Unravelling The Secrets Of Trade Secrets
Author: LawSphereX
Category: General Law
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UNRAVELLING THE SECRETS OF TRADE SECRETS
Rupsa Mukherjee, BA LLB, KIIT School of Law
ABSTRACT
Trade secrets are intellectual property which play vital role in providing a competitive edge to the business and promoting innovations. Unlike any other intellectual property trade secrets offer unlimited and indefinite protection without registration or any other information in the public domain. This paper explores the perspectives of key scholars and practitioners on economic and legal impact associated to trade secrets. It outlines the historical relevance in secret keeping in businesses with some example of well-known brands who are preserving and safeguarding their trade secrets through which they give a cut edge competition in the market. Furthermore, Part I of the paper discusses what is trade secret, how companies preserve their trade secret and the need to protect it by the business.
In this part the paper talks about the advantages which are gained by the business and how maintaining the trade secret provides an edge towards the growth of a business. Part II of the paper discusses the management of trade secret by a company and Part III discusses the legal remedies and preservation of trade secrets in court proceedings. Keywords: Trade Secret, intellectual property, confidential information, misappropriation, economic value, secrecy, trade secret law, and trade secret protection
LITERATURE REVIEW
Trade secrets have been widely discussed by researchers in the academic circle, focusing on their role in economic growth, their advantages over other forms of intellectual property (IP), and their overall impact on businesses. This section reviews the perspectives of four authors on these aspects. As they state, "Trade secret law functions as a complement to patent law, allowing businesses to choose their preferred method of protection. " Friedman, Landes, and Posner argue that trade secrets provide a crucial competitive advantage by allowing businesses to protect valuable business information without the formalities and costs associated with patents and copyrights. They emphasize that trade secrets enable businesses to invest in the research and development while maintaining control over their proprietary information, fostering innovation.
It also highlights that trade secret protection go hands in hands with economic efficiency, as it does not require disclosure to the public, unlike patents. According to Kitch, "The indefinite nature of trade secret protection provides firms with an enduring competitive advantage, unmatched by any other form of intellectual property. " Kitch discusses the economic benefits of trade secrets by comparing them with other forms of IP. He argues that trade secrets provides companies to maintain a continuous cut edge competition since they do not have an expiration date, unlike patents, which are limited in duration. He also underscores that trade secrets reduce the likelihood of imitation, thereby incentivizing companies to invest more in specialized knowledge and proprietary technology, ultimately leading to increased market competition and economic growth.
Hannah notes, "Trade secrets are the silent guardians of business success, shielding firms from the vulnerabilities of public disclosure. " Hannah provides a comparative analysis of trade secrets and other forms of IP, emphasizing that trade secrets offer a unique type of protection. He notes that trade secrets are the most valuable IPs in industries where technological advancements are frequent, as they allow companies to safeguard their competitive strategies without the risk of early obsolescence. Lemley warns, "The paradox of trade secrets lies in their very nature: what makes them valuable also makes them fragile. " Lemley takes a critical stance by arguing that while trade secrets provide substantial economic benefits, they also pose challenges in terms of enforcement and security.
He highlights that the reliance on secrecy rather than legal rights makes trade secrets vulnerable to misappropriation and
espionage. Additionally, he points out that the lack of formal registration complicates legal disputes compared to patents or copyrights, where ownership and infringement are more straightforward to establish.
INTRODUCTION
In the competitive landscape of modern business, knowledge about every aspects contributing towards development of the business plays a crucial role in maintaining an organization’s market advantage. Trade secrets are among such valuable form of knowledge which means confidential information which provides a competitive edge to a business by remaining undisclosed to competitors. 1 Unlike patents, designs or trademarks, trade secrets rely on secrecy rather than putting it to public domain. In general, for qualifying as a trade secret, the information must have a edge to provide commercial benefits to the company because it is secret and should be known only to a limited people where the holder generates confidentiality agreements with the employees.
2 India was a member of the world trade organisation (WTO) soon after liberalization in 1991 and also a member in 1994 to the Trade Related Aspects of Intellectual Property Rights (TRIPS). Article 39 of the TRIPS agreement provides that every member state shall protect their trade secrets but there is no specific law for the protection of the confidential information in India3. Trade secrets covers a wide range of information such as technical, scientific, business, commercial, financial and negative information which would be discussed later in this paper. These wide range of information are protected in the form of recipes, formulas, software codes, supply channels, customer lists and many more.
4Some of the famous brands preserving their trade secrets in the form of the above mentioned categories and outshining their brand names using these secrets are Maggie Masala, Pepsi, KFC’s chicken, Coca Cola, Hershey’s Chocolate. Trade secrets are preserved for unlimited duration without any registration or application throughout the world and it does not require to be put into a public domain. Although there is safety risk as it lacks statutory mechanism under any specific Trade 1 “Trade Secrets: The Hidden Ip Right. ” WIPO, www. wipo. int/web/wipo-magazine/articles/trade-secrets-thehidden-ip-right-40225.
2 “Trade Secrets.” Trade-Secrets, www.wipo.int/tradesecrets/en/.
3“World Trade Organization.” WTO, www.wto.org/english/thewto_e/countries_e/india_e.htm#:~:text=India%20has%20been%20a%20WTO,GATT %20since%208%20July%201948. 4 Garg, Rachit. “Trade Secrets in IPR.” iPleaders, 12 May 2024, blog.ipleaders.in/trade-secrets-in-ipr/.
Secret Legislation which can invite threats towards protection of such trade secret of a business. These threats are mainly categorised under internal and external threats. Internal threats include the primary linked to the business such employees having access to the secrecy and further selling such confidential information to outsiders or business competitors. External threats are the companies who are the competitors who want a market position or the parties who extract trade secret and sell it to other enterprises, shareholders who may use such information against the business for their own benefit. 5 The Trade Secret must be known to a handful of trusted people only with the owner’s permission. A company must sign a Non-Disclosure Agreement (NDA) to preserve the confidentiality.
6Another agreement which would preserve such secrecy of the business in Non-Competing Agreement which would restrict the employees who know about the secrecy from carrying on same business and profession and using such secrecy in their business after he quits the job. 7
PRESERSVING THE SECRECY
The practice of safeguarding and preserving the valuable knowledge through confidentiality is deeply rooted in history. Rulers and skilled artisans used to preserve their secrecy to secure economic advantages and to maintain their dominance in the trading industry. Some of the earliest techniques which have been protected since years are sericulture processes of China, cotton-dying in India, glass making techniques in Middle East which played a crucial role in shaping economies. The oldest legal reference to trade secret is Hammurabi’s Code of Laws,1754 BCE where an artisan adopts a child and teaches him his craft, the child is restricted to move back to his original family. He gets profit from the son's labour and if the artisan fails to teach his son, that son can prosecute him and the contract gets annulled.
8 Some of the famous Trade Secret in today’s time are Kentucky Fried Chicken, the secret ingredients of KFC are originally kept in Colonel Sanders’ head. KFC's secret recipe is the 5 Mahawar, Sneha. “Know about Trade Secret Threats and Their Misappropriation. ” iPleaders, 28 Mar. 2022, blog. ipleaders. in/know-about-trade-secret-threats-and-their-misappropriation/.
6 “Non-Disclosure Agreements and Trade Secrets: 12 Points to Consider: Insights.” Holland & Knight,
www.hklaw.com/en/insights/publications/2021/11/nondisclosure-agreements-and-trade-secrets-12-points-toconsider. 7 “The Role of Non-Compete Agreements in Protecting Trade Secrets.” International Journal of Law Management & Humanities, ijlmh.com/paper/the-role-of-non-compete-agreements-in-protecting-trade-secrets/. 8“Babylonian Law- the Code of Hammurabi.” The Avalon Project : Babylonian Law--the Code of Hammurabi., avalon.law.yale.edu/ancient/hammpre.asp.
world's best kept trade secret. “Since 1970, the original secret recipe of 11 herbs and spices has been carefully guarded at KFC headquarters in a state-of-the-art vault surrounded by motion detectors, cameras and more. In fact, the recipe is so highly guarded, even KFC's president and head chef do not know the exact recipe.”9 By maintaining this trade secret KFC has come a long way to boost their business and stand upright in the long run of the cut throat competition. This was an example of a recipe which is being protected by a business, followed by the Google Search Algorithm which establishes the viewers’ view of the search in a systematic manner using the algorithm which provides a distinct advantage to determine the need of the search of the user based on the pattern which catches the requirement of the user.
10 “Despite the presence of so many other search engines, Google continues to occupy the top
spot and has no intention of either revealing its trade secret or giving up its top spot. ”11 Trade secret is not just limited to recipes and algorithm but also a unique Rubbing Mud which is known as the Lena Blackburn’s Baseball Rubbing Mud which is developed to make a new basketball easier to grip by making its surface dull. It is natural and balanced mixture of clay and sand whose exact location is a secret to the Blackburn’s family from 1930 and it is used by all the teams of Major League Baseball (MLB). 12 Trade Secrets are a vital asset for businesses which offers a competitive edge by safeguarding valuable and confidential information of the company. It helps the company to grow without letting the secrecy go to a public portal unlike trademarks, copyrights or patents which generally requires formal registrations for providing exclusive rights to the owner.
13 This is the only intellectual property which allow companies to maintain exclusivity over crucial knowledge without public disclosure. Trade secrets ensure business sustainability, innovation and also maintain market dominance. It is sometimes better to keep the innovation secret rather than giving it to the public domain for the exclusive rights over uniqueness. Trade secrets enables businesses to differentiate themselves from competitors by preserving their 9 “KFC U. S. Commissions ROBOCOP as Its Newest Colonel-and Guardian of Its Coveted Secret Recipe of 11 Herbs & Spices. ” KFC, global. kfc. com/press-releases/kfc-us-commissions-robocop-as-its-newest-colonel-and-guardian-of-itscoveted-secret-recipe-of-11-herbs-spices. 10 “Trade Secrets: The Hidden Ip Right. ” WIPO, www. wipo. int/web/wipo-magazine/articles/trade-secrets-the-hiddenip-right-40225. 11 Kalra, Manan.
“Understanding Trade Secrets. ” IPTSE, 28 Sept. 2024, iptse. com/understanding-trade-secrets/. 12 Carolyn Wilke, special to C&EN. “How Rubbing Mud Makes Baseballs Grippier. ” Chemical & Engineering News, American Chemical Society, 6 Nov. 2024, cen. acs. org/analytical-chemistry/Rubbing-Mud-makes-baseballsgrippier/102/web/2024/11. 13 “Trade Secrets vs. Patents: Choosing the Optimal Protection for Your Business. ” RunSensible, 11 Nov. 2024, www. runsensible. com/blog/trade-secrets-vs-patents-choosing-the-optimal-protection-for-your-business/. Accessed 14 Apr. 2025.
strategies, database, formulae and processes which are the working mechanism behind their success. Coca cola does not require any advertisement for recognition and it is the best example who kept its recipe secret since ages. It was a choice to keep the recipe as a trade secret rather patenting the formula by disclosing the ingredients and make it easy to copy or make a better version to it. The decision of the company to keep it secret led to provide it with a unique position to the brand name and elimination of any competition using the same ingredients. There is also a concept of reverse mechanism which is a legal way to reach to the secret ingredient of the product but to only play as a lawful competitor in the market and not to disrupt the secrecy of the original recipe14.
Trade secrets, unlike any other protection enjoys a protection for an unlimited time and can be protected till the time they remain confidential. It does not require any registration fees, expiry or renewal for providing exclusive rights on it by the owner. It is cost effective and at the same time encourages for more innovations and investments in research and development without any fear of competitors gaining access to proprietary innovations. It promotes refining of the process with time and advances an edge to the company in the market with economic growth. It also allows the business to leverage secrets to expand into new market while keeping the original knowledge secure.
One of the driving force to innovation is competition and protecting the trade secret of the company leads to fair competition between the companies which significantly contributes as an essential element for balancing the supply and demand of the economy to serve the interest of the consumers. Protecting the trade secret is very essential as it can act as a push to the economy of the company but it is very vulnerable to misappropriation by the members who know about it. Misappropriation occurs when a person knowingly disclose or use the trade secret. 15 It improves the efficiency of the innovation system as a whole and provides unlimited advantages to the company for a long time which will also lead to maximum investment on the company. 16
IDENTIFYING AND MANAGING SECRETS OF THE TRADE
Companies often commits a mistake by neglecting trade secrets to safeguard their innovations and creative inputs in comparison to other intellectual properties (IP)s such as patents, 14“Research Guides: Persistent Links for Library Resources: JSTOR.” JSTOR - Persistent Links for Library Resources - Research Guides at University of Oregon Libraries, researchguides.uoregon.edu/persistentlinks/jstor. 15 “USPTO.” What Is Misappropriation, www.uspto.gov/sites/default/files/documents/tradesecretsiptoolkit.pdf. 16 “Part III: Basics of Trade Secret Protection.” WIPO Guide to Trade Secrets and Innovation, www.wipo.int/webpublications/wipo-guide-to-trade-secrets-and-innovation/en/part-iii-basics-of-trade-secret-protection.html.
trademarks, designs and copyrights but trade secrets offer a broader and cost effective alternative to it which covers all the valuable information of the company. Companies unknowingly possess trade secrets and never use them for their growth and provide many advantages in multiple ways. The primary objective of trade secret management is to optimize the benefits these confidential assets provide which ensures sustainable competitive advantage and long term business success. Companies which successfully maintain their trade secrets have (a) identified the trade secrets, (b)recognized them, (c) instituted practical programs to protect them and(d) fostered excellent employer/employee relations. 17 The fundamental step in protecting the secrets of the company includes proper identification of such secrets which is the most important and difficult step.
This step frequently becomes the stumbling block leading to prevent effective implementation of a program for protecting trade secrets. The value of information and Knowledge can be appreciated fully by those in a company who have an overall perspective of a particular business. The understanding of the competitive advantage obtained by having certain information and procedures. There is no category of information which can be classified as a secret of trade but any information which adds value to the business. The Subject Matter Clarifying the terminology “Trade Secret” which is often interchanged by the term “Confidential Information” but strictly speaking trade secrets are the subsets of confidential information.
Confidential information is any secret or personal information that is kept confidential by the holder which would meet the criteria of a trade secret, if meets the requirement under the applicable law of each country based on Article 39 of the TRIPS Agreement. The information should be as such that it provides economic benefit to the holder. 18 Protection against misappropriation and leakages A company needs to implement a plan which addresses protection to the company’s trade
17A Research on the Asymmetric Impact of CEO Power on Open Innovation: Technology Analysis & Strategic Management: Vol 0, No 0 - Get Access, www.tandfonline.com/doi/full/10.1080/09537325.2025.2478292. Accessed 14 Apr. 2025. 18 Nashkova, Suzana. “Defining Trade Secrets in the United States: Past and Present Challenges – a Way Forward? - IIC - International Review of Intellectual Property and Competition Law.” SpringerLink, Springer Berlin Heidelberg,
28 Mar. 2023, link.springer.com/article/10.1007/s40319-023-01310-1. Accessed 14 Apr. 2025.
secret and to preventing the leakages of such information through any third party. Also, the main concern which arises is to avoid third party liability arising from such misconduct by a third party of other’s trade secret. A company shall take reasonable measures for protection which are determined by the value of the information and the misappropriation that can arises.19 The second area of the plan concerns avoiding being contaminated by third party’s trade secrets. This occurs when new employees bring information with them, of the former employer or the company and that information is used by them in the new employment. This involves contamination of information which can be avoided by trade secret management.
PROTECTION OF TRADE SECRETS
Identify the valuable information of the business The first step of a protection plan is identifying the potential trade secrets of the firm. It is very important for the organisations to recognise their trade secrets which can outstand the company. The 20various information such as what makes the organisation different from its competitors, the key to their success, the part of the organisation which the competitors wanted to know and what can cause the company to lose the market position can lead the organisation to identify the valuable information which can comply with the provisions of being the company’s trade secret. Production data report, sales and customer satisfaction can also guide the company to find their master-point which provides an edge to the company.
Identify the risks arises for trade secrets After recognising the information which can be the trade secrets of that organisation the major risks for trade secrets arises is the Third Party’s acquisition or Misuse of the trade secret, which is often attempted by businesses to gain access to the secret information providing edge to the company. This can be done either by reverse engineering or improper means which includes espionage or corruptions of employees. Another risk which encompasses the leakages and accidental disclosure of the trade secrets by negligence or mismanagement of trade secrets. This is the greatest risk of trade secret management which is misconduct by the employees. 19 Mahawar, Sneha. “Protection of Trade Secrets and Confidential Information in India and Global Trends. ” iPleaders, 18 Aug. 2022, blog. ipleaders.
in/protection-of-trade-secrets-and-confidential-information-in-india-and-global-trends/. 20 Eureka. “How to Identify and Protect Your Company’s Trade Secrets. ” Eureka Software, 26 Sept. 2024, eurekasoft. com/blog/how-to-identify-and-protect-your-companys-trade-secrets.
Given the high mobility of employees, they are most vulnerable to misappropriation of information. 21 Identify and apply reasonable protection Measures The management of information directs at preservation of secrecy and maintenance of control over the people, having the access to the trade secret. 22The size and the resources of the firm affects the measures it should take and the level of complexity in managing secrecy within the firm. Budget of a deciding factor in preserving trade secret as the firm may require significant investments in security measures. Document management measures which are cost effective and easy to preserve and logistics and organizational measures which includes concierge service or surveillance which usually requires high cost but provides a wide range of protection to the trade secrets and physical assets.
The company shall make secrecy policies, codes of conduct and specific procedures which can provide wide range of protection. Training can raise employee awareness and encourage security and their responsibility to preserve them. Training on confidentiality is one of the cost-effective measure which can reduce risk of information theft or loss. Information Technology Security Measures is a costly but an efficient measure to manage huge amount of data, documents and trade secrets in the management systems23. They also protect the company from cyber threats and provide network strategies and cutting edge solutions. Implementing protection measures Setting the trade secret management and their roles and decision making processes within the company is necessary.
Handling the information and documents efficiently inside the organisation which regulates the policies and marketing, contract lifecycle management and access authorization processes. Conduct contracts between the holder and internal management of the organisation to bind them to confidentiality. Conduct contracts with 21 “7 Steps to Protecting Your Trade Secrets. ” Uspto. Gov, www. uspto. gov/sites/default/files/documents/CRS-LA- OBrien-trade-secrets. pdf. 22 “‘reasonable Measures’ for Protecting Trade Secrets: A Primer. ” Winston & Strawn - “Reasonable Measures” For Protecting Trade Secrets: A Primer, www. winston. com/en/insights-news/reasonable-measures-for-protecting-tradesecrets-a-primer. 23 Bienstock, Ronald S. , and Zachary E. Klein. “What Is a Trade Secret? Key Elements and Legal Protections Explained. ” Lexology, Scarinci Hollenbeck, 14 Feb. 2025, www. lexology.
com/library/detail. aspx? g=d684bc6a-d364- 4d60-8157-01b4e3e612f9.
external parties such as suppliers, clients, partners, vendors to obligate them by limiting access to use or sell the trade secrets. Regulation od documentations, creation, use and end life of documents can prevent accidental leakages of documentation. Ban or limiting copies of confidential documents, tracking unique copies of the confidential documents and managing the proper disposal of confidential documents can preserve the exploitation of trade secrets. IT security measures includes authentication such as passwords and pins to access the company’s devices, tools such as password and pins. Anti-virus, anti-spyware, firewalls protect the system with proper encryption and daily back-ups.
Monitoring and reacting towards misappropriation and leakages of data Although a company has a strong and effective trade secret protection plan there can be leakages and misappropriation of trade secrets, data and other information due to negligence or mistake. The first step includes understanding the situation and stop the conduct of misappropriation or leakage24. This includes collecting and preserving the evidences, investigate the matter and detection of the weaknesses that caused the misappropriation. The next step deals with preserving the trade secret value if the leaked information or trade secret are not yet in the public domain the firm can go for amicable resolution or litigation in case the secret is on the public domain. The third step is curing the reason of the breach by amending or improving the prevention plan to avoid similar circumstances in future.
The company can focus on the internal due diligence to manage and protect the trade secret and conduct tests on the IT System. The last step talks about handling the reputational damage and liability to maintain the goodwill and public perception of the company.
LEGAL REMEDIES
After preserving the evidence, understood the scenario and securing the situation the trade secret holder has generally three options that is either going for an amicable settlement, instituting litigation or not taking any legal action. Amicable Settlement It is a settlement which includes resolution of dispute without the need of a court proceeding
24 “Monitoring and Detecting Trade Secret Misappropriation.” FasterCapital,
fastercapital.com/topics/monitoring-and-detecting-trade-secret-misappropriation.html/1.
or legal action. Sending a warning letter to the misappropriators of the confidentiality and non-disclosure obligations which they breached and demanding remuneration accordingly. An alternation dispute resolution which is an out of court settlement and can be efficient where they can claim the compensation for the loss. Litigations and remedies The holder of the secret can seek for legal remedies for trade secret misappropriation under national laws. A holder may also put multiple cause of action. Both enforcement of legal claims and existence of their requirements are different from case to case and countries. • Entitlement to sue - A legitimate trade secret holder is entitled to start legal proceedings for misappropriation of their trade secrets.
However, any other person having the lawful possession of the secret can also sue which includes licensees too depending upon the licensing contract and applicable laws. Fraser v Evans [1969]1 QB 34925, The court held that consultant had no right to sue when the report for the UK government was leaked. The court established duty of good faith and a duty of confidence must be owed to the claimant to establish a breach. • Statute of limitations – Legal proceedings seeking remedies can be brought but within a specific time frame from their knowledge of the conduct of misappropriation of information. Generally, the statutes of limitation vary from country to country, which usually ranges between three (3) to six (6) years. • Reliefs provided by the court- Trade secret holders can seeks different types of relief measures and remedies from the court.
1. Injunction – By an injunction, the use or disclosure of the trade secret and information can be
prohibited. It includes prohibition of production, sale, use of such product or export and storage of such trade secret.
25 “Fraser v Evans.” vLex, vlex.co.uk/vid/fraser-v-evans-793260337.
Heraeus v Zimmer Biomet 26 The case involves a misappropriation of trade secret of a medical product. The court under Milan pronounced that granting an injunction can negatively affect third parties (public health institutions) who has an agreement with the misappropriators. Therefore, comes the preliminary injunction which are granted in the urgency and are issued for a shorter duration.27.
2. Monetary remedies – This is the second major remedy which a holder of trade secret can claim
for the misappropriation. There must be a relation and connection between the alleged trade secret and the missapropriation claimed by the holder and the holder bears the onus of proof to prove the misappropriation by the defendant.
3. Compensatory Damages – The purpose of such remedy is to provide a safe platform to the
injured party. It includes the loss suffered by the holder and the profit gained by the misappropriator.
4. Reasonable Royalty – It is a royalty which can be claimed as that a licensor and licensee would
have agreed willingly for a license in any situation.
5. Restitutionary damages – The purpose of this remedy is to provide monetary support to the
the inured party. The damages are calculated based on the benefit earned by the misappropriator and not the loss suffered by holder of trade secrets Bluescope Steel Limited (ACN 000 011 058) v Kelly; [2007] FCA 51728 In this case, the court's decision highlighted the principle that restitutionary damages aim to strip the wrongdoer of any profits gained through the misappropriation, ensuring the trade secret holder is not unjustly enriched.
26 “European Commission, Official Website.” European Commission, commission.europa.eu/index_en.
27 Crouch, Dennis, et al. “Trade Secret Misappropriation Preliminary Injunction Reversed.” Patently, 17 June 2024, patentlyo.com/patent/2024/06/misappropriation-preliminary-injunction.html. 28 Bluescope Steel Limited (ACN 000 011 058) v Kelly [2007] FCA 517 - Barnet Jade, jade.io/article/6091. Accessed
14 Apr. 2025.
CONCLUSION
In today’s world, trade secrets have emerged as one of the powerful tools for businesses which safeguards their innovations and strategies and providing a competitive edge in the market. The indefinite nature of protection, flexibility and confidentiality positions the trade secret as a valuable asset to the company. However, the effectiveness f trade secret is contingent upon the holder by implementing internal controls, identifying and managing the confidential information and responding effectively and efficiently in a situation of misappropriation. As the global markets are becoming increasingly competitive, organizations must not only protect their own trade secrets but also ensure they are not unknowingly exposed to liabilities from misappropriating third-party trade secrets.
Ultimately, the strength of a company’s trade secret regime lies in its strategic foresight, legal awareness, and commitment to confidentiality as a core business value.