What kind of information can qualify as a trade secret?

Most businesses have trade secrets.  They form part of their competitive edge.  But what information, specifically, qualifies as a “trade secret”? 

To be a trade secret under federal law, information must meet three criteria.  First, it must be “financial, business, scientific, technical, economic, or engineering information.”  Other kinds of information may be valuable, but are not sufficiently related to a trade.  Second, “reasonable measures” need to have been taken to keep the information secret.  Publicly available information usually does not qualify as a trade secret, although proprietary analysis or a compilation of such information can.  Third, the information must derive “independent economic value” from “not being generally known” or “readily ascertainable.”  If information is worthless to a business’s competitors, it is not a trade secret, even if it has value for the business that identified it. 

Many different types of information can meet these criteria.  A federal statute identifies broad examples, such as “patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes.”  Courts have identified many others, including computer programs, customer lists, and recipes.  Even “negative know-how,” i.e., knowledge of what does not work, can be a trade secret if its unauthorized disclosure would help competitors avoid development costs or bring a rival product to market more quickly. 

Ultimately, information’s status as a trade secret depends as much on what a business does as the nature of the information itself.  If a business works to prevent competitors from learning its information, because that information can be used to create value (or avoid expense), then the information is likely a trade secret.  

The term “trade secret” is intentionally broad enough to cover the many different forms sensitive business information can take.  As a result, trade secrets encompass types of information that may not be covered by other intellectual property protections. 

To learn more about trade secrets and related business disputes, go to www.mololamken.com and follow us on LinkedIn.  “Brilliant lawyers with courtroom savvy” — Benchmark Litigation.  Copyright MoloLamken LLP 2022.

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