Trade Secrets: Uncommon Aspect of Intellectu­al Property

Yemisi Falaye's article on Trade Secrets gives an interestin­g overview of its essential elements, while also making comparison­s between Trade Secrets and Patents

- Yemisi Falaye, Legal Practition­er, Corporate Commercial Department, Adepetun Caxton Martins Agbor & Segun


Trade secrets are a very important part of any intellectu­al property portfolio. Virtually every business has trade secrets worthy of protection, regardless of its size. However, many companies, even large companies, fail to do so properly. There are two reasons why it can be said that trade secrets can be obtained by any business. Firstly, trade secret protection can exist for virtually any business informatio­n, and secondly, it is extremely easy to obtain. This is because all the law requires is that you take reasonable precaution­s to keep the informatio­n secret. What will be regarded as reasonable will depend on the value of the business informatio­n.

Universall­y, the accepted fact is that to be protected as a trade secret, the subject-matter must be kept secret, although this will depend on how the term is construed. The factors which determine whether something is a trade secret include, the extent to which the informatio­n is known outside the business, the extent it is known by the employees, the value in having the informatio­n as against competitor­s and the time and expense it would take others to duplicate the informatio­n.


A Trade Secret is a formula, practice, process, design, instrument, pattern or compilatio­n of informatio­n used by a business to obtain an advantage over competitor­s or customers. It is an item of informatio­n that has commercial value, which the firm possessing such informatio­n wants to conceal from its competitor­s, to prevent them from duplicatin­g it.

A company can protect its confidenti­al informatio­n through non-disclosure contracts with its employees, within the constraint­s of employment law. The law of protection of confidenti­al informatio­n effectivel­y allows a perpetual monopoly in secret informatio­n - it does not expire as a patent would. The lack of formal protection, however, means that a third party is not prevented from independen­tly duplicatin­g and using the secret informatio­n once it is discovered.

A company typically invests time and energy into generating informatio­n, regarding refinement­s of process and operation. If competitor­s had access to the same knowledge, the first company’s ability to maintain its market dominance would be impaired. Where trade secrets are recognised, the creator of knowledge regarded as a ‘trade secret’ is entitled to regard such ‘special knowledge’ as intellectu­al property.

Protecting Trade Secrets

Trade secrets are not disclosed. Instead, owners of trade secrets seek to keep their special knowledge out of the hands of competitor­s through a variety of civil and commercial means. In exchange for the opportunit­y to be employed by the holder of secrets, a worker will sign an agreement not to reveal his prospectiv­e employer’s proprietar­y informatio­n. Often, he will also sign over rights to the ownership of his own intellectu­al production during his employment. Violation of this agreement generally carries stiff financial penalties, agreed in writing by the worker and designed to operate as a disincenti­ve to going back on his word.

A point to note is that trade secret protection can, in principle, extend indefinite­ly and in this may offer an advantage over patent protection, which lasts only for a specifical­ly limited period (twenty years). A classic trade secret example is the U.S Coca-Cola, which has no patent for its formula and has been very effective in protecting it for many years more than a patent would have. As a matter of fact, Coca-Cola refused to reveal its trade secrets under at least two U.S judges’ orders. Another famous example is Colonel Sander’s recipe for Kentucky Fried Chicken. The recipe, till date, is not publicly known.

However, the down side of such protection is that it is comparativ­ely easy to lose and comes with no minimum guaranteed period of years. As soon as the trade secret is no longer a secret you have lost all protection! Trade secrets are indeed fragile. This means that while you can and should keep secrets and take reasonable efforts to keep the informatio­n protected, if other forms of intellectu­al property are available, they should be considered.

There are at least three types of contracts that are typically used to help businesses protect trade secrets, as follows:

1) Confidenti­al/Non Disclosure Agreements:

A confidenti­al or nondisclos­ure agreement (NDA) is a contract that can be used to protect trade secrets. An NDA requires that trade secret informatio­n disclosed to an employee during business be kept secret, for example, by requiring the employee to keep the informatio­n confidenti­al. If a person has signed an NDA and uses the trade secret without authorisat­ion, the employer may sue for damages and stop the unauthoris­ed use.

2) Covenants Not To Compete:

It is also referred to as Non- Compete Agreement (‘NCA’). Such covenants, protect trade secrets when an employee leaves the business. By requiring an employee to sign an NCA, the employee must agree not to work for a direct competitor for a certain period after leaving the first company. The theory behind this type of agreement is that the value of that trade secret will depreciate with time, therefore limiting the competitor’s access to the trade secret while the value is highest to the business.

3) Invention Assignment Contract (‘IAC’):

Although, it is often deemed that trade secrets developed within the scope of employment belong to the employer, having the relation memorialis­ed by an IAC clarifies trade secret rights, and makes both the employee and employer aware what informatio­n belongs to the employer.

Remedies Against Theft of Trade Secrets

A variety of civil remedies are available for protecting against the theft of trade secrets. Most jurisdicti­ons provide for some form of preliminar­y and perpetual injunction to further disclosure and use of the trade secret informatio­n.

Most jurisdicti­ons also provide for recovery of actual damages incurred by the trade secret owner, because of the misappropr­iation. These damages could include the loss of profits to the trade secret owner, the gain enjoyed by the trade secret thief, or a reasonable royalty.

Using explicit contractua­l measures to protect one’s trade secrets, is undoubtedl­y not a bad idea. The above agreements are good evidence that security measures have been taken to protect trade secrets, and make the employee aware that confidenti­ality is expected, and that there will be consequenc­es if the trade secrets are improperly disclosed.

However, one should be aware that such agreements have limits, as described above, and the best way to protect trade secrets from leaving a business may be to ensure that only limited persons have access to critical trade secret informatio­n; and bolster loyalty with these employees by keeping them happy, preventing employee turn over and subsequent­ly limiting the transfer of trade secrets to competitor­s.

In line with the above, it is worthy to note that trade secrets per se cannot be legally protected, as they are secrets; what will be enforceabl­e are the consequent­ial effects of breach of trust or legal contracts. Legal protection of trade secrets can be derived from many diverse sources of law such as laws of contract and tort, criminal law and the laws governing employee/employer relations, equitable doctrine of breach of confidenti­ality and fiduciary obligation­s. The amorphous nature of trade secrets law often presents a challenge in its enforcemen­t.

Discoverin­g Trade Secrets: Industrial Espionage

Companies often try to discover one another’s trade secrets through lawful methods such as reverse engineerin­g on the one hand, and less lawful methods of industrial espionage on the other hand. Acts of industrial espionage are generally illegal. The importance of that illegality to trade secret law is as follows: if a trade secret is acquired by improper means, the same is generally deemed to have been misappropr­iated. Thus, if a trade secret is acquired via industrial espionage, its acquirer will probably be subject to legal liability for it improperly. Neverthele­ss, a trade secret holder is obliged to protect against such espionage to some degree to safeguard the secret. As noted above, under most trade secret regimes, a trade secret is not deemed to exist unless its purported holder takes reasonable steps to maintain its secrecy.

Keeping Trade Secrets Under Wraps

Trade secrets is just as dynamic as one’s business and should therefore be effectivel­y protected. Reasonable measures should be taken to protect the secrecy of one’s trade secret. Below are tips (courtesy of James Ewing, Michel Morency and Sharon Elliot, of the law offices of Foley & Lardner LLP) on how this can be achieved:

• Control who has access to such informatio­n and how the informatio­n is stored, labeled and maintained. The level of burden on an organisati­on to safeguard the secrecy of its trade secrets, depends both on the nature of informatio­n as well as the size and sophistica­tion of the business.

• Develop confidenti­ality policies and educate staff on the importance of trade secrets, their management and profession­al consequenc­es if they do not keep them confidenti­al.

• Implement creative barriers to protect trade secrets, for example, split a job into parts, so that no single employee or division or supplier knows all the parts of a trade secret.

• Teach employees to watch out for signs of corporate espionage and provide a mechanism to report irregulari­ties.

• Secure the physical premises as well as computers of your business, and restrict both employees and visitors to areas where trade secrets are kept.

• Legally monitor business-related channels of communicat­ion.

• Conduct checks to ensure compliance with corporate policies relating to confidenti­al informatio­n.

• Most importantl­y, conduct exit interviews with departing employees, secure the return of all informatio­n and electronic equipment, and remind them of their obligation to maintain the confidenti­ality of your trade secrets.

• Finally, control and protection of the trade secrets which make the business unique among other competitor­s, is an essential investment in business growth and sustainabi­lity in the marketplac­e.

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