Transcript IN CONFIDENCE: PUTTING IN PLACE A TRADE SECRET PROTECTION PROGRAM Najmia Rahimi Senior Program Officer, SMEs Division World Intellectual Property Organization.

IN CONFIDENCE:
PUTTING IN PLACE A TRADE SECRET
PROTECTION PROGRAM
Najmia Rahimi
Senior Program Officer, SMEs Division
World Intellectual Property Organization
• What’s a Trade Secret?
Outline
• Definition and main criteria
• Why to protect trade secrets?
• Pros and cons of trade secrets’ protection
• Trade secret management program
• Building it up in a company
• Misappropriation of trade secrets
• How trade secrets get stolen
• How to protect them
• Violation of trade secrets
• How to establish an violation
• What are the remedies
• Audit of trade secrets: main steps
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 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.
Question
WHAT KIND OF INFORMATION
QUALIFIES AS A TRADE SECRET ?
TRADE
• Provides
competitive
advantage
• Potential to
make money
SECRET
Kept
confidential
Financial
information
Technical &
scientific
information
TRADE SECRET
Commercial
information
Negative
information
Examples
Technical and scientific information
– Product information
• technical composition of a product (paint, medicine, beverage)
• technical data about product performance
• product design information
– Manufacture information
• manufacturing methods and processes (e.g. weaving technique)
• production costs, refinery processes, raw materials
• specialized machinery
– Know-how necessary to perform a particular operation
– 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
• Software development agreements
– Drawings, designs, motifs, patterns
– Laboratory notebooks
– Pending patent applications
Examples
Commercial information
– Customer lists
– Customer profiles, buying preferences,
requirements
– 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. waterproof)
– Unsuccessful attempts to interest customers in
purchasing a product
What’s a Trade Secret?
Let’s start with the Norden Case!
Past ten years the IT specialist A was working in a
company A in high-tech designs application
business. Starting this year, A was hired by the
company Norden which produces T-Shirts and
another apparel. During the first weeks of his
work in Norden, A developed a new very efficient
process of application 3D images on T-shirts. The
manager of Norden asked A how he made such
invention which worked perfectly. The specialist A
said that he had gotten certain knowledge from
the previous company he used to work at. The
manager of Norden was surprised and asked if
such information was not secret. A said that he
did not hear about anything ‘secret’ in the
previous company…
Trade Secret is Information
• Any: technical, commercial, financial, strategic, logistical,
scientific, etc.
• Not generally known to the relevant business circles or to the
public
• Confers economic (commercial) benefit to its owner because
of the fact that it is secret
• Is subject to reasonable efforts to maintain its secrecy.
What’s a Trade Secret?
Going back to the Norden Case…
Past ten years the IT specialist A was working in a
company A in high-tech designs application
business. Starting this year, A was hired by the
company Norden which produces T-Shirts and
another apparel. During the first weeks of his
work in Norden, A developed a new very efficient
process of application 3D images on T-shirts. The
manager of Norden asked A how he made such
invention which worked perfectly. The specialist A
said that he got certain knowledge from the
previous company he used to work at. The
manager of Norden was surprised and asked if
such information was not secret. A said that he
did not hear about anything ‘secret’ in the
previous company…
Examples
• Production processes
• (Chemical) formulas: drinks, food, cosmetics,
medicine, etc.
• Software
• Projects, models, etc.
• Procedural tests
• Marketing, development, research, strategic
plans
• Negative information ( processes which do not
work, etc.)
• List of clients and information about them
• Prices, costs-related information
• New ideas, methods, understanding
One of the most famous examples - formula of
Coca-Cola drink
Pros and Cons of Trade Secret Protection
Advantages
• No registration, therefore, no registration costs
•Immediate effect
•No other substantive requirements to be met (e.g.
of novelty or originality)
•No disclosure requirement
•No written description requirement
•Unlimited period of protection
Pros and Cons of Trade Secret Protection
Disadvantages
•Difficult to maintain for a longer period
•Limited scope of protection, more difficult enforcement
of rights
•No protection against legitimate discovery of the same
information, invention, etc. by others (e.g. through
‘reverse engineering’)
•No possibility to stop others from developing the same
invention by legitimate means (protection against
improper acquisition, use or disclosure of confidential
information only)
How to build up a trade secret management
program in a company?
Going back to the Norden Case…
What should have been done by the company A
(where the IT specialist A was previously working) in
order he, later hired by Norden, did not take
‘secret’ information from the company A?
What steps should the company A have taken?
Trade secret management program in a
company: Steps
1 Step - To create a system of identifying trade secrets
2 Step – To develop a company’s security policy, including
trade secret policy
3 Step – To educate all employees on issues which are related
to information, including trade secrets, security
4 Step – To establish a system of rules in situations when a
new employee is hired or company’s employee is leaving
5 Step – To include certain restrictions in contracts
Trade secret management program in a
company: Steps
6 Step - To restrict access to paper records
7 Step – To mark documents
8 Step – To arrange a company’s premises and used devices,
etc. in order to keep confidentiality
9 Step – To maintain computer secrecy
10 Step – To take care of trade secrets which are shared
with external partners
How trade secrets get stolen?
Further in the Norden Case…
The employee A explained to the manager
of Norden that he had found a description of
an improved chemical composition of the
glue and specific printing material in a
waste-paper basket in the company A. He
said he had compared that information with
the information he could find in the
confidential documents’ folder saved on the
company’s A servers.
The manager of Norden was very much
surprised how the employee A could have
had an access to such documents, as it
usually requires a password. A explained
that he took that password from his
colleague who had actually ‘hacked’ it.
Misappropriation of trade secrets
1. Unfair acquisition of trade secret
That is, theft, fraud, coercion, industrial
espionage or other unlawful or dishonest acts.
Misappropriation of trade secrets
2. Acquisition of a trade secret with
knowledge about its prior illegal acquisition,
or without such knowledge, but being grossly
negligent in falling to know such previous
illegal act, and, in any case, using or disclosing
trade secret acquired in such a way.
Misappropriation of trade secrets
3. After a trade secret was acquired
innocently, using or disclosing it after learning
about its prior illegal acquisition by another
person.
Misappropriation of trade secrets
4. Using or disclosing a trade secret in breach of
contractual obligations to maintain the trade secret.
4.1. Acquisition of a trade secret that was disclosed while breaching
contractual obligations (knowing or with gross negligence about this
fact), and using or disclosing such trade secret.
4.2. After a trade secret was acquired by innocently breaching
contractual obligations, using or disclosing it after learning about
the breach of contractual obligations or being grossly negligent in
falling to learn about such illegal act.
How trade secrets get stolen:
What would be your comments on the Norden Case?
The employee A explained to the manager of
Norden that he had found a description of an
improved chemical composition of glue and
materials for printing on textile in a waste-paper
basket in the company A. He said he had
compared that information with the
information he could find in the internal
documents folder saved on the company’s A
servers.
The manager of Norden was very much surprised
how the employee A could have had an easy
access to such documents, as it usually requires
a password. A explained that he took that
password from his colleague who had
actually ‘hacked’ it.
Protection of trade secrets
• Most countries do not have specific laws on
trade secrets.
• Protection of trade secrets is established in:
• Civil Laws
• In Unfair Competition Laws (for instance, in
Germany)
• In Contract Law (in many countries)
• In Criminal Law (for instance, in the EU
countries, USA, Russia)
How to establish violation of trade
secrets?
1 - To clarify if information was secret
2 – To establish if reasonable steps were taken to
maintain this information secret
3 - To show that infringement was made or
competitive advantage was gained by
misappropriating a trade secret by a person/company
4 – To establish that there was a misuse of a trade
secret in violation of honest business practices
Remedies Against Violations of Trade Secrets
• Court order to stop illegal acts (injunction)
• Monetary compensation (damages, lost of profits, unjust
enrichment, etc.)
• Seizure order (to check defendant’s premises, to take
evidence, etc.)
• Precautionary confiscation/seizure of articles that contain
trade secrets or products resulting from their use/misuse
• Destruction of infringing articles
• In some countries, imposition of punitive damages
Audit of Trade Secrets
Coming back to the Norden Case…
The general manager of Norden is planning an audit of
information possessed by his company, including also all
confidential information. The manager arranged a meeting
with his human resources and other departments in order to
discuss the main aspects of such audit, but first he wants to
know the main steps of an audit procedure.
What would be those main steps?
Audit of Trade Secrets: Steps
Identification of most
important trade secrets
•Consultations with R&D division
•Sales, marketing and human resources
•Information management
•Contacts with customers, etc.
Verification of a company’s
ownership over those trade
secrets
•Checking all documents, contracts,
assignments, licenses, etc.
Audit of Trade Secrets: Steps
Verification that confidentiality
procedures are duly followed
•Contacting human resources, security
departments which maintain trade
secrets
Verification that employees and
all third persons do not disclose
trade secrets
•Contacting human resources
department in order to establish if
contracts include confidentiality clauses
•To clarify what confidentiality means are
taken so far, as far as external persons are
concerned
Trade Secret Protection: Checklist:
Trade secret is information which provides its owners a competitive
advantage.
Trade secrets are protected upon their existence.
Trade secrets can be used to protect innovations.
If a product has a long life cycle, trade secret protection is not a
suitable protection.
The owners of trade secret may seek liability when appropriator
acquires, reveals or uses the secret information in a wrongful
manner.
Trade secrets are protected through non-disclosure and nonsolicitation clauses in employment or other contracts only.
Thank you!
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