Meaning, when are companies forced to layout how they conduct business?
Example 1:
ABC retail company has the best prices on cereal anywhere. Turns out they are using a food shelf they created to collect cereal from the manufacturer. The cereal then is donated to ABC to sell in the stores. Would they need to explain their source during an audit or could they claim it’s a closely guarded trade secret.
Example 2:
A steak company who wholesales to grocery stores has a popular steak with a secret seasoning. They season the steak at the factory by throwing it on the floor and stepping on it…would they need to reveal their “secret” seasoning to a USDA inspector if asked?
Your examples aren’t realistic in the U.S. #2 makes no sense as a real-world manufacturing practice and I can’t make much sense out of #1 but it sounds like a tax dodge.
Both of those are covered under existing laws and both FDA and IRS auditors are extremely strict. I consult for an industry heavily regulated by the FDA and we get audited all the time. We are not allowed to hide anything from them and there are potential legal penalties even for individual employees or consultants for attempting to do so.
Real trade secrets are a different matter and they do exist. They are generally covered by patent, trademark and similar law. The FDA and other government agencies can inspect and audit to make sure that public safety is not at risk but they can’t steal your ideas and give them to anyone else. For example, the official Coca-Cola recipe is still only known to a couple of people at any given time and is under strict lock and key. There are countless people that know parts of the process of how to make it because it is a massive worldwide operation but supposedly very few that know all the steps. That is perfectly allowed. The FDA can do their job to check each part of the manufacturing process to ensure standards are being followed without any one inspector knowing the full process from beginning to end.
In scenario #1, the IRS is perfectly justified in tracking your entire supply chain to follow the money. That is why they have forensic accountants and skilled auditors. If I read it correctly, some high level executives are probably going to (white collar) prison in that case.
A trade secret is just that - a secret. The entire point about a patent is that it isn’t a secret. Indeed if you withhold something from a patent disclosure, it isn’t patented, and may even cause the entire patent to be invalid. A patent must disclose everything needed to allow the invention to be reproduced. Leaving out a critical step will allow the patent to be successfully challenged and invalidated.
The formula for CocaCola is a trade secret. If it had been patented the patent would have long since lapsed, and the formula be publicly known and unprotected.
Since patents only provide a limited time of protection, you can take the chance that a process, or some other trick you have, that can be kept secret from competitors, should not be patented, but simply kept secret. You can keep this secret for as long as you wish. But take the risk that someone else could come up with the same thing and you would have no recourse.
Industrial espionage can be about trade secrets. But if your secret is stolen in some illegal manner you will typically have some legal recourse. People like FDA inspectors are duty and legally bound not to reveal such secrets. Employees sign contracts, etc etc.
Not quite. Patents and trademarks are by their nature publicly disclosed. Trade secrets are protected by contract law, things like non-disclosure agreements.
And to add a bit more–third parties have no obligation to protect a trade secret. Suppose A has a trade secret, which they reveal to B under NDA. B publishes it to the world at large. C uses this information for their own purposes.
Assuming their contract is valid, B is now in quite a bit of trouble, but C is in the clear. This is very unlike patent or copyright law that all parties are subject to whether they signed a contract or not (and whether or not some other party infringed on it).
For the specific case of Coke and Pepsi, there was this event.
Some Coke employees tried to sell trade secrets to Pepsi. Pepsi turned them in. It seems likely that Pepsi would have been tried for participating in industrial espionage had they agreed to the deal. However, had the employees simply released the information to the public, Pepsi would be under no obligation to avoid using it.
Throwing steaks on the floor and stepping on them isn’t a recipe at all. Food processing techniques are subject to inspection. Certain common ingredients don’t need to be listed specifically but that doesn’t include crap on the floor and worker’s shoes. Trade secrets are the strongest form of protection, that is if you can keep them secret.
As for the Coke recipe, the folks at Pepsi know exactly what’s in it. They don’t want to use it, they have their own secret recipe that the folks at Coke know all about.
[QUOTE=TriPolar]
Throwing steaks on the floor and stepping on them isn’t a recipe at all. Food processing techniques are subject to inspection. Certain common ingredients don’t need to be listed specifically but that doesn’t include crap on the floor and worker’s shoes.
[/QUOTE]
Ah, but what about the crap in the air, and how long, or in what conditions, it takes a worker to walk over to the smokehouse? Sometimes that can be a part of the recipe, just as throwing grapes in a barrel and stepping on them is for some wines. And just as the bare feet of the wine stompers are subject to inspection/regulation.
The managers at Vienna Beef, in opening up their new facility, had no idea why their sausages were coming out pink and rubbery, rather than their signature red and snappy. It took them over a year to figure out what was missing from their old signature recipe:
[QUOTE=Janet Choi]
one day, over a few drinks and reminiscences about the old plant, they remembered a guy called Irving. He was a well-loved employee who hadn’t stayed on because of the new commute, and his job had been to carry uncooked sausages through the jumble of the old plant to the smoke house.
The new plant, however, had no jumbled maze. It was the very model of efficiency. Sausages were made in a cold room and then zipped right over to the smoke house in the next room. It was Irving’s half-hour trip — trekking through vents of hanging pastrami, the boiler room, tanks cooking corn beef, and up an elevator to bring the now-warmer sausages into the smoke house — that was missing. […]
Vienna Beef ended up building a room to simulate the conditions of Irving’s trip.
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So I am just saying that, in some instances, food processing techniques can bleed into recipe territory; just as specific egg beating techniques are a part of the recipe required for making a meringue.
Trade secrets are protected by their own set of laws, separate from other kinds of intellectual property.
A trade secret is generally
Information
Unknown to competitors
And generally not easily accessible to the public
That gives a commercial advantage
And that the owner has taken reasonable steps to protect its disclosure
And misappropriation happens when someone gets hold of the trade secret from someone who shouldn’t have disclosed it or through other nefarious means. If they discover the information completely independently, then the secret is out.
The most common kinds of trade secrets are customer-related information.
Inventions can theoretically be trade secrets but then you have to forego patent protection because to get a patent you have to disclose the underlying invention.
A trade secret is completely unrelated to trademarks.
Generally speaking, any government agency is required to keep all information they find during inspections as secrets. That’s why candidates have to release their tax returns, the IRS isn’t allowed to. The exception is information used for criminal prosecution, then only the information related to the crime in question.
As an example - back when I worked for a major cell phone manufacturer, I submitted an internal idea for something in our manufacturing process. It was a good idea, and we used it. But it was also something that would be difficult to tell if other people were copying, because it was about the process and not the product. My company declined to file a patent, and instead declared it a trade secret. If we had filed for a patent, we would have been telling our competitors all about it, and not really be able to stop them from using it.
(Happily, my company paid for trade secrets the same as they did for patents, so I still got a nice little check for the idea.)
My father worked for a company that had a trade secret for the manufacture of diamond tipped dental drills that they made from about 1940 when they became unavailable from Germany until about 1970 when other technologies came into play. They didn’t want to patent it because they hoped to keep their monopoly for longer than 17 years. They set up an operation in a house they bought next door to the factory and only three people were allowed in that house: my father whose wife was the owner’s nephew, my grandfather whose wife was the owner’s sister, and the owner’s SIL.
But anyone could have worked out a manufacturing method and competed legally.
Huh. What happens if, working on my own, I experiment with a bunch of stuff until I wind up with a patentable breakthrough – and I openly patent it, and unbeknownst to me it just so happens to be a longstanding Coca-Cola trade secret?
I take it that you can’t start manufacturing it for sale, if I have a patent and don’t feel like letting you; can Coca-Cola keep using it, without paying me a nickel?
My point wasn’t really Coca-Cola-secret-formula specific; what happens if I patent something, anything, that a corporation has been quietly using as a trade secret?
Say it’s a device they use to swiftly churn out products on their assembly line; say I start selling my patented Swiftly-Churn-Out-Products device; as I understand it, you can’t start building and selling knockoffs unless I okay it – and you likewise can’t slap one together for your own personal use without my say-so.
But what about that corporation? Can they keep using that device on their assembly line, as they have for decades? Can they start selling replicas of that device?
If you try to patent something that’s a trade secret of another company:
The other company will at some point try to invalidate your patent on the grounds of prior art. A large company might have someone looking at patent applications or new patents to see if someone is trying to patent something they already know about. If you try to enforce your patent* against some company that’s been using your idea for years, they will definitely fight back. (Patent trolls prefer to go after small companies at first since those companies have less resources to fight back and are more likely to settle.)
Regardless of the patent status, you are completely free to make your product. The other company can’t stop you unless you did something wrong, e.g., got inside info from an employee of the other company.
How you know the other company is using your patent idea is another matter. It is also foolish to endanger your patent’s validity. But the other company will have to come clean about their trade secret.
Just to be clear here, there’s a significant difference between patent law and trade secrets law:
To be liable for misappropriating a trade secret, it has to be shown that you acquired the trade secret improperly. If you came up with the idea from completely innocent sources, then you’re free to use it.
A patent, on the other hand, gives the patent holder exclusivity. So long as the patent is valid, then you must have the patent holder’s permission to practice the ideas taught in the patent, even if you came up with them independently. Of course, if you can show that the idea was already public knowledge when the patent was applied for, that’s a basis for invalidity.