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Most business owners are at least passingly familiar with trademarks, copyrights, and patents. There is another type of IP, however: trade secrets. This category is widely misunderstood.

However, companies such as Coca-Cola, DuPont and Kentucky Fried Chicken have their businesses around trade secrets. All three of these commercial juggernauts rely on this type of exclusive intellectual property – their secret recipes – to maintain their business advantages in their respective industries.

When it came to protecting the recipe for Coca-Cola, the process for creating Lycra®, and the identities and ratios of the 11 secret herbs and spices in Kentucky Fried Chicken’s seasoning, those companies chose to protect that intellectual property by treating them as trade secrets.

A trade secret is any commercial information in a party’s possession that is not publicly known but would be valuable to other parties. This obviously covers a lot of material, including product designs, business plans, and customer lists. Not every piece of information that a company wants to keep “secret” is eligible for trade secret protection: information in the public domain, for example, would not be eligible.

Generally, though, if a competitor’s acquisition of information would benefit their business, that information is eligible for trade secret protection.

Recognizing the Need for Alternative IP Protection

On the federal level, the United States is obligated by various international trade agreements to protect trade secrets through its laws. On the state level, most states have adopted some version of the Uniform Trade Secrets Act (UTSA), enacted in 1979 to provide an alternative means for companies to protect intellectual property without having to apply for a patent.

Much intellectual property that is eligible for trade secret protection also would be eligible for other types of IP protection, such as a patent. However, applying for a patent could reveal that intellectual property to the public. Successfully securing that patent would grant the patent holder a time-limited monopoly — 20 years from the filing date of the patent application – but once patent protection expires, the monopoly lifts and the public – and competitors – can use that intellectual property at will.

A trade secret, by comparison, has no time limit. Coca-Cola’s recipe, for example, has been a closely guarded secret for more than a century – so secret, that it is locked in the vault at the World of Coca-Cola in Atlanta.

Designating a piece of intellectual property as a trade secret costs nothing and requires no filings or registrations with a government agency. Effectively using trade secret protection, however, relies largely on the ability to keep the information truly secret.

Protecting the ‘Secret Ingredient’

Consider this hypothetical example: You run a chain of ice cream shops. You’ve recently developed a flavoring compound that is getting rave reviews from customers, and you’ve begun marketing the newly flavored milkshakes under a new, premium brand name. Under some circumstances, we might advise you to seek a patent for your flavoring compound. That would ensure that no competitor could develop an identical (or even closely similar) compound and use it to begin flavoring their own milkshakes. If anyone attempted to do so, you could be entitled to seek licensing fees and/or damages from them.

If, however, you opted not to patent your flavoring, you could still afford it legal protection by claiming it as a trade secret. If a competitor somehow managed to acquire the recipe for your flavoring and began using it, and if you could prove that they acquired it illicitly, a court may award you damages and require the competitor to refrain from further disclosure of your trade secret.

However, there are circumstances in which a competitor legally can acquire your trade secrets. We will examine those in more detail in a future blog post.

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Panitch Schwarze commits the time to listen to and evaluate each client’s unique needs so we can advise on the best forms of IP protection.