Trade Secrets Often Overlooked When Protecting Intellectual Property

Last week, I attended the Licensing Executives Society (LES) Spring Meeting, which was held in Seattle.  The theme of the meeting was “IP Matters in Every Deal.”  What is IP?  Many people that I talk to about IP (intellectual property) assume that IP means patents.  While patents are a type of IP, patents do not comprise the entire IP universe.  IP also includes copyright, trademark, trade secret and privacy law. 

Several speakers at the LES Spring Meeting spoke briefly about the potential value of keeping information as a trade secret, instead of filing a patent application based on that information.  Applying for a patent and keeping information as a trade secret are mutually exclusive.  With certain exceptions, the United States Patent and Trademark Office (USPTO) publishes patent applications 18 months after they are filed.  If a patent is not granted, the applicant has disclosed her invention information to the public without receiving the benefit of a patent.  Depending on the circumstances, the invention information may yield more value if kept as a trade secret than if disclosed through the patent process. 

This blog post addresses two questions:

1.  What is a trade secret?

2.  How are trade secrets protected?

Unlike patent law, which is governed by federal law, trade secret law is governed by state law.  A business owner or inventor who wants to protect information as a trade secret must determine which state’s law applies to her situation.  Washington State has adopted the Uniform Trade Secrets Act.  The information in this blog post is based on Washington State trade secrets law.

1.  What is a trade secret?

‘Trade secret’ means information, including a formula, pattern, compilation, program, device, method, technique, or process that:

(a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and

(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

(RCW 19.108.010(4)).

Reading the definition of “trade secret” brings up a number of questions.  What is information that can be protected as a trade secret?  When does something have independent economic value from not being generally known to other people?  What are proper means for obtaining information?  What are reasonable efforts under the circumstances?  This last question involves the second issue addressed in this post, how trade secrets are protected.

Not all information that a company would like to keep secret qualifies for trade secret protection.  See my post Not All Organizational Secrets are Trade Secrets for an example of organizational secrets that do not qualify as trade secrets.  A trade secret provides economic value to its owner by virtue of not being generally known to other people who could benefit economically from knowing or using the trade secret.  An example of information that is usually thought of as qualifying for trade secret protection is secret information that gives your business an edge over its competitors.

Trade secrets are information that is not readily ascertainable by other people through proper means.  Other people would not be likely to discover the information on their own.  The Washington State Trade Uniform Trade Secrets Act does not define “proper means,” but defines “improper means.”

‘Improper means’ includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.

(RCW 19.108.010).

Improper means include acts of dishonesty and breaches of confidence.

2.  How are trade secrets protected?

Before a business can protect its trade secrets, the people working in the business must know of and understand what the business’ trade secrets are.  The existence of trade secrets is not always obvious.  It requires some effort to ferret them out.  Business owners must go through the exercise of determining what the business’ trade secrets are. 

Trade secret owners are required to make reasonable efforts or take reasonable measures under the circumstances to maintain the secrecy of the trade secrets.  Whether reasonable measures have been taken is context specific.  Examples of measures that can be taken to maintain the secrecy of trade secrets are developing policies regarding the trade secrets, educating employees about the existence of trade secrets and how to protect them, requiring employees to sign employment agreements that include confidentiality and non-compete provisions, securing the physical environment by requiring key card access, securing computer networks and limiting third party access to the trade secrets.

Trade secrets law is a fascinating area of intellectual property law that is often overlooked as a means of adding value to a company’s IP portfolio.  As the cost of obtaining and litigating patents skyrockets, it makes sense to evaluate the viability of trade secret protection as an option.

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