Trade secrets are among a business’s most valuable assets. Understanding what qualifies as a trade secret, how to protect it, and the remedies available when it is misappropriated is essential to preserving its value.
Trade Secrets vs. Patents, Copyrights, and Trademarks
Trade secrets are one of four major forms of intellectual property protection, and businesses often confuse them with — or fail to consider the tradeoffs against — the other three.
| Protection | What it covers | Duration | Public disclosure required? |
| Patent | New, useful, and non-obvious inventions, processes, or designs | Generally, about 20 years from filing (utility patents) | Yes, full disclosure in exchange for a period of exclusivity |
| Copyright | Original works of authorship, such as writing, code, art, and music expressed in a tangible medium | Generally, the life of the author plus 70 years | Registration is public, though protection attaches upon creation |
| Trademark | Words, names, symbols, or logos identifying the source of goods or services | Indefinite, with continued use and periodic renewal | Yes, use in commerce is inherently public |
| Trade secret | Confidential, valuable business information | Indefinite, so long as secrecy is maintained | No — protection depends entirely on maintaining secrecy |
Unlike the other three forms of protection, trade secret law involves no registration process and no fixed term. Its protection can, in theory, last forever, but it also evaporates if the information becomes publicly known.
What is a Trade Secret?
Both Minnesota and Federal law provide legal protections for trade secrets. Under the Trade Secrets Acts [1], trade secrets include, among other things: formulas, patterns, compilations, programs, devices, methods, techniques, processes, financial, business, scientific, technical, economic, and engineering information that: (i) derives independent economic value from not being generally known or readily ascertainable by others; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Courts distilled these definitions into four elements and consider whether: (1) the information is not generally known or readily ascertainable; (2) it provides a competitive advantage; (3) it was developed at a cost to the owner; and (4) the owner intended to maintain its confidentiality.
Is the Information Known or Readily Ascertainable?
A trade secret must not be generally known or readily ascertainable by others in the industry. Information that is publicly available, easily discovered through proper means, or commonly known, is unlikely to qualify for trade secret protection.
Consider questions such as: Has the information been posted online? Has it been disclosed in marketing materials? Is it available through published articles? Could a competitor independently discover or reverse engineer the information without a significant effort or investment?
The more difficult the information is to obtain through legitimate means, the more likely it is to qualify as a trade secret.
Does the Information Provide a Competitive Advantage?
A trade secret must provide independent economic value because it is not generally known. In other words, the information should give the business an advantage over competitors who do not possess it.
For instance, does the information help the business operate more efficiently, reduce costs, improve products or services, attract and retain customers, or provide the business with another measurable advantage?
It is also worth distinguishing genuine competitive advantage from an employee’s general skill or knowledge. Courts have recognized that an employee’s accumulated expertise, judgment, or know-how, such as the kind of general proficiency a skilled worker carries from job to job, is not, by itself, a trade secret. The competitive-advantage inquiry focuses on discrete, identifiable information tied to the business itself, not on the general competence of the people who use it.
Did the Owner Invest in the Trade Secret?
Courts also consider whether the owner invested money, resources, or time to develop the information. Information created through substantial research and development is more likely to receive trade secret protection than information that is easily or inexpensively compiled.
Documenting research and development costs, tracking the time employees spend developing proprietary processes, and retaining records of failed approaches or abandoned prototypes can all become valuable evidence later if litigation arises. A business that can show years of iterative investment behind a formula or process is in a far stronger position than one that can only say the information is valuable in an abstract investment.
What Efforts are Required to Maintain Secrecy?
One of the most important factors in trade secret protection is whether the owner took reasonable steps to maintain its secrecy. Best practices for keeping trade secrets confidential include requiring employees and contractors to sign non-disclosure or confidentiality agreements, watermarking, or stamping files as confidential, limiting access to sensitive information, using password protections for digital files, and implementing internal policies regarding use of confidential information.
While formal agreements and policies are best practices for preserving trade secrets, they are not the only way to maintain secrecy. For instance, employees, officers, and business partners owe a common law duty of confidentiality and fiduciary duties to their business partners and employer that can suffice to protect trade secrets. Courts also acknowledge that some disclosure is necessary for a business to operate. For example, sharing confidential information with a manufacturer for a legitimate business purpose does not necessarily destroy trade secret protection, provided the disclosure is limited.
What Protections are Available for Misappropriation?
The Trade Secrets Acts provide powerful remedies for the theft or misuse of trade secrets. When a trade secret is misappropriated, the owner may seek:
- Injunctive relief, which allows a court to stop actual or threatened misappropriation, and can include a defined “head start” injunction period designed to strip away any competitive advantage gained through improper use of the secret;
- Monetary damages, including actual losses caused by misappropriation, damages for unjust enrichment, royalties, and punitive damages; and
- Attorneys’ fees.
Because trade secrets can lose their value quickly once disclosed, businesses should act quickly if they suspect their trade secrets have been misappropriated. If you have questions about preserving your trade secrets or concerns that your trade secrets have been misappropriated, please feel free to contact the authors.
[1] Minnesota Uniform Trade Secrets Act (Minn. Stat. § 325C.01, et. seq.) and the Federal Defend Trade Secrets Act (18 U.S.C. § 1831, et. seq.) (collectively, “Trade Secrets Acts”)
