Intellectual Property Law Knowledge Center

3 Ways a Competitor Can Legally Acquire Your Trade Secrets

October 1st, 2015

By John Simmons, Esq.

Trade secrets are a form of intellectual property protection that are distinct from patents, with which they are often confused. A trade secret is any information that is known to you, but not to others, that gives you a commercial advantage.

A competitor that illicitly obtains a company’s trade secrets may be liable to legal penalties, provided the company can demonstrate that the information was misappropriated by the competitor.

It’s important to remember, however, that designating a piece of information as a trade secret does not guarantee your company exclusive use of that information. Unlike other forms of IP protection, which offer degrees of monopoly over the assets they cover, there are avenues by which competitors can legally appropriate your trade secrets.

Here are three important ways:

  • Independent discovery. If a competitor manages on their own to devise a process or method that is more or less identical to your trade secret, they have no obligations to refrain from using that discovery or to compensate you for it in any way. This highlights the most important difference between trade secret protection and patent protection. Patent protection maintains your exclusivity to use the invention or business method, even if someone else comes up with it later. Trade secrets do not.
  • Reverse engineering. To return to our previous example, let’s say you run a chain of ice cream shops and a competitor purchased one of your milkshakes. Rather than drink it, they instead bring it back to their company laboratory and somehow break it down into its raw materials. In the process, they discover the ingredients that you’ve been using to make your special flavoring and now have the ability to duplicate it in their competing milkshakes.
  • Your own carelessness. The Uniform Trade Secrets Act stipulates that a trade secret’s owner must take reasonable precautions to protect the secret from disclosure. In other words, if you’re not doing a very good job of keeping your “secret” a secret, then the law isn’t going to regard it as a secret, either. For an extreme example, let’s suppose that secret milkshake flavoring recipe is stored in an electronic document on one of your file servers. Due to a glitch in your IT systems, the recipe is inadvertently displayed on all the video menu boards at your ice cream shop, where the public can see it (and photograph it or write it down) for several minutes. Evidence of such a mishap would probably eliminate the recipe’s trade secret protections.

Remember that the onus is on the holder of the trade secret to prove that the secret information was wrongly acquired by the other party. For some types of secret information, such as an engineering schematic for proprietary product, this is pretty clear. For others, it is more difficult.

Every situation is different, and we encourage you to call our office to discuss your specific matter with one of our intellectual property attorneys who is experienced in protecting trade secrets – which isn’t always straightforward.

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