Business Law: What Constitutes a Trade Secret?

 

The last article in this series provided a general overview of trade secret misappropriation and remedies.  This article will focus in more detail on what constitutes a trade secret.

Legal Background

Trade secrets are intellectual property protected under the law.  They are defined under California Civil Code §3426.1 as information, including a formula, pattern, compilation, program, device, method, technique, or process, that both:

• Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and
• Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

 

Stated more succinctly: “The test for trade secrets is whether the matter sought to be protected is information (1) which is valuable because it is unknown to others and (2) which the owner has attempted to keep secret.”  Whyte v. Schlage Lock Co. (2002) 101 Cal. App. 4th 1443, 1454 citing ABBA Rubber Co. v. Seaquist (1991) 235 Cal. App. 3d 1, 18.

So what are examples of trade secrets?  Potentially protectable trade secrets include:

• Customer lists
• Business relationship lists
• Manufacturing processes or techniques
• Product information
• Inventions prior to a patent
• Recipes (i.e., for a soft drink)
• Designs
• Formulas
• Patterns
• Business plans
• Marketing strategies
• Computer programs or techniques
• Software

 

This is but a small sampling of protectable trade secrets.  The law does not provide for a formal exhaustive list of trade secrets.  Therefore, legal analysis is required to determine if the information, process or technique constitutes a potential trade secret.

To use a business’ customer list as an example, the list must both derive independent economic value and be the subject of efforts to protect its secrecy to constitute a protectable trade secret.  Following this example, if a business were to create a list of customers which it utilized to sell specific products and kept secret, the list would most likely be a protectable trade secret.  Therefore, if an employee or competitor were to take the list and use it for their own financial gain (e.g. by using the list to derive business), then there would be a potentially actionable lawsuit for trade secret misappropriation.

In another example, if a company were to develop a recipe for a product (such as a soda) which it kept secret and sold in the marketplace, that recipe would likely be a protectable trade secret.  If a competitor were to unlawfully acquire the recipe and use it for their own financial gain, there would be an unlawful misappropriation.  The law would allow for the company who developed the recipe to seek damages and an injunction against the competitor.

Conclusion

To summarize, many different types of information, patterns, recipes or techniques can constitute a protectable trade secret under the law.  If you believe you have a protectable trade secret, you should contact an attorney to see how you can best protect it, and / or possibly make a formal registration of the intellectual property in the form of a patent or copyright.  The attorneys at Kramer Holcomb Sheik are experienced in trade secret protection and enforcement, and routinely advise clients relative to intellectual property rights and considerations.