Trade Secret

DEFINITION of 'Trade Secret'

Any practice or process of a company that is generally not known outside of the company. Information considered a trade secret gives the company an economic advantage over its competitors, and is often associated with internal research and development. In order to be legally considered a trade secret in the United States, a company must take a reasonable effort in concealing the information from the public, the secret must intrinsically have economic value and the trade secret must contain information.

BREAKING DOWN 'Trade Secret'

Trade secrets are the "classified documents" of the business world, just as top secret documents are closely guarded by government agencies. Because of the cost in developing certain products and processes is much more expensive than competitive intelligence, companies have an incentive to figure out what makes their competitors successful. To protect its trade secrets, a company may require employees privy to the information to sign non-compete or non-disclosure agreements upon hire.