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The Importance of Proper Management of Trade Secrets
WIPO National Seminar on IP for SMEs in the Textile Industry
DamascusOctober 13 and, 2010
Mrs. Lien Verbauwhede Koglin
Consultant, SMEs Division, WIPO
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.
Do-it-yourself form of IP
What areTrade Secrets?
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.
General Principles:
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?
This Presentation
Question 1Question 1
WHAT KIND OF INFORMATION WHAT KIND OF INFORMATION QUALIFIES AS A TRADE SECRET ?QUALIFIES AS A TRADE SECRET ?
TRADE SECRET
Financial information
Technical & scientific information
Commercialinformation
Negativeinformation
Product informationtechnical composition of a product (e.g. fibers, biosensors in smart clothes)
technical data about product performance (e.g. breathable, waterproof)
product design information
Manufacture informationmanufacturing 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)
ExamplesTechnical and Scientific Information
Drawings, designs, motifs, patterns
Computer technologyhardware + 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.
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
ExamplesCommercial information
Financial projections
Cost & pricing information
Sales data, price lists
Internal cost structure
Salary and compensation plans
ExamplesFinancial 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
ExamplesNegative information
Question 2Question 2
WHAT MAKES SOMETHING A WHAT MAKES SOMETHING A TRADE SECRET ?TRADE SECRET ?
When do you have When do you have legal protection?legal protection?
The information must be secret
It must have commercial value because it’s secret
Owner must have taken reasonable steps to keep it secret
Three Essential Legal Requirements:
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
Required that be known only by one person?
“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
1. Secret
Must confer some economic benefit
How to demonstratebenefits derived from use
costs of developing the TS
licensing offers, etc.
actual or potential
2. Commercial value
Under most TS regimes, you cannot have a TS unless you have taken reasonable precautions to keep the information confidential
‘Reasonable’ case by casereasonable 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
3. Reasonable steps
TS developed by employee
TS developed by external contractorE.g. technique providing very good home laundering durability
To avoid disputes:
WRITTEN AGREEMENT +
ASSIGN in advance all trade secrets developed
during employment or commission
Tip for SME: Who Owns the TS?
Question 3Question 3
WHEN CAN YOU GET COURT WHEN CAN YOU GET COURT RELIEF ?RELIEF ?
COURT RELIEF if: TS + “THEFT”
Courts will only grant relief if someone has improperly acquired, disclosed or used the
information
Only theft if wrongful !
2. Confidentiality agreement or NDA
e.g., employees, suppliers, consultants, financial advisors
1. Duty of trust
implied or imposed by law
e.g., employees, directors, lawyers
3. Industrial espionage, theft, bribery, hacking, eavesdropping
What is Typically Wrongful?
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
What is Lawful?
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?
Trade Secret Patent
• Prevent others to imitate invention because of unawareness of it
• Prevent others to imitate invention by publishing it + getting exclusivity right for 20 y.
• Very low cost • Cost
• If invention cannot be learnt from the product soldE.g. methods of manufacturingE.g. pyhisical process to manufacture a certain chemical substance (temperature, pressure)
• If product itself shows the inventions: only way to protect is to file patent application before marketingE.g. structural inventions related to an engine
Tip for SME: Patent or TS?
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
Tip for SME: TS and Pitfalls
Question 4Question 4
HOW ARE TRADE SECRETS LOST HOW ARE TRADE SECRETS LOST OR STOLEN ?OR STOLEN ?
• 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
A Growing Problem – Why Does It Occur?
Question 5Question 5
HOW TO PROTECT HOW TO PROTECT YOUR TRADE SECRETS?YOUR TRADE SECRETS?
1. Identify Trade Secrets1. Identify Trade Secrets
• Accurate record keeping is important
2. Develop a Protection Policy2. 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
33. . Restrict AccessRestrict 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 Documents4. Mark Documents
• Help employees recognize TS
prevents inadvertent disclosure
• paper based• electronic (e.g. ‘confidential’ button on
standard email screen)
5. Physically Isolate & Protect5. 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 Facilities6. 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 Secrecy7. 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 Employees8. 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
•Requirements
•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 Parties9. 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 6Question 6
MAY TRADE SECRETS BE SOLD MAY TRADE SECRETS BE SOLD OR LICENSED?OR LICENSED?
– Most TS sales occur as part of the sale of the business
Sale
• 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
License
Question 7Question 7
HOW IS TRADE SECRET HOW IS TRADE SECRET PROTECTION ENFORCED?PROTECTION ENFORCED?
What can you do if What can you do if someone steals or someone steals or improperly discloses your improperly discloses your TS?TS?
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
Remedies
• infringement provides competitive advantage
• reasonable steps to maintain secret
• information obtained, used or disclosed in violation of the honest commercial practices (misuse)
To Establish Violation, the Owner Must Be Able to Show :
TRADE SECRETS FOR TRADE SECRETS FOR BUSINESSESBUSINESSES
CONCLUSIONSCONCLUSIONS
develop effective internal TS program to maintain trade secret status
restrict access impose obligation of confidentiality
to anyone who has access
(1) TS Protection for Financial, Commercial and Technical Information :
information or technology which is part of a product sold to the public and can be reverse-engineered
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
(2) Certain Aspects of Business/Products Cannot Be Maintained as a 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
(3) Alternative or Additional Protection for TS :
