trade secret

Can a Trade Secret Protect Small Business Ideas?

What are the best ways to protect a business idea? You can protect intellectual property (IP) using one of four methods. The three most common protections are filing for a trademark, copyright or a patent. The fourth form of protection is a trade secret, and a trade secret can, indeed, protect small business ideas.

What is a trade secret and what kind of information does it help protect? Here’s what you need to know about the term.

What is a trade secret?

According to the World Intellectual Property Organization, a trade secret is defined as intellectual property rights on confidential information that is sold or licensed.

How do you know what type of information qualifies as a trade secret? The United States Patent and Trademark Office (USPTO) defines a trade secret policy as being made up of three elements. All elements must be present to qualify as a trade secret.

  1. The information is generally not known. It is secret, which gives it potential — or actual — economic value to be of commercial value.
  2. It has value to a small group of individuals. However, these same individuals are not able to legitimately receive this information.
  3. Reasonable efforts, and various steps, are taken to ensure this information remains secret. For example, a confidentiality agreement made be drafted by the rightful holder of this information.

Let’s go back to the vague nature of the aforementioned information. What kinds of information may receive trade secret protection?

The World Intellectual Property Organization notes that trade secrets may include technical and commercial information. An example of technical information may be software algorithms while commercial information can include distribution methods. Generally, secrecy surrounds information that helps provide a business with an edge over its competitors but is largely unknown to the public. Other types of trade secrets include formulas, techniques, blueprints, recipes, customer lists and processes.

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Why would you seek a trade secret?

It is important to note that of the four types of IP protection only a trade secret can protect business ideas and processes. Here’s a quick breakdown of the role each method plays in protecting small business IP.

  • Trademarks protect unique words, phrases, names, symbols, logos and designs.
  • Copyrights protect original works of authorship. The U.S. Copyright Office clearly states that facts, ideas, systems and methods of operation may not receive copyright protection.
  • Patents protect mechanisms, principles and components of an invention. You may need to review your business idea to determine if it qualifies for a utility, design or plant patent. However, if you find it does not, you would be unable to patent this idea.

Trade secret protection

Trademarks, copyrights and patents all require filing applications and registering at the federal level to protect intellectual property. However, unlike trademarks, copyrights, and patents, there are no such formalities in place for trade secrets. Registration is not required for trade secret protection.

Who protects a trade secret? The owner of the business idea, which cannot be patented or qualify for trademark or copyright protection, protects the trade secret. So long as the information remains secret and has economic value, trade secret rights may be protected for an indefinite amount of time.

Protecting secret information means taking reasonable efforts. Here are a few methods that may be used to help protect trade secrets.

  1. Drafting written documents. Employees sign confidentiality, noncompete, and/or non-disclosure agreements. Staff understands they do not have authorization to use or discuss the confidential information and agrees not to reveal the trade secret. This helps preserves trade secret rights. Depending on the business idea, employees may also be required to sign a post-employment restrictive agreement to further ensure the information remains confidential. Business partners may also be required to sign confidentiality agreements, too.
  2. Establishing security protocols. Certain business ideas may require additional security measures in a company location. Some of these may include using secure communication channels and encryption, storing documents in secure spaces, and prohibiting visitors to physical spaces where trade secrets are kept. Educating employees about these safety measures is also critical to ensure they understand why these levels of security are in place and why they matter.
  3. Revisiting patents. It may be wise to meet with a legal professional to better determine if your trade secret is applicable to receive a patent. You may be fairly certain you know whether you have something that may receive a patent, but it never hurts to get a second opinion to be certain.

Trade secrets: final thoughts

Sometimes, even if you take every reasonable effort to protect trade secrets, it is possible that the information may be stolen or breached. When and if this happens, it is strongly advised that you meet as soon as possible with a legal professional to establish a legal claim.

Please note that each state differs a bit in its trade secrets law. Review this information early on and meet with a legal professional as necessary for guidance as to best practices in protecting your business ideas.

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