You may have heard lots of rumours about what could possibly be KFC’s 11 herbs and spices, or Big Mac’s “special sauce”. But you often find yourself without the answer you’re looking for.
Well, these are all trade secrets and are well hidden for a good reason. These methods or recipes are integral to the business’ success, so it’s important that it doesn’t fall into the wrong hands. If that kind of information was just floating around, they wouldn’t be performing as well as they do.
So, how do they manage to protect this information?
First, let’s go through the basics.
What Is A Trade Secret?
A trade secret can refer to anything from the way your business makes a certain product, to the ingredients used in a certain drink. In fact, it doesn’t even need to be written down!
This is what makes it a form of Intellectual Property, so there are many strategies business owners undertake to ensure it stays protected.
While it is a ‘secret’, it’s not offered as much protection as a patent, for example. Trade secrets are protected by common law and other contracts like Non-Disclosure Agreements (NDAs), but there’s no binding legal protection. If you do want to take that extra step, you can register a patent – we’ll go through what this entails shortly.
Are My Trade Secrets Protected?
Like we mentioned, trade secrets are protected under common law, but it’s not as secure as registered patents. For example, a trade secret might be protected through an implied duty of confidence in the employment relationship. But this isn’t as strong as the Patents Act 1990 (Cth).
Either way, there are plenty of real life examples where businesses have opted for trade secrets over patent registration. Let’s take a quick look at Coca Cola to better understand why trade secrets are still a popular option.
|Coca-Cola: one of the best-hidden trade secrets in the world|
Coca-Cola is known for having one of the biggest trade secrets in the world. For over a century, their recipe for their popular soft drink has been in hiding. So, how do they do it?
Surprisingly, it’s not protected by patent legislation. This means there’s no expiration for its protection, but there’s also a greater need to keep the secret from being leaked.
Initially, the recipe was never written down. When it was put into writing by Candler’s son in 1919, however, it moved from vault to vault in an effort to keep the trade secret hidden.
The trade secret was taken so seriously that ex-employees were arrested and sentenced for attempting to sell the recipe to PepsiCo. Even though trade secrets are afforded less binding protection, it’s still proven to be the right method for one of the biggest secrets in the industry.
5 Ways You Can Protect Your Trade Secrets
Protecting trade secrets might be easier since you won’t need to go through the process of registering a patent or worrying about the expiration date. However, it does mean you’ll need to carefully consider ways you can better protect your information.
Restraint of Trade Clause
It’s common for businesses to take measures to prevent others from taking their secrets or other forms of IP through a Restraint of Trade Clause. This is something that you’d include in your Employment Contract so employees don’t go off sharing trade secrets with your competitors if they do leave at some point (as this would leave you at a significant disadvantage).
Usually, employers will add one of the following types of clauses:
- Non-Compete Clause: this will prevent a former employee from working with a competitor or starting their own business in the same industry (you can read more about this here).
- Non-Solicitation Clause: employees generally have access to client databases, so a non-solicitation clause will prevent them from taking these clients with them when they stop working for you.
- Non-Poach Clause: this prevents former employees from taking other employees from your business when they leave.
All of these clauses need to be reasonable, otherwise it won’t be enforced. The court might see it as being unfair on your former employees if you remove any opportunity for them to work in the same or a similar industry.
Non-Disclosure Agreements (NDAs)
Another useful way to prevent competitors from getting their hands on your trade secrets is by making your employees sign a Non-Disclosure Agreement (NDA). This basically ensures your employees do not disclose any confidential information they learned while working for you, or share any inside information with other people.
If you’re not opting for a patent, an NDA might be a suitable option for your business to better protect your trade secrets.
You might also want to consider having Non-Disclosure Agreements with your contractors (especially if they’re hired from overseas, as their laws around confidentiality might be different). This provides extra protection against the threat of losing your trade secrets.
Most businesses have a number of policies in place. With everything being online these days, it’s worth investing in your cyber security policies and what you would do in case of a data breach. This is because a lot of businesses tend to keep confidential or classified information online (especially with employees working from home), so these trade secrets are still at risk of being stolen.
So, what kind of measures might you consider to protect your trade secrets, and maintain your cyber security in general?
- Information Security Policy – this informs employees of what to do in case of a data breach, and minimises the risk of serious cyber attacks
- Data Breach Response Plan – this will set out what you need to do in case of a data breach. For example, which staff is responsible for containing the data (to better understand how this could benefit your trade secret protection, you may also want to read into a Notifiable Data Breach).
Earlier, we mentioned that trade secrets do not actually have to be in writing and they could still be protected by law. While this is the case, you can take that next step and put that idea into writing. Once it is expressed in material form, it will be automatically protected by copyright.
However, this also means you’ll need to put copyright disclaimers for your product. For example, you might have disclaimers on your website indicating your ownership of that IP, or insert it in your contracts with other parties. Copyright can be a complex road, so it’s important to understand the details around it – you can read more about it here.
If you want legal ownership and protection, you need to register your IP (in this case, your trade secrets) as a patent. This just means that you’re the formally recognised owner and you have extra protection in case someone tries to steal your trade secrets.
However, before you jump into anything, you need to consider the expiration for the different types of patents.
A standard patent lasts up to 20 years and requires an idea or form of IP that is new, useful and inventive.
An innovation patent lasts up to 8 years, however it requires six months of examination before it can be enforced. This is a little trickier than a standard patent because it needs to undergo a quick check of your invention before anything is granted.
You can register a patent for a number of things – you can read more about what can be patented here.
My Trade Secret Has Been Stolen – What Do I Do?
Even with all these different methods you could employ to protect your information, some trade secrets end up being stolen either by an external party or by employees. In this scenario, what options do you have?
Cease and Desist Letter
If you find that someone has shared confidential information, you can issue a cease and desist letter demanding that they stop sharing that information, and to return it if possible. It also ensures they won’t use it any further.
If this doesn’t work out alongside negotiations, your next option would be to go to court. Although this isn’t ideal, the court may be able to issue an injunction which stops them from using the confidential information.
You can also receive compensation for any losses you experience from their use of any trade secrets they used.
Breach of Confidence
If you do decide to take the matter to court, you would take legal action against the person (for example, a former employee) for a breach of confidence. To do this, you’d need to establish 3 things:
- The information is confidential
- There is an obligation of confidence considering the relationship of the parties
- The information was used in a way that caused losses for you
Depending on your case, the court may award damages or an injunction.
Trade secrets are common in an increasingly competitive market, so you want to make sure you employ the best methods to protect them (especially if patent registration is not an option for you). You might be wondering:
- Should I register a patent or stick to trade secrets?
- Should I put my trade secret in writing?
- Is my IP protected by copyright?
- Are my existing policies enough to protect my trade secrets?
- How can I enforce an NDA against a former employee?
If you need help, Sprintlaw has a team of lawyers who can discuss your options with you so you can eliminate any threats against your IP.
You can reach out to us at firstname.lastname@example.org or contact us on 1800 730 617 for an obligation-free chat.
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