Software trade secrets

The precise language that legally defines a trade secret varies by jurisdiction, as do the particular types of information that are subject to trade secret protection. In the United States, different states have different trade secret laws. Most states have adopted the Uniform Trade Secrets Act, and those that don’t, have laws that only differ by subtle differences.

There are three factors that are common to all definitions; a trade secret always has these three specific characteristics:

  1. It is not generally known to the public.
  2. It confers some sort of economic benefit on its holder, where the benefit is due to the fact that it is not known to the public.
  3. The owner of the trade secret makes reasonable efforts to maintain its secrecy.

With regard to software trade secrets, algorithms that are known to the public usually cannot be trade secrets, though some jurisdictions require not only that the information be public but that it be “readily ascertainable,” meaning easily to find. For example, a sorting algorithm found in a well known textbook or in an application note on a high traffic website is, or can be, known to the public and easily ascertained.

There must be an economic benefit, so a sorting algorithm that can be easily replaced with a well-known sorting algorithm with comparable results is not a trade secret. Similarly if your company develops a program, perhaps as a side project, but does not sell it or incorporate it in any products, then it’s not a trade secret.

If the owner of the source code allows programmers to share code, or does not put notices of confidentiality in the source code, or does not take reasonable steps to insure that employees do not take the code home with them, then that source code cannot be a trade secret. This third point is a particularly important reason to take precautions to ensure your software does not go somewhere it shouldn’t. Make sure your employees, investors, and partners sign nondisclosure agreements (NDAs). Make sure you have written policies about how to handle source code. And make sure you treat all individuals and companies equally. You don’t want to be in court, defending a trade secret, and have to explain why one “trusted employee” or “trusted friend” was allowed to take home source code while others were not. That doesn’t look like “reasonable efforts to maintain secrecy.”

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