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Below are a number of trade secret-related resources that many of our clients have found to be extremely helpful. This information is intended to be a starting point for educating yourself a little more about what a trade secret is and how trade secrets are protected. Once you are ready to move forward with identifying and protecting your own trade secrets, please visit our Trade Secret Services page, or feel free to call 949-250-5800 or email us to schedule your FREE initial consultation.
Frequently Asked Questions
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What is the difference between a trade secret and a patent? [back to top]
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While the subject matter of patents and trade secrets definitely overlaps, the similarities between these two forms of protection end there. Patents are limited monopolies granted by the government in exchange for full disclosure of the invention. The patent system is rooted in a Constitutional provision empowering Congress "to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries." The idea is that the progress of science and technology will be promoted by encouraging inventors to disclose their innovations so as to teach others in their field and enable them to take that knowledge and make improvements with it, benefiting us all. To encourage such disclosure, as again empowered by the Constitution, Congress enacted the patent laws and created a scheme whereby inventors who are awarded patents do have exclusive rights to make and use their inventions for a limited time, currently 20 years from the date the patent application is filed.
In contrast to the limited monopoly acquired through the patent grant, trade secrets are potentially infinite in duration. As long as the information remains secret, the trade secret is protectable and theft of the information by someone else is actionable. Thus, a prerequisite to on-going trade secret protection is secrecy, while a prerequisite to patent protection, as discussed above, is disclosure – that’s part of the patent bargain. The downside, then, of trade secret protection is obvious. If the secret gets out legitimately or someone else discovers the same information independently, then trade secret protection is essentially lost forever. Thus, if through selling your product, for example, you make your trade secret "available" to the public by simple examination of your product or even reverse engineering, trade secret protection is lost. With a patent, regardless of how someone else comes upon your invention, whether by reading your patent or making the same invention completely independently, the second-in-time inventor will be completely barred from practicing the invention under the first-in-time inventor’s patent for its full 20-year term. These differences will be further appreciated when the purposes for the respective bodies of law are compared. As explained above, the patent system is based in the Constitution and is designed to encourage innovation by protecting the necessary R & D investment through the limited monopoly reward. The body of trade secret law is derived from tort misappropriation and unfair competition law and is designed primarily to discourage theft of others’ innovations through the risk of civil liability.
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When might trade secret protection be preferable to patent protection? [back to top]
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Though trade secret protection is potentially infinite in duration, there is always the risk that the proprietary information constituting the trade secret could become non-secret and all protection forfeited at any time, while a patent, though of limited duration, will at least remain in force during its full term. The decision as to which way to go is then dictated by the risk-reward comparison between the benefit of a potentially unending trade secret property right and the possibility of the secret getting out and all protection being lost. Other than focusing on the prospect of keeping the trade secret a secret indefinitely, for many businesses, this analysis turns on the value of the potential patent. If the underlying technology has a short life-span such that the patent will become obsolete anyway long before it expires, then it may be best to keep the invention secret and commercially exploit it for as long as possible. Thus, the decision as to whether to pursue patent or trade secret protection is highly factual and contextual, involving both strategy and speculation. If you have an invention and are not sure whether patent or trade secret protection is the best way to go, you should consult an attorney right away.
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How do I establish that I have a trade secret? [back to top]
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A trade secret remains such if the information meets the definition of a trade secret (as set forth above under "What is a trade secret?"). Establishing that you have a trade secret is a matter of proving up facts that support each element of the statutory definition. Specifically, it must be proven that the information (1) is not known by others, (2) derives its value from not being known, and (3) is the subject of reasonable efforts to keep it from becoming known. Once you have proprietary information that is valuable to your business and would be valuable to competitors were the information made public, in establishing and maintaining the information’s trade secret status, it is necessary that a "trade secret protection program" be implemented. A trade secret protection program is a well documented and followed procedure for ensuring that your secret remains just that. At a minimum, a trade secret protection program should include (1) physical security measures, (2) employee notification, (3) steps for preventing inadvertent disclosure, and (4) limitation of intentional disclosure to a controlled, "need-to-know" basis. If you have proprietary information that you are interested in protecting as a trade secret, you should consult an attorney for assistance in putting together a trade secret protection program that complies with all relevant laws and that is adequately tailored to your industry.
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How can I protect against my employees taking proprietary and valuable information, such as customer lists and secret manufacturing processes, and using it for the benefit of a competitor or in establishing their own competing business? [back to top]
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The first way to protect yourself in this situation is by having your employees sign a confidentiality agreement. A confidentiality/employment agreement should at least include: (1) an acknowledgement that the employer is the owner of confidential, trade secret information; (2) a detailed listing or description of the trade secret information; (3) an acknowledgement that the employer has taken steps to protect the secrecy of the information; (4) an acknowledgement that the information has commercial value and that great harm would come to the employer as a result of unauthorized use or disclosure of the information; (5) an acknowledgement that the employee will have access to the trade secret information; and (6) a statement that the employee’s obligations continue after employment. In addition, a separate non-compete agreement can also be entered into, though such agreements are generally void in California as being against public policy and, thus, must be drafted very carefully and be limited in scope to have any chance of being enforceable against ex-employees.
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If I own proprietary information, what is the best way to go about selling it to others? [back to top]
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Proprietary information, or information that is unique to you, such as a trade secret, has real value and, thus, may be transferred to another in exchange for compensation just as any other property. Who to transfer such rights to and on what terms is dictated in large part by your industry, the type of proprietary information or technology that you have, and the supply-and-demand economic factors at work in the market at the time. Oftentimes, proprietary information and technology is transferred as part of an all-out sale of a business, the information just being another asset of the business being sold. In other cases, the developer or owner of the proprietary information is simply not interested in commercially exploiting the information themselves, but would rather transfer the information to another perhaps more capable or experienced party to take care of the marketing and sale and, in exchange, is willing to share the profits. Once you have decided that transferring your proprietary information to someone else is the way to go, it is up to you to then identify prospective buyers and approach them to negotiate the terms of such a transfer. The transfer may be a complete sale, often referred to as an "assignment," or a sale of less than all rights associated with the property, analogous to a lease and known in this context as a "license." A license or assignment of intellectual property rights is handled as are other property transfers through a written contract. The contract reflects the negotiated terms of the parties and, essentially, is legally binding if valid consideration is given in the exchange. Assignment and licensing agreements take on about as many forms as there are parties to them and should be handled by an attorney to insure that the agreement reflects what the parties have actually agreed to, rather than a boilerplate document that may not do so. There are many other state law formation and execution formalities that must be adhered to and protective language that should also be included for your protection in the event that the agreement is ever breached or disputed in the future.
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