9 Top Trade Secrets You Need to Protect Now

by Revision Legal

Revision Legal

In practice, a trade secret can be pretty much anything. The federal Trade Secrets Act, 18 U.S. Code § 1839(3), defines a “trade secret” as:

… all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if—

(A) the owner thereof has taken reasonable measures to keep such information secret; and

(B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.

Despite the fact that almost anything can be a trade secret, some types of trade secrets are more common and typical than others. Here are the most common types of trade secrets that you need to protect.

1. Secret Recipes

Every major food and beverage company has trade secrets related to recipes and cooking processes. Coca-Cola, for example, protects its secret recipe safely locked away in a custom-built vault at the World of Coca-Cola, the company’s museum in Atlanta. See report here.

As this Forbes article details, Coke had the FBI investigate and prosecute some former employees for trying to steal some of Coke’s secret recipes. Ironically, competitor Pepsi, Inc. turned in the would-be-trade-secret-thieves. The defendant got eight years in prison.

Other famous example include KFC’s secret recipe of 11 herbs and spices for its original recipe fried chicken, the formula various Heinz condiments, and the formula for WD-40.

2. Manufacturing Processes

Manufacturing processes are among the most common examples of trade secrets. One of the most historically famous example is the secret of harvesting the silkworm’s thread. This was discovered in 2700 BC or so. The Empire of China kept the method secret for hundreds of years and the secret formed the economic foundation of the famous Silk Road Trade Route from China to modern-day Turkey. The Empire made revealing the secret process punishable by death, as well as trying to take silkworms and eggs out of the Empire.

An interesting modern example involving broccoli seeds comes from this trade secret case Caudill Seed & Warehouse Co, v. Jarrow Formulas, 161 F. Supp. 3d 513 (W.D. Kentucky 2015). In that case, two competitors were litigating competing trade secrets claims with respect for methods of removing a chemical called myrosinase from broccoli seeds. Myrosinase is an additive in certain types of herbal dietary supplements. The plaintiff used a process to remove the myrosinase by soaking the seeds in water and then drying the extract. The competitor simply used broccoli powder at lower temperatures so that the myrosinase did not lose its effectiveness.

It is likely that every business has a protectable trade secret that is a process or method of accomplishing some part of its business.

3. Research and Development, Including Failed projects

Again, this one is almost stereotypically considered a “trade secret.” Many overlook the commercial value of failed R&D projects. In much the same way as the vending example, when you discover what does not work, that is valuable because a competitor knowing that has a “leg up.” As another Forbes Magazine article explains with respect to WD-40:

“In the case of WD-40 , the product’s name comes from the 40th try by scientists in 1953 to come up with a “water displacement” formula for a rust-prevention solvent and degreaser for the aerospace industry. Not only is that formula a trade secret, but so are the formulas and work that went into the preceding 39 attempts. If a competitor learned about those failed attempts alone, it might still save a lot of research and development time.”

4. Client and Customer Lists

It has become well-known that client and customer lists are valuable trade secrets. Customer/client lists are one of the most common claims made in trade secret misappropriation cases. A quick case law search shows that in 2017 alone, no less than 150 cases were filed in state and federal courts where it was alleged that customer lists were misappropriated as trade secrets.

5. Client Buying Habits

As valuable as customer contact information is, client buying habits are even more valuable. Remember, the touchstone of a “trade secret” is information that has “commercial value”; that is, if the information was known to your competitor, your competitor could undercut your marketshare.

Take a mundane example of a vending business. You have a snack and drink machine at the nearby firehouse. Over the months and years, through trial and error, you have learned that the firefighters and the other first responders and employees like plain chips, bbq-flavored chips, and cheddar-cheese flavored chips, but otherwise, not much will sell. That is commercially valuable information because a competitor will have to go through the same trial and error to learn the same information about the buying habits of the folks using the vending machines at the firestation. Your competitor will lose money like you did at first trying to sell nacho-flavored chips, cheese puffs/crunchies, hot and spicy flavors, etc. The same reasoning applies to all the items in the vending machines: Coke or Pepsi? Hershey’s or Nestles or Mars or Dove brand chocolate?

6. Rare and Unique Vendors/Suppliers

In a similar manner as client lists, information about unique vendors and suppliers has large potential commercial value. Obviously, vendors and suppliers that are easily located on the internet do not fit this category. Having sources for rare and unique raw materials, goods, and services is a competitive advantage.

7. Software Algorithms/Programs

Famously, Google, Inc. has, over the years, refused to trademark, copyright, or seek patent protection on any of its search engine algorithms because, in each case, Google would have to publicly disclose the information. Google would rather protect the information as trade secrets.

The tech industry landscape is littered with countless other examples.

A similar trend can be seen with driverless car technology. Here again, Google and its spin-off subsidiary Waymo are involved in a high-profile legal fight with Uber with respect to trade secrets for driverless cars. See news report here. Google/Waymo alleges that 14,000 pages of secret data and information about Google’s driverless car technology was stolen by a former Google employee. That employee was working for Google and it is alleged that Uber was using the trade secrets to develop its own driverless car technology. At its core, the Google argument is the same as every other trade secret dispute: The information will give a competitor a “leg up” or “jump start” into the marketplace.

8. Behavioral Data on Well-Known Vendors/Suppliers

Just like your customers and clients, your suppliers have certain habits and common behaviors. These might include price discount practices, grace periods for payments, time-lags between orders and delivery, negotiation strategies and histories, etc. If your business has kept track of that type of information. If you have kept that information secret, then such information is a “trade secret” even though it relates to vendors and suppliers who can be readily identified from public information.

9. Genetic Information

Genetic data is another unusual type of information that is now widely recognized as a “trade secret” if steps are taken to keep the information secret. This is holding of a case filed by Del Monte against Dole with respect to a pineapple variety developed by Del Monte that was sweeter and contained more vitamin C, fiber, color, and a milder texture than “normal” pineapples. See Del Monte Fresh Produce Co. v. Dole Food Co., 136 F. Supp. 2d. 1271 (S.D. Fla. 2001).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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