Trade secrets, what is it?
The Uniform Trade Secrets Act (“UTSA”) is a piece of legislation created by the Uniform Law Commission (ULC). The USTA defines trade secrets and describes claims related to trade secrets. What are Trade Secrets?
The USTA defines a “trade secret” as:
- Information, including a formula, pattern, compilation, program, device, method, technique, or process that:
- Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
- It is the subject of reasonable efforts under the circumstances to maintain its secrecy.
Trade secrets may take a variety of forms, such as a proprietary process, instrument, pattern, design, formula, recipe, method, or practice that is not evident to others and may be used as a means to create an enterprise that offers an advantage over competitors or provides value to customers. Trade secrets are defined differently, varying from jurisdiction to jurisdiction, but should all have the following characteristics in common to qualify as being a trade secret. They must not be public information. Their secrecy ensures an economic benefit to their holder. Their secrecy is actively being protected.
In some jurisdictions, trade secrets are also known as confidential information. This confidential information is very significant for the business world. It is similar to top-secret documents of the government that are guarded by the governmental institutions. In the United States, trade secrets are defined and protected by the Economic Espionage Act of 1996 and also fall under state jurisdiction. As a result of a 1974 ruling, each state may adopt its own trade secret rules.
The federal law defines trade secrets as “all forms and types of” the following information:
All the financial, business, scientific, technical, economic, and engineering information can be defined as types of trade secrets, and this can also include patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, and codes. Different jurisdictions deal with trade secrets differently. Some consider them property, while others have declared them an equitable right.
What are the examples of trade secrets?
There are many famous and real-life examples of trade secrets. The secret ingredients for KFC’s original recipe were originally kept in Colonel Sanders’ head. He eventually wrote the recipe down, and the original handwritten copy is in a safe in Kentucky. Only a few select employees know the recipe, and they are bound by a confidentiality agreement. Similarly, the secret formula for Coca-Cola, which is believed to be locked in a vault, is a perfect example of a trade secret that is a formula or recipe. Since it has not been patented, it has never been revealed.
Listerine is a popular example of a trade secret used in law schools. The inventor licensed the secret formula to Lambert Pharmaceuticals. Lambert (now Pfizer) made royalty payments to the inventor’s family for over 70 years, even though the formula was revealed during that time.
Pfizer tried to stop payments after paying over $22 million for a formula that was no longer secret. It sued, saying it was no longer responsible for licensing fees. The court ruled that the contract did not stipulate that payments could be stopped if the trade secret was legitimately discovered by others, especially since Pfizer had acquired the formula when it was still secret and derived a competitive advantage from it.
The special sauce recipe was a trade secret, so secret it got lost in the 1980s during reformulation. Nobody noticed it missing until an executive wanted to bring the original back. Fortunately, McDonald’s was able to retrieve the recipe from the original person or company that originally produced the sauce, as the recipe was still in the records.
To sum up
Companies should inventory their trade secrets, utilize all reasonable means to preserve them, and examine the various legal tools to safeguard these precious assets as trade secrets become more relevant in the corporate sector, the legal community, and society at large. LegaMart is your assistance in your legal issues.
