WIPO ASIA SUB-REGIONAL WORKSHOP ON THE USE OF INTELLECTUAL PROPERTY (IP) BY SME SUPPORT INSTITUTIONS FOR THE PROMOTION OF COMPETITIVENESS OF SMEs IN THE FOOD PROCESSING SECTOR Lahore, Pakistan, June 5 and 6, 2007 Guriqbal Singh Jaiya Director SMEs Division World Intellectual Property Organization

Protecting Trade Secrets

Guriqbal Singh Jaiya Director, SMEs Division World Intellectual Property Organization (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.

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

Financial information Commercial information

TRADE SECRET

Technical & scientific information Negative information

Typical examples in the software industry

–

Computer technology

• hardware + software (esp. source code) • whether < patent or copyright protection • algorithms, formulas, data flow charts, specific procedures that are implemented in the software or website –

Software design documents

–

Technical data about product performance

–

Software development agreements

–

Pending patent applications

–

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Marketing plans, unpublished promotional material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”

•

What is ‘generally known’ in the software industry?

– matters of common knowledge – information you find at library, online database, trade journals, patent information, etc – price list on website – graphics & object code of software application you sell off-the-shelf

1. Secret

•

Not required that be known only by one person

– e.g. based on supplier relationship, joint development agreement, due diligence investigation, etc.

– If you license software which has

limited distribution

 possible to protect object code by

contractual means

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 or software) 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 software companies: studying competitors' products • to make software that can

interoperate

software being studied with the • to make a product that will

compete

with it – E.g. decompile object code to reveal its structure and figure out the interface specifications for interoperability purposes – E.g. look at a program's input and outputs

2. Reverse engineering

– Solution: contractually forbid reverse engineering (in software 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

Examples –

Reverse engineering, independent discovery

–

Improper licensing

–

Burglaries by professional criminals targeting specific technology

–

Network attacks (hacking)

–

Laptop computer theft

–

Inducing employees to reveal TS

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

Case Company accused of misappropriating TS from an inventor

• Inventor of new design for vacuum cleaner presented design to vacuum cleaner manufacturer. Signed

NDA

covering the design.

• Manufacturer obtained

patent

on the design one year after the inventor disclosed the design to them, and made estimated sale profits of $100,000,000.

• 2004: lawsuit settled. Company paid $30,000,000 to inventor.

Case

High-Tech Company vs. Employee • Technical manager (employee) of high-tech company X resigned  Went to work for another high-tech company Y • Departing employee used and disclosed TS • Company X filed suit against departing employee • Court order: Departing employee prevented from performing work for his new employer (Y) in connection with any product that competes with X’s products.

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

–

e.g. software license for highly specialized program

–

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

TS Licensing

Can licensee be obligated to continue paying TS royalties even if the information has entered the

public domain

?

In case of license for patent + related TS: Can licensee be obligated to continue paying TS royalties when

patent expires or is invalidated

?

TS Licensing

Mass-marketed software

: Possible to negotiate NDA with every end-user?

Software Escrow

: A viable alternative to source code license?

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

Relevant laws in Belarus

•

Law of the Republic of Belarus on Opposition to Monopolistic Activities and Competition Development

– www.belgospatent.org/russian/docs/konkur.doc

•

Civil Code, art 140

– Trade Secret is information which has a value, unknown and unaccessible for third parties.

• • •

Criminal Code, art 254, 255 Administrative Code, art 22.13

Art 10 of the Paris Convention

Remedies

1.

Order to stop the mise 2.

3.

Monetary damages

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

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

no registration

- less costs (but: costs to keep secret) - immediately available

can last longer

- but: limited to economic life - uncertain lifespan: leak out is irremediable

no public disclosure

- but: practical need to disclose - if leak out: TS lost

Patents

registration

- fees (registration + maintenance) - takes time to get patent

limited in time

- generally: max 20y - but: can be invalided

public disclosure

- publication 18m after filing - if P not allowed: no TS

Trade Secrets

Large subject matter

Protection of virtually anything maintained in secret by a business that gives competitive advantage

Only protection against improper acquirement/use More difficult to enforce

- some countries: no laws - ability to safeguard TS during litigation

Patents

Subject matter limited:

- Requirements: new, non obvious, useful - Scope: patent claim

Exclusive rights

monopoly to exploit the invention

"Power tool"

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

Initially

INNOVATIVE IDEA

Later stage

Secret !

Not patentable

TS © ID

patentable

Strategic business decision patent TS

•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

Technology changing rapidly?

Y Y N TS N Def.publ

P N

Revenue potential > IP costs?

Y

New area of technology?

Y N

Licensing opportunity?

Y

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?)

TS C A B INNOVATIVE IDEA inventions on A, B, C TS A B C P

Applying for patent on C may not require giving up TS on A & B

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



COUNTRIES TS lost in ALL

– 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 ?

“Developer may be given access to Client’s confidential information while working for Client. Developer agrees not to use or disclose such information except as directed by Client.”

• Software or web developers who work for clients asking to sign CA  Insist on CA that is : - reasonable in scope - defines precisely what information you must keep confidential - limited in time (max. 5 years) - exceptions

TRADE SECRETS FOR SOFTWARE COMPANIES CONCLUSIONS



TS protection for financial, commercial & (secret) technical information:

 develop effective internal TS program to maintain trade secret status 

TS protection for Software:

 restrict access  impose obligation of confidentiality who has access to anyone



Certain aspects of software cannot be maintained as a trade secret

    information or technology that must be disclosed to the public in order to market the product information or technology which is part of a product sold to the public and can be reverse-engineered mass-marketed software 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 if customers require access to software for archive, back-up, updating, maintenance, debugging, etc.



Alternative or additional protection for software

:    make reverse engineering difficult (compiled code) technological protection measures copyright protection  software patents 

Be careful about signing confidentiality agreements

The Importance of Trade Secrets for Software Companies Thank You!

[email protected]

www.wipo.int/sme

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

patent application is

published

by the patent office.

the

–

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

).