Trade secrets are difficult to define, and trade secret law even more so. Even the first sentence points to confusion. Is it trade secrets or trade secret? Are trade secrets IP rights, or do the courts think of trade secrets actions as common law torts? Trade secrets aren’t registered … that would defeat the purpose.
Valuation analysts need to look at the definition of and purposes served by trade secrets when performing due diligence. David D. Friedman, et. al., define a trade secret as information that has commercial value and is possessed by a firm that desires to conceal the information from competitors.
The choice a firm makes for protecting trade secrets over filing for patents relates to key business strategies and plans: the limitations on the time the patent monopoly will last; the expense of applying for, maintaining, and protecting a patent; the unwillingness to expose technology to a competitor for fear it can be reverse engineered; or, perhaps the “secret” really isn’t patentable.
Valuation of trade secrets is trickier still, as, by definition, there are no comparables (if there are, they are secret) and enforcement risks revelation. Mark Halligan of Nixon Peabody will try to make sense of it all in Trade Secrets: Management and Valuation, a timely BVR webinar scheduled for Wednesday, January 18.