Trade secrets are a type of intellectual property that includes formulas, practices, processes, designs, instruments, patterns, or compilations of information that have inherent economic value because they are not generally known or readily ascertainable by others, and which the owner takes reasonable measures to keep secret. Intellectual property law gives the owner of a trade secret the right to restrict others from disclosing it. In some jurisdictions, such secrets are referred to as confidential information.

Definition.

The precise language by which a trade secret is defined varies by jurisdiction, as do the particular types of information that are subject to trade secret protection. Three factors are common to all such definitions:

A trade secret is information that:

is not generally known to the public;

confers economic benefit on its holder because the information is not publicly known; and

where the holder makes reasonable efforts to maintain its secrecy.

In international law, these three factors define a trade secret under article 39 of the Agreement on Trade-Related Aspects of Intellectual Property Rights, commonly referred to as the TRIPS Agreement.

Similarly, in the United States Economic Espionage Act of 1996, "A trade secret, as defined under 18 U.S.C. § 1839(3)(A),(B) (1996), has three parts: (1) information; (2) reasonable measures taken to protect the information; and (3) which derives independent economic value from not being publicly known."

Value.

Trade secrets are an important, but invisible component of a company's intellectual property (IP). Their contribution to a company's value, measured in terms of its market capitalization, can be major. Being invisible, that contribution is hard to measure. Still, research shows that changes in trade secrets laws affect business spending on R&D and patents. This research provides indirect evidence of the value of trade secrecy.