Last month (June 2018) the UK brought into force new regulations covering the protection of trade secrets – the Trade Secrets (Enforcement, etc.) Regulations 2018 (SI 2018/597). This is part of what has been an ongoing global harmonisation of trade secret legislation. Whilst it doesn’t dramatically alter the protection available, it’s a timely reminder that this area of IPR protection is one which is extremely useful. It is not, however, familiar to all and certainly it would seem that not all companies are making the most of possibilities offered to them.
The areas of competitive advantage within a business that can be protected as trade secrets are much wider than those of other mechanisms such as patents making them useful as an add on (or even an alternative) to pursuing a patent strategy. Further, there are no registration requirements, meaning no costly drafting, filing, execution fees etc., and they are not subject to limited period of cover such as is the case with patents (normally 20 years). With these advantages it should be a worthwhile exercise for all serious businesses, regardless of stage or size, to give some consideration to protecting their value by having clear policies and processes in the area of trade secrets.
What is a Trade Secret?
In Europe the definition of a trade secret can be found in the EU Trade Secrets Directive (2016/943) which draws heavily on the definition detailed in the 1994 TRIPS agreement (Trade-Related Aspects of Intellectual Property Rights) of the World Trade Organisation. This differs little in spirit from the definition in the US under the Defend Trade Secrets Act introduced in 2016.
The essential definition of the trade secret is confidential information which:
- Is a secret
- Has commercial value due to being secret
- Has been “subject to reasonable measures” to keep it secret
Item 1 seems obvious – the trade secret must be secret. It is still worth a little examination though. The full wording states that it “cannot be known among or readily available to persons within the circle of those that normally deal with this kind of information”. This has elements similar to “novelty” requirements in patents. That is to say that if the information is something that knowledgeable people in the area generally would know, or could easily derive, then it’s not going to be considered as a trade secret. That doesn’t mean that it has to be fully unique as is the case in patent prior art, but it can’t be common knowledge.
Item 2 is also fairly straightforward also. It will only be a trade secret if it provides some commercial value to holder. What constitutes commercial value is somewhat open to interpretation, but in general we can take this as meaning that it provides some form of business advantage.
Item 3 places an onus on a business to implement measures to protect trade secrets. Failure to do this will lead courts to rule against you for any perceived infringements. After all, if you aren’t going to take steps to protect your trade secrets how important can they be to you? This area will be discussed further below as it really defines what you have to do to protect your trade secrets.
What is also interesting is what is not contained in the definition. There are no definitions of which areas of business, methods, products, inventions, documents etc. can be considered a trade secret. Essentially a trade secret can be almost any aspect of your business that isn’t generally known, has been developed by you and meets the other requirements. A trade secret could be one of your business processes such as how you have optimised your order to delivery process. Alternatively it could be a set of information – a customer list in a specific segment of your market or a set of test vectors that you use for testing compliance of your software. It could be a “secret-sauce” algorithm in one of your designs. It could be a recipe for the salsa you serve in your restaurant!
Protection and Risks
The protection afforded to your trade secrets relates to the unlawful acquisition, use and disclosure of your trade secrets. It should be noted that there are some lawful ways to obtain your secrets such as reverse engineering or independent derivation. This means that you don’t actually hold any kind of monopoly rights as is the case with patents. If there is a breach of your protected trade secrets you will be able to take action in court for remedies of various forms, possibly including compensation for lost commercial value.
There are numerous risks in the modern business world to your trade secrets. The first is the business itself and its employees. Obviously if you inadvertently place information into the public domain, such as by discussing it externally without an NDA or blogging about it then it cannot be considered to be a secret anymore! There is also the danger of cyber-theft or related illegal corporate espionage activities that target your IPR. These days when so much information is stored on computer servers this is of course a legitimate danger. For most companies though this is not necessarily their biggest risk. For most, the biggest risk lies in employees that leave the company, taking with them valuable knowledge, insights and understanding. Managing this risk therefor needs to be a key component of your Trade Secret policies and your steps to ensure that you meet the requirements for “reasonable measures” to keep your trade secrets protected.
Reasonable Measures
As mentioned above, one of the 3 requirements for trade secrets is that you take “reasonable measures” to protect trade secrets. “Reasonable measures” is of course one of those legal phrases that is open to interpretation, fuzzy and subject to previous rulings and precedents in differing jurisdictions. Companies of differing sizes, cultures and motives as well as different levels of commercial or strategic dependence on their trade secrets will make their own choices on how they choose to ensure that they meet this requirement. They will trade off levels of risk against process and bureaucracy based on their own circumstances. Some of the essential aspects will be the same in most cases, however.
You are probably going to have a document policy on trade secrets which is communicated to your staff. You are also going to want to provide training to your staff so that they are aware of the importance of trade secrets. Most likely you will initiate a register of at least the most important trade secrets in your business. You may also want to have an employee who is designated as responsible for issues relating to trade secrets. All this demonstrates to your staff, and potentially the courts, that you take trade secrets seriously. Further it hopefully ensures that you don’t accidentally release your trade secrets in a staff post on LinkedIn or Medium!
You will probably want to look at elements relating to physical and electronic access to secret information. Anything from ensuring that offices are physically protected with keycards through to ensuring that some information is stored electronically with access only to key individuals who need access for the purposes of their job. Possibly it may make sense to limit employee access to only portions of the information to employees such that no one employee has the complete picture. You should also ensure that all confidential information and documentation is marked as confidential and that confidential information is only ever shared or discussed under NDA or contractual terms that contain appropriate cover.
Finally there is the key risk area of your employees, and in particular those that move on. There are a variety of steps that you will need to take here such as the inclusion of appropriate clauses in employment contracts and a requirement for exit interviews with checklists of items to be discussed and actions to be taken including polite reminders of the agreements they have signed.
Concluding Remarks
Trade secrets protection should be a key part of the IPR strategy of all businesses. There is the possibility to cover areas of competitive advantage that cannot be protected by other means such as patents, at a small cost and for an indefinite period of time. The costs to the business for gaining protection are the creation of some documented policies, employee training, processes that don’t have to be onerous if you so choose and ensuring that employee and commercial contracts have appropriate clauses that frankly are probably prudent to have in there anyhow.
Given the advantages of trade secret protection and the importance of the protection it can afford I can’t help feeling that it is an area that a lot of companies haven’t spent enough time on. Does your business have a documented policy on trade secrets? Are your employees aware and trained? We would be interested to see where businesses are – why don’t you take a minute to answer a survey, fully anonymous and only two questions! Take the survey