Trade Secrets: An Introduction to Intellectual Property in Business

As a business owner, it is useful to understand that, in addition to owning real property and personal property, you can also potentially own intellectual property (or “IP”, for short).  While the rules surrounding real and personal property ownership can be difficult to follow, the law of intellectual property can be downright baffling. 

IP covers several intangible things, typically creations of the human mind like inventions, art, designs, and symbols.  You can’t stand on IP or hold it in your hands, but it can be every bit as valuable as your office building or the equipment you rely on every day.   This article is going to discuss one of the most pervasive yet imprecise forms of IP: trade secrets.

The government has created definitive standards and a handy registration system for certain types of IP, namely patents and trademarks.  Trade secrets, however, do not enjoy the certainty and reliability of those areas of law.  Commonly, asking an attorney if you possess a trade secret you will get this standard response: “It depends.”  Though undoubtedly unsatisfying, it is the truth, because the determination of a trade secret depends on multiple factors and the evidence (or lack thereof) supporting each.

The standard definition of a trade secret in Washington law is “information, including a formula, pattern, compilation, program, device, method, technique, or process that derives independent value from not being generally known to, and not being readily ascertainable by proper means, by other persons who can obtain economic value from its own disclosure or use, and is a subject of efforts that are reasonable under the circumstances to maintain its secrecy.”¹  Clearly, the determination of a trade secret is not always simple.

First, the information must be “novel.”  That means it cannot be readily discoverable by others or generally known by the public or by others in your industry.  For example, if you have a special method for creating your product, that method is not eligible for trade secret protection if other people in your industry use substantially the same method to create the same or similar products.  Also, if it is possible for someone using general knowledge to develop that same method, then the method will likely not be considered “novel.” 

Next, you must take active steps to prevent the disclosure of the information to third parties.  If you voluntarily disclose the information to others, you are ruining your chance to protect that information as a trade secret.  Even if you do not voluntarily disclose the information but you are careless about who learns the information, you will lose trade secret protection.  Thus, you must take reasonable efforts to prevent the information from falling into outside hands.  The more steps you take to protect the information from disclosure, the more likely you are to have a trade secret.

Finally, the information must have independent economic value.  This means that you must benefit from it in a quantifiable way, and third parties would also benefit from it economically if they were to obtain possession of it.  So, if it is something only valuable to you and not to your competitors, then it cannot be a trade secret.  To determine the value of the information, a court will often look at the effort and expense required to develop the information.  The more it cost you to develop, the higher value the information will be deemed to have, and the more likely you will be to receive trade secret protection.

If you believe you have a trade secret, protect it to the best of your ability.  But if someone else obtains it despite your best efforts, you will have a claim against them for misappropriation of your trade secret.  Misappropriation occurs when the trade secret is acquired by a person who knows or has reason to know that the trade secret was acquired by improper means. 

While corporate espionage is a real thing and sometimes does result in the improper acquisition of a trade secret, the most common misappropriation case involves the use or disclosure of a trade secret by a former employee or contractor.  Though former employees are free to use general knowledge, skills and experience acquired through their previous employment, they have a duty not to appropriate trade secrets acquired in the course of such employment.  If a former employee is using or disclosing your trade secret, you can bring a civil action against them to stop their use/disclosure and to recover economic damages. 

If you believe that someone may be misappropriating one of your trade secrets, or if you want advice on whether you have a trade secret, please contact Beresford Booth at info@beresfordlaw.com or by phone at (425) 776-4100.

BERESFORD BOOTH has made this content available to the general public for informational purposes only. The information on this site is not intended to convey legal opinions or legal advice.

¹ RCW 19.108.010