A Business Oriented Overview of IP for Law

StudentsGeneva, Switzerland, May 29 to June 1, 2006

Laying the Foundation:

Managing Trade Secrets

Lien Verbauwhede-KoglinLien Verbauwhede-KoglinConsultant,Consultant, SMEs Division

World Intellectual Property Organization (WIPO)

This PresentationThis Presentation

• PART 1 - Outline– Definition– Legal requirements– Legal rights– Enforcement

• PART 2 - Proper Management of Trade Secrets – Protection strategies for trade secrets

• PART 3 - Trade Secret or Patent?– Legal considerations– Business considerations

PART 1PART 1

WHAT ARE TRADE WHAT ARE TRADE SECRETS ?SECRETS ?

DefinitionDefinition::What are trade secrets?What are trade secrets?

any confidential information

which provides an enterprise with a competitive edge

can qualify as a trade secret entitled to legal protection

Typically, a company will have confidential information ...

• Which may be protected by other types of IP – application for

protection foreseen in the near future

– no application foreseen

• Which doesn’t qualify for protection under other types of IP

A trade secret can relate to different types of information

Technical and Scientific In form ation

Financial In form ation

C om m ercial In form ation

N egative In form ationin so m e la w s

Trade Secret

• Technical and scientific information:

– product information• technical composition of a product: medicine, paint,

beverage• technical data about product performance• product design information

– manufacture information• manufacturing methods and processes (weaving technique,

device process)

• production costs, refinery processes, raw materials• specialized machinery

– know-how necessary to perform a particular operation

• Technical and scientific info (contd.):

– designs, drawings, patterns, motifs

– test data, laboratory notebooks

– computer codes

• Commercial information:

– customer list

– business plan

– marketing strategy

– supplier arrangements

– customer buying preferences and

requirements

– consumer profiles

– sales methods

• Financial information:

– internal cost structure

– pricing information

– salary and compensation plans

– price lists

• Negative information:

– details of failed efforts to remedy problems in the manufacture of certain products

– dead-ends in research

– unsuccessful attempts to interest customers in purchasing a product

Legal requirementsLegal requirements::What can be protected as a What can be protected as a

trade secret?trade secret?

• 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

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• wheel technique for pottery is no trade secret

• no absolute requirement NDA/CA – e.g. based on supplier relationship, joint development

agreement, due diligence investigation, etc.

2. It must have commercial value becauseit’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

• actual or potential

• not easy to know exact value of trade secret because it is a secret

3. Owner must have taken reasonable steps to keep it secret

• under most trade secret regimes, a TS 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

Legal rightsLegal rights::What kind of protection do What kind of protection do you have under the law?you have under the law?

• 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)

Legal rightsLegal rights::

• 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

Reverse engineering is taking apart an object to see how it works

in order to duplicate or enhance the object

Example no. 1Example 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

Example no. 2 Example no. 2

• Patent for stud and tube coupling system (the way bricks hold together)

• But: Today the patents have long expired and the company tries hard to keep out competitors by using designs, trademarks and copyright

Enforcement:Enforcement:What can you do if someone What can you do if someone

steals or improperly steals or improperly discloses your trade secret?discloses your trade secret?

Trade secret protection may be based on...

– Contract law • when there is an agreement to protect the TS

– NDA/CA

– anti-reverse engineering clause (enforceability debated)

• 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

– 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• US: Uniform Trade Secrets Act; Economic

Espionage Act

Remedies

1. Order to stop the misusing

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

that resulted of misusing

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)

PART 2PART 2

BUSINESS STRATEGIES BUSINESS STRATEGIES TO HANDLE & PROTECT TO HANDLE & PROTECT

TRADE SECRETSTRADE SECRETS

Loss of trade secrets - Loss of trade secrets - a growing problem a growing problem (1)(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 the money to be made in stealing high tech IP

– storage facilities (CD-ROM, floppies, etc)

– expanding use of wireless technology

Loss of trade secrets - Loss of trade secrets - a growing problem a growing problem (2)(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

Loss of trade secrets - Loss of trade secrets - a growing problem a growing problem (3)(3)

• Examples of inside threats

– 80% of information crimes < employees, contractors, trusted insiders!

– malicious destruction/erasure of R&D data by avenging employee

– theft by former employee of business plans

– ignorance

What can be done?What can be done?

9 basic protection strategies9 basic protection strategies

1. Identify trade secrets1. Identify trade secrets

Considerations in determining whether information is a trade secret:

– 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?

– 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 of duplicate it?

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: • 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 and repetition

– TS protection must be part of the enterprise culture

• Transform every employee into a potential security officer

• Every employee must contribute to maintain the security environment (e.g. anonymous security hotline)

– Monitor compliance, prosecute violators

4. 4. 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

5. Mark documents5. 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)

3. Educate employees3. Educate employees

– Prevent inadvertent disclosure (ignorance)

– Employment contract : • Brief on protection expectations early• NDA/CA/NCA• obligations towards former employer!

– Departing employees : • exit interview, letter to new employer, treat

fairly & compensate reasonably for patent work, further limit access to data

6. Physically isolate and protect6. Physically isolate and 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– Oversight; audit trail

7. Maintain computer secrecy7. Maintain computer secrecy

– Secure online transactions, intranet, website

– Authorization (password); access control– Mark confidential or secret (legend pop,

or before and after 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

8. Restrict public access to 8. Restrict public access to facilitiesfacilities

– 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

9. Third parties9. Third parties

– Sharing for exploitation

– Consultants, financial advisors, computer programmers, website host, designers, subcontractors, joint ventures, etc.

– Confidentiality agreement, non-disclosure agreement

– Limit access on need-to-know basis

PART 3PART 3

PROTECTING INVENTIONS:PROTECTING INVENTIONS:

TRADE SECRETSTRADE SECRETSOR PATENTS?OR PATENTS?

IntroductionIntroduction

• Certain types of inventions may be protectable under patent + trade secret law.

• However, not under both.

Choice between patent protection and trade secret protection is a

LEGAL and BUSINESS

decision

Legal ConsiderationsLegal Considerations

no registration costsb u t: co s ts to ke ep sec re t

can last longer- b u t: lim ite d to e con o m ic life

- u n ce rta in lifesp a n: le a k o u t is irre m e d ia b le

no d isclosure- b u t: p rac tica l n ee d to d isc lo se

- if lea k o u t: T S lo st

Trade Secrets

feesre g istra tio n + m a in te na n ce

lim ited in tim e- g e ne ra lly: m ax 2 0y

- b u t: can be inva lid ed

disclosure- p u b lica tio n 18 m a fte r f iling

- if P n o t a llo w e d : no TS

Patents

Large subject m atterP ro tec tio n o f virtu a lly a nyth ing

m a in ta ine d in se cre t by a b u sin e ssth a t g ive s com pe tit ive a d va n ta ge

O nly protection againstim proper acquirem ent/use

M ore d ifficu lt to enforce- so m e cou n tries : n o la ws

- a b ility to sa feg u a rd T S d u ring lit iga tion

Trade Secrets

Subject m atter lim ited:- R eq u irem en ts : n e w , n o n-o bv io us , u se fu l

- S co p e : p a te n t c la im

Exclusive rightsm o no p o ly to e xp lo it

th e inve n tion

"Pow er tool"

Patents

Business and Marketplace Business and Marketplace ConsiderationsConsiderations

1. Market life of the subject matter1. 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

2. Difficulty of maintaining the 2. Difficulty of maintaining the subject matter secretsubject 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

3. Likelihood of subject matter 3. Likelihood of subject matter being reverse engineeredbeing 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. cleaning fluid) P

4. Likelihood of subject matter 4. Likelihood of subject matter being independently developedbeing 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

5. Type of subject matter5. 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?

ConclusionConclusion

• 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

ConclusionConclusion

• 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).

Remember...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

Only legal protection against dishonest acquisition/disclosure/use

Consider alternative protection

Thank You!

WIPO’s website for SMEs :

www.wipo.int/sme