What are Trade Secrets?

Cite this article as: Jason Mance Gordon, "What are Trade Secrets?," in The Business Professor, updated January 23, 2015, last accessed March 29, 2020, https://thebusinessprofessor.com/knowledge-base/what-are-trade-secrets/.
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What are Trade Secrets?
This video explains what are trade secrets.

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What are trade secrets?

A trade secret is a form of intellectual property specific to individuals or businesses involved in a trade or industry. More specifically, it is any form of knowledge or information that:

•    has economic value from not being generally known to, or readily ascertainable by proper means by, others; and

•    has been the subject of reasonable efforts by the owner to maintain secrecy.

Trade secrets may include a broad range of company information, such as project or strategic plans, operational methods, customer lists, designs, and research and development.

Trade secrets are protected under common law and many states have adopted forms of the Uniform Trademark Secrets Act (UTSA). Both provide causes of action against individuals who misappropriate the information kept as a trade secret. The theory behind liability is that an individual who misappropriates the information breaches a duty of loyalty owed to the owner. Trade secret rights never expire, unless the information loses economic value or is no longer kept secret by the company.

•    Note: Competitors may legally assemble, reverse-engineer, or otherwise uncover information subject to a trade secret. The sole limitation is that a competitor cannot misappropriate the information from the holder of the trade secret.

•    Example: A trade secret could be a recipe, customer list, or strategy for carrying out a process. If Cheap-Cola reverse-engineers the Coca-Cola formula, it is free to use the trade secret in commerce without violating Coca-Cola’s rights. If, however, Cheap-Cola pays a Coca-Cola employee for the secret recipe, it would violate Coca-Cola’s rights to sell a product employing that recipe.

•    Discussion: How do you feel about the idea that a company’s private information cannot be taken and used by others? How do you think these types of protections affect industry competition? Can you think of any companies that successfully use trade secret rights in selling a product?

•    Practice Question: Jim works for Sweet Melissa’s Barbecue Sauce Company as a taste engineer. He works with combinations of spices to make the Sweet Melissa sauce line tasty. He is considering leaving the company to start his own sauce line. He developed several sauces for Sweet Melissa that he knows are not patented. He believes that he can take these recipes and develop a successful product line. Does Jim potentially face liability if he uses the recipes he developed when working for Sweet Melissa’s?

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