Shhh….it’s my trade secret.
The Coca-Cola formula. The Colonel’s Secret Recipe. Both are well-known as “trade secrets” and it also well-known that both are valuable and aggressively protected. So, what is a trade secret and what does that definition potentially mean for your business?
Wisconsin has adopted the Uniform Trade Secrets Act, which defines a trade secret - trade secret law is state-based, unlike other forms of intellectual property law. In simplified form, a trade secret is:
- information (formula, pattern, program, etc) from which your company gains specifically identifiable economic value by virtue of not being known by competitors, and
- you put reasonable efforts into keeping that information secret.
Reflecting on Coke’s formula, you can see that it’s formula provides the company with economic benefits because nobody else can reproduce the exact flavor of Coke absent the trade secret formula. Further, the formula is revealed to only a few Coca-Cola employees. Thus Coke has a trade secret.
The primary problem businesses run into with trade secret law is the second prong - reasonable efforts to maintain secrecy of the trade secret. Courts judge reasonableness based on the nature of the secret so a business generally has no way to predict what protection measures will be sufficient in the court’s eyes.
Employees are the main issue in most trade secret matters; Watergate-esque break-ins are not the real concern. Two major employee-centered problems arise: (1) whether your employees (new or not) are misappropriating the trade secrets of another business/former employer and (2) whether current and ex-employees misappropriating your trade secrets. The former subjects you to potential liability and the latter causes you to lose money and potentially need to litigate (although employee actions may not be prevented by internal rules and thus such theft is no fault of yours). For clarification, misappropriation occurs when somebody (most likely an employee) “takes” a trade secret (usually from an employer) and uses it without the owner’s consent.
When new businesses begin hiring, they are driven clarify to extreme degrees that no employee should bring in either ideas, documents, etc from former employers to use at the new job. They may also inquire into any non-compete or non-disclosure agreements the employee signed with a prior employers and, contrarily, may have employees sign new non-compete and non-disclosure agreements to protect the company’s own trade secrets.
There is no doubt that trade secrets are valuable, but they require constant tending, like a plant.
Wednesday, April 16th, 2008
