How Trade Secrets Protect Intellectual Property?

“Trade Secrets” in which a company keeps vital information a secret rather than disclosing it for patent protection, can be vital to companies operating in some specific businesses. For instance, startups who have to recoup the cost and risk of innovation for which they need funds. To achieve this, businesses enter into contracts or research agreements with federal agencies and private investors and if they are not attentive enough to protect their business secrets (a form of IP only), could seriously harm their business growth and get involved in several legal hassles as well.

At the core of this problem is the fact that businesses (especially startups) are not much aware of ways to protect their intellectual property especially their trade secrets. Despite of being practiced for thousands of years, trade secrets have received least attention than the other areas of intellectual property such as patents, trademarks, copyrights etc. for the following reasons-

1. First, trade secrets do not involve a government registration process and is implemented as a matter of practice by each business.

2. The general principles of trade secret law are established in similar ways in most countries but there are few common rules or regulations about its enforcement.

3. Then, disputes pertaining to trade secret infringement usually don’t make it to the public domain and as such do not become part of the public debate.

The Uniform Trade Secrets Act of US that gave protection of trade secrets had some limitations. But now the US government has taken major initiatives to make such trade secret laws that enable collaborative innovation and help the startups. So, much recently, two laws that aim to federalize the trade secret laws have been passed by the legislation.

• First is the Theft of Trade Secrets Clarification Act of 2012, which protects secrets used internally and not sold and

• The second is The Foreign and Economic Penalty Enhancement Act of 2012 which raises penalties.

Further, trade secrets can be most effectively protected through use of nondisclosure agreements (also known as “confidentiality agreements”). This may be the best way for a trade secret owner to establish a duty of confidentiality among all employees including high-level employees. The other strategy that every startup company must put to use is building a culture of information security with its employees and a code of conduct.

However, if all these strategies don’t work, one must take shelter of the Economic Espionage Act that gives powers to prosecute any person or company involved in trade secret misappropriation. The EEA punishes intentional stealing, copying or receiving of trade secrets. Penalties for violations are severe and individuals may be fined up to $500,000 and corporations up to $5 million. Here quoting the example of Intel would be most appropriate. The IT Company endured a $1 billion trade secrets case in 2008 and made the accused employee suffer the consequences.

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1 Response

  1. Tunika Beard says:

    This article is very informative. As an entrepreneur, understanding the value of my intellectual property has been vital in building my brand. Thank you for keeping young business people up to date with great information to increase our businesses and further solidify our brands!

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