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A trade secret is information that has commercial value to a business and is not available to the general public. Trade secrets can include: 

  • formulas;
  • recipes;
  • pieces of information; and
  • methods.

Trade secrets can also include processes. For instance, these processes may be ineligible for other types of intellectual property protection such as patents. Another example are devices or pieces of technology that may be patentable, but are not.

The Google search algorithm, the Coca Cola recipe, and the method to compile The New York Times bestseller list are all examples of famous trade secrets.

This article will discuss:

  • the key features of trade secrets in New Zealand compared to other forms of intellectual property; and 
  • provide some strategies for businesses to keep their trade secrets confidential.

What Is the Difference Between Trade Secrets and Patents?

A patent is a type of intellectual property protection that is available for new inventions. A New Zealand patent is registered with New Zealand Intellectual Property Office and allows the patent holder to be the only person who may manufacture and sell the registered invention for the term of the patent, which is usually 20 years. After the patent has expired, the invention enters the public domain and anyone can sell or manufacture it. 

Typically, you would need to register your patent separately in each country where you want to protect your invention. To obtain the patent, the inventor must disclose exactly how the invention works to the relevant patent offices.

If you do not have a patent, you cannot stop anyone else from selling or manufacturing something they have developed independently that may be identical to your invention.

Some types of inventions do not qualify for protection under a patent. These include: 

  • recipes;
  • some forms of computer programs;
  • some types of methods; and 
  • information alone.

If your invention or thing you want to protect is not something that can be patented, you may only be able to rely on trade secrets to protect your confidential information.

Sometimes, relying on trade secrets can provide greater protection than patents. The Coca Cola recipe has been a secret since 1891, which is far longer than the 20 years of protection a patent provides.

How Do I Protect My Trade Secrets?

Unlike patents and other forms of intellectual property protection, there is no form of registration available for trade secrets in New Zealand. The best way to protect your trade secrets is to:

  • be careful about the people who have access to the trade secret; and
  • ensure that those select few that can access the trade secret are subject to comprehensive confidentiality obligations through a contract (whether that be in an NDA, an employment contract, or a services contract).

Contract Protection

You should make sure that everyone with access to your secret information is subject to confidentiality obligations in a contract. Your employment contracts should set out clearly that employees may not disclose business-sensitive information. You should also specify the time period, for example, even after their employment ends. 

Any service providers you engage (such as your developer), should also be subject to confidentiality provisions in their services contract. If you need to disclose a trade secret to someone before you enter into a more formal contract, you should ask them to sign a non disclosure agreement.

For example, in the case of a prospective service provider or employee.

Selected Disclosure

While having the right contracts in place is important, sometimes the costs to enforce a breach of a confidentiality clause can be high. In addition, being successful in litigation against the person who breached their confidentiality obligations may not be enough. This is because the disclosure of the trade secret to the general public may have already caused severe damage to your business.

For this reason, being very selective with who you disclose your trade secrets to is important. Only people within your organisation who have a real need to know should have access to the trade secret, to minimise the risks of leakage.

Duty of Confidence

There are also some limited circumstances where a court may find that a person is bound by a duty of confidence, even where there is no written contract in place. An employer/employee relationship is one example of a relationship with an implied duty of confidence. 

Although there may be some form of remedy available to employers where an employee discloses a trade secret (and there is no employment contract in place), employers should not rely on this implied duty for protection. This is because it is not as extensive as a contractual duty of confidentiality.

Key Takeaways

Trade secrets are a crucial part of many businesses, and it is important to protect them to maintain a competitive advantage. While it is not possible to secure exclusive rights to a trade secret through patents, making sure all contracts contain strong confidentiality clauses and being selective about who you disclose the trade secret to are two strategies to protect your trade secrets from widespread disclosure. LegalVision’s commercial lawyers can draft non disclosure contracts, employment contracts, and service contracts with protective confidentiality clauses. Leave a message in the box below or call 0800 005 570 to speak to a member of the LegalVision team. 

What is a trade secret?

A trade secret is information that has commercial value to a business and is not known to the general public.

How do I protect my trade secrets?

You can protect your trade secrets through contract protection, selectively disclosing it to individuals, and through having a duty of confidence with different parties.

What is a duty of confidence?

There are also some limited circumstances where a court may find that a person is bound by a duty of confidence, even where there is no written contract in place. 

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