Do I have a trade secret, confidential information or patentable subject matter? (Part 5 of Trade Secret Series)April 4, 2016

In this fifth installment of the Filewrapper® series on trade secrets we begin to dive into the differences between confidential information, a trade secret and patentable subject matter. Here is a hint—they are not mutually exclusive. Moreover, the decision to should protect an asset as a trade secret as opposed to a patent may be a difficult one. 

This post follows previous postings on the role and value of trade secrets (available here), assessing the value of trade secrets (available here), an overview on the current protection schemes available for trade secrets in the U.S. (available here), and a discussion on proposed federal trade secret legislation (available here).

Let’s start by making sure we are dealing with a trade secret. Trade secrets come in many forms, such as your customer lists, data, secret recipes and/or methods of manufacturing, to name a few.  Any information that you or your company develops (or acquires) that provides a competitive advantage by virtue of its secrecy is generally understood to refer to a trade secret or an asset that could be protected as a trade secret. However, just because you are not generally sharing the information with third parties does not in and of itself create the trade secret—that just makes it confidential information. The trade secret arises by your actions to maintain its secrecy and therefore its value as some sort of a competitive advantage. Remember that the Uniform Trade Secrets Act, which has been adopted by a majority of states, requires that the trade secret information provide an economic value to an owner as a result of its secrecy AND that the owner take reasonable measures to maintain its secrecy.

The key difference between confidential information and a trade secret is the degree in which you (successfully) maintain secrecy of the business-related information to protect it is a trade secret asset. For example, you may consider information related to your product pricing or employee wages to be highly confidential, however it is not a trade secret as the information has most likely failed to be protected in such a way to ensure it never becomes publicly available or otherwise available in the marketplace. Simply put, when you merely label something as trade secret this does not alone afford the information such status without further action.

A better example of confidential information rising to the level of trade secret is the company’s preferred product formulation (or mechanical processing of the product) which is maintained as proprietary to the company and never shared, disclosed or otherwise shown to third parties to prevent others from using the same formulation (or processing thereof). This is only a single example of a trade secret—there are countless more! As a result, there is no all-encompassing definition of what constitutes a trade secret. The qualification depends most heavily on how you treat the information to maintain its secrecy.

Recall that even if such a product formulation (or mechanical processing method) is initially identified as a trade secret, there is no guarantee this will remain as such. As previously mentioned, trade secrets can remain as such indefinitely, so long as they remain secret. At one extreme, a trade secret could remain as such forever. However, this will likely never happen, as a trade secret will lose its status as soon as the information becomes available to the public. Maintaining a trade secret can be both time consuming and costly (as will be discussed in a future posting . . . stay tuned).

As a result of the difficulty in maintaining a trade secret, many turn to the protections afforded under patent law. Patents provide a limited term of an exclusionary right—20 years from the filing date of the patented invention. The quid pro quo for such exclusionary right is that you must fully disclose your invention (such as the product formulation or mechanical processing method). Filing for patent protection is the precise opposite of maintaining a trade secret as you are enabling another skilled person to make and use your invention. Patents provide another mechanism for competitive advantage in that you enable a competitor with your information without granting them the right to practice your invention during your exclusionary period.  Given the difficulty in maintaining trade secrets, patents are often viewed as a more favorable way to obtain a commercial advantage.

Notably, companies often protect information (or related information) in an overlapping fashion. It is quite possible to have highly confidential information (e.g. disclosed under non-disclosure agreements (NDA)) that relates to either a patented invention or a trade secret. Similarly, it is possible to maintain trade secrets that relate to a patented invention.  You will often see this in agreements that refer inclusively to “intellectual property,””trade secrets,”and “other confidential information.‚¬  In such instances it is important to ensure that these categories are sufficiently defined so they can be accurately segregated (in particular if you are the recipient of such allegedly multi-faceted information).  These types of protection are clearly intertwined. Companies seeking to protect (and subsequently) enforce rights are best suited to maintain both “confidential information”and under certain circumstances “trade secrets.”However, as trade secrets are not for the faint of heart, patents are often pursued. For many it is simply too difficult to maintain absolute secrecy (or least very strict secrecy) that is required for trade secrets.


Stay tuned for the next Filewrapper® post in this series, where steps to protect trade secrets are discussed.

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