and key business information. Thus, these IP assets can prove to be valuable bargaining chips in the context of many trade secret misappropriation events (data breach, industrial espionage, or cyber-attacks).