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Trade Secrets 101

From Kentucky Fried Chicken’s original recipe to Google’s search algorithm, the business value of a trade secret is no secret. Kentucky Fried Chicken reportedly keeps its original handwritten recipe housed in a safe encased in two feet of concrete and monitored by video cameras and motion detectors. Google’s search algorithm powers the most popular search engine in the world.

Trade secrets are more than recipes and software algorithms. Other types of trade secrets include formulas, designs, data, industrial and manufacturing processes, customer and supplier lists, business and marketing plans, etc. A trade secret is essentially any information that gives a business an advantage over its competition due to its secrecy, which the business must take reasonable efforts to protect.

A trade secret is unlike most other forms of intellectual property since there is no requirement to file an application for protection, and there is no fixed term of protection. For example, the term of a patent is usually 20 years from the filing date of the patent application. The term of a trade secret is unlimited so long as the information remains secret.

Canada, unlike some jurisdictions such as the United States, does not have any federal or provincial laws that specifically govern trade secrets. In Canada an aggrieved trade secret owner may sue under common law causes of action such as breach of confidence, breach of fiduciary duty, breach of contract, and unjust enrichment.

While every new concept developed by a business starts off as a trade secret, the business will soon need to decide whether to maintain the concept as a trade secret or attempt to patent it. Decisions will need to be made on a case-by-case basis, and numerous factors should be considered including:

  • Is the concept likely to meet the patenting requirements of novelty, non-obviousness and utility? The hurdle of non-obviousness has arguably become higher in recent years. The contents of a patent application are made publicly available 18 months after filing the application, so even if a patent is not ultimately granted (or if the granted patent is later invalidated), the business cannot later claim trade secret protection.
  • Is the concept patent-eligible subject matter? For example, the patent eligibility of computer-implemented inventions has narrowed in recent years. There are no subject matter constraints on trade secret protection.
  • Is the concept being constantly modified. Google’s constant and incremental modifications to its search algorithm are suited to trade secret protection. (Interestingly, the PageRank system which is the original basis for Google’s search algorithm was patented but that patent is due to expire this year.)
  • How susceptible is the concept to reverse engineering? If the concept is inherently self-disclosing or can be readily reverse engineered then trade secret protection may be meaningless.
  • How susceptible is the concept to being independently developed by a competitor? If a competitor is likely to independently stumble onto the concept, then securing patent protection may deter the competitor from exploiting the concept, whereas trade secret protection would not prevent exploitation of what the competitor independently develops.
  • How difficult would it be to detect patent infringement by a competitor? The greater the difficulty, the greater the chances of competitors being tempted to risk infringement and the greater the difficulty in actually enforcing a patent.

The key risk of trade secret protection is that the protection is lost once secrecy of the information is lost. This risk is increased in today’s environment where information is usually kept in digital form and if accessed can be instantly and widely disseminated. Businesses should take vigilant measures to safeguard their trade secrets. Measures can include:

  • Assessing risks to identify and prioritize trade secret vulnerabilities.
  • Securing trade secrets, including all digital and paper copies, using measures proportional to their priority and vulnerability.
  • Ensuring all parties with access to the trade secret sign confidentiality agreements, including employees, contractors, and research partners.
  • Educating and reminding staff on policies for safeguarding trade secrets, including at exit interviews.

In summary, trade secrets are essential to the success of many businesses. Various considerations can be weighed in deciding to protect an innovation as a trade secret or through patents. For trade secret protection, reasonable measures should be taken to control and protect the trade secret.

Information made available on this website in any form is for information purposes only. It is not, and should not be taken as legal advice. You should not rely on, or take or fail to take any action, based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Oyen Wiggs Green & Mutala LLP professionals will be pleased to discuss resolutions to specific legal concerns you may have.