A trade secret is a confidential practice, method, process, design, or other information used by a company to compete with other businesses. It is also referred to in some jurisdictions as confidential information.
The concept is that, sometimes, Company A is more successful than Company B, or is successful at all, not so much due to access to markets, resources, or personnel, but due to special knowledge owned by Company A. If others had access to the same knowledge, then Company A's ability to survive in an otherwise equal markeplace would be impaired. Thus, such secrets are guarded jealously.
Trade secrets are neither necessarily nor always protected by law in the same manner as a trademark or patent. Instead, owners of trade secrets seek to keep their special knowledge out of the hands of competitors through a variety of civil and commercial means, not the least of which is the employment of confidentiality agreements. In exchange for the opportunity to be employed by the holder of secrets, a worker will sign an agreement not to reveal his prospective employer's proprietary information. Often, he will also sign over rights to the ownership of his own intellectual production during the course (or as a condition) of his employment. Violation of the agreement generally carries stiff financial penalties, agreed to in writing by the worker and designed to operate as a disincentive to going back on his word.
Historically, trade secrets have been with us after a fashion since early times in the form of keeping advanced military technology from one's enemies - and in more recent times, in keeping Industrial Revolution-era technology secret.
A relatively recent development in the USA is the adoption of the UTSA, the Uniform Trade Secrets Act, which has been adopted by approximately 40 states as the basis for trade secret law. It is believed that a measure of uniformity among different states' laws will strengthen business' claims on their trade secrets.
In Commonwealth common law jurisdictions, confidentiality and trade secrets are regarded as a negative equitable right rather than a property right (with the exception of Hong Kong where a judgment of the High Court indicates that confidential information may be a property right). The English Court of Appeal in the case of Saltman Engineering Co Ltd v. Campbell Engineering Ltd, (1948) 65 P.R.C. 203 held that the action for breach of confidence is based on a principle of preserving "good faith".
The law of protection of confidential information effectively allows a perpetual monopoly in secret information - it does not expire as would a patent or trade mark. The lack of formal protection, however, means that a third party is not prevented from independently duplicating the secret information.
The test for a cause of action for breach of confidence in the common law world is set out in the case of Coco v. A.N. Clark (Engineers) Ltd, (1969) R.P.C. 41 at 47:
- the information itself must have the necessary quality of confidence about it;
- that information must have been imparted in circumstances imparting an obligation of confidence;
- there must be an unauthorised use of that information to the detriment of the party communicating it.
A successful plaintiff is entitled to various judicial relief, including: