Duhaime's Law Dictionary


Trade Secret Definition:

Unique and discreet commercial information.

Related Terms: Intellectual Property, Trademark, Nondisclosure Agreement, Patent, Public Domain

With some exceptions noted below, trade secrets are not protected by intellectual property statutes. Examples include confidential business information such as client lists or corporate processes.

• Don't miss the companion legal information article Trade Secrets - Intellectual Property's Secret Weapon.

Sometimes intellectual property-holders decide to run the gauntlet with their trade secret (eg. the Coca-Cola or KFC recipes) and lock-up their trade-secrets or hold all need-to-know persons coming into contact with their trade secret to a strict confidentiality agreement. Thus, they hope to out-run dishonesty and retain their monopoly far longer than a patent would give them.

trade secret (© Speedfighter - Fotolia.com)Or it may be that the owner of a trade-secret cannot can’t rely on patent protection statutes and know that some countries do not protect patents rights so anyone with a computer can search patent databases, steal the innovation and without having to make any research investment, reap financial reward making and selling the product.

If a trade secret is threatened, the owner must ferociously protect it through the Court by seeking quick and harsh orders to stop distribution of the secret and seek damages.

Trade secret is defined in a statute of the Canadian jurisdiction Northwest Territories:

"Trade secret means information, including a formula, pattern, compilation, program, device, product, method, technique or process that is used or may be used, in business or for any commercial advantage, that derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use, that is the subject of reasonable efforts to prevent it from becoming generally known, and the disclosure of which would result in harm or improper benefit."

Freedom of information statutes in Nova Scotia and Yukon contain similar definitions.

Outside of statute definitions, Justice Staughton wrote in Lansing Linde:

"... a trade secret is information which, if disclosed to a competitor, would be liable to cause real (or significant) harm to the owner of the secret. I would add ... that it must be information used in a trade or business, and secondly that the owner must limit the dissemination of it or at least not encourage or permit widespread publication."

In Faccenda, Justice Neill of the England appellate court wrote:

"... a restrictive covenant will not be enforced unless the protection sought is reasonably necessary to protect a trade secret or to prevent some personal influence over customers being abused in order to entice them away ....

"It is clearly impossible to provide a list of matters which will qualify as trade secrets or their equivalent. Secret processes of manufacture provide obvious examples, but innumerable other pieces of information are capable of being trade secrets, though the secrecy of some information may be only short-lived."

Canadian law professor David Valer wrote, in  Civil Liability for Taking or Using Trade Secrets in Canada:

"There is the tacit recognition that many trade secrets play, at a different but not necessarily lower level from patents, a significant economic role. If protection were not given, encouragement would be offered to the faithless employee and the industrial spy; knowledge would necessarily be fragmented amongst many employees instead of concentrated in a few, thereby creating inefficiencies and higher costs; the spread of technology through licensing would be discouraged. Conversely, granting protection encourages the investment of resources into acquiring and using socially useful information; the investor will know that, if reasonable means are used to keep secret the information, he will be able to recoup his investment with relatively little risk from poachers."

French: secret industriel.

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