Tesla has accused one of its engineers of stealing trade secrets. More specifically, downloading 26,000 sensitive files, which uncovered a wide range of business processes, creating a roadmap to Tesla’s innovation. Companies experience threats to their intellectual property (IP) every day, and as technology evolves, theft will continue to be a persistent problem. The commission on Theft of American Intellectual Property estimates the annual cost from IP losses range from $225 billion to $600 billion.
A trade secret is a type of intellectual property (IP).
They are secret formulas, practices, designs, or processes that give a company an economic advantage over its competitors. Trade secrets protect a company’s confidential business information setting it apart from its rivals, and have the three following common traits:
- Are not public;
- Offer some economic benefit; and
- Is actively protected.
Although trade secrets are a form of intellectual property, they are not as protected as patents, trademarks, or copyrights. Why would a company settle for trade secret protection of their proprietary information rather than the protection under a patent, copyright, or trademark law?
The desire to retain exclusive access to the secret longer than the term protection for IP is a determining factor. If you do not patent it, you do not have to make public the ingredients, components, or manufacturing methods. A company does not need to register a trade secret with the United States Patent and Trademark Office (USPTO) or make a public disclosure. The most sought-after is the formula for Coca-Cola. The original recipe is written on a piece of paper stored in a bank vault and only known by a select few at any given time. If the Coca-Cola formula were patented, it would have lost its competitive advantage after 20 years.
Trade secrets have no fixed length of protection, and as long as it meets its requirement, it is protected for an infinite amount of time. Coca-Cola has held its trade secrets for over 125 years.
Trade Secrets are not protected at the federal level but by state laws under the Uniform Trade Secrets Act (USTA). Businesses can take further steps to protect their trade secrets by requiring employees to sign nondisclosure agreements or contracts with non-compete clauses. Agreements and contracts are not foolproof, but they fulfill one trade secret requirement of taking reasonable measures to keep the information secret. Other qualifications are:
- The information must be commercially valuable.
- The information must be complex for others to acquire or independently produce.
- The information must be unknown outside the company (including its employees and others involved in the business).
All companies can benefit from analyzing their protections. Consulting with IP counsel to evaluate the adequacy of the protections you have implemented, or need is the first step. Ference & Associates have the experience to perform a comprehensive review and recommend appropriate actions. Call them at 412.741.8400.