Trade Secrets are defined by state law and the protection afforded a company’s trade secrets may vary from state to state. This is an important consideration for any business engaging in interstate commerce or joint ventures. Generally speaking however, trade secrets protect oral and written information such as business plans, sales strategies, customer dealings, source code listings, methodologies, formulas and other information that imparts to the owner a commercial advantage over persons who do not., or should not, have access to the information.

Trade secrets arise from the creation of contractual or fiduciary relationships. The contract may be an "express contract" to maintain secrecy such as a written or oral agreement that the shared information is secret and obligating the contracting parties to treat it as such, or it may be an "implied contract", a contract arising from the fiduciary or confidential relationship that imposes a moral obligation to maintain the information in secrecy. Confidential or fiduciary relationships are created in partnerships, close corporations, employer/employee relationships (whether or not subject to a written employment agreement) or contractor/subcontractor relationships.

Trade Secrets law protects intellectual property not otherwise subject to patent, trademark or copyright protection. Ideas, methods and formulas historically not subject to patent protection or copyright protection have been preserved in secrecy. The notorious Coca-Cola formula is one example. Until recently, software and business methods were not considered patentable subject matter and necessarily relied upon trade secret law. Even with changes in United States patent laws, there are still foreign patent offices that will not recognize these properties as patentable. For this reason, trade secrets law remains a viable medium of intellectual property protection.

Trade Secrets law includes certain other advantages over the others. Unlike the fixed terms of patent or copyright protection, trade secrets may be maintained forever. Contracts and licenses addressing trade secrets may be negotiated and are not subject to public registration to maintain an assignee’s priority of rights. Many states also address the presumption of damages afforded from a breach of a contract to maintain trade secrets, affording the owner a ready remedy in the form of a state court-issued preliminary injunction.

Of course, trade secrets also have their disadvantages over other forms of intellectual property protection. Unlike patents and copyrights, which grant a monopoly for a fixed period of time, there is no guaranteed monopoly for trade secrets. The independent creation of the trade secret by another extinguishes it’s advantage. In the case of software or hardware, reverse engineering efforts are a recognized means of disclosing the secrets buried in the technology. To combat reverse-engineering efforts, companies resort to a combination of trade secret protection under contracts and licenses with protections offered by copyright, with mixed results. Even absent independent creation, a breach of the trade secret and its dissemination to the public may render the secret unprotectable. Third parties, not otherwise liable for the breach, could use the technology with impunity.

Trade Secrets law imposes obligations on the owner as well as others bound to maintain the secret. Before the law will recognize the trade secret, it requires the adoption of, and adherence to, appropriate measures for pre­serving trade secret status, such as restricted access, secrecy agreements, and physical security measures. If appropriate measures are not taken, courts are likely to hold that the information is not a trade secret. In one instance, a court declined to enforce software trade secrets where the company failed to maintain proper network security by adoption and adherence to a reasonable password policy. For this reason, the protection of trade secrets doe not end with the signing of a non-disclosure or confidentiality agreement.