In today’s economy, competition for business is fierce. Protecting your business’s confidential information, know-how, and trade secrets are critical to staying competitive and keeping an edge in the marketplace. It is therefore essential that you understand the various ways in which your business can protect the information and knowledge that gives it a competitive edge.
Most people understand how intellectual property (IP) rights, like trademarks, copyrights, and patents, can protect valuable information and allow a business to enjoy a competitive advantage over its competitors. On the other hand, the concepts of trade secrets, confidential information, and know-how are less understood. However, they are only different types of business information that is not part of the public domain and is therefore commercially valuable.
So, precisely what are trade secrets, know-how, and confidential information, and how are they different?
Some of the world’s most successful companies realized long ago that there is immense value in keeping certain intellectual assets confidential, and that by protecting their confidentiality, they could maintain a competitive advantage on the market.
Confidential information can be looked at as a “catchall” phrase that refers to any information that a business considers to be confidential and should keep that way. Know-how and trade secrets are subsets of confidential information.
Confidential information has value because others don’t know it. It is kept secret because it would lose its value if it were generally known. Think about the ramifications of the following types of confidential information becoming known to your competitors:
- Your customer lists, sales statistics, financial data, legal documents, marketing plans, and business contacts; or
- Your research & development, formulas, recipes, and manufacturing processes
Because of the possible adverse consequences that can be brought about by the disclosure of sensitive information, businesses frequently restrict their employees, contractors, and vendors by contracts or workplace policies that prohibit them from disclosing a business’s confidential information to people outside of the company.
A trade secret is a more specific type of confidential information that is subject to efforts to keep it secret and, therefore, gains legal protection against misappropriation. So, a trade secret is at the same time a way of protecting the confidential information that gives your business a competitive advantage and a type of intellectual property right in itself.
Common types of trade secrets are:
- Commercial methods; and
- Compilations of information
Some examples of famous trade secrets include:
- Google’s search engine algorithm
- The recipes for Coca-Cola and Pepsi
- The formula for the lubricant WD-40
Misappropriation and Remedies to Misappropriation of a Trade Secret
Trade secrets confidential from diversion. In general, a trade secret is misappropriated when a person:
- Acquires the trade secret through means that he or she knew or should have known was improper; or
- Discloses or uses the trade secret without permission, when he or she knew or should have known that the trade secret was acquired through improper means.
The owner of a trade secret can, amongst other things, sue a defendant to recover for economic losses caused by the misappropriation. That is usually measured by the owner’s lost profits or the defendant’s unjust enrichment. Furthermore, in some cases, punitive damages may also be awarded.
Requirements for Trade Secret Protection
The subject matter protected as a trade secret can either be associated with some other intellectual property right, e.g. the know-how related to a particular patent; information for which intellectual property rights have already been granted, e.g. when sharing material that has already been copyrighted with key employees who are subject to a confidentiality or non-disclosure agreement; or information that exists prior to other intellectual property rights being granted, e.g., the details of an invention for which a patent application has yet to be filed.
But, regardless of its subject matter, whether or not the confidential information gains protection as a trade secret will ultimately depend on whether or not it has been subject to efforts to keep it secret. Courts will only protect information that you hold as a trade secret if you have taken reasonable steps to maintain its confidentiality.
Also, to enjoy protection, the subject matter of the trade secret must:
- Have commercial value to your business;
- Not be known or readily ascertainable by others; and
- Create or embody a competitive advantage;
Advantages of Trade Secret Protection
There are certain situations where protecting confidential information as a trade secret, whether instead of or as a compliment to patent protection, is advantageous, including cases where:
- The invention does not meet the requirements for a patent to be issued
- A copyright that had been released for the device has expired or been invalidated
- When disclosing a design through the patent process may allow a competitor to create a generic version of the invention that would be close enough to compete with the original.
Other benefits of protecting confidential information as a trade secret are as follows:
- Trade secret protection can apply to a wide variety of information, knowledge, and ideas.
- A trade secret can, theoretically, be protected forever, provided that it remains a secret.
- There is no formal application or registration process required for trade secret protection.
It is important to note, however, holding confidential information as trade secret does not protect it from being reverse engineered. Moreover, two different people or companies can simultaneously keep the very same trade secret and have the very equal protection under the law if each of them separately develops the trade secret without any misappropriation.
Know-how refers to the technical knowledge needed to complete a task, produce a product, or perform a service that is most often gained through experience.
Know-how typically relates to the ability to:
- Make the right business decisions
- Manage people
- Lead and motivate
- Utilize and maintain machines, technologies, and data
The correlation between know-how and trade secrets is often misunderstood.
To begin with, whereas know-how relates to technical knowledge that is not commonly known to the public and that may be hard for others to replicate, that experience may or may not be secret. A trade secret, on the other hand, must purposefully, be kept secret. Secondly, a trade secret usually relates to and consists of a particular type of know-how.
Why Trade Secrets, Know-how, and Confidential Information are Important
There are numerous advantages to keeping crucial technical information and knowledge confidential, however, in most cases, it all boils down to money. By deciding not to divulge valuable information that gives it a competitive advantage, a business may be able to maintain monopolistic power in the market and build their market without competition.
Quite often, whether the subject matter is patentable or able to be copyrighted is unimportant. This is because patents and copyrights only grant a limited monopoly. Therefore, it may be in the business’s best interest to keep a novel idea or valuable information a secret, rather than disclosing it to the world in exchange for a limited monopoly.
Coca-Cola, one of the worldwide leaders in the beverage industry is a prime example of this. Coca-Cola has been sold to millions of people all over the world, without its recipe ever being disclosed to the public. Even today, the formula for Coca-Cola remains a secret, and nobody knows exactly what ingredients and at precisely what proportions are needed to manufacture a bottle of Coca-Cola. Because of this, it is virtually impossible for the business’s competitors to replicate the soft drink.
Moreover, Coca-Cola has elected not to patent its process. This is because, to receive a patent for the process, the business would need to disclose the method and formula by which Coca-Cola is made. Instead, the company has decided to protect its competitive advantage by holding the recipe as a trade secret which, as mentioned above, can (theoretically) be kept secret forever.
Call MAG Trademarks!
Your businesses should make sure that it knows what potential trade secrets, know-how, and other confidential information it possesses. Once identified, this information can be adequately protected and successfully exploited by issuing licenses and collecting royalties and licensing fees from others who wish to use this information.
Furthermore, whether you will treat an idea, a process, or other valuable information as confidential information, know-how, or a trade secret; or pursue other forms of IP rights for its protection, you must make this choice early on, so that you don’t lose the ability to obtain other forms IP protection.
An experienced, intellectual property attorney can assist you in making these critical decisions. Call MAG Trademarks in Canada at 647.812.5412, or visit our contact page to book an initial consultation. We can review your circumstances and assist you with keeping your most valuable information confidential.