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Putting the 'Secret' in Trade Secret
Part of the reason U.S. firms are struggling to protect IP is a widespread misunderstanding of what a trade secret is, and what legal protection it possesses.
A trade secret is a type of IP that represents an organization's intangible assets. Unlike tangible assets such as land, buildings, office equipment or manufacturing equipment, intangible assets cannot be seen or touched and are created not by physical materials but by human labor or thought.
According to the Uniform Trade Secrets Act (UTSA), trade secrets include formulas, patterns, compilations, program devices, methods, techniques or processes. They also can be diagrams and flow charts, supplier data, pricing data and strategies, source code, marketing plans and customer information. So varied are the things that can be considered trade secrets that your employees may not even know when they are handling them.
For organizations that depend heavily on commercializing the product of their R&D activities, trade secrets are particularly important. Patents are equally important, but trade secrets differ from patents in a significant way. They are--as their name implies--secret. Whereas patents represent a set of exclusive rights granted by the government in exchange for the public disclosure of an invention, a trade
secret is internal information or knowledge that a company claims it alone knows, and which is a valuable intangible asset.
While patent owners have certain legal protections from anyone using their patents without permission, companies are responsible for proving they have the right to legal protection of their trade secrets. According to the UTSA, your company must demonstrate that the specific information or knowledge is not generally known to the public, therefore it derives independent economic value; and that you have made reasonable efforts to make sure the knowledge remains secret.
A trade secret's validity can only be proven via litigation; there's no automatic protection just because your company believes it possesses one. Ironically, a trade secret must be stolen or compromised before you can attempt to demonstrate it is legally a trade secret. Once in litigation, your company must convince the court of three points: secrecy, value and security. Inevitably, the most difficult element to demonstrate is that your company had reasonable controls in place to protect the secrecy of the IP in question.
"A successful prosecution requires that you prove you took sufficient steps to protect your trade secrets," says Joseph Schadler, an FBI special agent. "This includes everything from putting banners on computers, to having secure logons, to requiring NDAs [non-disclosure agreements], to controlling physical access to a room."
This was first published in May 2007