Transcript A Business-Oriented Overview of IP for Law and Management Students Geneva, May 29-31, 2007 Small and Medium-Sized Enterprises (SMEs) Division World Intellectual Property Organization.

A Business-Oriented Overview of IP
for Law and Management Students
Geneva, May 29-31, 2007
Small and Medium-Sized Enterprises (SMEs) Division
World Intellectual Property Organization (WIPO)
TOPIC 3
Keeping Confidence:
Managing Trade Secrets
as a Business Strategy
What are trade
secrets?
Do-it-yourself
form of IP
• Idea: By keeping valuable information secret,
you can prevent competitors from learning about
and using it and thereby enjoy a competitive
advantage in the marketplace.
General principles:
• Information that has commercial value and that
has been scrupulously kept confidential will
be considered a trade secret (TS).
• Owner will be entitled to court relief against
those who have stolen or divulged it in an illegal
manner.
This Presentation
1. What information qualifies as a TS?
2. What makes something a TS?
3. When can you get court relief?
4. How are TS lost or stolen?
5. How to protect your TS?
6. May TS be sold?
7. How is TS protection enforced?
8. If you have the choice: TS or patent?
9. What to bear in mind if you sign CA?
Question 1
WHAT KIND OF INFORMATION
QUALIFIES AS A TRADE SECRET ?
TRADE
• Provides
competitive
advantage
• Potential to
make money
SECRET
Kept
confidential
Technical &
scientific
information
Financial
information
TRADE
SECRET
Commercial
information
Negative
information
Typical examples
– Business plans & strategies
– New product names
– Financial projections
– Marketing plans, unpublished promotional
material
– Cost & pricing information
– Sales data
– Customer lists
– Info re: new business opportunities
– Personnel performance
Question 2
WHAT MAKES SOMETHING A
TRADE SECRET ?
When do you have
legal protection?
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. Secret
• “not generally known among or easily
accessible to persons within the circles that
normally deal with this kind of information”
• Not required that be known only by one person
– e.g. based on supplier relationship, joint development
agreement, due diligence investigation, etc.
2. Commercial value
• Must confer some economic benefit on 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)
• How to demonstrate:
– benefits derived from use
– costs of developing the TS
– licensing offers; etc.
– actual or potential
3. Reasonable steps
• Under most TS regimes, you cannot have a TS unless
you have taken reasonable precautions to keep the
information confidential
• ‘Reasonable’  case by case
– reasonable security procedures
– Non-disclosure agreements (NDA)
– such that the information could be obtained
by others only through improper means
• Importance of proper TS management program
Caution: Who owns the TS?
• TS (e.g. new technology) developed by employee …
• TS developed by external contractor
To avoid disputes:
WRITTEN AGREEMENT
+
ASSIGN
in advance all trade secrets developed
during employment or commission
Question 3
WHEN CAN YOU GET COURT
RELIEF ?
COURT RELIEF if:
TS + “THEFT”
Only theft if wrongful !
Courts will only grant relief if someone has
improperly acquired, disclosed or used the
information
What is typically considered
wrongful?
1. Duty of trust
– implied or imposed by law
– e.g., employees, directors, lawyers
2. Confidentiality agreement or NDA
– e.g., employees, suppliers, consultants, financial
advisors
3. Industrial espionage, theft, bribery, hacking
What is lawful?
 Discovery of the secret by fair and
honest means
1. Independent creation
– without using illegal means or violating agreements
or law
–  patent
TS protection
provides
no exclusivity !
What is lawful?
2. Reverse engineering
– Common practice among companies: studying
competitors' products
• to make a product that will compete with it
– Solution: contractually forbid reverse engineering
(in license agreement)
– Technological protection measures
BUT! Legality in question
• Inconsistent with copyright or antitrust laws?
Question 4
HOW ARE TRADE SECRETS LOST
OR STOLEN ?
A Growing Problem.
Why Does It Occur?
– 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 (DVD, external memories, keys)
– Expanding use of wireless technology
80% of trade secret loss
< employees, contractors, trusted insiders!
– departing or disgruntled employees
– intentional (malicious)
– inevitable (knowledge acquired)
– by ignorance
Case
Coca-Cola Trade Secret Trial
• Prosecutors say a former Coca-Cola secretary took
confidential documents from the beverage giant
and samples of products that hadn't been launched
with the aim of selling them to rival Pepsi
• Faces up to 10 years in prison if convicted of
conspiracy.
AP Business, January 15, 2006
Question 5
HOW TO PROTECT
YOUR TRADE SECRETS?
1. Identify trade secrets
• Accurate record keeping is important.
• Factors to determine if information is a TS
– 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 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:
• Clear communication and repetition
• Copy of policy, intranet, periodic training & audit, etc.
• Make known that disclosure of a TS may result in
termination and/or legal action
– Monitor compliance, prosecute violators
3. 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
4. Mark documents
– Help employees recognize TS
 prevents inadvertent disclosure
– Uniform system of marking documents
• paper based
• electronic (e.g. ‘confidential’ button on
standard email screen)
5. 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
6. 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
7. Maintain computer secrecy
– Secure online transactions, intranet, website
– 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. Measures for employees
1. New employees
• Brief on protection expectations early
• Obligations towards former employer!
• Assign all rights to inventions developed
in the course of employment
• NDA/CA
• Non-compete provision
•Reqts
•Limits
2. Current employees
• Prevent inadvertent disclosure (ignorance)
• Train and educate
• NDA for particular task
3. Departing employees
•
•
•
•
further limit access to data
exit interview
letter to new employer
treat fairly & compensate reasonably
for patent work
9. Measures for third parties
– Sharing for exploitation
– Consultants, financial advisors,
computer programmers, website host,
designers, subcontractors, joint
ventures, etc.
– Confidentiality agreement, NDA
– Limit access on need-to-know basis
Question 6
MAY TRADE SECRETS BE SOLD
OR LICENSED?
• SALE
– Most TS sales occur as part of the sale of the business
• LICENSE
– e.g. in combination with patent license
– Advantage: additional revenues
– Disadvantage: risk of disclosure (potential loss)
– In some countries, restrictions
TS Licensing
• Definition of the secret subject matter
– what is to be kept confidential?
– marked as such or broad clause?
• Permitted use
– disclosure to employees, professional advisors?
– modification of technology?
• Precautions to be taken
• Exclusions
TS Licensing
• Duration of secrecy obligations
• Royalties
• Sanctions
• Should not be subject to alternative dispute
resolution
Question 7
HOW IS TRADE SECRET
PROTECTION ENFORCED?
What can you do if
someone steals or
improperly discloses
your TS?
TS protection may be based on...
1. Contract law
• When there is an agreement to protect the TS
NDA/CA
anti-reverse engineering clause
• Where a confidential relationship exists
attorney, employee, independent contractors
2. Principle of tort / unfair competition
• Misappropriation by competitors who have no
contractual relationship
theft, espionage, subversion of employees
3. Criminal laws
• e.g. for an employee to steal trade secrets from a
company
• e.g. unauthorized access to computers
• theft, electronic espionage, invasion of privacy, etc.
• circumvention of technical protection systems
4. Specific trade secret laws
• US: Uniform Trade Secrets Act; Economic
Espionage Act
Remedies
1.
Order to stop the misuse
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 TS at trial
4.
Precautionary impoundment
• of the articles that include misused TS, 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)
Question 8
PROTECTING INVENTIONS:
TRADE SECRETS OR PATENTS?
What is difference between
TS and Patent?
Trade Secrets
Patents
no registration
registration
- less costs (but: costs to keep secret)
- immediately available
- fees (registration + maintenance)
- takes time to get patent
can last longer
limited in time
- but: limited to economic life
- uncertain lifespan: leak out is irremediable
- generally: max 20y
- but: can be invalided
no public disclosure
public disclosure
- but: practical need to disclose
- if leak out: TS lost
- publication 18m after filing
- if P not allowed: no TS
Trade Secrets
Patents
Large subject matter
Subject matter limited:
Protection of virtually anything
maintained in secret by a business
that gives competitive advantage
- Requirements: new, non obvious, useful
- Scope: patent claim
Only protection against
improper acquirement/use
Exclusive rights
More difficult to enforce
"Power tool"
- some countries: no laws
- ability to safeguard TS during litigation
monopoly to exploit
the invention
Things to bear in mind
1. ANY innovative idea should be kept as a
secret in the beginning
– to preserve option of patenting (or industrial design) at
later stage
INNOVATIVE IDEA
Initially
Later stage
Not patentable
patentable
Secret !
Strategic
business
decision
TS
©
patent
TS
ID
•Part of the idea
TS
Things to bear in mind
2. Choice between patent or TS must
be made both from legal and
business perspectives
(if patentable)
© Mark Sokoloff
Patentable
idea
Public
disclosure
necessary?
N
Easy to RI,
independ.
discover?
N
Y
Def.publ
P
N
Revenue
potential
> IP costs?
Y
Y
Technology
changing
rapidly?
N
Y
TS
N
N
New
area of
technology?
Y
Licensing
opportunity?
Things to bear in mind
3. If you apply for a patent, only give up what
is necessary
– The decision to apply for a patent does not
necessarily require giving up all of one’s TS!
– However, patent application must contain :
• enough to enable skilled person to practice the invention
• the best mode known to the applicant for practicing the
invention
• (Software P in USA: required to disclose source code?)
INNOVATIVE IDEA
inventions on A, B, C
A
TS
TS
C
B
A
B
Applying for patent on
C may not require
giving up TS on A & B
P
C
Things to bear in mind
4. If you apply for a patent, your TS may still
be protected for a while
– In most countries: only publication after 18m. You may
withdraw application any time < publication
– In USA: possible to request non-publication of the
patent application until the patent is issued
Things to bear in mind
5. Once patent published  TS lost in ALL
COUNTRIES
– patent documents “easily accessible” to public
– if patent application published and later rejected  you
lose both patent and TS rights
– some technology (e.g. software) may be patentable in
USA but not in Belarus or Europe …
Question 9
WHAT TO BEAR IN MIND IF YOU
SIGN A CONFIDENTIALITY
AGREEMENT FOR A CLIENT ?
TS protection for financial, commercial &
(secret) technical information:



develop effective internal TS program to maintain
trade secret status
restrict access
impose obligation of confidentiality to anyone
who has access
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
Remember...
TS: Only legal protection against dishonest
acquisition/disclosure/use
You can sue someone who violated your TS,
but that often doesn’t save the TS
Consider alternative protection
Remember...
• The choice between TS 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
Remember...
• Patent and TS 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).
THANK YOU
Email:
[email protected]
http:/www.wipo.int/sme