What Is a Trade Secret?

Trade secrets are defined by federal law under the Uniform Trade Secrets Act (UTSA). They are forms of intellectual property and may consist of any pattern, physical device, idea, process, or formula (or a combination of those) that gives a company an advantage over its competitors. It is important to understand what kind of things can be considered trade secrets, how businesses protect trade secrets, and what the penalties are for stealing trade secrets.

What Type of Information Can Be Considered a Trade Secret?

Anything that has an independent economic value to a company could be considered a trade secret. In general, a trade secret is something that is not widely known and gives a specific economic benefit to the company that holds it.

There are various types of things that could be considered trade secrets, including:

  • Recipes and formulas (i.e. Coca-Cola’s recipe or KFC Colonel’s secret recipe
  • New inventions which the company has not filed a patent for yet
  • Manufacturing methods of goods
  • Marketing techniques that the company uses
  • A company’s customer information

Not all trade secrets are intended to be kept forever. For instance, a company may only deem something a trade secret until they are ready to reveal it to the public. If a company plans to patent their invention, then it will no longer need trade secret protections because a patent application makes the information public. A patent will also act as protection for the company so they benefit from the invention. If you have any questions about whether or not your information is considered a trade secret, consult with a knowledgeable Orange County business attorney experienced in trade secrets.

How Do Businesses Secure Trade Secrets?

There are various ways that companies keep trade secrets secure. By taking steps to protect a secret, a company not only furthers their goal of actually keeping the secret, but they strengthen their case against anyone who does steal it.

Some of the most common ways that a company may use to protect a trade secret include:

  • Storing it in a restricted area.
  • Using a strong password and network security measures.
  • Limiting the number of employees who have access to the information.
  • Make it clear to those who have access to the information that it is a trade secret, and it should not be shared with anyone, even other employees.
  • Using multiple vendors of outsourcing in order to avoid letting one company know the entire secret.
  • Using non-disclosure and non-compete agreements when legal and appropriate.

Is Stealing a Trade Secret a Crime?

Yes, the intentional theft of trade secrets can be a crime under both federal and state law. The most well-known federal law dealing with the theft of trade secrets is the Economic Espionage Act of 1996 (EEA). This law gives the US Attorney General wide authority to prosecute anyone or any company involved in trade secret misappropriation. Penalties for violating the EEA include a fine of up to $500,000 for individuals or a fine of up to $5 million for corporations. Violators may also be sent to prison for up to ten years. All property and proceeds derived from the trade secret theft could be seized and sold by the government under the EEA.

Many states also have laws in place to protect trade secrets. In California, it is a crime to disclose or use trade secrets without authorization, and violators could face a fine of up to $5,000 and be sentenced to up to one year in jail. This is considered a form of larceny in California.