Trade secret licensing is big business, generating billions of dollars in royalty revenue annually. The exact value of trade secrets is unknown, but estimated to be in the trillions of dollars.
A trade secret is information and knowledge that’s kept confidential. It’s valuable because it’s something your competition doesn’t have. Trade secrets include inventions, know-how, and show-how information.
Trade secret law is the oldest form of IP protection. Unlike other forms of intellectual property such as patents, copyrights and trademarks, trade secrecy is basically a do-it-yourself form of protection. You don’t register with the government to secure your trade secret; you simply keep the information confidential. Trade secret protection lasts for as long as the secret is kept confidential. If it becomes public, trade secret protection ends.
Types of trade secret IP include formulas, product designs, websites, software program, valuable business information such as marketing plans and customer lists, and research (and development)on what does not work such as a new type of drug that is ineffective. Examples of well known trade secrets include the formula for Coca-cola and Colonel Sanders recipe for fried chicken.
But a secret doesn’t have to be famous to be a trade secret – many valuable trade secrets remain secret because the general public is not aware that the information exists. A prime example is Goggle’s proprietary search algorithm, which helped it achieve dominance over the Internet.
When licensing a trade secret, the key is making sure your information remains confidential. The licensing agreement details specifically which information is confidential (and which isn’t), limits what the licensee may use it for, and specifies how long it must remain secret (usually two to five years). Trade secrets, unlike patents, can be licensed forever. Even if a trade secret later becomes public, royalty payments under trade secret licensing agreements can continue indefinitely. A classic example is the formula for Listerine. In 1881, Dr. J.J. Lawrence licensed the formula with no time limit. Although it became public, the original licensing agreement continued to generate royalties.
Trade secrets are one of your most valuable business assets and essential to your growth and competitiveness. Make sure you’ve got internal and external procedures to protect it’s confidentiality. When licensing your trade secrets, keeping control of your information is key. Be sure your licensing agreements specify what and how it will be used by your licensing partners.