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 RahimiSenior Program Officer, SMEs Division

World Intellectual Property Organization

Outline• What’s a Trade Secret?

• 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’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 secretThat 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 SecretsComing 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 secretsVerification 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 non-solicitation clauses in employment or other contracts only.

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