Transcript WIPO-NIFT “TRAINING THE TRAINERS” WORKSHOP ON INTELLECTUAL PROPERTY RIGHTS New Delhi, June 20 to 24, 2005

WIPO-NIFT
“TRAINING THE TRAINERS” WORKSHOP
ON INTELLECTUAL PROPERTY RIGHTS
New Delhi, June 20 to 24, 2005
Keeping Confidence:
Putting in Place a Trade Secret
Protection Program
Lien Verbauwhede
Consultant, SMEs Division
World Intellectual Property Organization (WIPO)
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This Presentation
• PART 1 - Outline
–
–
–
–
Definition
Legal requirements
Legal rights
Enforcement
• PART 2 - Proper Management of TS
– Protection strategies for trade secrets
• (PART 3 - Trade Secret or Patent?)
– Legal considerations
– Business considerations
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PART 1
WHAT ARE TRADE
SECRETS ?
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Definition:
What are trade secrets?
which provides an
enterprise with a
competitive edge
any confidential
information
can qualify as a trade secret
 entitled to legal protection
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Cotton Dyeing Technique
• 5th century BC: Greek historian
Herodotus marveled at quality of
Indian cotton.
• Textile trade: cotton, silk, woven
textiles. The beauty, brilliance, color
range and fastness of Indian fabrics
was held in high esteem.
• India managed to keep the technique
of cotton dyeing a secret from the
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world until the 17th century.
A trade secret can relate to
different types of information
Technical and S cientific Inform ation
Financial Inform ation
Trade Secret
C om m ercial Inform ation
N egative Inform ation
in som e laws
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• Technical and scientific information:
– Product information
• technical composition of a product (e.g. paint)
• technical data about product performance
• product design information
– Manufacture information
• manufacturing methods and processes (e.g. weaving technique,
technology for new fiber having significant tensile properties)
• production costs, refinery processes, raw materials
• specialized machinery
– Know-how necessary to perform a particular
operation (e.g. how to dye with natural dyes)
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• Technical and scientific info (contd.):
– Designs, drawings, patterns, motifs
– Test data, laboratory notebooks
– Computer codes
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• Commercial information:
– Customer list
– Business plan
– Marketing strategy
– Supplier arrangements
– Customer buying preferences and
requirements
– Consumer profiles
– Sales methods
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• Financial information:
– Internal cost structure
– Pricing information
– Salary and compensation plans
– Price lists
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• Negative information:
– Details of failed efforts to remedy
problems in the manufacture of certain
products
– Dead-ends in research (e.g. waterproof)
– Unsuccessful attempts to interest
customers in purchasing a product
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Legal requirements:
What can be protected as a
trade secret?
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• 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
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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
• No absolute requirement  NDA/CA
– e.g. based on supplier relationship, joint development
agreement, due diligence investigation, etc.
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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
• Not easy to know exact value of trade secret
because it is a secret
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3. Owner must have taken reasonable
steps to keep it secret
• Under most trade secret regimes: trade secret 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
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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)
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•
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
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Reverse Engineering :
Taking apart an object
to see how it works
in order to duplicate or
enhance the object
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Examples
Lycra
Zipper
Bikini
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Enforcement:
What can you do if someone
steals or improperly
discloses your trade secret?
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Trade secret protection may be based on...
– Contract law
• When there is an agreement to protect the TS
– NDA/CA
• 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
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– 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
• USA: Uniform Trade Secrets Act; Economic
Espionage Act
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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
trade secrets at trial
4.
Precautionary impoundment
• of the articles that include misused trade secrets, or the products
based on the misuse
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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)
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Protection in India
• Under Indian common law and British
precedents, there is protection for trade secrets
• All remedies are available:
– injunctive relief, damages, accounting of profits, and
the return of all property containing the TS information
– A 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.
• Apart from the common law, India has not
adopted any civil or criminal statutes or laws
relating to trade secrets.
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PART 2
BUSINESS STRATEGIES
TO HANDLE & PROTECT
TRADE SECRETS
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The Story of the Bridgport Loom...
• 1811: James Lowell vacation in Scotland
• In fact, Lowell was a spy
• Water powered weaving machine. Performed work
done by hundreds of artisans. Allowed British to
command world textile trade. American cotton had to
be shipped to England where it was woven into cloth,
and then resold to American merchants.
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The story of NRB Textiles &
Johnston Industries…
• NRB + Johnston lawsuit: Competitor paid 2
consultants (posing as research student + Swiss
investor) $500,000 for info on customers, suppliers,
and manufacturing operations of 9 textile companies.
• Used stolen information to lure customers away after
first reducing prices.
• Also introduced a fabric very similar to one
manufactured by Johnston and then marketed it to
Johnston's customers.
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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 money to be
made in stealing high-tech IP
– Storage facilities (CD-ROM, floppies, etc)
– Expanding use of wireless technology
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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
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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
disgruntled employee
– Theft by departing employee (e.g. of business
plans)
– Ignorance
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• With sufficient effort or through illegal acts,
competitors can usually obtain your trade secrets.
• So long as you demonstrate reasonable efforts
 information remains a trade secret and is legally
protected as such.
• Conversely, if no reasonable effort  risk losing
the trade secret, even if the information is obtained
by competitors illegally.
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What can be done?

10 basic protection
strategies
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1. Identify trade secrets
Considerations in determining
whether 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?
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Prioritize:
– 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 or duplicate it?
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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
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3. Educate employees
– Prevent inadvertent disclosure
(ignorance)
– New employees :
• Brief on protection expectations early
• NDA/NCA/non-solicitation clauses
• Obligations towards former employer!
– Departing employees :
• Exit interview, letter to new employer, treat
fairly & compensate reasonably for patent
work, further limit access to data
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– 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 + repetition
– TS protection must be part of the
enterprise culture
• Every employee must contribute to maintain the
security environment (e.g. anonymous security hotline)
– Monitor compliance, prosecute violators (in a
consistent manner)
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4. Restrict access
to only those persons having
a
need to know
the information


Both paper and computer
Computer system should limit each
employee’s access to information actually
required for his job
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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)
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WARNING:
This document contains trade
secret information of Lien
Verbauwhede. Unauthorized
disclosure is strictly prohibited
and may result in serious legal
consequences.
6. Physically isolate and protect
– Separate locked depository
– Access control
• authorization
• log of access: person, document reviewed
• biometric palm readers
– Surveillance of depository/company
premises
• guards, surveillance cameras
– Shredding
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7. Maintain computer secrecy
– Secure online transactions, intranet, website
– Authorization (password), access control
– Mark confidential or secret (legend pop, or before and
after access to 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
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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
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9. Third parties
– Sharing for exploitation
– Consultants, financial advisors, computer
programmers, website host, designers,
subcontractors, joint ventures, etc.
Know the recipient
Disclose least amount of info necessary
Confidentiality agreement, nondisclosure agreement
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10. Unsolicited submissions
– Unsolicited suggestions, inventions, ideas
– Beware, esp. if relate to ideas/inventions that
your company is presently developing
– Often: claim that unsolicited information was
stolen
Notify submitter that your company will not
enter into confidentiality relationship
Request submitter to sign acknowledgement
that your company is not obligated to use the
information and owes no duty of
confidentiality
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PART 3
PROTECTING INVENTIONS:
TRADE SECRETS
OR PATENTS?
skip
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Introduction
• Certain types of inventions may be
protectable under patent + trade secret
law.
• However, not under both.
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Choice between patent protection and
trade secret protection is a
LEGAL
and BUSINESS
decision
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Legal Considerations
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Trade Secrets
Patents
no registration costs
fees
but: costs to keep secret
registration + m aintenance
can last longer
limited in time
- but: lim ited to economic life
- uncertain lifespan: leak out is irrem ediable
- generally: m ax 20y
- but: can be invalided
no disclosure
disclosure
- but: practical need to disclose
- if leak out: TS lost
- publication 18m after filing
- if P not allowed: no TS
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Trade Secrets
Patents
Large subject m atter
Subject m atter lim ited:
Protection of virtually anything
m aintained in secret by a business
that gives com petitive advantage
- Requirem ents: new, non obvious, useful
- Scope: patent claim
O nly protection against
im proper acquirem ent/use
Right to exclude
M ore difficult to enforce
m onopoly to prevent others from
exploiting the invention
"Pow er tool"
- som e countries: no laws
- ability to safeguard TS during litigation
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Business and Marketplace
Considerations
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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
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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
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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. raw material)  P
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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
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• In the past, you could not buy CocaCola in India, because Indian law
required that trade secret information
be disclosed
• In 1991, India changed its laws, and
Coca-Cola can now be sold in the
country
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Examples no. 2
• Secret technique
for jeans washing
• Secret textile
weaving techniques
for saris
• Content of dye
mixtures
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Example no. 3
• Glamourmom® applied for
patent for breastfeeding bra
• Allows mothers to discretely and
confidently breastfeed
• Built-in soft cup frame and
elastic shelf provides full nursing
bra support.
• But unlike any other nursing bra
on the market, it covers the
tummy. Looks like a regular top.
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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
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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?
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Example - Invention for putting a
permanent image on a piece of
apparel
• Condé System Inc. produces
DyeTrans Wearables™ by
using a patented process to
treat fabric so it captures
photographic-quality artwork
and text in the fabric rather
than on the surface of the
fabric.
• The fabric remains soft and
absorbent with less pile than
cotton or cotton blends and
resists wrinkling and
shrinkage.
Source:
http://www.corporatelogo.com/articles/031feat3.html
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• Potential long market life
• Potential many licensees
• Would be difficult to keep secret
– many licensees
– risk for reverse engineering
Patent: only 20y,
but exclusive rights
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TS v Patent - Conclusions
• 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.
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TS v Patent - 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).
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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
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Only legal protection against dishonest
acquisition/disclosure/use
Consider alternative protection
Get legal advice, whenever useful
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Thank You!
WIPO’s website for SMEs :
www.wipo.int/sme
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