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Trade Secrets

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Trade SecretsAbstractTrade secrets are an important factor in retaining a business advantage in today’s economy. In recent years, more legislation has appeared protecting and defining trade secrets. A trade secret can be one of many different types of intellectual property. Trade secrets have become, and will continue to be an important part of invention and commerce.0Table of ContentsTitle – CoverAbstract – CoverTable of Contents – 1Biography – 1Trade Secrets – 2Bibliography – 7BiographyAaron Perlstein (1983 - ) is a student of Binghamton University. He is in his fourth year of the Bachelors ofScience in Computer Science degree program. He attended Stuyvesant High School in Manhattan, NY, andwas born and raised in Queens, NY.1There are many different ways that people can protect their intellectual property. Patents,trademarks, and trade secrets are all popular methods, with various ways of acquiring them and variouslevels of legal protection. Each form is best suited for a different type of intellectual property. Intellectualproperty is very important to any business. If a company expects to be successful, it has to have its ownoriginal ideas that it must protect. There are several important laws regarding the subject of trade secrets,and also precedents set by judges in our legal system. Society is changing, and the value of information isincreasing, so now more than ever it is important to protect your intellectual property any way you can, andan excellent way to do this is by making it into a trade secret.Trade secrets are a very important part of how corporations remain competitive in today’s market.Trade secrets, patents, and trademarks all help a company to protect its rights to the products it creates andthe image it presents to the public. The official definition of a trade secret, as found in the Uniform TradeSecrets Act1 is, “Information, including a formula, pattern, compilation, program device, method,technique, or process, that: (i) derives independent economic value, actual or potential, from no beinggenerally known to, and not being readily ascertainable by proper means by, other persons who can obtaineconomic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under thecircumstances to maintain its secrecy.” Trade secrets are widely used to retain an advantage that can beused over one’s competitors. Trade secrets have existed for a long time, but only recently have they come tobe more widely known due to the vast amount of today’s industry that deals purely in information. In thepast the economy was made up of companies that provided mostly physical goods, but with the growth ofcomputing, much of commerce today is purely in concepts, code, and processes. This increases the value ofknowledge. It has also become much easier to distribute knowledge with the advent of the internet. In thepast, if, for example, the recipe for a particular flavor of ice cream was leaked, it was possible that a smallgroup of people would gain access to it, possibly slightly hurting business for the manufacturer of the icecream. But today, if that information were leaked, it would most likely end up on the internet, where nearlyevery person on the planet could have access to it if they wanted to, including every single ice creammanufacturer in the world. It is possible that it would be replicated, removing the advantage that it’soriginal creator had in the marketplace.A trade secret can be many different types of things, including engineering information, methods,processes and know-how. It can also be formulas, business and financial information, computer programs(particularly source code) and related information. Pending, unpublished patent applications, businessplans, budgets, methods of calculating costs and pricing, customer and supplier lists, internal marketingdata, specifics concerning customers and suppliers, products and services in research and/or development,collections of data and other information relating to a company's business are all also examples of possibletrade secrets.2 In order to qualify as a trade secret, the information must not be generally known to thepublic or to anyone outside of the control of the owner. For example for a particular pharmaceutical drugformula to be a trade secret, the information required to produce it would have to exist only inside thepharmaceutical company that developed it. In addition, the information has to have actual or potentialeconomic value that is dependent on the information being kept secret.However, trade secrets are not the only method for securing your intellectual property. Analternative way of protecting your intellectual property is a patent. There are many important differencesbetween trade secrets and patents that make them better suited for different situations. The main differencebetween patents and trade secrets is secrecy. A trade secret relies on staying out of public knowledge. Onthe other hand, a patent is by definition public. When you apply for a patent, you must publicize all therelevant information to your idea or invention. This is necessary so that the patent office can make sure thatyou are not patenting something that has already been patented, and also that no one else in the future canpatent your idea again. Because of this there are different circumstances where patents would be preferredover trade secrets. If you have an invention that could easily be reverse-engineered, it would beadvantageous to patent it. Because if you keep it as a trade secret, it won’t be long before someone outsideof your organization will discover how to make their own, at which point you would lose any rights youhad over your trade secret. However, in the case of an invention that could be easily replicated, but themethod for doing so would be difficult to figure out, a trade secret would be preferable. An example of this1 National Conference of Commissioners on Uniform State Laws, “Uniform Trade Secrets Act”, n.d, <http://nsi.org/Library/Espionage/usta.htm> (20 October 2004)2 John Hornick, “Trade Secrets: What Your Company Needs To Know” Mondaq Business Briefing (23 January 2004)2is cake. If your organization discovers a recipe for making an excellent cake, you would not want to patentthe recipe, because that would make


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