UNITED STATES / TRADE SECRETS / COMMERCIAL ASSETS

IDEA, the Journal of Law and Technology: Vol 40 no 4, Winter 2000

Trade secrets in commercial transactions and bankruptcy

Lars S Smith

Commercial assets have traditionally meant equipment, buildings and inventory. However, these days, the major assets of many corporations exist in the form of patents, copyright, trademarks and trade secrets. This article looks at the value of trade secrets from the point of view of obtaining a security interest in them and the effect of bankruptcy on such collateral. The article is based on United States law and practice; but it is of wider general interest in recognising the importance of trade secrets as commercial assets. The author quotes the definition of trade secrets from the Uniform Trade Secrets Act, a federal statute with which State Law usually, but not necessarily, complies. A distinction is drawn in the article between the nature of intellectual property protection and the manner in which trade secrets are normally protected under the law. In the latter case, the law is concerned with the relationship between the parties in question and, in particular, between employers and former employees. Cases involving breach of trade secrets protection are normally derived from contract law. Nevertheless, trade secrets may have considerable, though often ephemeral, value. In bankruptcy proceedings, trade secrets are specifically included in the definition of intellectual property and have to be included in a list of assets. (Failure to disclose trade secrets as commercial assets may have serious consequences, as the McGee case showed.) Sometimes trade secrets and traditional intellectual property rights may overlap; and this can cause problems, for example, where copyright requirements involve the publication of material, which would destroy the very essence of the trade secret. The author concludes with valuable advice to creditors in cases in which trade secrets form the assets claimed. [20042]