What is a Trade Secret?

A trade secret can be any confidential information of value. For example, the secret recipe for coca cola or a new fashion design for the next season.

A trade secret is different from a trade mark as it does not need to be registered.

A trade secret is knowledge that is owned by an individual or an organisation (ie it is proprietary) and it is up to them to protect that knowledge. One way to keep this knowledge out of competitors’ hands is by ensuring employees or distributors sign confidentiality agreements.

The Coca-Cola company has used trade secrets to keep its formula from becoming public over a period of decades. It never applied for patent protection, so it was never required to disclose the formula.

Australian law provides protection for infringement of trade secrets, breach of confidentiality agreements and passing off trade marks. Proving a breach of confidentiality under common law can be complex and is potentially more costly than defending registered rights.

 

Limitations of trade secrets 

Secrecy does not stop anyone else from inventing the same product or process independently and exploiting it commercially. It also does not give you exclusive rights and you are vulnerable when employees with this knowledge leave your firm.

Trade secrets are difficult to maintain over a long time or when many people know the secret. When contractors and employees leave, you should ask them to provide written undertakings that they will not compete with your business after they leave, in addition to signing a confidentiality agreement. 

These undertakings are difficult to enforce and need to be prepared by your legal adviser. You need to be careful that the undertaking does not restrict the contractor’s or employee’s right to earn a living.