Elements of a trade secret

New York law recognizes that having a formula, client list or other confidential information may be what defines a company's success. The American Bar Association explains that although the federal Uniform Trade Secrets Act provides the definition of a trade secret in most states, New York follows the Restatement of Torts.

There are three basic elements that the court will evaluate to determine whether a company's information is a trade secret.

Definition of a trade secret

While businesses use a wide variety of information types to stay ahead of the competition, much of this is not a trade secret. The information must refer to these types of devices or processes the company continuously uses in its operations:

  • Methods of treating or preserving materials
  • Chemical compound formulas
  • Patterns for a machine or device
  • Lists of customers
  • Manufacturing processes
  • Bookkeeping methods

For example, courts have ruled that Coca-Cola's soft drink formula is a trade secret, as well as the process and machine General Electric has used to manufacture synthetic diamonds.

Protection of a trade secret

The law only protects a trade secret if the company takes steps to protect it, too. That is, if there are no measures in place to keep the competition from learning about the information, a judge is likely to rule that the information was not a secret. Security methods may include the following:

  • Requiring authorization to access the information through computer systems
  • Educating employees about the nature of the secret and the methods for protecting it
  • Limiting the number of people who have access to it
  • Taking steps to ensure that people who leave the company do not take the information with them to another company

Legal use of a trade secret

The Cornell Law School's Legal Information Institute notes that there are ways that another company may legally gain access to the information. A company could note that the finished product produces a certain desired result, and then work backward from the result to create its own version of the product. A company could also discover or create the secret on its own. If the information is not properly protected, so that the company that owns the information inadvertently discloses it, the information is considered public, and no longer qualifies for trade secret protection through the legal system.

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