Small Business Trade Secrets

Every business, whether large or small, has a secret considered vital to success.  It could be a top secret family recipe for a dish that has a special spice, or a new way to create a rubber product for a cheaper price, but it lasts just as long. Whatever it is, it is of value to the business and is often considered to be one of the most important assets when the business is up for sale.

Unfortunately, trade secrets cannot be easily and universally defined. The real definition comes from the following three tests on the idea: it’s kept secret, it’s considered important, and it is necessary for the business’s success and has adds value to it.  These three tests must be met for a court to protect the trade secret in a legal issue.

A trade secret can be almost anything used in the business or created by the business as long as it is not generally known in the industry. For example, if a business owner creates a new recipe using pinto beans for a homemade chili, it would not be considered a trade secret because 1) chili is common, 2) pinto beans are common, and 3) most importantly, it is common knowledge you can use pinto beans in chili. A trade secret is a very important key to the competitive advantage given to the business owner and allows the business to operate at higher profit margin usually.

As long as the trade secrets are kept secret, they remain valuable to the business’s success, though over time that value can diminish if a competitor figures out how to duplicate the process. Once discovered independently, the trade secret can be used without any legal action being able to be taken unlike the copyright or patent. If the secret is obtained illegally, then the owner has the right to take legal action and claim damages.

How can a business protect its secrets?

The first step is to determine what in your processes created a trade secret. Unfortunately, the information gathered in creating a product cannot be labeled as one, as it usually represents skill or industry practices. Courts also protect an employee’s rights to carry with him his experience from one employer to another or her own business.

The second step is to write them down in a log and indicate who knows the secret.  The business owner needs to make sure all the people on the log understand the importance of the secret to the business and that they are not to disclose the information.

While no protection plan is entirely safe, the starting of one should indicate to the staff the owners are serious about protecting the secret and its importance to the business.

Your local University of Missouri Extension Small Business Technology Development Center can assist you in identifying and classifying trade secrets through its programs. For such assistance, please call 573-243-3581 and ask for Richard Proffer.