Trade secret

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A trade secret consists of any confidential formula, device, or piece of information which gives its holder a competitive advantage so long as it remains secret. An example would be the formula for Coca-Cola®.[1]

Trade secrets in the US

In the United States, trade secrets can include information that is not novel enough to be subject to patent protection, or not original enough to be protected by copyright (e.g., a database of seismic data or customer lists). Trade secret laws are used to prevent "misappropriations" of the trade secret, or to award damages for such misappropriations. Trade secrets are protected under state law, although recent federal law has been enacted to prevent theft of trade secrets.

Trade secret protection is obtained by declaring that the details of a subject are secret. The trade secret theoretically may last indefinitely, although disclosure, reverse-engineering, or independent invention may destroy it. Trade secrets can protect secret information and processes, e.g., compilations of data and maps not protectable by copyright, and can also be used to protect software source code not disclosed and not otherwise protectable by patent. One disadvantage of relying on trade secret protection is that a competitor who independently invents the subject of another’s trade secret can obtain a patent on the device or process and actually prevent the original inventor (the trade secret holder) from using the invention.

Trade secret law allows damages to be obtained for, or an injunction to be issued to prevent, acts of "misappropriation" of a trade secret. This can be applied against the person who has improperly acquired the trade secret or who divulges the secret contrary to a contractual obligation, and also against others who know that they are obtaining the secret from such a person.[1]

Justification for trade secrets

Trade secrets are easier to justify than patent or copyright.

Suppose employee A of company X has access to X’s trade secrets, such as its secret formula for a soft drink. He is subject to an employment agreement obligating him to keep this formula secret. He then jumps to X’s competitor, Y. Y wants to use the formula it learns from A to compete with X. Under current law, so long as the secret formula has not been made public, X can get a court order to stop A from revealing the secret to Y. If A has already revealed the secret to Y, X can also get an injunction to stop Y from using or publicizing the formula.

Clearly, the injunction and damages against A are proper because A is in violation of his contract with X.

More questionable is the injunction against Y, because Y had no contract with X. In the context in which such situations usually arise, however, where the competitor Y wants the trade secret and knows the defecting employee is in breach of contract, it could be argued that the competitor Y is acting in conspiracy with or as an accomplice of employee A to violate the (contractual) rights of trade secret holder X. If Y actively solicits A to do this, then Y is an accomplice or co-conspirator in the violation of X’s rights. Thus, just as the driver of the getaway car in a bank robbery, or the mafia boss who orders an assassination, are properly held liable for acts of aggression committed by others with whom they conspire, third parties can, in narrowly defined cases, be prevented from using a trade secret obtained from the trade secret thief.[1]


  1. 1.0 1.1 1.2 Stephan Kinsella. Against Intellectual Property, page 11-12, 56-57. Referenced 2011-09-08.