How Are Trade Secrets Protected?

To start with, we should define trade secrets. Essentially a trade secret is any commercial information that is valuable, and it derives that value by virtue of it’s being kept secret. So some examples of trade secrets include product formulations, financial information, databases, customer lists.

The 11 secret herbs and spices recipe, and the Coca-Cola recipe, are examples of effective trade secrets.

Trade secrets are distinct from patents, which essentially protect inventions, in a number of ways. So in terms of the actual subject matter, there’s really no limit on the kinds of information that you can protect as a trade secret, which definitely is different from patentable subject matter, which must be defined in a specific way. The only important thing is that the trade secret is not in the public domain and that it can be kept secret.

Another clear distinction is that the subject matter of patent has to be disclosed. So by its very nature, it’s not a trade secret once it’s out there and in the public. And obviously the quid pro quo for a patent holder is that it gains monopoly for a period of time.

A company might choose to maintain a trade secret rather than seek patent protection for a variety of reasons. That might be because subject matter wasn’t patentable in the first place. And an example of that would have to be a customer list or financial information or a business method. Sometimes formulas and recipes are not patentable either.

In the pharmaceutical world, for example, there’s a lot of pre-invention trial information and data but it’s highly valuable, but you can’t get a patent for it. But because it’s highly valuable, it really should be kept secret. In these modern times though, it can be challenging to keep trade secrets secret. The most obvious challenge is that of technology, which is a double-edged sword. Because of the incredible ease with which information can be stored and copied and transmitted and communicated, that gives rise to quite a high risk of data loss or theft or even hacking.

Another challenge in keeping a trade secret is that sharing and collaboration between different entities is becoming increasingly common in the modern world. So there needs to be a clear delineation between what parties can have access to what information. So whose trade secret is it and who’s allowed to access it. And if you’re collaborating with another business, doesn’t mean it’s a free for all.

As a result, loss or theft of trade secrets is becoming more prevalent and more costly in the modern world. Even though there are remedies available at law to take action when in a breach of confidence, for example, or a breach of contract that involves leaking of trade secrets, that doesn’t necessarily present the best remedy for a business, because it may not compensate them for the damages that have incurred. And to give the famous example of secret herbs and spices. Once the cat is out of the bag, the loss really can’t be measured. So the best remedy is always prevention. As far as trade secrets are concerned, you want to keep them secret, otherwise they just don’t have value to you any more, and the more valuable the trade secret, the more important it is to protect it.

To protect trade secrets the first step is to identify what they are within your business. And that might sound obvious, but it’s surprising how many businesses don’t have a trade secret or confidential information list or inventory. So that’s the first step, identify what your trade secrets are and to know where they are.

Where viable, limit disclosing the secret to as few people as possible. Only those that truly need to know should receive the secret. Any and all persons receiving the secret should sign appropriate agreements that ensure they must comply and continue to keep your trade secret.

The next step is to have policies in place, to make sure that your staff are aware of what the policies are and have regular training in those policies so that they can never say that they weren’t aware of the policies if they happen to breach them. Not that you want them to breach them, but of course they’ll be much less likely to if they know what the policies are. If your staff need to know your trade secret, they should also sign appropriate agreements in line with your policies.

Thirdly, make sure that your policies and your procedures around protection of trade secrets are implemented effectively. This means making sure that the secrets are stored effectively, whether that’s through physical means or technological means or both, and to make sure that access is limited only to those who need to access the information.

Finally it’s important to have plans in place to quickly action a suspected breach or a threatened breach. So make sure you know who would get notified and what steps would be taken to prevent theft or further leaking or further communication of secrets. And that might be through technological means or otherwise.

It’s important to note that in Australia you do not register trade secrets although they can form a valuable part of your company’s intellectual property assets. Keeping something as a trade secret is not always fool proof. It does not prevent, for example, a competitor reverse engineering your product, recipe, formula or other confidential information. However, ensuring appropriate agreements and policies are in place will at least provide you to take action against any person that has breached that agreement if necessary.

The ‘penalty’ for breaching an agreement relating to a trade secret could be enormous depending on the information that’s been disclosed without authorisation, and the culpability of the party that committed that offence. The Court may decide to issue hefty damages against a party that has leaked a trade secret.

Different countries may have different laws governing trade secrets. If you’re not sure the most effective way to protect your trade secrets in Australia please contact us and we would be happy to assist.