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If your business has developed a competitive advantage through your business’s knowledge or processes, you will want to prevent competitors from discovering these processes and this knowledge. You may be able to protect this knowledge and these processes at law if it is a trade secret. This article will discuss what trade secrets are and how to best protect them.

What is a Trade Secret?

Many businesses have spent years cultivating knowledge and processes. For some, this has resulted in an asset that gives the business a competitive advantage. This may be a:

  • process;
  • formula;
  • piece of information;
  • method;
  • device; or
  • piece of technology.

These are owned by the business and are a secret within the business.

A trade secret has commercial value and is not available within the public domain. In addition, steps have been taken by the business to keep it confidential.

Examples of Trade Secrets

Popular examples of trade secrets include the:

  • formula of WD-40
  • recipe for McDonalds’ Special Sauce
  • recipe for Coca Cola; and
  • process of creating the New York Times Bestsellers List

A trade secret is different from a patent in that a trade secret is just an “idea”. A patent, however, needs to be a manifestation of an idea.

For example, you can patent an actual process, design or method of manufacturing.

A trade secret does not need to be written down anywhere or manifested into a prototype or product.

How Trade Secrets are Protected

Unlike trade marks and patents, trade secrets do not need to be registered to be eligible for protection.

Duty of Confidence

If you have a trade secret, you have the right to prevent its disclosure. Courts will prevent a trade secret from being disclosed in circumstances where the confidant had a duty of confidence. A common example of when a duty of confidence arises is in an employment relationship. This can either arise because of an implied obligation to keep the trade secret confidential, or because of a term in the employee’s contract to not disclose commercial secrets. A duty of confidence can also arise when the confidant states that the information is being provided “in confidence”.

Contractual Protection

Certain contracts can give you protection from the other party divulging a trade secret that they learn during the contractual arrangement.

It is appropriate to use a non-disclosure agreement (NDA) in discussions with business partners or third parties who come into contact with your trade secret. The NDA should state that each party will keep any information disclosed confidential.

If your business has employees, you will need a well-drafted employment agreement that contains confidentiality and non-compete clauses. A non-compete clause will outline that the employee will not engage in activities that compete with you following their employment. This sort of non-compete clause is usually only enforceable in reasonable circumstances and within a reasonable time period.

Ensure that only employees who need to know about a trade secret come into contact with it.

For example, a person who works behind the counter of a McDonald’s store would not need to know the recipe for Special Sauce.

Also, consider the commercial risks of keeping a trade secret a secret. The more employees that come and go from your business, the more difficult it may be to ensure that the secret is kept.

How do Owners of a Trade Secret Enforce Their Rights?

You can take legal action against parties if they:

  • breach clauses in their employment agreement relating to trade secret confidentiality; or
  • infringe an NDA by sharing confidential information.

The best way to start the legal process is to send a cease and desist letter demanding that the party:

  • stop sharing the confidential information;
  • return any physical information (such as a printed recipe); and
  • promise not to use or disclose the information anymore.

Depending on the party’s response, you can approach the courts to resolve the situation. It is best to act swiftly because the courts can prevent you from getting urgent assistance if you delay too long before bringing proceedings.

The remedies available to you include:

  • an injunction which prevents the further use or disclosure of the confidential information; or
  • compensation for any financial losses and legal costs incurred in enforcing your rights.

Key Takeaways

If your business has a trade secret, this is a valuable asset. It is also a piece of intellectual property that can be protected. Business owners should first consider whether their process or piece of information constitutes a trade secret, and then determine the best way to protect it. The best protection is through the use of well-drafted contracts, including non-disclosure agreements (NDAs) and employment agreements. If you have any questions about how to protect your trade secrets, get in touch with LegalVision’s intellectual property lawyers on 1300 544 755 or fill out the form on this page.


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