What is a trade secret?

Protection of a trade secret is set forth in Chapter B of the Commercial Torts Law, 5759 – 1999. This law defines a trade secret as, "Business information of any type that is not in the public domain and that cannot be easily lawfully discovered by others, whose confidentiality grants its owner a business advantage over his competitors, provided that its owner takes reasonable steps to protect its secrecy."

The definition does not restrict the form of the trade secret, meaning: it can be in the form of a formula, table, plan, work method, invention, or combination of information that was collected with great effort. Accordingly, a trade secret can be a formula for a chemical compound (such as the formula for manufacturing "Coca-Cola"), a manufacturing process, a product handling or maintenance secret, a chart, or the plan for a machine, and even a customer list.

With that, the law sets forth a number of foundational requirements for granting protection to a trade secret:

  1. It must be secret: Meaning, not in the public domain and cannot be discovered without special effort.
  2. It must have business value, meaning: It grants its owner an advantage over his competitors.
  3. The owner of the secret must take reasonable measures to keep it secret.

Taking those same "reasonable measures" is critical to maintain the protection, and business owners and companies must formulate a policy to protect trade secrets that will make it possible to prove that the trade secret was indeed kept secret. Thus, for example, failure to lock a computer containing confidential information can be considered as failure to take reasonable measures to protect the secrecy of a trade secret, whereas having employees sign a nondisclosure agreement, noncompete clauses, and distributing memoranda to employees regarding their obligation to maintain confidentiality will all be considered reasonable measures to protect a trade secret. Marking documents as confidential and shredding them after use, or signs limiting access to areas of a business where trade secrets are located, can prove that reasonable measures have been taken.

TRADE SECRET

THE SCOPE OF THE PROTECTION OF A TRADE SECRET

NONDISCLOSURE AGREEMENT (NDA)