Keeping Confidence:

Trade Secret
Protection Program
This Presentation
• PART 1 - Outline
– Definition
– Legal requirements
– Legal rights
– Enforcement

• PART 2 - Proper Management of Trade Secrets

– Protection strategies for trade secrets

• PART 3 - Trade Secret or Patent?

– Legal considerations
– Business considerations
 PART 1

WHAT ARE TRADE

SECRETS ?
 Definition:
What are trade secrets?

which provides an any confidential

enterprise with a information
competitive edge

can qualify as a trade secret

→ entitled to legal protection
 Typically, a company will have
confidential information ...

• Which may be • Which doesn’t

protected by other qualify for
types of IP protection under
– application for other types of IP
protection foreseen
in the near future
– no application
foreseen
 A trade secret can relate to
different types of information

T e c h n ic a l a n d S c ie n tific In fo r m a tio n

F in a n c ia l In fo r m a tio n
Trade Secret
C o m m e r c ia l In fo r m a tio n

N e g a tiv e In fo r m a tio n
in s o m e la w s
• Technical and scientific information:
– product information
• technical composition of a product: medicine, paint,
beverage
• technical data about product performance
• product design information

– manufacture information
• manufacturing methods and processes (weaving technique,
device process)
• production costs, refinery processes, raw materials
• specialized machinery

– know-how necessary to perform a particular

operation
• Technical and scientific info (contd.):

– designs, drawings, patterns, motifs

– test data, laboratory notebooks

– computer codes
• Commercial information:

– customer list
– business plan
– marketing strategy
– supplier arrangements
– customer buying preferences and
requirements
– consumer profiles
– sales methods
• Financial information:

– internal cost structure

– pricing information

– salary and compensation plans

– price lists
• Negative information:

– details of failed efforts to remedy

problems in the manufacture of certain
products

– dead-ends in research

– unsuccessful attempts to interest

customers in purchasing a product
 Legal requirements:
What can be protected as a
trade secret?
• Three essential legal requirements:

1. The information must be secret

2. It must have commercial value because

it’s secret

3. Owner must have taken reasonable steps

to keep it secret
1. The information must be secret

• “not generally known among or readily accessible

to persons within the circles that normally deal
with this kind of information”

• price list on your website is no trade secret

• wheel technique for pottery is no trade secret

• no absolute requirement → NDA/CA

– e.g. based on supplier relationship, joint development
agreement, due diligence investigation, etc.
2. It must have commercial value because
it’s secret

• confers some economic benefit to the holder

• this benefit must derive specifically from the fact

that it is not generally known, not just from the
value of the information itself

• actual or potential

• not easy to know exact value of trade secret

because it is a secret
3. Owner must have taken reasonable
steps to keep it secret

• under most trade secret regimes, a TS is not

deemed to exist unless its holder takes
reasonable steps to maintain its secrecy

• ‘reasonable’ → case by case

• importance of proper TS management program

 Legal rights:
What kind of protection do
you have under the law?
 Legal rights:
• Only protection against improperly
acquiring, disclosing or using:
– people who are automatically bound by duty of
confidentiality (incl. employees)

– people who have signed non-disclosure

agreement

– people who acquire a trade secret through

improper means (such as theft, industrial
espionage, bribery)
• Some people cannot be stopped
from using information under
trade secret law:
– people who discover the secret
independently, without using
illegal means or violating
agreements or state law

– people who discover through

reverse engineering
Reverse engineering is
taking apart an object
to see how it works
in order to duplicate or
enhance the object
 Example no. 1
• Decades ago, Coca-Cola decided to
keep its soft drink formula a secret
• The formula is only know to a few
people within the company

• Kept in the vault of a bank in Atlanta

• Those who know the secret formula
have signed non-disclosure
agreements
• It is rumored that they are not allowed
to travel together
• If it had patented its formula, the whole
world would be making Coca-Cola
 Example no. 2

• Patent for stud and tube

coupling system (the way
bricks hold together)

• But: Today the patents

have long expired and the
company tries hard to keep
out competitors by using
designs, trademarks and
copyright
 Enforcement:
What can you do if someone
steals or improperly
discloses your trade secret?
Trade secret protection may be based on...

– Contract law
• when there is an agreement to protect the TS
– NDA/CA
– anti-reverse engineering clause (enforceability debated)
• where a confidential relationship exists
– attorney, employee

– Principle of tort / unfair competition

• misappropriation by competitors who have no
contractual relationship
– theft, espionage, subversion of employees
– Criminal laws
• e.g. for an employee to steal trade secrets from a
company
• theft, electronic espionage, invasion of privacy, etc.
• circumvention of technical protection systems

– Specific trade secret laws

• US: Uniform Trade Secrets Act; Economic
Espionage Act
 Remedies

1. Order to stop the misusing

2. Monetary damages
• actual damages caused as a result of the misuse (lost profits)
• amount by which defendant unjustly benefited from the
misappropriation (unjust enrichment)

3. Seizure order
• can be obtained in civil actions to search the defendant's
premises in order to obtain the evidence to establish the theft of
trade secrets at trial

4. Precautionary impoundment
• of the articles that include misused trade secrets, or the products
that resulted of misusing
To establish violation, the owner
must be able to show :

– infringement provides competitive

advantage

– reasonable steps to maintain secret

– information obtained, used or disclosed

in violation of the honest commercial
practices (misuse)
 PART 2

BUSINESS STRATEGIES
TO HANDLE & PROTECT
TRADE SECRETS
 Loss of trade secrets -
a growing problem (1)

• Why is this occurring?

– way we do business today (increased use of
contractors, temporary workers, out-sourcing)
– declining employee loyalty, more job changes
– organized crime : discovered the money to be
made in stealing high tech IP
– storage facilities (CD-ROM, floppies, etc)
– expanding use of wireless technology
 Loss of trade secrets -
a growing problem (2)

• Examples of outside threats

– burglaries by professional criminals
targeting specific technology
– attempted network attacks (hacks)
– laptop computer theft: source code,
product designs, marketing plans,
customer lists
– inducing employees to reveal TS (Apple case)
– corporate spies
 Loss of trade secrets -
a growing problem (3)

• Examples of inside threats

– 80% of information crimes <
employees, contractors, trusted
insiders!
– malicious destruction/erasure of R&D
data by avenging employee
– theft by former employee of business
plans
– ignorance
 What can be done?
↓
9 basic protection strategies
1. Identify trade secrets

Considerations in determining
whether information is a trade
secret:
– Is it known outside the company?
– Is it widely known by employees and
others involved within the company?
– Have measures been taken to guard its
secrecy?
– What is the value of the information for
your company?
– What is the potential value for your
competitors?
– How much effort/money spent in collecting
or developing it?
– How difficult would it be for others to
acquire, collect of duplicate it?
2. Develop a protection policy

Advantages of a written policy:

– Clarity (how to identify and protect)

– How to reveal (in-house or to outsiders)

– Demonstrates commitment to protection

→ important in litigation
– Educate and train:
• Copy of policy, intranet, periodic training & audit, etc.
Make known that disclosure of a TS may result in
termination and/or legal action
• Clear communication and repetition

– TS protection must be part of the enterprise

culture
• Transform every employee into a potential security
officer
• Every employee must contribute to maintain the
security environment (e.g. anonymous security hotline)

– Monitor compliance, prosecute violators

 4. Restrict access

to only those persons having

a
need to know
the information

→ computer system should limit each

employee’s access to data actually
utilized or needed for a transaction
 5. Mark documents

– Help employees recognize

trade secrets → prevents
inadvertent disclosure

– Uniform system of marking

documents
• paper based
• electronic (e.g. ‘confidential’ button
on standard email screen)
 3. Educate employees

– Prevent inadvertent disclosure

(ignorance)
– Employment contract :
• Brief on protection expectations early
• NDA/CA/NCA
• obligations towards former employer!

– Departing employees :
• exit interview, letter to new employer, treat
fairly & compensate reasonably for patent
work, further limit access to data
6. Physically isolate and protect
– Separate locked depository
– Authorization
– Access control
• log of access: person, document reviewed
• biometric palm readers
– Surveillance of depository/company
premises
• guards, surveillance cameras
– Shredding
– Oversight; audit trail
7. Maintain computer secrecy
– Secure online transactions, intranet,
website
– Authorization (password); access control
– Mark confidential or secret (legend pop,
or before and after sensitive information)
– Physically isolate and lock: computer
tapes, discs, other storage media
– No external drives and USB ports
– Monitor remote access to servers
– Firewalls; anti-virus software; encryption
8. Restrict public access to
facilities
– Log and visitor’s pass
– Accompany visitor
– Sometimes NDA/CA
– Visible to anyone walking through a
company’s premises
• type of machinery, layout, physical handling of work in
progress, etc

– Overheard conversations
– Documents left in plain view
– Unattended waste baskets
 9. Third parties
– Sharing for exploitation

– Consultants, financial advisors, computer

programmers, website host, designers,
subcontractors, joint ventures, etc.

– Confidentiality agreement, non-

disclosure agreement
– Limit access on need-to-know basis
 PART 3

PROTECTING INVENTIONS:

TRADE SECRETS
OR PATENTS?
 Introduction

• Certain types of inventions may be

protectable under patent + trade secret
law.

• However, not under both.

Choice between patent protection and
trade secret protection is a

LEGAL and BUSINESS

decision
Legal Considerations
 T ra d e S e c re ts P a te n ts

n o r e g is t r a t io n c o s t s fe e s
b u t: c o s ts to k e e p s e c r e t r e g is tra tio n + m a in te n a n c e

c a n la s t lo n g e r lim it e d in t im e
- b u t: lim ite d to e c o n o m ic life - g e n e r a lly : m a x 2 0 y
- u n c e r ta in life s p a n : le a k o u t is irre m e d ia b le - b u t: c a n b e in v a lid e d

n o d is c lo s u r e d is c lo s u r e
- b u t: p r a c tic a l n e e d to d is c lo s e - p u b lic a tio n 1 8 m a fte r filin g
- if le a k o u t: T S lo s t - if P n o t a llo w e d : n o T S
 T ra d e S e c re ts P a te n ts

L a r g e s u b je c t m a t t e r S u b je c t m a t t e r lim it e d :
P r o t e c t io n o f v ir t u a lly a n y t h in g - R e q u ir e m e n t s : n e w , n o n o b v io u s , u s e f u l
m a in t a in e d in s e c r e t b y a b u s in e s s - S c o p e : p a te n t c la im
t h a t g iv e s c o m p e t it iv e a d v a n t a g e

O n ly p r o t e c t io n a g a in s t E x c lu s iv e r ig h t s
im p r o p e r a c q u ir e m e n t /u s e m o n o p o ly t o e x p lo it
t h e in v e n t io n

M o r e d if f ic u lt t o e n f o r c e " P o w e r t o o l"
- s o m e c o u n t r ie s : n o la w s
- a b ilit y t o s a f e g u a r d T S d u r in g lit ig a t io n
Business and Marketplace
Considerations
1. Market life of the subject matter

Some products have commercial life of only a

few months

Patent typically takes 25m to be issued →

Patent protection may not exist until after
market life of the product has expired

↔ TS allows immediate commercial use

 2. Difficulty of maintaining the
subject matter secret

– Time, willingness and funds to:

• develop internal policies
• implement protection program
• initiate immediate legal action to protect trade secrets from
disclosure (preliminary injunction)

– Risk of disclosure ∼ number of persons needing

access to the TS
• employees
• need for investors
• external contractors
 3. Likelihood of subject matter
being reverse engineered

• Easy to control RE?

– Products widely sold to consumers → difficult to prevent RE
→P
– Products sold to limited number of persons → control, e.g.
license agreement which forbids RE and requires licensee to
maintain the technology secret → TS

• Difficult/expensive to do RE?
– Secret ∼ manufacturing method or formula → difficult → TS
– Secret embodied in product → easy (e.g. cleaning fluid) → P
 4. Likelihood of subject matter
being independently developed

• Complexity of invention

• Number of competitors working in the field

• Potential payoff for achieving market

success
– e.g. drug that cures cancer

• Alternative option: defensive publication

 5. Type of subject matter
– New basic technology
• “pioneer patent”
• many licensees: allows to set low licensing fees →
competitors have no incentive to risk patent litigation

– Minor improvement in well-developed field

• P will be narrowly construed
• easy to invent around
• or: competitors likely to use preexisting technology

– Protectable in all countries?

• in some countries not patentable?
• too costly to protect in all countries?
 Conclusion

• The choice between trade secret and

patent protection for an invention is
irrevocable

• Therefore: carefully consider all relevant

advantages and disadvantages from
each choice both from legal and
business viewpoint
 Conclusion

• Patent and trade secrets are often

complementary to each other:
– Patent applicants generally keep inventions secret until the
patent application is published by the patent office.

– A lot of valuable know-how on how to exploit a patented

invention successfully is often kept as a trade secret.

– Some businesses disclose their trade secret to ensure that

no one else is able to patent it (defensive publication).
 Remember...

TS: No registration, but 3 requirements

for legal protection

No need for absolute secrecy, but

‘reasonable measures’

Developing and maintaining TS program

< good business practice to prevent
< legal requirement to enforce TS protection
Only legal protection against dishonest
acquisition/disclosure/use

Consider alternative protection

Thank You!