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There are different ways to protect creations of the mind, or … in other words, intellectual property – from original prints and patterns, and photography to novel elements of useful things, such as handbag or footwear designs, and the formulas that makeup various types of cosmetics. While it is generally recommended that all forms of protection – trademark, trade dress, patent, copyright, and trade secret – should be considered in such a situation, trade secret protection should be never been overlooked in connection with your protection strategy. 

Assuming that you want to protect an aspect of your business – whether it be the composition of a fragrance or a list of your most valuable customers or certain suppliers – and can reasonably keep it to yourself, trade secret protection can provide you with an effective option for protect. (It is worth noting that cosmetics marketed on a retail basis to consumers must have an ingredient list, but under the law, this list cannot be used to make a company disclose trade secrets. For example, as the FDA states, “fragrance and flavor ingredients do not need to be listed individually on cosmetic labels”, and can simply be listed as “flavor” or “fragrance,” because they are the ingredients “most likely to be trade secrets”). But what is a trade secret?

Generally, a trade secret is any information that derives economic value (actual or potential) from being a secret. The information to be protected as a trade secret must meet two requirements: (1) the information must be a secret (i.e. not public knowledge or general knowledge within an industry); and (2) reasonable efforts must be made to keep the information secret. 

Whether something is secret is relatively easy to discern. If the “secret” idea – again, that may be a list, process, formula, etc. – can be reverse engineered, then you should consider protections other than a trade secret. As for what constitutes “reasonable efforts” depends on the information to be protected, how sophisticated your company is, and the general practices for your industry. It is worth noting that “reasonable efforts” does not mean all conceivable efforts. Instead, “reasonable efforts” generally include the use of confidentiality/non-disclosure agreements, security precautions (locks, passwords, badges, etc.), and “need to know” compartmentalization of knowledge to keep information secret. 

Advantages and Disadvantages

Trade secrets have several benefits. First, a trade secret is not limited to a specific term, but can be protected indefinitely as long as the information is preserved as a secret and retains its economic value. Second, trade secrets can protect innovations that may not meet the statutory requirements for patentability or copyright. And obviously, trade secrets are not published or otherwise required to be public.

With this said, there are limitations to trade secret protection. One significant drawback to trade secrets is that they do not protect against independent development. For instance, if a competitor independently develops a process or system that is similar or identical to your trade secret – without obtaining relevant information about your trade secret inappropriately (e.g., via theft, espionage, or improper disclosure by a (former) employee) – you would be left with little to no protection (depending on whether the competitor publishes their process or system) and no options for recovery. 

You also must make ongoing “reasonable efforts” to keep the idea a trade secret. If your reasonable efforts lax, or cease, the trade secret protection can be lost.

When considering whether to maintain an idea as a trade secret, you have several factors to consider. For instance, can the new technology be kept confidential and effectively used? For example, can the technology be effectively used in a closed and secure facility? Is the technology innovative or is it an obvious application of existing technology? Will use of the new technology by others be easily detectable?

Against this background, maintaining the secrecy of a company list, process, formula, etc. may seem simple on its face, but there are several factors and measures to implement to ensure the strongest protection possible, which is important, as a company’s ability to claim trade secret protection will largely depend of whether – and to what extent – it protected such information.

As such, it is recommended that companies only disclose secret information on a “need to know” basis; maintain a written statement of their trade secret policy; treat trade secret information differently from other information (i.e., trade secrets should be kept physically separate from other information, and employees who have (and need) access to the trade secret information should be prohibited from discussing the secret information outside secure areas); implement physical security measures; remind employees and third parties of their confidentiality obligations; and proactively require non-disclosure agreements, among other things.

Aaron K. Nodolf is a partner at Michael Best, who focuses on all aspects of intellectual property law, from counseling clients as they acquire IP assets to defending against competitor claims. (Edits/additions courtesy of TFL).