professionals in a meeting whispering
Researching trade secret protection allows you to keep your business's signature items or offerings safe. — Getty Images/skynesher

Many businesses owe their success to trade secrets. Companies like KFC, McDonald’s and Coca-Cola have long protected the recipes and processes for their products so competitors can’t steal them.

According to the United States Patent and Trademark Office (USPTO), a trade secret is a “pattern, compilation, program, device, method, technique or process that obtains economic advantage over other competitors who do not know.”

Trade secrets can take form as product designs, manufacturing techniques, new marketing strategies and more. Legally, these secrets are considered a form of intellectual property, like trademarks, copyrights and patents. It’s important to know what is considered a trade secret so you can better protect your business.

What is a trade secret?

There are a few qualities a bona fide “trade secret” must meet to fall under the USPTO’s commonly accepted definition. As an example, let’s consider a bakery that defines its chocolate chip cookie recipe as a trade secret.

  1. A trade secret must be used in business. If the recipe’s creator gives it away to a friend or family member for personal use, it does not fall under trade secret protection laws.
  2. It includes information that is secret, or not generally known. The business and its select employees are the only ones who know the ingredients and baking process of the special dessert, which is a staple of their brand and makes their product unique in the marketplace.
  3. The information has value because it places its owner at a competitive advantage. Customers go to this particular bakery because they know they can’t get this exact chocolate chip cookie anywhere else. If the bakery’s competitors could replicate the recipe, they might be able to steal some of their market share. The information is protected for this very reason.
  4. The owner of the information takes “reasonable steps” to maintain its secrecy. The bakery owner ensures that only trusted employees are granted access to the recipe and baking process.

Understanding these components will help you decide which information your business should protect, why it should be protected and how you might go about protecting it.

Limit the number of devices that include information about the trade secrets and implement passwords so that access remains protected.

Protecting trade secrets

The U.S. government is obligated to provide protection for businesses’ trade secrets under the Economics Espionage Act of 1996. Laws such as the Uniform Trade Secrets Act protect trade secrets from misappropriation, including if they are illegally obtained through bribery or theft. Most states also have their own version of the UTSA to protect registered businesses.

It’s important to note that the USTA does not protect businesses if the holder of a trade secret fails to safeguard it, or if the secret is independently discovered or released. Therefore, you must take steps to ensure your trade secrets remain under wraps.

Here are a few ways your business can protect its most valuable proprietary information.

Label documents that contain protectable trade secrets

Documents that include trade secrets should be labeled as “confidential,” ensuring limited circulation around the workplace.

Monitor where confidential information is stored

Limit the number of devices that include information about the trade secrets and implement passwords so that access remains protected. This includes electronic items such as computer hard drives, discs and thumb drives.

Require nondisclosure agreements for any employees or vendors who have access to protected information

SCORE recommends implementing nondisclosure agreements in your business to protect any trade secrets you may have. This agreement defines the confidential information you wish to keep secret and legally prohibits your business contacts from disclosing it to others.

If you’ve identified trade secrets within your business operations, make sure you take proper steps to protect them so they remain secure.

Learn more about protecting your business’s intellectual property in our guide.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

Applications are open for the CO—100! Now is your chance to join an exclusive group of outstanding small businesses. Share your story with us — apply today.

CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here.

Brought to you by
Simplify your startup’s finances
Not sure where to begin in getting your business’s finances in order? Navigating the complex finances of a growing start-up can be daunting. Learn about the key financial operations that will keep your startup running smoothly — from payroll to bookkeeping to taxes — in this guide.
Learn More