What is a trade secret?

Trade secrets include any business information that has commercial value derived from its secrecy. Trade secrets can be very valuable to you, whether you have developed new technology, designed original products, created the perfect recipe or amassed a gold mine of customer data. One of the most famous trade secrets is the Coca Cola formula—a well-guarded secret for over 100 years. The commercial value of the formula is why the company goes to great lengths to keep it secret.

How are trade secrets protected?

In Canada, there is no federal trade secrets act or equivalent statute. Trade secret law is instead based on common law, or in the case of Quebec, civil law, principles enforced in the courts through claims including torts, such as breaches of contract or confidence. There are also relevant dispositions in Canada's Criminal Code. Unlike for some other types of intellectual property, there is no formal process for protecting a trade secret. The protection of a trade secret requires the following, at a minimum:

  • that the information has commercial value
  • that the information is secret
  • that the information has been subject to reasonable measures by the business to ensure that it remains secret

Courts considering whether information is a trade secret, whether an action involves the misuse of a trade secret and how to compensate an owner of a trade secret for its misuse look at factors including the following:

  • the measures taken to maintain secrecy
  • the value of the information
  • the cost in money or time of creating or developing the information
  • the ease with which the information could be acquired or developed by others independently
  • the degree to which the owner regards and treats the information as confidential
  • the degree to which the recipient regards and treats the information as confidential
  • whether the recipient ought to have known that the information was confidential
  • whether misuse of the information resulted in detriment to the owner

How are trade secrets used?

Generally, trade secrets are used to do several things:

  1. Ensure an invention or a design is not disclosed to the public before an application for a patent or an industrial design has been made
    To obtain a patent for an invention, the invention must be new to the world and not known to the public. Similarly, industrial designs can only be registered if they are original in the world and aren't known to the public. This can be difficult for inventors and designers, especially when they try to commercialize products, test products, launch a business, find financing or seek partners, because they usually have to disclose the invention to other people (the public). To ensure confidentiality before obtaining patent protection, inventors will guard their new inventions as trade secrets.
  2. Protect an invention through means other than patent protection
    Because securing a patent can be costly and time consuming, some businesses and inventors choose to rely on trade secrets instead. This strategy is often used when the invention has a short lifespan or is difficult to reverse engineer.
  3. Protect valuable business information that is not formally protected through other intellectual property (IP) rights
    Businesses that have a wealth of consumer data, recipes for food products or cutting-edge market research and analysis want to ensure that competitors do not get their hands on that information. This type of confidential information (IP) is generally not protected through patents, trademarks, industrial designs or copyright. To protect this confidential information, businesses use trade secrets.

How long does trade secret protection last?

Trade secrets can potentially last forever, provided the information actually remains a secret. Once the secret is out, the business value is usually lost and the trade secret protection ends.

How do you keep trade secrets secret?

There are numerous ways to keep your valuable business information a secret, including the following:

  • Non-disclosure or confidentiality agreements: When you disclose your business information to anyone, have them sign a non-disclosure agreement.
  • Confidentiality clauses: Include confidentiality clauses in employment agreements.
  • Encryption: Encrypt any valuable business information.
  • Password protection: Use passwords to access valuable business information.
  • Lock and key: Lock up any valuable business information in a safe.

Remember, once your secret is out, it is impossible to make it secret again. The list above includes only a few ways to keep information secret. It is in your best interest to use all methods possible to ensure your secrets stay secret!