Trade secret
Also called trade secrets, undisclosed know-how, confidential business information, business secret
Trade secret is information that has value because it is kept secret and that its holder protects with reasonable steps to keep it secret. The US federal definition, the EU Directive on trade secrets and WIPO all describe those two elements, together with a requirement that the information is not generally known1,2,3. WIPO describes trade secrets as intellectual property rights on confidential information which may be sold or licensed3.
A trade secret is not granted or registered. The USPTO states that trade secret protection is not granted by the USPTO or any other government authority, nor are trade secrets applied for or registered4. A patent works the other way round: it discloses the invention. See Patent disclosure.
How the law defines a trade secret
WIPO says that, in general, information qualifies as a trade secret if it is commercially valuable because it is secret, is known only to a limited group of persons, and is subject to reasonable steps taken by the rightful holder to keep it secret, including confidentiality agreements for business partners and employees3. Legal definitions differ in wording.
United States
- The federal definition covers 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, whether tangible or intangible1.
- Such information is a trade secret if the owner has taken reasonable measures to keep it secret, and the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information (18 U.S.C. 1839(3))1.
- The USPTO states that all three of its listed elements are required, that if any one ceases to exist the trade secret ceases to exist, and that otherwise there is no limit on the amount of time a trade secret is protected6.
European Union
- Article 2(1) defines a trade secret as information that meets all of three requirements2.
- First, it is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question. Second, it has commercial value because it is secret. Third, it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret2.
- Member States may provide more far-reaching protection than the Directive requires, provided compliance with the provisions listed in Article 1(1) is ensured2.
What can be a trade secret
WIPO says that, in general, any confidential business information which provides an enterprise a competitive edge and is unknown to others may be protected as a trade secret. It covers technical information, such as manufacturing processes, pharmaceutical test data, and designs and drawings of computer programs, and commercial information, such as distribution methods, lists of suppliers and clients, and advertising strategies3.
WIPO adds that a trade secret may be made up of a combination of elements, each of which by itself is in the public domain, where the combination, which is kept secret, provides a competitive advantage3. The USPTO's trade secret toolkit lists formulas or recipes, product designs, customer lists, pricing schedules, manufacturing techniques and marketing strategies as examples4.
Unlawful and lawful acquisition
United States
- Federal law defines misappropriation to include acquisition of a trade secret of another by a person who knows or has reason to know that it was acquired by improper means, and disclosure or use without express or implied consent in the circumstances listed in 18 U.S.C. 1839(5)1.
- Improper means includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means. It does not include reverse engineering, independent derivation, or any other lawful means of acquisition (18 U.S.C. 1839(6))1.
- An owner of a trade secret that is misappropriated may bring a civil action in federal court if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce (18 U.S.C. 1836(b)(1) and (c))5.
- Except as provided in section 1833(b), the federal statute does not preempt or displace other federal or state remedies for trade secret misappropriation (18 U.S.C. 1838)8.
- Remedies include an injunction subject to the limits in the statute, damages for actual loss and unjust enrichment or, instead, a reasonable royalty, and, for willful and malicious misappropriation, exemplary damages of not more than 2 times the damages awarded. A civil action may not be commenced later than 3 years after the misappropriation is discovered or should have been discovered by reasonable diligence (18 U.S.C. 1836(b)(3) and (d))5.
European Union
- Acquisition of a trade secret is lawful when obtained by, among other means, independent discovery or creation, or by observation, study, disassembly or testing of a product or object that has been made available to the public or that is lawfully in the possession of the acquirer who is free from any legally valid duty to limit the acquisition (Article 3(1))2.
- Acquisition without the consent of the holder is unlawful when carried out by unauthorized access to, appropriation of, or copying of documents, objects, materials, substances or electronic files lawfully under the holder's control, or by any other conduct considered contrary to honest commercial practices (Article 4(2))2.
- Use or disclosure without the holder's consent is unlawful when by a person who acquired the trade secret unlawfully, or who is in breach of a confidentiality agreement or other duty not to disclose it, or of a duty to limit its use (Article 4(3))2.
- Recital 16 states that the Directive should not create any exclusive right to know-how or information protected as trade secrets, and that reverse engineering of a lawfully acquired product should be considered a lawful means of acquiring information, except when otherwise contractually agreed2.
WIPO makes the same point in general terms: a trade secret owner cannot stop others from using the same information if they acquired or developed it independently, through their own R&D or reverse engineering3.
Trade secret vs patent
The USPTO says innovators will commonly consider the balance of trade secret protection and patent protection, and that the two can be complementary4. The comparison below uses the USPTO's description of US utility patents, the US DOJ and FTC licensing guidelines, and WIPO's description of trade secrets.
| Point | Patent | Trade secret |
|---|---|---|
| How protection arises | The inventor files an application and must be granted the patent by the USPTO4. | Obtained and maintained by the owner. There is no application, grant or registration4. |
| Disclosure | A fundamental function of a patent is to disclose information to the public. A utility patent discloses the invention sufficiently to allow others to make and use it4. | Kept secret. Since trade secrets are not made public, unlike patents, they do not provide defensive protection as prior art3. |
| Duration | The owner has the right to exclude others from making and using the invention for up to 20 years4, generally counted from filing and subject to adjustment or extension in some cases in the United States (35 U.S.C. 154)9. See Patent term extension. | Can be unlimited, provided the secret is protected according to legal requirements4. |
| Eligible information | The law limits what types of inventions can be patented4. | Eligibility is extremely broad and includes information that is not patentable4. |
| Independent creation | A patent protects an invention not only from copying but also from subsequent independent creation by others7. | Protection does not preclude independent creation by others7. The owner cannot stop others using the same information if they developed it independently or through reverse engineering3. |
WIPO gives an example of the consequence. If a process is protected as a trade secret, someone else can obtain a patent or a utility model on the same invention if that person arrived at the invention independently3. That patent does not always stop the earlier user. In the United States, a person who, acting in good faith, commercially used the subject matter in the United States at least 1 year before the earlier of the claimed invention's effective filing date or a qualifying public disclosure has a defense under 35 U.S.C. 273 for a process, or for a machine, manufacture or composition of matter used in a manufacturing or other commercial process, subject to its conditions and exceptions10. Other countries have their own prior-use rules, which this page does not describe. See Prior art and Patent disclosure.
Questions people ask
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Ask Eureka EngineeringDoes a trade secret expire?
Not on a fixed date. The USPTO says there is no limit on the amount of time a trade secret is protected, as long as the elements of a trade secret continue to exist6. If at any point one of the criteria is no longer met, the information is no longer a trade secret and, according to the USPTO toolkit, can't be recovered4.
Is reverse engineering a competitor's product legal?
In the US, the federal definition of improper means does not include reverse engineering1. In the EU, observation, study, disassembly or testing of a product made available to the public, or lawfully in the acquirer's possession and free of a legally valid duty to limit acquisition, is a lawful way to acquire a trade secret, and recital 16 says that reverse engineering of a lawfully acquired product is lawful except when otherwise contractually agreed2. A contract may therefore change the answer in the EU2, although recital 16 adds that this contractual freedom can be limited by law2. WIPO notes that trade secret protection varies in different countries and regions, and this page does not describe each country's rules3.
Do you have to register a trade secret?
No. The USPTO says trade secrets are not applied for or registered, and that protection is not granted by the USPTO or any other government authority4.
Should an invention be patented or kept as a trade secret?
It depends, and the sources do not give one answer. A patent discloses the invention to the public and gives a right to exclude for a limited term, while a trade secret involves no disclosure but does not stop others who develop or reverse engineer the same information independently3,4. The USPTO says the two can be complementary, for example where unpatented aspects such as proprietary software code are protected as trade secrets4. Prior use can also matter: in the United States, a good-faith commercial user of a secret process may have a defense against a later patent under 35 U.S.C. 273, subject to its conditions10.