Understanding Trade Secrets

Trade secrets like Google’s search algorithm and Coca-Cola’s recipe give them an edge over their competitors.

Learn about trade secrets, their types and examples in this article

Trade secrets are Intellectual Property Rights that add value to a business. As this world becomes more inclusive, there is little space left to protect unique ideas and inventions. New ideas are widely shared on public platforms. But in this highly competitive and closely connected world, it is becoming increasingly essential to protect new ideas and innovations that can change the course of humankind. This is where Intellectual Property Rights like trade secrets, patents, trademarks and copyrights come into the picture. IPRs are designed to help protect these unique ideas. They also allow inventors and creators to gain financial compensation for their inventions and creations.

Some famous examples of trade secrets include the Coca-Cola formula and the Google algorithm as well as the recipes used by Kentucky Fried Chicken and McDonald’s Big Mac Special Sauce. Do you know what one has to do to be on the New York Times Best Seller list? Well, nobody apart from The New York Times knows that since the publishing house has never divulged what makes a bestseller! In this article, we shall attempt to analyse trade secrets in detail. Let’s find out what they are, their types and two widely popular examples of trade secrets.

What Is a Trade Secret?

A trade secret is the process or practice of a company, which is typically unknown to people outside of the company. Often trade secrets are the product of a company’s internal research and development. They garner a significant amount of profit for the company, giving them an edge over their competition.

Fundamental Prerequisites of a Trade Secret

For a trade secret to be legally valid, there are three prerequisites

1. The company is required to make a reasonable, active effort to conceal the information from the public.
2. The protected knowledge should have an intrinsic economic value.
3. The secret should contain critical information, that is unknown in the larger, public domain.

As such a trade secret is simply a part of an organisation’s intellectual property, and unlike patents, it is vigorously guarded so that it is not leaked to the public.

Types of Trade Secrets

Trade secrets are essentially categorised into seven types. They are:

1. Formulae
   The most common type of trade secrets that companies protect are the formulae for their products. For instance, the formulae used in certain types of food. As per FMCG laws, companies are required to (and do) display the ingredients used in the product on the label. However, the list of ingredients is usually a high-level list which leaves the exact formula used in the process of creating the product, a secret.
2. Processes
   The best example of this would be the cooking process, where it results in the creation of a unique flavour profile. The process is treated as a trade secret as it directly affects a company’s profit. Nestle’s ‘Maggi Masala’ is a closely guarded secret for this very reason!
3. Designs
   Another type of trade secret is a company’s design, typically used for its products and services. It is often challenging to keep designs a trade secret for long since they are easily reverse-engineered. In India, the most notable design IP violation is the copy of ‘Being Human’ t-shirts, found with nearly every street vendor.
4. Methods
   Yet another common type of trade secret that is fiercely guarded is the method. It could be a software algorithm or a calculation product which improves decisions, products, or operations. Unlike designs, the method is much more difficult to replicate.
5. Patterns
   A pattern is defined as a reusable solution that may be applied to several different systems, designs, or processes. This is one of the most common types of trade secrets that most companies own and actively protect.
6. Tools
   Tools that improve work results, thus improving a product’s quality and productivity are also deemed as trade secrets. Companies guard the propriety design tools actively as it can give them an advantage over their competition.
7. Automation
   There are specific proprietary systems which help automate work to improve quality as well as efficiency. These are deemed as automation trade systems. The use of robotics by many companies in the 21st century is a general example of automation trade secrets.

Examples of Trade Secrets
Here are two of the most famous examples of trade secrets.

1. The Google Search Algorithm
   Google’s search algorithm is one of its best-kept trade secrets. The company developed the algorithm in 1997 and continues to refine and update it, with the latest update coming in, in January 2020. While the company announces some changes, most of them are unannounced, so that people and businesses are kept in the dark. Despite the presence of so many other search engines, Google continues to occupy the top spot and has no intention of either revealing its trade secret or giving up its top spot.
2. The Coca-Cola Formula
   The beverage power-house Coca-Cola made the strategic move to brand the Coca-Cola recipe a trade secret as opposed to patenting it. By doing so they were not required to disclose its ingredients. Rumour has it that two people in the entire company know the combination to the safety vault in which the secret Coca-Cola recipe is stored. This goes to show how determined the brand is to safeguard its formula as a trade secret.

Final note: When it comes to Trade Secret Laws in India, it should be said that India does not have any specific law in place to protect trade secrets. That said, our courts have upheld the protection of trade secrets under several statutes, which include copyright law, contract law and principles of equity. In certain instances, the courts have also applied laws that take action against the breach of confidence, resulting in the violation of a contractual obligation. Moreover, Section 72 of the IT Act of 2000 also provides companies guarding trade secrets with certain protections, although it is limited to electronic records.  However, the trade secret owner can resort to several remedies such as filing an injunction to prevent employees, vendors and licensees from disclosing the secret. The secret owner also has the authority to ask the concerned parties to return all proprietary and confidential information and seek compensation for any losses suffered from disclosing the trade secret.