Trade secrets must demonstrate three essential elements:
Below are brief discussions of these 3 prerequisites for obtaining legal protection for trade secrets.
Commercial information is considered secret if it is not generally known within a particular industry. The formula for Coca-Cola is perhaps the most frequently mentioned example of a trade secret, thanks to the ubiquity of Coca-Cola and the lore surrounding the company’s purportedly extraordinary efforts to maintain its secrecy by limiting access to it to one or two executives, and securing it in an enormous safe ostentatiously displayed in the Company’s headquarters.
Even if more than one company or small group maintain the same confidential business information, that information may be protected as a trade secret as long as it is not more broadly known within the industry. For instance, when Johann Böttger discovered the method to manufacture porcelain in Meissen, Germany in the 18th Century, by locating his workshop in a fortress on a hill he was able to maintain his method as a trade secret for many years until a disloyal employee used his technique to build a competing business.
To be legally protectable, secret information must be capable of providing a commercial advantage to those who legitimately know it. For example, if an engineer at a pharmaceutical company discovers a more effective micro-encapsulation technique for a particular compound, this technique, if kept confidential, would offer his company a competitive advantage in the market for the drug in question.
Negative information can also qualify as a trade secret. If, for instance, a pharmaceutical company legitimately learns of an impending shortage of a biological ingredient sourced for one of its drugs, and this information is not generally known or discernible within the industry, this information provides the pharmaceutical company a competitive advantage. By stockpiling the soon-to-be scarce ingredient, the company, unlike its competitors, will be able to continue to manufacture and sell the drug.
Suppose the CEO of your company confided in you her plans to raise salaries across the board, or plans to reconfigure the office, or her knowledge of a developing romantic relationship between two employees, and asked you to keep this information secret. This sort of information may be secret and sensitive, but it does not imply any commercial advantage, and is not legally protectable as trade secret.
The law requires the owner of a trade secret to take “reasonable measures” to maintain secrecy for information to obtain legal protection. In a misappropriation claim, however, whether an owner’s measures were “reasonable” is a question judges and juries decide, based upon the circumstances of a particular dispute.
In recent years defendants have prevailed in over half of trade secret disputes, not because plaintiffs failed to establish that defendants misappropriated secret information, but rather because plaintiffs failed to establish that the misappropriated information was trade secret as they had not taken “reasonable measures” to maintain its secrecy.
Ascertaining whether measures are “reasonable” courts consider whether the measures go beyond normal business security practices. For example, if Pfizer were developing a potential blockbuster drug, the company’s limiting access to labs, meetings, and data sources involved in the development to the same 100,000 employees who have access to the company’s elevator bank or cafeteria, could not be considered reasonable. In this case, Pfizer would have had to go beyond reliance upon such a basic security provision, and implement additional physical (locked doors, desks, etc.) and electronic (passwords, limited computer networks) measures to have them deemed “reasonable”.
Many trade secret misappropriation cases are brought by companies against former employees whom, they claim, absconded with the companies’ trade secrets, often to benefit competitors they are now working for. To meet the “reasonable measures” requirement companies, particularly those with deep intellectual property assets (e.g., info tech, biotech, pharma), would be expected to have in place robust non-disclosure and non-compete policies by which their employees are legally bound.