Transcript The Importance of Proper Management of Trade Secrets WIPO National Seminar on IP for SMEs in the Textile Industry Damascus October 13 and, 2010 Mrs.

The Importance of Proper
Management of Trade Secrets
WIPO National Seminar on IP for SMEs
in the Textile Industry
Damascus
October 13 and, 2010
Mrs. Lien Verbauwhede Koglin
Consultant, SMEs Division, WIPO
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.
But: if others find out in legal manner → not
much you can do about it.
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?
Question 1
WHAT KIND OF INFORMATION
QUALIFIES AS A TRADE SECRET ?
Financial
information
Technical &
scientific
information
TRADE SECRET
Commercial
information
Negative
information
Examples
Technical and Scientific Information
Product information
technical composition of a product (e.g. fibers, biosensors in smart clothes)
technical data about product performance (e.g. breathable, waterproof)
product design information
Manufacture information
manufacturing methods and processes (e.g. weaving technique, coating
process)
production costs, refinery processes, raw materials
specialized machinery (e.g. specialized cameras to detect color variations in
textile fabrics)
Know-how necessary to perform a particular operation
(e.g. how to apply a dye to textile fabric)
Drawings, designs, motifs, patterns
Computer technology
hardware + software (esp. source code)
algorithms, formulas, data flow charts, specific
procedures that are implemented in the software or
website
Software design documents
Software development agreements
Laboratory notebooks
Pending patent applications (e.g. waterproof article
for use in protective clothing)
The trade secret of cotton dyeing
Indian textiles were also noted for their
brilliant colors and prints. Cotton, like linen,
naturally resists dyes, but Indian craftsman
learned early on the secrets of mordants
and dyes and how to manipulate them.
Remarkably, India managed to keep the
complex technique of cotton dyeing secret
from the world until the seventeenth
century.
Colorfast dyeing in Europe prior to the
seventeenth century was rare and
expensive, available only to the wealthy
and/or aristocratic.
Examples
Commercial information
Customer lists
Customer profiles, buying preferences
List of fabrics importers
Business plans and strategies
New product names
Supplier arrangements
Sales methods
Personnel performance
Info re: new business opportunities
Examples
Financial information
Financial projections
Cost & pricing information
Sales data, price lists
Internal cost structure
Salary and compensation plans
Examples
Negative information
Details of failed efforts to remedy problems
in the manufacture of certain products
Dead-ends in research (e.g. treatment for dry wrinkle
resistance)
Unsuccessful attempts to interest customers
in purchasing a product
Question 2
WHAT MAKES SOMETHING A
TRADE SECRET ?
When do you have
legal protection?
Three Essential Legal Requirements:
The information must be secret
It must have commercial value because it’s secret
Owner must have taken reasonable steps to keep
it secret
1. Secret
Required that be
known only by
one person?
What if many employees need to know?
What if others need to know?
suppliers, joint development agreement, due
diligence investigation, etc.
What if you want to license technology?
1. Secret
“not generally known among or easily accessible
to persons within the circles that normally deal
with this kind of information”
What is ‘generally known’ ?
matters of common knowledge
information you find at library, online database, trade
journals, patent information, etc
price list on website
1. Secret
Not required that be known only by one
person
If you need to share
If you license technology which has limited distribution
 possible to protect confidential information by
contractual means
2. Commercial value
Must confer some economic benefit
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
Tip for SME: Who Owns the TS?
TS developed by employee
TS developed by external contractor
E.g. technique providing very good home laundering durability
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 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,
eavesdropping
What is Lawful?
1. Independent creation
Discovery of the TS without using illegal means
or violating agreements or law
 patent
TS protection
provides
no exclusivity !
What is Lawful?
2. Reverse engineering – What?
Take product apart and see how it works
E.g. reverse engineering a hand bag
E.g. laboratory analyses of coating
Common practice among software companies:
to make software that can interoperate with the
software being studied
to make a software product that will compete with it
Reverse engineering of machines
New technologies (e.g. CAD/CAM, 3D scanners and
lasers) allow to measure an object and then
reconstruct it as a 3D model
- Make a 3D model of your own product
- Asses competitor’s products
Textile machine
CAD
2. Reverse engineering – Why?
Interoperability
Product analysis: How does it work? What
components does it consist of? Cost? Potential patent
and copyright infringements?
Digital update/correction
Security auditing
Military or commercial espionage
Removal of copy protection, circumvention of access
restrictions
Creation of unlicensed/unapproved duplicates
Academic/learning purposes or curiosity
Competitive technical intelligence
2. Reverse engineering – Solution?
Contractually forbid RE (in software license
agreement)
“The customer may not carry out any "reverse engineering",
decompile or depacketize the software, or try by any other
means to discover the source code of ...
Technological protection measures
E.g. employ sensors to detect and prevent this attack.
BUT! Legality in question
Inconsistent with copyright or antitrust laws?
Tip for SME: Patent or TS?
Trade Secret
Prevent others to imitate
invention because of
unawareness of it
Very low cost
If invention cannot be learnt
from the product sold
E.g. methods of manufacturing
E.g. pyhisical process to
manufacture a certain chemical
substance (temperature, pressure)
Patent
Prevent others to imitate
invention by publishing it +
getting exclusivity right for 20 y.
Cost
If product itself shows the
inventions: only way to protect is
to file patent application before
marketing
E.g. structural inventions related to
an engine
Tip for SME: TS and Pitfalls
Trade Secret
Permanent risk that others become legally aware of invention (esp.
transfer of employee)
→ Other can make unrestricted use of invention
→ Other can get patent protection
If other gets patent → you keep right of prior use, but limited:
→ only to the same kind of use (e.g. if only sold, you cannot manufacture)
→ only using the invention, not licensing
→ only in the country where the TS was used before (no exports)
TIP: Documentation
TIP: « Hidden » publication
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: external memories, keys
Question 5
HOW TO PROTECT
YOUR TRADE SECRETS?
1. Identify Trade Secrets
Accurate record keeping is important
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
paper based
electronic (e.g. ‘confidential’ button on
standard email screen)
5. Physically Isolate & 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
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, designs, physical handling of work
in progress, etc
7. Maintain Computer Secrecy
Secure online transactions, intranet, website
Password; access control
Mark confidential or secret (legend pop, or before and after
sensitive information)
Lock up: computer tapes, discs, other storage
media
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
•Requirements
Non-compete provision
•Limits
2. Current employees
Prevent inadvertent disclosure
(ignorance)
Train and educate
NDA for particular task
3. Departing employees
exit interview
letter to new employer
treat fairly & compensate
reasonably for patent work
Non-Competition Clauses
(covenants not to compete) in
Labor Contracts
After employee leaves prior employer:
May he work for competitor?
May he work in related job?
May he open a competing business?
Is covenant not to compete enforceable?
Some jurisdictions: NC covenant binding if
‘reasonable’
limited in time
limited in area
limited in type of industry
special compensation to be paid to employee for
his obligation not to compete
Some jurisdictions: in writing + payment
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
e.g. part of franchise
Advantage: additional revenues
Disadvantage: risk of disclosure (potential loss)
In some countries, restrictions
Question 7
HOW IS TRADE SECRET
PROTECTION ENFORCED?
What can you do if
someone steals or
improperly discloses your
TS?
Remedies
1.
Order to stop the misuse
2.
Claim 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
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)
TRADE SECRETS FOR
BUSINESSES
CONCLUSIONS
(1) TS Protection for Financial, Commercial
and Technical Information :
develop effective internal TS
program to maintain trade secret
status
 restrict access
 impose obligation of confidentiality
to anyone who has access

(2) Certain Aspects of Business/Products
Cannot Be Maintained as a TS :




information or technology which is part of a
product sold to the public and can be reverseengineered
mass-marketed technology or products
where competition is so intense, that very likely to
be independently developed by others within
short time
if great deal of personnel movement between
competitors
(3) Alternative or Additional Protection for TS :




Make reverse engineering difficult
Technological protection measures
Patents or utility models
Copyright protection
(4) Be careful about signing confidentiality
agreements and non-compete covenants
The Importance of Proper
Management of Trade Secrets
Thank You!
[email protected]
www.wipo.int/sme