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Why Are Trade Secrets So Important to Businesses?


In today’ world, business is about innovation, upgradation, and creating a new product or service. To do that, people try to make new formulations for existing products or create new ones from scratch. Nevertheless, all of this requires intellectual property right protection, and one such IP is Trade Secrets. Trade secrets are one of the unknown and unspoken kinds of IPR. Trade secrets, however, often come at loggerheads with the laws of making profits and doing business.

Understanding Trade Secrets

A trade secret is a form of IP that refers to any confidential information, formulation, or design that is unique to your business. This information is confidential, unique, and exclusive to its owner/company. The owner or company makes efforts and arrangements to maintain its confidential status.

This confidential information is crucial and of immense commercial value, as this forms the core of the business. A significant example of this is the Google Search Algorithm, which has been used by pretty much every person with an internet connection and has become so much of a monopoly that “Googling” has become an industry term. Losing the secrets of the algorithm would massively affect Google’s monopoly over the search engine.

What Makes Something A Trade Secret?

Any data or information relating to enterprises that are not known to the general public, as well as reasonable efforts to keep such information confidential, qualifies as a trade secret.

“A trade secret is any knowledge having an economic value that is not in the public domain and for which reasonable efforts have been taken to safeguard its secrecy,” according to the North American Free Trade Agreement (NAFTA).

In Burlington Home Shopping Pvt. Ltd. v. Rajnish Chibber, the court determined that a trade secret is a knowledge that, if divulged to a rival, would cause real or serious harm to the owner. It can comprise of equations not just for product manufacture, but also, in some cases, the names of clients and the commodities they purchase.

Challenges in Protecting Trade Secrets

Numerous employees work in a business organization, and keep switching their jobs. As a result, often the information of one business organization gets transmitted to another. In such scenarios protecting your trade secret becomes a challenge.

For instance, Coca-Cola goes so far as to make the recipe a trade secret that only two persons in the firm have access to the constituents in their drink. Urban legend has it that these two executives don’t even board the same airplane at the same time, to prevent chances of accidental loss.

Because of the ever-changing world and the possibility that trade secrets will be discovered by others on their own, firms are frequently encouraged to continue to alter and further develop their trade secrets to keep competition in place and protect their trade secrets from being found.

It’s challenging to come up with new concepts for trade secrets in an ever-changing and inventive world. Some businesses make shady attempts to steal projects from competitors to acquire access to their artistic talents and information about their competitors’ success secrets.

An employee, may expose or utilize secret information received during his employment, either while or after it has finished. A former employee may be forbidden from disclosing a chemical formula or a memorized client list. Often employees are made to sign Non-Disclosure Agreements as means to protect crucial information of the company. Breaking these agreements will result in losses and lawsuits for the employee. Trade secret theft is often a reason behind lengthy employer-employee or vendor-vendee agreements.


It is essential to stand out in the market and have a brand reputation. For this, one has to ensure its trade secrets remain hidden. However, one also needs expert employees for running an enterprise. Hence, businesses have to find a mid-path, to protect their IP and ensure the retaining and hiring of expert employees. 

Author: Sejal Chaturvedi, Legal Intern at PA Legal.

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