What are the Steps to Create and Protect a Trade Secret?
Unlike other forms of intellectual property, like patents or copyrights, there is no formal registration process for creating a trade secret. Instead, the act of keeping the information confidential and taking reasonable steps to safeguard it creates the applicable rights.
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What is a Trade Secret?
A trade secret is information which derives independent economic value from being not generally known or readily ascertainable through proper means. Think the secret formula for Coca-Cola. Specifically, the Uniform Trade Secrets Act (UTSA) defines a “trade secret” as “information, including a formula, pattern, compilation, program, device, method, technique, or process that” derives independent economic value from its secrecy and has reasonable precautions taken to protect from its unauthorized dissemination.
How do you Create a Trade Secret?
As seen above, a trade secret is defined expansively, and any form or type of information can be one so long as: (1) the owner of the trade secret has taken reasonable measures under the circumstances to keep the information secret; and (2) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.
The second prong, that the information derives independent economic value from not being generally known or ascertainable, is essentially inherent in the secret itself and will arise in the natural course of business. For example, a sales business needs to develop customers, and in the regular course of business will create lists of actual or potential customers. This list, however, is only valuable if the business’s competitors don’t have it as well. Were a competitor to obtain the list, they could just undercut the business and steal these customers. In this way, the list derives its value from not being known by the competitors, but the business did not do anything outside of simply creating what it needed to operate.
Therefore, it is the first prong which really allows a business to “create” a trade secret. Continuing our sales example, regardless of the secret status, the sales business will create customer lists. And while the list may derive value from being secret inherently, the business must take reasonable measures under the circumstances to in fact keep this list secret if it desires such to obtain trade secret status. Thus, as a business develops secrets of its trade in its operation, which grant some competitive advantage, it must take these reasonable measures if it wishes to retain such advantage.
What are Reasonable Measures to Protect a Trade Secret?
There is no catch-all method for properly guarding any trade secret, and what is reasonable is contextual. The burden on a business to keep its secret confidential operates on a sliding scale with how important the secret is. Expectedly, the more valuable and confidential the secret, the more safeguards will be needed to be reasonable. Good practices include only disseminating the information to employees who need to know the information, restricting access methods, avoiding publication to third parties, and bolstering cybersecurity measures.
Any business seeking to protect its trade secret should be aware of what trade secret status protects and how to reasonably ensure this protection is afforded.
For more information on trade secrets and intellectual property in general, see our trade secret services practice page.
Klemchuk PLLC is a leading IP law firm based in Dallas, Texas, focusing on litigation, anti-counterfeiting, trademarks, patents, and business law. Our experienced attorneys assist clients in safeguarding innovation and expanding market share through strategic investments in intellectual property.
This article is provided for informational purposes only and does not constitute legal advice. For guidance on specific legal matters under federal, state, or local laws, please consult with our IP Lawyers.
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