1. What Is a Trade Secret?
2. Trade Secrets Versus Patents
3. Is Theft of Trade Secrets Considered a Crime?
4. Penalty for Stealing Trade Secrets

The theft of trade secrets is a serious crime and can be punished with extensive fines and even prison time. Depending on the extent of the crime and whether an individual or a company commits it, the punishments will vary. It's important to understand the theft of trade secrets to help yourself and your business or employees avoid committing a crime unintentionally.

What Is a Trade Secret?

Trade secrets are defined as any of the following:

  • Formulas
  • Processes
  • Ideas
  • Compilations
  • Patterns
  • Physical devices
  • Sales strategies
  • Advertising methods.

When a company legally protects any of these things, they are considered trade secrets. Protecting such items gives a company an edge over its competitors. Different jurisdictions will handle defining trade secrets differently. However, all agree trade secrets are information that companies go to lengths to protect because they represent economic value for the business.

Information that is widely known, easily ascertained by others, or considered common sense cannot be protected as a trade secret. Many trade secrets are specific just to the industry they're in, such as food or drink recipes. The Coca-Cola Company owns a famous trade secret in the recipe for their popular carbonated beverage.

Trade Secrets Versus Patents

A patent can protect some trade secrets, but not all. There are some major differences between these two types of intellectual property (IP) protection. Companies may choose to keep their protected information under a trade secret rather than having it patented. This can be a good or bad strategy, depending on various factors.

Patents expire, while trade secrets do not. Trade secrets are also not as official as patents, so they require less formality and registration. This also makes trade secret protection harder to enforce in court than patent protection.

If you want to protect information with a patent, you must register it with the USPTO (United States Patent and Trademark Office). Through this registration process, you'll need to make sure your information complies with various requirements.

Without patent protection, another company or individual could figure out your trade secret through reverse engineering. For instance, if you own a fried chicken company, and your crispy chicken recipe is a trade secret, your employees are not allowed to share the recipe with anyone. However, a frequent buyer of your chicken may have a very good sense of taste and smell and be able to figure out your recipe on his or her own. If that individual succeeds, then the person technically didn't steal your trade secret.

If a patent protected that same fried chicken recipe, the reverse engineering tactic wouldn't be allowed. The customer who figured out your trade secret could actually patent it as his or her own if you don't patent it first. The only way you can enforce trade secret protection is if you can prove someone actually stole it.

Is Theft of Trade Secrets Considered a Crime?

Intentionally stealing trade secrets is considered a crime in the United States under state and federal law. It is called a white-collar crime, meaning it's a crime that business professionals or companies commit with malicious intent for financial gain. A trade secret is stolen when someone uses specific information a company is protecting without the proper authorization or for personal gain. Both intellectual property law and unfair competition law work to protect trade secrets.

Companies need to be aware of trade secret law as they hire and fire employees. Many times, disgruntled employees steal trade secrets, or an employee accidentally shares them if the employee didn't understand what he or she was doing. Confidential data is sometimes even accidentally stolen when an employee switches companies and takes the processes or practices with him or her. Such employees might use a process or recipe at their new job without realizing it's protected.

The best way to prevent unintentional trade secret theft is to make sure all employees are well-educated on the issue. Make sure they understand which information is protected and which isn't. There are also many security measures companies can take to ensure their secrets remain secret.

Penalty for Stealing Trade Secrets

Theft of trade secrets can be punished with as much as 10 years in prison and a $500,000 fine when an individual is convicted, or a $5 million fine when a company is found guilty. The company or person guilty of stealing trade secrets will also likely be required to relinquish any profits earned through his or her exploitation of the protected information.

If you need help with understanding the theft of trade secrets, you can post your job on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.