Trade Secrets Defined
There is not one single definition, as each state has its own version, and the Defend Trade Secrets Act (the only Federal statute governing trade secret protection) has its own. Generally speaking, however, a trade secret can be: 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 which the owner has taken reasonable measures to keep secret & this information derives actual or potential value by not being known outside the organization. Most projects towards the end of their R&D lifecycle are trade secrets because they have inherent value to the company and have not yet been made public by the patent prosecution (filing an application for approval) process.
Trade Secret Frequently Asked Questions (FAQ)
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A trade secret is the only form of IP that is unregistered with any authority; therefore, trade secrets are never “designated” as trade secrets until such time that enforcement rights are litigated. Trade secrets are know-how kept secret to protect the inherent value of it from discovery & use by others. A patent is publicly registered with the USPTO (United States Patent Trademark Office) and must provide detail on exactly what the item or process being patented consists of, as well as schematics and design details. All that information resides in a searchable online USPTO database & leaves every patent open to potentially being copied with some changes, in a manner which may not violate the patent protections. Trade secrets also have no expiration date. They maintain their value as trade secrets as long as they continue to provide competitive advantage to the owner and remain secret. WD40 and Coca-Cola are two famous trade secrets which are decades old.
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The detailed nature of information required to submit a patent application means that an owner/inventor must reveal every aspect & nuance of the intellectual property they are trying to patent. Because the UPSTO database is easily searchable, this allows others to see that information & make attempts to copy and develop a substantially similar creation of their own. A patent application may also be rejected outright – they frequently are – leaving the owner/applicant with zero protection from either a patent or the protection of having kept the information closely-held as a trade secret. Generally speaking, companies should file for patent protection of something that, once released/sold to the customer, would be relatively easy to reverse-engineer.
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Almost every company has a few trade secrets, some have many. Those companies with a significant patent portfolio almost always have a robust trade secret portfolio as well, but it is very likely that those assets have neither been identified as trade secrets and valued. The reasons for this are beyond the scope of this FAQ.
The most valuable trade secrets are those that have the most potential to drive earnings or save money due to the efficiencies they bring, and that took a lot of time and resources to develop. The more valuable the trade secret, the better the security needs to be around that asset. Because trade secrets are only a “litigation right” as an unregistered form of IP, there is no set-in stone pre-determination as to what is a trade secret. However, for over a century, much of the case law in the US has relied heavily on the 6-factor litmus test.
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There are several established accounting methods for determining the value of trade secrets, all of which are used for tax reporting and strategy, M&A, and other purposes on a daily basis. In layman’s terms, generally these methods contemplate the amount of time and money a company spends developing the unique know-how that is the trade secret (including the “negative know-how" that is created by the wrong turns made along the way to the ultimate product), PLUS the expected future sales or savings over the expected useful life of that asset, discounted based on competitive and market forces and then brought to net present value.
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Yes, now it can. Crown Jewel® Protector is the first insurance policy ever devised to insure the value of a trade secret. The Trade Secret Asset Risk Management (TSARM) process prepares the Insured to enforce and litigate following a covered loss. Crown Jewel® Insurance will help you identify the trade secret, quantify the value – historic and ongoing, recommend an insurance solution, provide ongoing dark web security monitoring, will attempt recovery of the asset/injunctive relief/damages/criminal prosecution – first as a part of “respond and recover”, and then via subrogation as necessary.