What counts as a trade secret?
A trade secret is business information that has economic value because it is not generally known, and that its owner takes reasonable steps to keep secret. Formulas, pricing models, customer lists, source code, supplier terms and internal playbooks can all qualify if those two conditions hold.
Both federal and state law address trade secrets, and the exact definitions, elements and remedies differ by jurisdiction. Treat the plain-language summary here as orientation only, and read the statute that governs your state with your counsel. This is general information, not legal, tax or financial advice. Confirm with your own counsel before acting.
The practical point for an owner: secrecy is not a label you apply once. It is a record of what you did to keep the information secret, and a court will look at that record.
What are common examples of trade secrets in an operating business?
Examples differ by industry, but the pattern is the same: something that gives an edge and is kept inside.
| Business type | Possible trade secret | Why it may qualify |
|---|---|---|
| B2B software company | Unreleased source code, architecture notes, pricing logic | Not public, and competitors would gain from it |
| Logistics broker | Carrier rate matrices and lane-level margin data | Costly to rebuild, shared only under contract |
| Staffing firm | Client-specific placement playbooks and fee schedules | Developed over years, restricted to recruiters |
| IT services provider | Runbooks, client environment designs, tooling scripts | Internal, access-controlled, commercially useful |
| Accounting firm | Internal workpaper templates and pricing models | Proprietary methods, not shared outside the firm |
Information that is already public, widely known in your trade, or freely shared with anyone who asks usually does not qualify, however useful it is.
Trade secret vs confidential information: what is the difference?
All trade secrets are confidential, but not all confidential information is a trade secret. Confidential information is a broad contractual category, whatever two parties agree to treat as private. A trade secret is narrower and carries statutory protection when the legal elements are met.
| Feature | Trade secret | Confidential information |
|---|---|---|
| Source of protection | Statute plus common law | Mostly contract (NDA, employment terms) |
| Must have economic value from secrecy | Yes | No |
| Requires reasonable secrecy measures | Yes | Depends on the contract |
| Can be lost if disclosed carelessly | Yes, protection can end | The contract may still apply |
| Typical example | A proprietary pricing algorithm | A customer's name on an invoice |
Most email, Slack and CRM content is confidential information. Only a slice of it is a real trade secret, which matters when scoping a license.
SlackHow do companies protect trade secrets?
The standard generally asks for reasonable measures, not perfection, though how it is applied varies. The usual list is practical and cheap to run.
- Written confidentiality terms in employee, contractor and vendor agreements
- Access limited by role, with logging on the most sensitive repositories
- Marking or classifying sensitive documents so staff know the rules
- Exit interviews and device and account shutdown when people leave
- An inventory of what the company considers its crown jewels
- A written policy on what may be shared externally and who approves it
An owner who can show these steps is in a far better position than one who relies on informal trust.
Can you license a trade secret, and does licensing records risk the status?
Yes, a trade secret can be licensed, and secrecy can survive a license if the licensee is bound by enforceable confidentiality terms and use limits. The risk comes from disclosure without those terms, not from licensing as such.
For a company thinking about licensing operational records for AI training, the sensible approach has three parts. First, decide which records are in scope and carve out the genuine crown jewels, such as source code for a core product or proprietary pricing models, or redact them. Second, license only under an executed agreement that includes confidentiality and use terms. Third, record the scoping decision so the company can show it protected what mattered.
FTC staff have said that a company's promises not to use customer data for undisclosed purposes, such as training models, are enforceable, which is a reminder to read your own customer contracts before any records leave the building. This is general information, not legal, tax or financial advice.
How does this show up in a SourceX introduction?
Companies keep ownership; data is licensed, not sold, and nothing is binding until the company agrees price and terms and signs. Redaction rules, including carve-outs for sensitive material, are agreed with the company before any work begins, and nothing is delivered until the agreement is executed and the company authorizes it.
A referral partner never sees the records. The partner's job is a short conversation with the owner or another authorized sponsor, and a trade secret question is a good reason to bring legal counsel into that conversation early. The fully paid-up license explainer covers one commercial term that often comes up next, and the data privacy representations page shows how deal documents allocate risk for personal data.
Before approaching an owner, a partner can run the company fit checker, a preliminary, non-binding screen that needs no contact details, and read who qualifies for the baseline. A seller preparing for a sale will also find the exit readiness guide useful, since an inventory of protected assets helps there too.
When is a trade secret concern a reason to stop?
Pause the conversation if any of these apply:
- The owner cannot say who has access to the key systems or what the confidentiality terms are.
- Most of the valuable material is source code or pricing logic the owner is unwilling to carve out.
- Customer contracts forbid sharing even de-identified records and the customers have not agreed.
- The owner will not consider an exclusive license for an agreed term.
A pause is not a no. Many companies can scope around the sensitive material and proceed.
Next step
If the owner you know keeps years of operational records and takes secrecy seriously, register as a partner and make the introduction. Companies can also apply directly at sourcex.si/apply. Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company. The reward is paid only after the buyer pays and SourceX receives its fee; an introduction, meeting or signed agreement alone does not trigger payment, and no reward is guaranteed. Read the EBITDA bridge explainer if you also advise on how a one-time payment appears in financials.