What do Coca-Cola’s formula, Google’s search algorithm, KFC’s original fried chicken recipe, Listerine mouthwash, and the method for selecting New York Times Best Sellers have in common?  They are some of the world’s most recognizable trade secrets.

Trade secrets are confidential information that, in addition to being confidential, have independent monetary value.  Trade secrets give their owners a competitive advantage against others in the market.  A trade secret can be a method, process, formula, technology, data, or even just an idea that gives a company a leg up on the competition.  Trade secrets are not registrable (like patents, trademarks or copyrights), but they are still afforded protection under state and federal law.

What are the legal requirements for a trade secret?

Companies seeking to qualify their information as legally protected trade secrets must show that:

• The information is secret, and not well-known or easily discoverable;
• The information has independent economic value; and
• The owner has taken reasonable measures to maintain its secrecy.

Software code—like Google’s online search algorithm—is a classic example of information that can qualify as a trade secret.  Google’s algorithm has significant economic value because it is not readily known by others and generates substantial revenue for Google.  If the code underlying Google’s search algorithm could easily be copied or discovered by other search engine competitors (like Yahoo or Bing) using lawful means, it would not maintain independent value or provide Google any competitive advantage and would therefore fail to qualify as a trade secret.

What type of information can be a trade secret?

Trade secrets can be any kind of confidential information that gives its owner a competitive advantage:

• Trade secrets can be technical information: proprietary testing data, research and development techniques, inventions, designs, algorithms, drawings, formulas, or methods.
• Trade secrets can be non-technical information: pricing structures, customer or supplier lists, or marketing strategies.
• Trade secrets can be practices, methods, or processes.

One example is the process underlying the New York Times Best Seller list. The New York Times claims that its list is generated by a secret and proprietary method of grading and rating books combining sales numbers and other data.

Another historical example of a trade secret is the household staple, Listerine mouthwash.  Listerine’s mouthwash formula was developed in 1879 and was, for decades, a highly coveted trade secret.  The mouthwash formula has since been reverse-engineered, and now is well known in the industry by competitors.  Listerine can no longer claim that its publicly known formula is a trade secret.

How can one protect trade secrets?

The owner of a trade secret must take “reasonable measures” to keep the claimed trade secret a secret.  What constitutes reasonable measures can differ depending on the circumstances, e.g., the nature of the business, the type of market, the knowledge of the competitors, and the nature of the secret.  Examples of reasonable measures include:

• Non-disclosure agreements (NDAs) with customers, suppliers and employees;
• Securing the information with digital passwords, physical locks, and two-factor authentication;
• Limiting access to the information on a “need to know” basis.

In one well-known example, Coca-Cola safeguards its secret formula by keeping it in a high security vault in Geogia and disclosing the formula to only two unidentified employees.

Similarly, KFC protects Colonel Sanders’ original recipe by keeping it handwritten and stored in a 770-pound safe buried under thick concrete with heavy surveillance.

The law does not require all businesses go to extreme lengths like Coca-Cola and KFC. However, businesses must take measures that a court would consider reasonable to maintain the secrecy of their proprietary information.  Unfortunately, there is no “stamp of trade secret approval,” or authoritative body or agency that will register a trade secret (unlike trademarks, copyrights, and patents), and confirm that the secrecy measures are adequate. A business should consult counsel familiar with the body of case law in which secrecy measures have been considered and adjudicated.

Part 2 will explore the laws that protect these recognized trade secrets…

If you have any questions regarding the information covered in this blog, please contact Daniel Hoffman, John Baranello, Michelle Cho, or your primary attorney at Moses Singer.