Guide to Intellectual Property: What is a Trade Secret?

What is the world’s most heavily guarded secret? It just might be the formula for Coca-Cola, which is now housed at the World of Coca-Cola, having been transferred there in 2012 from a vault at SunTrust Bank in Atlanta, where it had been kept since 1925. This formula is a trade secret —confidential business information that provides the business with a competitive edge. Of course, not all trade secrets are famously locked away in vaults. Read on to learn more about trade secrets, the latest topic in the National Inventors Hall of Fame’s “Guide to Intellectual Property” blog series.
 

What can be considered a trade secret?

Laws in most U.S. states define a trade secret as any formula, pattern, physical device, idea, process or compilation of information that both provides the owner of that information with an advantage in the marketplace, and is managed in a way that demonstrates the owner intends to prevent the public or competitors from learning about it, stealing it or using it.

This definition covers a broad array of intellectual property (IP), ranging from food and drink recipes and computer algorithms to marketing strategies and manufacturing techniques. A trade secret may also be an invention that has not yet been patented.

How are trade secrets managed?

Trade secrets are established and managed in much different ways than the other types of IP we’ve covered in this blog series, including copyrights, trademarks and patents. A trade secret does not need to be registered in any way to be effective, and there is no time limit on its protection.

However, there are some conditions you must keep in mind if you believe you have business information that can be considered a trade secret. The information must not be generally known by or accessible to people in your business who typically deal with such information, it must have commercial value in its secrecy and it must be managed with reasonable efforts to keep it secret. These efforts may include labeling related documents as “confidential,” ensuring adequate computer security and keeping the information locked in a safe.

 If you have a trade secret, you should also keep in mind the disadvantages of this type of IP. A trade secret is more difficult to enforce than other forms of IP, and the kind of protection afforded to trade secrets is comparatively weak and can vary from country to country. It is also important to note that a competing business may discover and patent the very same information you’d developed and maintained as a trade secret.

What is an IP portfolio?

A company’s IP portfolio — the collection of all the IP assets owned by an organization — is a valuable, powerful business tool. Often, IP represents one of the largest asset classes held by a company, and when a business adds to its IP portfolio, it enhances its competitive edge in the marketplace and increases the likelihood that the business will be both profitable and sustainable.

If your business continuously builds and maintains a robust IP portfolio, it can prevent competitors from launching products or services that could surpass your own, allow you to license your IP to third parties to increase your revenue stream, and help you to maintain your brand’s favorable perception in the marketplace.

To learn more about the value of IP, we encourage you to explore the rest of NIHF’s “Guide to Intellectual Property” series, which next will cover IP’s role in entrepreneurship.