Trade Secrets - What your Business Needs to Know

By: Andrea Ciota


A trade secret is a subset of confidential information that is not generally known, has potential or actual economic value from not being generally known, and which may give a competitive advantage to its owner. For example, the formula for Coca Cola is a very famous trade secret.

Trade secrets generally fall into two categories: technical information (e.g., proprietary source code) and business information (e.g., customer lists).

Note that the status of confidential information as a trade secret is lost if the information is disclosed without restriction or if it becomes publicly known.


Your company’s continued success depends on its ability to develop and capitalize on your intellectual capital. One of the best ways to accomplish this is to maintain the secrecy of your ideas and innovations.

Of course, the goal to maintain secrecy around your innovations can conflict with your efforts to market your company as an innovative thought leader in your industry. You need to make sure to carefully consider whether disclosures of your innovations will jeopardize your ability to subsequently file for patents or protect information as a trade secret.


  • Source code to your company’s proprietary software

  • Unpatented inventions and processes (including: tools, interfaces, database designs, and configurations)

  • Secret processes and tools associated with your company’s development and implementation of branded solutions

  • Non-public internal company business data such as organizational plans, business strategies,

    financial, accounting, recruiting, and legal information                                                    WHY IS IT IMPORTANT TO DOCUMENT AND PROTECT YOUR COMPANY’s TRADE SECRETS?

  • Innovations/inventions/processes/formulas that are kept as trade secrets are valuable intellectual property of your company that increases its value in the marketplace.

  • Maintaining the secrecy of an invention increases the likelihood of success in obtaining a patent as prior disclosures may result in disqualification from patent eligibility.

Documenting use of trade secrets in sufficient detail can provide prior-use protection against certain patent infringement claims by third parties. In the event of a dispute over a trade secret, documentation is essential in identifying the subject matter in dispute.

HOW DO YOU KNOW IF YOU HAVE A TRADE SECRET? Ask yourself two questions:

1) Is the information/invention known outside of the company?
2) Does the information/invention have value from not being known outside of the company?

If the answer to #1 is no and #2 is yes, you have a potential trade secret. HOW DO YOU KNOW IF THE INFORMATION/INVENTION HAS VALUE? Ask yourself three questions:

  1. 1)  Is it a business discriminator with potential revenue generation potential?

  2. 2)  Is this innovation/invention/process/formula/information so unusual or creative that your competitors would wish to use it if they knew of it?

  3. 3)  If your company was offered a large amount of money to make it available to the public, would you take it or say no because it is worth more to the company as a secret?

If the answer to any of the above is yes, then you probably have a valuable trade secret.


In order to ensure that you are taking adequate steps to protect your trade secret, you should contact your legal representative to work with your company leadership to determine the appropriate procedures to use for protecting the trade secret. Among these will be to:

1) Document the Trade Secret

The trade secret will need to be recorded and documented via a number of different methods (depending on the type of trade secret). This could include providing and maintaining lab notebooks, and invention disclosure forms, as well as maintaining a change log to document any subsequent changes in or changes in use of the trade secret. It is also wise to document the costs associated with the development and protection of the Trade Secret as well as the savings or revenue generated as a result of the existence or use of the trade secret.

2) Properly protect the Trade Secret

Restrict access to the trade secret to company employees who are subject to an appropriate non- disclosure agreement and have a legitimate need to know such confidential information in order to carry out their responsibilities. Depending on the nature of the trade secret, it may be wise to maintain a list of those employees authorized to access the trade secret.

  1. 3)  Mark any documentation pertaining to the trade secret with a restrictive legend such as:


  2. 4)  Ensure appropriate physical and logical security of the trade secret

  3. 5)  Do not disclose the trade secret to anyone outside of your company. If it is essential to your company that the trade secret be shared with a third party, consult with your legal representative to ensure the appropriate contractual protections (such as non-disclosure agreements) are in place. In addition, your legal representative should review any marketing/presentation materials relating to the trade secret to ensure information that would destroy trade secret status is not inadvertently disclosed.

Taking the steps above to properly identify, document and protect your company’s trade secrets will help you to retain valuable intellectual property for your company.

Hypo #1 – Identification of Trade Secret

Ted, an employee of Company X, develops a new internal project management process to use in delivering certain project services to Company X customers. Company X decides not to pursue a patent on this process. However, Company X’s management has determined that this process is a valuable tool for Company X that enables the company to provide superior project services to its customers and wants to protect it in order to maintain Company X’s competitive advantage. The process is therefore treated as a Trade Secret and Ted and Company X with their legal representatives to document the Trade Secret and take adequate steps to protect its status.

Hypo #2 – Disclosure of Trade Secret

Sally, from Company X’s sales organization, provides information about Company X’s new project management process in a sales presentation to a potential Company X customer who has not executed any non-disclosure agreement with Company X. The potential customer then provides the information about the process to its internal organization that uses it and shares it at an industry conference. Company likely has no recourse because the process lost its Trade Secret status when Sally disclosed it to the potential customer.

Hypo #3 – Another example of Disclosure

Ted leaves Company X to work for a competitor. Ted introduces the process to the competitor who starts using it for competing project management services. Company X is able to successfully prevent competitor’s use of the process by proving that Ted, who was subject to an agreement with Company X prohibiting the disclosure of trade secrets and confidential information, misappropriated the Trade Secret. Company X also sues Ted’s new company for damages. The process remains a Trade Secret.

Hypo #4 – Loss of Patentable Invention and Trade Secret

Julie invents a new contraption to slice bread. Julie’s employer, Company Y, is so excited about the invention that Company Y immediately starts creating marketing documentation on it and presenting the invention at food and beverage conferences. The invention is implemented on several customer engagements over the course of a year. Company Y then learns that a competitor is using the invention; so Company Y initiates a patent review to try to patent the invention and then enjoin/prevent competitor’s use or obtain royalties from competitor. Unfortunately, because the invention was disclosed to the public for over a year prior to filing of a patent application, it cannot be patented. In addition, because of Company Y’s marketing and conference disclosures, the invention does not have Trade Secret status. Company has lost its ability to protect the invention; and Company’s competitor can compete against Company for clients using Company’s invention.

Hypo #5 – Protection of Database as a Trade Secret

Alex, who works for Company Z, develops a database for use in capturing customer information. Company Z determines that the database is not a good candidate for a patent application, but agrees that the database is a valuable trade secret. Company uses the database on a customer engagement, where certain of customer’s employees have access to and use of it. However, Company Z and its customer are parties to a non-disclosure agreement that identifies the database as a Trade Secret of Company Z’s and puts in place processes to ensure only certain of customer’s employees with a “need to know” have access to it. The database remains a Trade Secret of Company Z because Company Z has used reasonable measures to protect its secret status. 


Andrea Ciota, Managing Member at Ciota Consulting LLC and Director of Business Development at Hines Wealth Management, LLC