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Using trade secrets to sustain a competitive advantage in the United States

Disclaimer: The information provided in this factsheet is meant as an educational resource only and should not be construed as legal advice.

  1. All forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes can be protected as trade secrets.
  2. An idea or process is considered a trade secret if the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information (18 U.S.C. § 1839).
  3. A trade secret can be tangible or intangible, and can be stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing.

    Example 1: Good examples of trade secrets are recipes of certain well-known U.S. soda and fried chicken companies, a business plan, salaries, a machine learning algorithm etc. Data sets whether raw, derived or transformed can also be considered trade secrets.

  4. Trade secrets are as valuable and potentially more valuable than patents if they are properly managed and catalogued.
  5. The owner must be able to prove they have taken reasonable measures to keep such information secret. Therefore, access should be limited and strong cybersecurity must be implemented to avoid a leak.
  6. In the United States (US), the Defend Trade Secrets Act was signed in 2016 giving federal jurisdiction to trade secret misappropriation disputes.
  7. Companies can now defend their misappropriation at the state level with pre-existing UTSA or at the federal level (or both because of loopholes). Since the act was signed, 68% of the cases were ruled in favor of the plaintiff, 52% were awarded damages for a total of $3B with the largest award to date being $100M.

    Example 2: The inventor of Listerine licensed the trade secret formula to Lambert Pharmaceuticals. Lambert (now Pfizer) made royalty payments to the inventor's family for over 70 years, even though the formula was revealed during that time. Pfizer tried to stop payments after paying over $22 million for a formula that was no longer secret. It sued, saying it was no longer responsible for licensing fees. The court ruled that the contract did not stipulate that payments could be stopped if the trade secret was legitimately discovered by others, especially since Pfizer had acquired the formula when it was still secret and derived competitive advantage from it. However, anyone who has access to the revealed secrets can sell the product without paying royalties.

    Example 3: A jury awarded Zest Labs and Ecoark $60 million in compensatory damages and another $55 million in exemplary damages on the claim of breach and misappropriation of trade secrets against Walmart. Ecoark sued Walmart in August 2018 after Walmart filed two patents based on technology to improve the freshness of produce. Ecoark claimed it shared information with Walmart between 2014 and 2017 during a pilot of Zest Labs (a subsidiary of Ecoark). The plaintiffs claimed Walmart stole their technology that prolongs the shelf life of produce.

Key considerations for Canadian companies:

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