Trade Secrets: Do you know how they could add value YOUR business?

Trade secrets can be hugely powerful and add significant value to a business.  No formal registration procedure is needed, but do you know how to spot, capture and preserve valuable trade secrets? Because if you don’t, you could be overlooking a valuable business asset.  

In order to identify and capture trade secrets, you first need to know what they are.

What is a Trade Secret?

To be defined as a trade secret, information has to meet three requirements:

  1. it is secret in the sense that it is not generally known among, or readily accessible to people, within the circles that normally deal with the kind of information in question
  2. it has a commercial value
  3. it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret

What are ‘reasonable steps’?

These will, of course, be dependent on specific circumstances, but ‘reasonable steps’ to ‘ring-fence’ and preserve Trade Secrets might include:

  • maintaining a central database containing details of all trade secrets;
  • restricting access to trade secrets on a ‘need to know’ basis;
  • establishing a trade secrets policy within the business that everyone has to adhere to;
  • asking all employees to sign a document confirming that they have read and agree to the trade secrets policy;
  • requiring employees leaving the business to sign a document confirming that they have returned all copies of trade secrets in their possession and that they will not use or disclose any company trade secrets after they have left.
  • Ensuring that you have strict cyber security polices in place.

Can trade secrets replace patents?

Definitely not.  Patents and trade secrets should be part of a balanced IP strategy.

Patents are published and only last for a maximum of 20 years, but Trade secrets can only be used to protect information that can be kept secret and cannot be worked out from reviewing publicly available products, processes or literature, or where publication of information is not feasible (for example, if doing so would be a breach of confidence).

Patents should always be considered to protect innovation that will be fully ‘disclosed’ by its commercialisation, or could be reverse engineered (irrespective of whether it wouldbe or is).  Patents might also be more appropriate for products with a limited life span (that would not benefit from the (theoretically) infinite term of a Trade Secret). 

In many cases, your innovation should be protected by a variety of intellectual property rights including, not only patents and Trade Secrets, but also trade marks for brand names and logos, registered designs for the appearance of products (and even things like graphical user interfaces), copyright for literary or artistic works (including web pages, instruction manuals, marketing material, and even software code), not to mention a host of other unregistered rights such as database rights, semiconductor topography rights, etc.

How can trade secrets be preserved and used?

Once a trade secret has been identified, it is essential to have a strict Trade Secrets policy in place to protect it.  You can take legal action against a third party that makes unauthorised use of your trade secret and, if you make a successful claim, the court may order an injunction against continued use of your trade secrets, and possibly certain other measures such as an award of damages, destruction of infringing goods, etc.

A simple example might be where an employee takes company information when they leave and then uses that information in a new role without permission, provided of course, that their employment contract carefully stipulated what they could and could not do with company information when they left their position.  

However, in this, the digital age, many different instances of unauthorised use of trade secrets are emerging that do not involve anyone that originally had authorised knowledge of the Trade Secret, instead the Trade Secret being unlawfully obtained by a third party via a cyber theft.  Therefore, a tight cyber security policy is also needed.

A final warning…

Whilst the trade secrets provisions are an attractive proposition because there is no registration procedure involved, there are risks. Great care can and must be taken to mitigate those risks, because once a Trade Secret is no longer a secret, the right is lost forever.  If you brought a successful claim against someone, you may be able to recoup the financial damage they have caused, but in the case of a cyber attack, would you be able to trace the source of the attack or the party responsible for unauthorised use of your trade secret to allow you to bring a claim?  If they are out of the jurisdiction, how easy will it be to pursue a claim against them anyway (and, if so, at what cost)?  These issues and others provide plenty of food for thought, but as a rule of thumb, if something is key to your commercial goals, other forms of IP protection should be considered: if the damage that would be caused by unauthorised use of a trade secret would be catastrophic to your business, is it worth the risk in relying on that alone? 

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