Everyone has heard of trade secrets. It’s a topic of discussion in the news recently due to the alleged public disclosure of the most famous and closely guarded trade secret of all time- the Coca-Cola recipe. But what exactly is a trade secret and how is a trade secret created?
A trade secret is information compiled in some form that gives a business an advantage over its competitors who do not posses the same information.
For example, the recipe for Coca-Cola mentioned above is a long guarded trade secret that gives Coca-Cola an edge over its competitors in the soft drink business. Imagine if Wal-Mart sold a soft drink with a flavor identical to Coca-Cola at half the price. Imagine if Pepsi came out with a Coca-Cola knockoff called “Pepsi CC”. Sure, Coca-Cola would retain many customers on name alone but the brand would lose some value.
It doesn’t take a national brand or a secret recipe passed down through generations to create a trade secret. In fact, a trade secret need not be entirely unique or unknown.
Trade secrets exist in virtually all businesses. A customer list, a vendor list, a business plan and a procedure manual may all merit trade secret protection. But trade secret protection is not inherent. For trade secret protection to apply in Texas the business seeking protection must make an active effort to keep the information secret and out of the hands of competitors. Of course, this means that the business should not disclose the information to the public or to anyone that does not have an obligation to keep the information confidential.
As illustrated by the Coca-Cola story, maintaining the secrecy of internal information is not as easy as it sounds in the age of Twitter. As a result, smart businesses develop procedures to create, compile, manage and protect trade secret information. Lazy or inexistent office procedures can lead to disastrous results for a business that fails to properly manage its confidential information.
Don’t let an employee, contractor, partner or anyone else walk out with the secret sauce to your business. Develop a plan now to protect your valuable trade secrets.
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