Trade Secrets

What Are Trade Secrets?

A trade secret is broadly defined as it can essentially be any confidential information of value. Trade secrets are considered intellectual property. However, unlike other IP rights, trade secrets can not be registered with IP offices but are rather protected by being kept a secret. It is the owner of the trade secret that maintains its secrecy.  

A trade secret can be any confidential information referring to a device, method, process, knowledge or technology used by a company. Google’s search algorithm and KFC’s 11 secret herbs and spices are prime examples of trade secrets that have been zealously protected by the companies which rely on them. 

Protecting Trade Secrets 

Unlike the United States, Australia has no common law or statutory cause of action directed specifically to the protection of trade secrets. Rather, the equitable doctrine of breach of confidence will offer trade secrets some legal protection. As discussed in our previous article, where a non-disclosure agreement or confidentiality clause exist between the owner of the trade secret and the breaching party then it can also be dealt with as a breach of contract at law. Note that trade secret protection is afforded to a broad range of subject matter including both technical and non-technical information.

An action for a breach of confidence at equity does not need a contractual obligations to exist but rather requires four elements to be established: 

  1. the information in question must be identified with specificity; 
  2. it must have the necessary quality of confidence; 
  3. it must have been received in circumstances importing an obligation of confidence; and 
  4. there must be an actual threatened misuse of the information. 

Where there has been a breach of confidence in equity, there is a range of discretionary remedies that the court can order; declarations, injunctions, deletion of confidential information, and monetary relief. 

Maintaining the Secret in Trade Secrets

A secret is something that is meant to be kept unknown, thus, information is no longer considered a trade secret once made publicly known. The secrecy of a trade secret is imperative because the protection of a trade secret will cease once the information is made public. Hence, to attract trade secret protection, the information can not be public property or public knowledge. 

Whether secrecy exists is a question of degree and the mere fact that a document is labelled “confidential” is not determinative of whether it satisfies the critical element of confidentiality. The question of degree is at what point is information made accessible by enough people to be considered public knowledge.  Some relevant factors that have been considered by the courts when determining the question of secrecy are: 

  1. the extent to which the information is known outside of the business;
  2. the extent to which it is known by employees and others involved in the business;
  3. the extent of measures taken to guard the secrecy of the information;
  4. the value of the information to the business and to its competitors;
  5. the amount of effort or money expended in developing the information; and
  6. the ease or difficulty with which the information could be properly acquired or duplicated by others.

It is critical to take the most appropriate measures to protect the secrecy of trade secrets. This can generally be achieved by limiting physical and electronic access to the confidential information, and including confidentiality clauses in contracts with employees and commercial partners.   

Trade Secrets v. Registered Patents 

An unregistered patent is generally known as a trade secret. For example, a method that your company has created may qualify to be patented but as long as it is not registered and kept confidential it can be protected as a trade secret. The primary benefit of keeping IP as a trade secret is that you don’t need to disclose details relating to the trade secret, which you would be required to do in the patent registration process. 

Another advantage with trade secrets is that there is no originality, distinctiveness, novelty or inventiveness requirement in order to receive protection. There is also no need for applying or registering nor any related fees involved. And unlike other IP rights, trade secret protection through either contractual or equitable means can last forever, with no expiry date,  as long as secrecy is preserved.  

However, treating your IP as a trade secret will not prevent other people from independently inventing and commercialising the same product or process. There is much less legal security than what is provided when obtaining a patent. For example, proving that an employee has breached their confidentiality agreement in regards to disclosing a trade secret is usually more difficult and costly than defending registered rights under a patent. 

In most circumstances, if a trade secret qualifies to be registered as a patent, satisfying the novel and inventiveness requirements, then it would be wiser to have the secret patented. This will offer more comprehensive protection at law, particularly against independent competitors.

About Raymond Chbib

Raymond ChbibRaymond is a legal intern at OpenLegal, working with our legal content team. He is currently a penultimate student at the University of Technology Sydney, studying a Juris Doctor degree with an undergraduate Bachelor of Global Studies. He is particularly interested in Intellectual Property law and the increasing internationalisation of that area of business.