The difference between confidential information and trade secrets

Know-how, confidential information and trade secrets, are not, strictly speaking, intellectual property rights. However, there is some overlap, and they tend to be treated in much the same way as formal IP rights when it comes to valuing or selling a company, so they are often referenced in the same breath. Trade secrets, in particular, are often referred to as IP rights…and rightly so.

But, whereas IP rights, once created, act to allow their owner to stop someone else from doing something covered by that right, know-how, confidential information and trade secrets are assets that need something more in order to be of any value to your business.

the difference between confidential information and trade secrets

Lets’ start with the difference between the three…


Know-How is defined as practical knowledge and or skill/expertise, and is usually brought to a business by an individual when they are employed and/or accrued by an individual during the course of their employment. An individual’s know-how is obviously their own. Whilst it can be “licensed” to their employer during their employment, their original know-how, plus any further know-how accrued during the course of their employment, would stay with the employee, even if they subsequently leave your employment (clearly, they can’t be made to ‘un-know’ things!).

Nevertheless, things that are created by that employee during the course of their employment, using that know-how, is an entirely different matter and would normally be owned by the employer. I will come onto that…

An individual cannot (legally) be prevented from using their skill and expertise to get on in life. So, how can you stop an ex-employee from giving your competitor some advantage using knowledge accrued while they were working for you?

This is where confidential information and trade secrets come in.

Confidential Information

Confidential Information does exactly what it says on the tin. It is any information or data created or generated for, or by employees of, the company, that is not intended for public consumption in any way. Types of Confidential Information can include anything from customer lists to internal training resources, design records, minutes of internal meetings, early prototypes, etc. Anything, basically, that you wouldn’t want anyone outside of the business to have or make use of.

Things you can do to protect your company confidential information

  1. Ensure that all confidential documents are marked ‘Company Confidential’, preferably with an additional notice along the lines of “Copying or distribution of the information in this document (or any part of it) is strictly prohibited”.
  2. Provide staff training around the types of information that the company deems to be confidential, and how such information is to be treated.
  3. Company confidential information should be referenced in your employment contracts (and shareholders and directors agreements), which should stipulate stringent (and in perpetuity) confidentiality clauses (best drafted by a qualified solicitor).

What is the difference between confidential information and trade secrets?

It is probably true to say that all trade secrets are confidential information, but not all confidential information is (or can be) a trade secret. Trade secrets are covered by the Trade Secrets Regulations, which is a piece of legislation that allows an owner of a trade secret to take legal action against a third party for unauthorised use of their trade secret.

It is important to note here that this may not be the person who actually disclosed the trade secret to them), and this is a critical distinction, because although you may have a case for breach of confidentiality against, say, an ex-employee for disclosing your trade secret to their new employer, the real value lies in being able to take legal action against their new employer, i.e. your competitor, for making unauthorised use of it. Equally, if the trade secret has been obtained by cyber theft, say, there is no formal breach of confidentiality at all, and you may have to rely on the Trade Secret Regulations to stop further unauthorised use of your trade secret recoup your losses.

But, for that to work, your trade secrets have to be quite carefully captured, defined and preserved (much more so than ‘mere’ confidential information).

the difference between confidential information and trade secrets

What is a trade secret?

To be defined as a trade secret, information has to meet three requirements:

  1. it is secret in the sense that it is not generally known among, or readily accessible to people, within the circles that normally deal with the kind of information in question
  2. it has a commercial value
  3. it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

What are ‘reasonable steps’?

These will, of course, be dependent on specific circumstances, but ‘reasonable steps’ to ‘ring-fence’ and preserve Trade Secrets might include:
• maintaining a central database containing details of all trade secrets;
• restricting access to trade secrets on a ‘need to know’ basis;
• establishing a trade secrets policy within the business that everyone has to adhere to;
• asking all employees to sign a document confirming that they have read and agree to the trade secrets policy;
• requiring employees leaving the business to sign a document confirming that they have returned all copies of trade secrets in their possession and that they will not use or disclose any company trade secrets after they have left.
• Ensuring that you have strict cyber security polices in place.

Things that might qualify as a trade secret include algorithms, recipes, methods and processes for making or doing something (if they can be kept sufficiently secret), training data sets for AI/Machine learning systems, etc.

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