Trade Secret: How to Protect Your Business’s Competitive Edge

Trade Secret: How to Protect Your Business’s Competitive Edge

Author: Ian Aldridge, Progressive Legal

trade secret

As a business owner, you understand the importance of maintaining a competitive edge in the marketplace. One way to achieve this is by using trade secrets. A trade secret is confidential information that is not generally known to the public and that provides a competitive advantage to a business. This article will discuss what trade secrets are, provide examples of trade secrets, and explain how businesses can use them effectively. 

A trade secret is a type of intellectual property, it is a type of confidential information relating to a method, process, recipe, device, machine, technology or knowledge that is used by a business. A trade secret is protected by intellectual property rights. These rights may be sold or licensed.  

Trade secrets are valuable assets for businesses, and it is important to take steps to protect them from disclosure.   

What constitutes a trade secret?

Trade secrets give a business an advantage over its competitors. Thus, trade secrets are often protected by law.  

To be considered a trade secret, information must meet three criteria: 

  1. It must be secret: The information must not be generally known or readily accessible to the public. 
  2. It must have commercial value: The information must give the business a competitive advantage. 
  3. It must be subject to reasonable efforts to keep it secret: The business must take reasonable steps to keep the information confidential, such as using non-disclosure agreements and limiting access to the information. 

Trade secrets are a type of intellectual property that businesses use to protect their confidential information. Unlike patents, trademarks, and copyrights, which are registered with the government, trade secrets are not registered or publicly disclosed. Instead, businesses rely on legal agreements, such as non-disclosure agreements, to protect their trade secrets. 

Examples of trade secrets include customer lists, manufacturing processes, technical designs, and formulas for products. Trade secrets can also include business plans, financial information, and marketing strategies. Essentially, any information that is not generally known to the public and that gives a business a competitive advantage can be a trade secret. 

What are trade secrets in Australia?

In Australia, trade secrets are protected under the common law of confidential information. This means that businesses can rely on legal agreements, such as non-disclosure agreements, to protect their trade secrets. The Australian government has also enacted legislation, such as the Competition and Consumer Act 2010, to prevent the misuse of trade secrets and other forms of confidential information. 

Why should you keep a trade secret confidential?

The unauthorised acquisition, use or disclosure of such secret information in a manner contrary to honest commercial practices by others is regarded as an unfair practice and a violation of the trade secret protection. 

Trade secrets are often protected by law, because the business feels like they would lose competitive advantage if the information was made public. There are many benefits to keeping your trade secrets confidential. Here are just a few:

  1. You maintain an edge over your competition; 
  2. Your employees stay loyal because they know the information is confidential; 
  3. Customers feel like they’re getting something special when they buy from you; and 
  4. The information can be used as leverage in negotiations. 

What is an example of a trade secret? 

One famous example of a trade secret is the formula for Coca-Cola. The formula for the soft drink has been kept secret since it was first created in 1886. Although the ingredients are listed on the label, the exact amounts and methods of combining them are not disclosed. The formula is kept in a vault at the Coca-Cola headquarters in Atlanta, Georgia, and only a handful of people have access to it. 

Another example of a trade secret is the recipe for KFC’s fried chicken. The recipe has been kept secret since the 1940s and is known by only a few people in the company. Other examples of trade secrets include the algorithm that Google uses to rank search results, the manufacturing process for WD-40, and the recipe for Mrs. Fields’ cookies. 

Here are 10 great examples of trade secrets in business:

  1. The formula for Coca-Cola;
  2. The recipe for KFC’s fried chicken;
  3. The algorithm that Google uses to rank search results;
  4. The recipe and process for making Lea and Perrin’s Worcester sauce;
  5. The software code for Adobe Photoshop;
  6. The manufacturing process for WD-40;
  7. The design of Apple’s iPhone;
  8. The recipe for Bush’s Baked Beans;
  9. The process for making Pampers diapers; and
  10. The recipe for Toblerone chocolate.

Trade secrets are typically guarded more carefully than other forms of intellectual property, such as trade marks. The reason for this is that trade secrets have the potential to give a company a competitive advantage in the marketplace.  

While there are many different types of information that can qualify as a trade secret, some common examples include formulas, recipes, patterns, devices, and code.  

Due to the potentially sensitive nature of this information, companies take steps to protect their trade secrets by keeping them under tight security. This can involve physical security measures, such as locked doors and safes, as well as non-physical measures, such as restricting access to certain individuals. 

How can businesses use trade secrets effectively?

Trade secrets can be an effective way for businesses to protect their confidential information and maintain a competitive edge. Here are some tips for using trade secrets effectively: 

  1. Identify your trade secrets: Identify the confidential information that gives your business a competitive advantage. 
  2. Protect your trade secrets: Use legal agreements, such as non-disclosure agreements, to protect your trade secrets. 
  3. Limit access to your trade secrets: Limit the number of people who have access to your trade secrets, and use physical and digital security measures to protect them. 
  4. Train your employees: Train your employees on the importance of protecting trade secrets and the consequences of disclosing them. 
  5. Monitor for breaches: Monitor for breaches of your trade secrets and take swift action if a breach occurs. 

Key takeaways

A trade secret is a valuable piece of information that gives you an edge over your competition. It could be anything from the recipe for a popular product to the process for building a particular item. 

By understanding the elements of a trade secret and how to prevent theft or leaking of this information, you can protect your business’s competitive advantage. To keep your trade secrets safe, it’s important to understand the different types of trade secret and take steps to secure them.  

Progressive Legal assists with protecting your Intellectual Property and our experienced IP Lawyers and help if you believe your trade secret has been compromised. Give us a call or fill out the contact form on this page to discuss your options with our lawyers. 

Trade Secrets FAQs

What are the different types of Trade Secrets?

A trade secret can include technical information, (e.g.  information about manufacturing processes, designs, drawings of computer programs, pharmaceutical test data) and commercial information (e.g., clients, suppliers, distribution methods, and advertising strategies). 

A trade secret can also be comprised of a combination of elements where each element considered individually itself is in the public domain, yet a combination of those elements gives a competitive advantage and is kept secret. 

Other examples of information that have not been discussed above that may be protected by trade secrets are formulas, source code, recipes, and financial information. 

What kind of protection does a Trade Secret offer?

Generally speaking, trade secrets are legally protected by the broader concept of concept of protection against unfair competition or legislation or case law regarding the protection of confidential information. 

Some examples of unfair practices regarding trade secret information are industrial or commercial espionage, breach of contract, or breach of confidence.

Note that the owner of a trade secret can’t stop others from the use of the same commercial or technical information if the information was developed or acquired independently by themselves through: 

  • their own R&D 
  • reverse engineering 
  • marketing analysis, etc. 

Trade secrets are not made public. As such, they don’t provide “defensive” protection such as being prior art. For instance, if a particular method of producing “Mixture A” is protected by a trade secret, someone else can get a patent or a utility model on the same invention if that person arrived at that invention independently. 

How can you legally protect a Trade Secret?

In order to ensure that your trade secret remains confidential, you need to have a plan in place for protecting your trade secrets. This includes implementing physical and electronic security measures, as well as training employees on how to properly protect sensitive information. Protecting your trade secrets is essential for maintaining your competitive edge in today’s challenging business environment. 

So, what can you do to safeguard your trade secrets against theft or misappropriation? Here are a few tips:  

  • Use a Non-disclosure agreement (NDA) 

An NDA should be signed by employees and business partners preventing them from disclosing a trade secret.  

  • Non-compete agreement (NCA)  

An NCA should be signed by employees, consultants, and contractors to prevent these parties from entering in competition with your business after their employment/service agreement ends. 

  • Robust IT security infrastructure and document accessibility  

An example of this would be encrypting emails containing sensitive information, use passwords etc., making sure only those who need to know about certain information have access to it. Also, regularly reviewing your security measures to ensure they’re up-to-date and effective. 

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