This post was written by Kosta Martikas, a recent graduate of the University of San Diego School of Law. Kosta has a strong interest in business and corporate law which he advanced through his law school education and position as the President of the Business Law Society.

Trade secrets are important business assets that contrary to popular belief, are not exclusive to Fortune 500 companies.  Your business may have information that you aren’t aware could qualify as a trade secret.  A trade secret can be any information used in the operation of a business that is both valuable and secret, giving the business a competitive advantage over others.

Coke, a Great Example

One of the world’s best kept trade secrets, and a great example of a trade secret, is the recipe for Coke. The common ingredients for Coke are listed and available, however, the proportion of the ingredients used and how they are combined is a secret recipe.  That recipe  has become beloved and affords Coke a competitive advantage over other soda brands.  Coke has maintained this advantage by actively protecting the recipe for over one hundred years.

What Constitutes a Trade Secret

Whether something will be considered a trade secret will depend upon the particular facts and circumstances of the secret. A wide range of information has been considered a trade secret including bidding systems and data, business forms, customer lists, design manuals and drawings, design specifications, financial information, food and dessert recipes, formulas, manufacturing plans and strategies, pricing information, and testing data. Additionally, information about what does not work can constitute a trade secret if it would give the competition an advantage they would not have otherwise had.

Protecting Trade Secrets

If adequately protected, trade secrets can potentially be kept forever (look at Coke going 100 years strong!)  However, the key is you must adequately protect your trade secrets from becoming known.

One effective and commonly used way to protect your trade secrets would be to properly incorporate a non-disclosure agreement in an employment contract. (Pss…contact us for help with that) Additionally, you should ensure the employee understands the confidential nature of trade secrets, their duties to guard trade secrets, and the consequences of failing to do so.

A written agreement should also be obtained from any person or company which you plan to disclose trade secrets, such as contractors, business partners, suppliers, vendors etc.

Bottom Line

Invest in protecting your trade secrets now to prevent a major financial loss in the future.