The Basics of Trade Secrets

Major League Baseball (MLB) pitchers do not use brand new baseballs. They need a solid grip to prevent wild pitches, and out-of-the-box baseballs are too slick. So to prepare a baseball for game use, an equipment manager rubs it with mud to scuff the surface and improve grip.¹ But not just any mud will do. Lena Blackburne Baseball Rubbing Mud — named for the Philadelphia Athletics third base coach who discovered it — is the only substance known to provide the right grip without damaging or discoloring the ball. This mud is rubbed on every ball used in every MLB game.

Mr. Blackburne discovered this mud somewhere along the banks of the Delaware River in the 1930s. Yet the exact location of this mudhole is still not publicly known, as Mr. Blackburne and his successors have kept it a secret over the years. Indeed, Mike Rowe agreed to a blindfold before he was allowed to visit the mudhole in the pilot episode of Dirty Jobs. Depending on the reasonableness of the efforts made to keep this secret, the location of this high-quality mud may constitute a trade secret.

Almost every business, no matter its size or industry, has potential trade secrets. Trade secrets give businesses an edge over competitors, constituting valuable intellectual property (IP) rights that can be enforced in court if misappropriated by others. But what are trade secrets, and how can trade secret owners protect these valuable IP assets from misappropriation?

This article answers five commonly asked questions about trade secrets.

What is a trade secret?

Although the precise definition varies by jurisdiction, a “trade secret” generally is information that (1) derives independent economic value from not being generally known to or readily ascertainable by proper means by others and (2) has been subject to reasonable measures to maintain its secrecy. Trade secrets are enforceable under both state law and federal law (through the Defend Trade Secrets Act 18 U.S.C. § 1836, et seq).

Just about anything that took time and effort to develop — even compilations of publicly available data — can be a trade secret if it derives its value because it is secret and generally not known to the public. The recipe for Coca-Cola, the location of Lena Blackburne’s mud, and search engine algorithms are all examples of trade secrets. Source code and other non-public know-how can also constitute trade secrets. Trade secrets do not have to be technical. Business information, such as a company’s profitability, cost, and revenue information; future product development and business plans; and even a simple customer list can qualify as trade secrets.

What does it mean to be “secret”?

Information is secret when it is not generally known to or reasonably ascertainable by others.

Information susceptible to reverse engineering or that can otherwise be “figured out” without much effort is readily ascertainable and, therefore, not a trade secret. Similarly, information that is common knowledge (e.g., within a specific industry and among people with particular know-how) is also unlikely to be considered secret.

Trade secrets may lose their secrecy if they are accidentally disclosed to the public, such as by inadvertently being shared on a company website or elsewhere on the Internet. In fact, failure to take any steps to preserve secrecy may alone be enough for a court to determine that no secret exists.

What are “reasonable measures” to maintain secrecy?

Information alleged to be a trade secret must also be the subject of reasonable measures to preserve its secrecy. The issue of “reasonable measures” is context-dependent, and thus looks different in every situation. Generally, more precautions mean better trade secret protection and, therefore, a greater likelihood that those efforts will be found “reasonable.”

Despite this ambiguity, one thing is certain: Trade secret holders must do something to protect their trade secrets if they want to preserve their right to bring misappropriation claims in court. Otherwise, a trade secret lawsuit may not survive an early motion to dismiss. Courts will not readily enforce an alleged trade secret where not even the trade secret holder invested in protecting it.

What can I do to protect my trade secrets?

First, identify your trade secrets. What do they consist of, and what are their boundaries? Once identified, communicate them only on an as-needed basis and in a manner that ensures that any recipients know they are trade secrets. Have recipients sign non-disclosure agreements (NDAs) and include confidentiality provisions in other contracts where applicable. Employees, contractors, suppliers, collaborators, and customers are a few examples of individuals who may be exposed to your trade secrets and should be required to sign NDAs and confidentiality agreements.

Other steps trade secret owners may take to preserve their assets include:

• Labeling trade secrets as such
• Password-protecting trade secret information on computer systems
• Locking tangible trade secrets in safes
• Requiring badge access to locations where trade secrets are stored
• Using cameras and alarm systems and restricting visitor access

Trade secret owners must pay particular attention to employees, as they may receive sensitive information regularly as part of their job. A common source of trade secret misappropriate is an employee who leaves to work for a competitor and takes their former employer’s trade secrets with them. Employers should consider taking the following additional steps with respect to employees:

• Implement a formal onboarding program to protect your trade secrets with guidelines for employees that last the duration of employment.
• Formalize exit interviews, emphasizing that trade secret information must be returned to the employer and deleted from personal devices.
• Consider hiring someone whose job it will be to enforce the program and guidelines.

How are trade secrets different from confidential information?

While all trade secrets must be kept confidential, not all confidential information can qualify as a trade secret. Indeed, “confidential information” is more loosely defined and encompasses a broader set of information than “trade secrets.” Trade secrets are afforded greater protection by the courts than confidential information. But to earn that protection, trade secret owners must satisfy the more specific requirements outlined above.

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Your business may have trade secrets that constitute valuable IP. But they can be easy to overlook. Understanding how to maintain trade secrets and effectively guarding them against misappropriation is crucial to maintaining their value.