Pros And Cons To Treating Information As A Trade Secret

A trade secret may be the “X-factor” that distinguishes one business from another. It may provide a business with a competitive edge and advantage, and create a niche market which competitors may find challenging to enter. A trade secret may be any form of information which is valuable to a business and which is not known nor readily ascertainable by third parties. There are pros and cons to keeping information as a trade secret or to treating a trade secret as an invention and seeking patent protection for the invention.

The Coca-Cola recipe has been a secret for many decades and is currently kept in a vault within the company’s headquarters in Atlanta. There have been rumours that the recipe is known by only two employees – each knowing only half of the recipe, and that only two people know the combination to the safe in which the recipe is stored. In 2006, an employee and two friends stole the recipe and attempted to sell it to Pepsi. Pepsi did not accept the recipe and blew the whistle on the happenings. The perpetrators were arrested.

Another example of a trade secret is the ingredients for Kentucky Fried Chicken (KFC). Colonel Sanders initially kept the secret to himself but eventually wrote it down. The recipe is kept in a safe in Kentucky. In order to keep the ingredients a secret, two separate companies blend a portion of the herb and spice mixture which is subsequently sent to outlets as a blended spice mixture.

The Google search algorithm remains a trade secret as Google continuously refines the algorithm. Google is the top search engine used today, a term which is known and used by everyone.

One should consider the pros and cons to keeping information a trade secret. The pros of a trade secret are that it is free; no registration is required; there is no lifespan or time limit connected to the secret; it is in place on establishment as it does not have to be disclosed for any reason; and there are no maintenance fees. The cons of a trade secret include the risk of the secret being reverse engineered or exposed. Should the trade secret be treated as an invention and a third party registers a patent for the invention, the patent would prevent the original “trade secret holder” from making use of the invention. A trade secret cannot preclude third parties from doing something. One may then consider what a patent has to offer.

A granted patent provides a patentee with enforceable rights in terms of the South African Patents Act. The patentee has the right to exclude others from making, using, exercising, disposing or offering to dispose of, or importing the invention, so that the patentee will have and enjoy the whole profit and advantage accruing by reason of the invention. Patents are territorial and will only be enforceable in counties in which the patent is filed and granted. A patent has a lifespan, commonly 20 years in most countries, and is required to be maintained by annually paying renewal fees.

Should a business wish to protect a trade secret, it is essential to protect the secret by restricting access to the relevant information and to having individuals who have knowledge of the information enter into a confidentiality undertaking. Just as KFC’s employees who are bound by confidentiality agreements, it is necessary to have employees enter an undertaking such as a non-disclosure agreement or to include such clauses in an employment contract or document.

Recently a Pennsylvania federal judge ordered an ex parte temporary restraining order against a former global marketing director for Pfizer. The temporary restraining order was granted upon Pfizer’s emergency complaint against the former director for misappropriating confidential information and trade secrets. Pfizer sued the former director shortly after her resignation as she allegedly forwarded emails to her personal account and compiled a USB drive containing documents detailing strategic plans and product launch roadmaps prior to resigning. The hearing was scheduled to take place on 16 March 2017.

In today’s modern word, the speed and efficiency of technology are progressing and the protection of trade secrets may be a difficult task. It is important for a business to identify and protect trade secrets by way of policies and agreements. It is recommended to restrict disclosure, prevent unauthorised access to information or premises, keep confidential information confidential, and mark documents as “secret” or “confidential”.

The decision of keeping certain information a trade secret is entirely at the discretion of the decision maker. Should information be kept a trade secret, it is essential to implement measures such as non-disclosure agreements and restrictive access in order to keep the valuable information secret. “Information is power. But like all power, there are those who want to keep it for themselves” – Aaron Swartz.

Nicolé Maré – Candidate Practitioner

Monty Rademeyer – Partner

Want to know more about the author? Read her Me in a Minute blog post.