Trade secrets are invaluable assets for businesses, providing a competitive edge that often distinguishes industry leaders from their counterparts. In this article, we delve into the trade secret world, unveiling the strategies that businesses and intellectual property lawyers can employ to protect these vital assets.
Examples of trade secrets include Apple’s iOS source code, algorithms of social media platforms (which decide what we see in our feed), and gaming console hardware, like PlayStation and Xbox.
Understanding Trade Secrets
Trade secrets, as defined by legal sources such as the Uniform Trade Secrets Act (UTSA) and the federal Defend Trade Secrets Act (DTSA), encompass confidential business information that provides a competitive advantage and derives value from being kept secret. These legal frameworks characterize trade secrets as a category of intellectual property that includes a wide array of proprietary data, such as formulas, processes, designs, customer lists, and other confidential information.
According to the UTSA, trade secrets are information that is not generally known or readily ascertainable, and businesses must make reasonable efforts to maintain its secrecy. The DTSA further solidifies the definition, emphasizing that a trade secret can include financial information, business plans, and strategies, reinforcing the idea that their value lies in their confidentiality.
Trade secrets are distinct from other forms of intellectual property like patents, trademarks, or copyrights, as they are not publicly disclosed and are protected primarily through confidentiality measures and legal frameworks. The legal definitions underscore the significance of trade secrets as valuable assets for businesses, highlighting the need for adequate protection to preserve their competitive edge in the marketplace.
Trade secret protection is on the other side of the spectrum from open source. Open-sourcing technology can in some cases create economic benefit by fostering rapid innovation. Technology may scale faster if thousands of people are independently working on it.
The Importance of Trade Secret Protection
Three examples of famous trade secrets illustrate the immense economic value and strategic importance of confidential information in various industries.
Perhaps one of the most iconic trade secrets globally is the formula for Coca-Cola. The exact recipe, known only to a select few individuals at the Coca-Cola Company, has been kept confidential for over a century. The secrecy surrounding the trade secret contributes significantly to Coca-Cola’s brand identity and market dominance.
Google’s Search Algorithm
Google’s search algorithm is a closely guarded trade secret that powers its search engine, enabling the company to deliver highly relevant and accurate search results. The algorithm, developed through years of research and innovation, remains a key component of Google’s competitive advantage in the tech industry.
KFC’s Original Recipe
Kentucky Fried Chicken (KFC) is renowned for its “Original Recipe” of eleven herbs and spices, a closely guarded trade secret that defines the unique flavor of its fried chicken. The recipe has been passed down through generations and remains a closely held secret within the company, contributing to KFC’s success in the fast-food industry. The trade secret is also one reason that KFC is such a valuable company and a reason why its brand is well-known.
These examples highlight how trade secrets, ranging from beverage formulas to algorithms and recipes, are integral to the success and competitive positioning of companies across diverse sectors.
Legal Framework for Trade Secret Protection
While trade secrets rely on confidentiality, legal frameworks exist to safeguard them. In the United States, the Uniform Trade Secrets Act (UTSA) and the federal Defend Trade Secrets Act (DTSA) provide a foundation for protecting a trade secret. These laws offer remedies for the misappropriation of trade secrets and outline measures that businesses can take to secure their trade secrets.
Strategies for Protecting Trade Secrets
1. Identification and Documentation:
The first step in protecting trade secrets is identifying what constitutes sensitive information within a business. Companies should conduct thorough audits to identify and document trade secrets, ensuring that employees are aware of their significance and the importance of confidentiality. This is especially true when employees work in a bubble. They may not appreciate the information that is casually shared internally is a trade secret.
2. Employee Education and Agreements:
Employees are often the primary custodians of a trade secret. Educating them about the value of these assets and implementing confidentiality agreements are critical steps. Non-disclosure agreements (NDAs) and non-compete agreements can be powerful tools in deterring employees from sharing or other trade secret owners from using confidential information for personal gain.
3. Access Controls and Limited Disclosure:
Controlling access to trade secrets is fundamental. Limiting access to only those who genuinely need the information reduces the risk of inadvertent disclosure. Implementing technological safeguards, such as password protection and encryption, adds an extra layer of security. It should be difficult to access and share a trade secret. That’s what makes a trade secret a secret.
4. Physical Security Measures:
In addition to digital safeguards, physical security measures are equally important. Whether it’s securing a research and development facility or restricting access to a designated area where trade secrets are discussed, physical security measures contribute to comprehensive protection. Taking steps to secure a trade secret is a factor used by courts to confirm that information is in fact a trade secret.
5. Vendor and Partner Due Diligence:
Business collaborations often involve sharing sensitive information. Conducting due diligence on vendors and partners is crucial to ensuring that they have robust security measures in place to protect trade secrets. Contracts should explicitly outline the obligations and responsibilities of all parties regarding the protection of a trade secret.
6. Periodic Review and Update:
The business environment is dynamic, and trade secrets may evolve. Regularly reviewing and updating trade secret protection strategies ensures that they remain effective in the face of changing circumstances.
Enforcement and Remedies
Despite the best preventive measures, trade secrets may still be at risk of misappropriation. In such cases, legal remedies become essential. The DTSA and UTSA provide avenues for seeking injunctions, damages, and attorney’s fees in cases of trade secret misappropriation. The timely enforcement of these rights is crucial to sending a strong message about the consequences of unauthorized use or disclosure.
There was a notable trade secret misappropriation lawsuit involving Uber and Waymo (a subsidiary of Alphabet Inc., Google’s parent company).
Waymo accused one of its former engineers, Anthony Levandowski, of stealing approximately 14,000 confidential files before leaving the company to start his own self-driving truck technology company, Otto. Uber acquired Otto in 2016, and Waymo claimed that the trade secrets stolen by Levandowski were used by Uber to accelerate its autonomous vehicle development.
Waymo contended that Levandowski downloaded sensitive files, including details about Lidar technology, a key component of self-driving vehicles. Waymo asserted that Uber’s use of this technology constituted trade secret misappropriation, claiming that Uber gained an unfair competitive advantage by incorporating Waymo’s proprietary information into its autonomous vehicle systems. In other words, Waymo alleged that Uber’s use of the tech was prohibited by trade secret law.
The case went to trial in February 2018 but was settled before completion. The trial could have made new trade secret law. Uber agreed to pay Waymo $245 million in Uber equity as part of the settlement. Additionally, Uber pledged not to incorporate Waymo’s confidential information into its hardware and software. While the settlement ended the trial, it didn’t necessarily resolve the broader issues surrounding the alleged trade secret misappropriation.
The Uber-Waymo case had far-reaching implications for the development of autonomous vehicle technology and the protection of trade secrets in the tech industry. The settlement underscored the significance of intellectual property and the potential consequences of misappropriation in the competitive race to develop cutting-edge technologies.
The case highlighted the importance of robust safeguards against trade secret misappropriation, especially in industries where innovation is rapid and valuable intellectual property is at stake. It served as a reminder for companies to implement stringent measures to protect their proprietary information and for employees to respect the confidentiality agreements they sign during their employment. Employment agreements typically have trade secret provisions.
When tech companies hire new employees, they should have systems in place to ensure they do not inadvertently or intentionally violate trade secret law.
While the legal resolution may have concluded with the settlement, the case left a lasting impact on the autonomous vehicle industry and contributed to ongoing discussions about the ethical and legal boundaries in the competitive pursuit of groundbreaking technologies.
In the fast-paced and competitive business landscape, a trade secret can play a pivotal role in maintaining a competitive edge. Trade secret protection requires a multi-faceted approach, combining legal frameworks, employee education, technological safeguards, and ongoing vigilance. By implementing the strategies outlined in this article, businesses can navigate the intricate landscape of trade secret protection and safeguard their intellectual property for long-term success.