Trade Secret Basics
It’s common for many people to have secrets known only to them or very few people. These people are always a privileged few who have, one way or the other, earned the privilege of this information. The same applies to some, if not most, of the global conglomerates worldwide. It is called TRADE SECRET.
A trade secret is a classified practice or development method in a company that is only accessible to a few people, mainly within the company’s core circle, and inaccessible to the general public. This classified information gives the company a marketing advantage over its competitors.
A trade secret is often the result of several months or years of research, development, test-running, and improvement. Every brand knows that if it can stand out from other brands in a distinctive manner, it will have a better competitive advantage.
Laws governing Trade Secrets
The Economic Espionage Act of 1996, as described in Chapter 90, Title 18, Part I, of the United States Code, governs the definition and protection of trade secrets in the United States. Furthermore, due to a 1974 proceeding, trade secrets are subject to state jurisdiction, allowing each state to create its laws on trade secrets.
A trade secret is different from a patent in that it must be kept secret, and the company’s ability to keep it confidential is the key to protecting its competitive advantage. Unlike a patent, a trade secret is not something you can entirely stop another company from using if they can come up with that information through their personal research and development or market research.
Patterns, formulae, designs, recipes, prototypes, procedures, software, and computer codes are all examples of forms that trade secrets might take. The public will be completely unaware of these because of their unique characteristics. But in whatever shape it takes, it has to;
- Be Classified
- It must hold a financial for the developer
- It must be in active protection
Examples of Companies with trade secrets
The popular Coca-Cola drink is a trade secret, and the company has registered it as such instead of a patent to ensure that the ingredients of this worldwide beverage do not become public domain.
It became the talk of the town when Pepsi reported to Coke officials that three people, one of whom was an employee of Coke, had tried to divulge the information to the company. This proves the Espionage Act of 1996 because using such information could later lead to a catastrophic loss for Pepsi.
The company’s sauce recipe is a classified document describing the ingredients and how to mix them properly. It was reported lost but later retrieved from its original maker.
Google has created and is constantly improving its search algorithm. Just a few modifications have been disclosed. If Google wants to prevent companies and individuals from manipulating its algorithm, it will continuously update its top-secret algorithm.
Without any controversy, Google’s search engine has proven itself continually and remains today’s leading search engine.
New York Times has refused to make its best-seller criteria public. From the look of things, its definition cuts across some classified facts, not just the number of books sold.
This formula is so protected that it is mixed in three countries before being sent to the manufacturing partners. WD-40 was developed after a series of 39 processes, all of which are trade secrets. The chemist who developed the product kept the formula secret for a few years before it was sold to a company.
Protecting Trade Secrets
A company can keep its trade secrets by ensuring its staff sign a “NON-DISCLOSURE AGREEMENT.” An NDA is a contract between a company and its staff that solidifies their working relationship by preventing such employees from making public any confidential information given to them by the company because of the work demands it in the case where an employee bridges the contract and offers this confidential information to a competition. The company is free to press legal charges against such an employee or such group of employees.
Pros of Trade Secrets
- Unlike patents, which generally last 15-20 years before being made public, a Trade Secret can last forever if the company can keep it confidential for that long.
- Trade Secrets have no registration cost.
- Trade Secrets involve a process where you do not have to disclose the information.
Cons of Trade Secrets
- Even though they do not have any registration costs, they have a high protection cost.
- If the secret becomes public, others will be free to use it and even patent it.
- If the process of keeping the Trade Secret is not monitored correctly, it can lead to the loss of that trade secret and a massive loss for the company.
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