What are trade secrets & how can they be protected?

Most people are familiar with registered forms of intellectual property, such as patents, trade marks and designs.

Although they are often overlooked and sometimes not even recognised as a form of intellectual property, unregistered trade secrets can actually be some of your most valuable assets. Almost every company has them.

Recent advances in trade secret law across many jurisdictions have made this method of protection increasingly important to understand, implement and manage.

In this article… #

1. What is a trade secret?
   1. The benefits of trade secrets
   2. Drawbacks and pitfalls of trade secrets
2. Should I choose a trade secret or a patent?
3. How do I protect trade secrets?
4. What happens if a trade secret is stolen?
   1. What happens if a trade secret gets out?
   2. Trade secrets and AI

What is a trade secret? #

A trade secret is confidential business information that has economic value precisely because it is not publicly known.

If the information provides a competitive edge and you take reasonable steps to keep it secret, it can qualify as a trade secret.

The confidential information protected by trade secrets can take many forms, including:

• Technical information, such as formulas, algorithms, manufacturing processes, source code, designs and product development plans
• Commercial information, such as customer lists, supplier lists, pricing information, financial information and market research
• Know-how, such as methods of calculating costs, internal processes and knowledge about how a product or service is developed

Some of the world’s most famous and valuable trade secrets are the Coca-Cola formula, the KFC spice recipe and aspects of Google’s search algorithm.

As long as they are kept secret, trade secrets can last indefinitely. There is no formal registration or renewal process.

Trade secrets are protected by laws which vary by jurisdiction, but generally provide for civil and criminal remedy against anyone who unlawfully acquires, uses or discloses a trade secret without authorisation.

Whether or not a trade secret exists is established when action is brought for misappropriation. At this point, the owner must be able to prove that the information was secret, valuable because it was secret, and that practical measures were taken to maintain its secrecy.

The benefits of trade secrets #

Most fundamentally, a trade secret helps you to secure a competitive advantage by safeguarding unique information that sets you apart from competitors, without having to apply for a registered right. This exclusivity can boost your market position.

Trade secrets offer a number of advantages:

• They last indefinitely, as long as the information remains secret
• They do not require registration, making them quicker and often more cost-effective than traditional IP rights
• They avoid public disclosure, giving businesses greater levels of control
• They protect a wide range of information, including technical information, commercial information and business know-how
• They can be licensed or shared commercially to third parties, provided appropriate steps are taken to maintain confidentiality

For many businesses, a well-managed portfolio of trade secrets can be attractive to investors.

Drawbacks and pitfalls of trade secrets #

Success lies completely in your ability to keep the information secret. If you lose this confidentiality, you may lose the protection of the trade secret.

Some key risks of trade secrets include:

• Accidental disclosure, such as information being shared too widely or without a non-disclosure agreement in place
• Employee or contractor misuse, especially if access controls and confidentiality obligations are not clear
• Poor internal controls, such as failing to mark confidential documentation or inadequate training for staff
• Reverse engineering or independent discovery, where a competitor lawfully works out the information for themselves
• Cross-border issues, as there are jurisdictional variations in how trade secrets are treated

Should I choose a trade secret or a patent? #

For many inventions, this is the core strategic choice.

A patent will give you a monopoly for up to 20 years, but the process involves publishing the invention as part of the examination and granting procedure, as well as paying renewal fees.

A trade secret does not require registration, has no formal cost and can last indefinitely, but only if the information is kept secret.

Your information may lend itself to being held as a trade secret if:

• It is difficult to reverse-engineer
• Competitors are unlikely to discover it themselves
• It has commercial value beyond 20 years
• It is internal information that does not need to be made public
• The asset does not meet the criteria for patentability

So if you judge that others are unlikely to arrive at your invention and you think it has long-term commercial value, trade secret protection could be the way to go.

Patent protection may be a more suitable avenue for an invention if:

• It is likely to be copied once it reaches market
• It can be worked out by examining or reverse-engineering the product
• You want a registered right which can be enforced, even if a competitor arrives at the invention independently 
• You see public disclosure is a fair trade for 20-year exclusivity
• Tax incentives (like Patent Box) or licensing plans make protection a commercially-attractive decision

Bear in mind that many later-patented inventions start their life as a trade secret, but timing is important.

Many businesses adopt both approaches, for example by patenting the core invention but keeping supporting know-how (methods, manufacturing processes) confidential.

An IP professional can help you navigate these choices.

Read more: To patent or not to patent? 

How do I protect trade secrets? #

Trade secrets require active management. If you don’t take reasonable steps to keep the information confidential, it can be difficult to rely on protection later.

This process is completely internal and typically involves a number of careful practical measures, depending on the nature of the information. This typically includes a mix of:

• Organisational measures, such as staff training, internal policies, access controls and robust procedures for handling confidential information
• Legal measures, for example NDAs, confidentiality agreements and clear contracts with employees, contractors, suppliers and commercial partners
• Technical and physical measures, such as password-controlled databases, encryption, audit trails and secure storage

Record-keeping is important. A business should be able to show what the trade secret is, who has access to it, when (and how) it was acquired, and what steps have been taken to protect it. This can be used in any later legal proceedings over its misuse.

Given the biggest risk to trade secrets is departing employees, contractors and third-party partners, this protection and information should be reviewed regularly.

A professional IP attorney with expertise in identifying and managing trade secrets can help you to develop and maintain a framework for implementing these measures.

Trade secrets and AI #

It is highly ill-advised to enter confidential business information into public AI tools – they can put your inventions at risk.

These tools often use user input for training and feedback purposes. Some models store prompts and documents in ways that might not be consistent with the information remaining secret.

This presents a clear risk of loss of control, making it difficult to show that reasonable steps were taken to protect the trade secret.

The same issue applies to patent applications – public disclosure before filing can be novelty destroying.

What happens if a trade secret is stolen? #

Trade secrets are protected in different ways across jurisdictions. In recent years, the direction of travel has been towards clearer and stronger legal protection.

In the UK, the Trade Secrets Regulations 2018 provides a clearer statutory framework for protecting trade secrets against unlawful acquisition, use and disclosure.

The EU Trade Secrets Directive has similarly harmonised trade secret protection across EU member states, giving businesses a more consistent basis for enforcing rights.

If a dispute arises, the court will assess whether the information was secret, whether it had commercial value because of its secrecy and whether reasonable steps were taken to maintain this secrecy.

Penalties for unlawfully acquiring, using or disclosing a trade secret can include damages, injunctions to prevent further use or orders requiring the material to be destroyed.

In some cases, the misuse of a trade secret can give rise to claims for breach of contract or breach of confidence. In particularly serious cases, it can amount to criminal conduct such as theft or computer misuse.

What happens if a trade secret gets out? #

If a trade secret is made public, it is likely to lose the secrecy that gives it economic and legal value. This can be impossible to restore, meaning the information can no longer be protected as a trade secret.

One course of action may be to seek urgent action to prevent further disclosure, or to look at patent protection. However, this may be challenging, particularly if information has been made public.

Other solutions may be to find ways to maintain the economic value of the patent, potentially involving other uses or marketing the information as a product or service.

The best approach, of course, is prevention – identifying trade secrets early and managing them robustly. Here, an IP professional can help.

Discover your IP worth with Murgitroyd #

If you are curious about how trade secrets might apply to your business, a good place to start is an IP audit.

We will help you to identify, audit, protect and secure your trade secrets, as well as help you navigate the core strategic choice around whether to patent an invention or keep it a trade secret.

Our specialists will also work with you to put in place the necessary administrative, legal and technical measures to safeguard the information.

Your trade secrets are safe with us. Talk to us today