Trade secret
A trade secret is business information, like a formula, process or customer list, that has value because it is kept secret and is reasonably protected.
What it means
A trade secret is business information that gets its value from not being generally known and that the owner takes reasonable steps to keep secret. Classic examples are recipes, manufacturing processes, source code, pricing models and customer lists. Unlike patents, trade secrets are not registered and can last indefinitely, but only as long as they stay secret.
In the US, trade secrets are protected by state law, with most states having adopted a version of a uniform trade secrets act, and by a federal civil claim. Taking or using a trade secret through improper means, such as breaking a confidentiality promise, is called misappropriation. Independent discovery and reverse engineering generally are not.
Contracts matter because they are part of the “reasonable steps.” A bakery that shares its recipes with a co-packer without an NDA or confidentiality clause may struggle to show it protected them. Many contracts also protect trade secrets for as long as they qualify, rather than for a fixed number of years like other confidential information.
What to watch for
- Check whether the confidentiality terms protect trade secrets for as long as they remain secret, not just for a fixed number of years.
- Look at whether the contract identifies the kinds of information you treat as trade secrets, such as formulas, code or pricing.
- See whether access is limited to people who need to know and who are bound by confidentiality duties.
- In US agreements with employees and contractors, check for a whistleblower immunity notice, since leaving it out can limit what a company can recover under federal law.
- Watch for residuals clauses or broad exceptions that could let the other side use your secret information.
Example clause
Recipient’s obligations under this Agreement with respect to any Trade Secret will continue for as long as the information remains a trade secret under applicable law. Recipient will limit access to Trade Secrets to personnel who need to know them and who are bound by written confidentiality obligations.
Your secret information stays protected for as long as it legally counts as a trade secret, and only people who need it and have signed confidentiality terms can see it.