WIPO-NIFT

TRAINING THE TRAINERS WORKSHOP

ON INTELLECTUAL PROPERTY RIGHTS

New Delhi, June 20 to 24, 2005

 Keeping Confidence:
Putting in Place a Trade Secret
Protection Program

Lien Verbauwhede
Consultant, SMEs Division
World Intellectual Property Organization (WIPO)

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This Presentation
PART 1 - Outline
Definition
Legal requirements
Legal rights
Enforcement

PART 2 - Proper Management of TS

Protection strategies for trade secrets

(PART 3 - Trade Secret or Patent?)

Legal considerations
Business considerations

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 PART 1

WHAT ARE TRADE

SECRETS ?

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 Definition:
What are trade secrets?

which provides an any confidential

enterprise with a information
competitive edge
can qualify as a trade secret
entitled to legal protection

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Cotton Dyeing Technique

5th century BC: Greek historian

Herodotus marveled at quality of
Indian cotton.

Textile trade: cotton, silk, woven

textiles. The beauty, brilliance, color
range and fastness of Indian fabrics
was held in high esteem.

India managed to keep the technique

of cotton dyeing a secret from the
world until the 17th century. 6
 A trade secret can relate to
different types of information

Technical and Scientific Information

Financial Information
Trade Secret
Commercial Information

Negative Information
in some laws
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 Technical and scientific information:

Product information
technical composition of a product (e.g. paint)
technical data about product performance
product design information

Manufacture information
manufacturing methods and processes (e.g. weaving technique,
technology for new fiber having significant tensile properties)
production costs, refinery processes, raw materials
specialized machinery

Know-how necessary to perform a particular

operation (e.g. how to dye with natural dyes) 8
 Technical and scientific info (contd.):

Designs, drawings, patterns, motifs

Test data, laboratory notebooks

Computer codes

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 Commercial information:

Customer list
Business plan
Marketing strategy
Supplier arrangements
Customer buying preferences and
requirements
Consumer profiles
Sales methods 10
 Financial information:

Internal cost structure

Pricing information

Salary and compensation plans

Price lists

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 Negative information:

Details of failed efforts to remedy

problems in the manufacture of certain
products

Dead-ends in research (e.g. waterproof)

Unsuccessful attempts to interest

customers in purchasing a product

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 Legal requirements:
What can be protected as a
trade secret?

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 Three essential legal requirements:

1. The information must be secret

2. It must have commercial value because

its secret

3. Owner must have taken reasonable steps

to keep it secret

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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

No absolute requirement NDA/CA

e.g. based on supplier relationship, joint development
agreement, due diligence investigation, etc.

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2. It must have commercial value because
its 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

Not easy to know exact value of trade secret

because it is a secret

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

Under most trade secret regimes: trade secret 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

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 Legal rights:
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)

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 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

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Reverse Engineering :

Taking apart an object

to see how it works
in order to duplicate or
enhance the object

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Examples

Lycra

Bikini
Zipper
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22
 Enforcement:
What can you do if someone
steals or improperly
discloses your trade secret?

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Trade secret protection may be based on...

Contract law
When there is an agreement to protect the TS
NDA/CA
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

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 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

USA: Uniform Trade Secrets Act; Economic
Espionage Act

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 Remedies

1. Order to stop the misuse

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
based on the misuse

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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)
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 Protection in India
Under Indian common law and British
precedents, there is protection for trade secrets

All remedies are available:

injunctive relief, damages, accounting of profits, and
the return of all property containing the TS information
A 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.

Apart from the common law, India has not

adopted any civil or criminal statutes or laws
relating to trade secrets.
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 PART 2

BUSINESS STRATEGIES
TO HANDLE & PROTECT
TRADE SECRETS

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The Story of the Bridgport Loom...

1811: James Lowell vacation in Scotland

In fact, Lowell was a spy
Water powered weaving machine. Performed work
done by hundreds of artisans. Allowed British to
command world textile trade. American cotton had to
be shipped to England where it was woven into cloth,
and then resold to American merchants.

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 The story of NRB Textiles &
Johnston Industries

NRB + Johnston lawsuit: Competitor paid 2

consultants (posing as research student + Swiss
investor) $500,000 for info on customers, suppliers,
and manufacturing operations of 9 textile companies.

Used stolen information to lure customers away after

first reducing prices.

Also introduced a fabric very similar to one

manufactured by Johnston and then marketed it to
Johnston's customers.
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 Loss of trade secrets -
a growing problem (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 money to be
made in stealing high-tech IP
Storage facilities (CD-ROM, floppies, etc)
Expanding use of wireless technology
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 Loss of trade secrets -
a growing problem (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
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 Loss of trade secrets -
a growing problem (3)

Examples of inside threats

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

Malicious destruction/erasure of R&D data by

disgruntled employee

Theft by departing employee (e.g. of business

plans)

Ignorance
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 With sufficient effort or through illegal acts,
competitors can usually obtain your trade secrets.

So long as you demonstrate reasonable efforts

information remains a trade secret and is legally
protected as such.

Conversely, if no reasonable effort risk losing

the trade secret, even if the information is obtained
by competitors illegally.

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What can be done?

10 basic protection
strategies

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1. Identify trade secrets

Considerations in determining
whether information is a TS:
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?

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Prioritize:

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 or duplicate it?

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2. 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

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 3. Educate employees

Prevent inadvertent disclosure

(ignorance)

New employees :
Brief on protection expectations early
NDA/NCA/non-solicitation clauses
Obligations towards former employer!

Departing employees :
Exit interview, letter to new employer, treat
fairly & compensate reasonably for patent
work, further limit access to data
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 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 + repetition

TS protection must be part of the

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

Monitor compliance, prosecute violators (in a

consistent manner)

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 4. Restrict access

to only those persons having

a
need to know
the information

Both paper and computer

Computer system should limit each
employees access to information actually
required for his job 42
5. 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)

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 WARNING:
This document contains trade
secret information of Lien
Verbauwhede. Unauthorized
disclosure is strictly prohibited
and may result in serious legal
consequences.
6. Physically isolate and protect

Separate locked depository

Access control
authorization
log of access: person, document reviewed
biometric palm readers

Surveillance of depository/company
premises
guards, surveillance cameras

Shredding
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7. Maintain computer secrecy

Secure online transactions, intranet, website

Authorization (password), access control
Mark confidential or secret (legend pop, or before and
after access to 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
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8. Restrict public access to
facilities
Log and visitors pass
Accompany visitor
Sometimes NDA/CA
Visible to anyone walking through a
companys premises
type of machinery, layout, physical handling of work in
progress, etc
Overheard conversations
Documents left in plain view
Unattended waste baskets
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 9. Third parties
Sharing for exploitation

Consultants, financial advisors, computer

programmers, website host, designers,
subcontractors, joint ventures, etc.

Know the recipient

Disclose least amount of info necessary
Confidentiality agreement, non-
disclosure agreement

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10. Unsolicited submissions
Unsolicited suggestions, inventions, ideas
Beware, esp. if relate to ideas/inventions that
your company is presently developing
Often: claim that unsolicited information was
stolen

Notify submitter that your company will not

enter into confidentiality relationship
Request submitter to sign acknowledgement
that your company is not obligated to use the
information and owes no duty of
confidentiality
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 PART 3

PROTECTING INVENTIONS:

TRADE SECRETS
OR PATENTS?

skip

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 Introduction

Certain types of inventions may be

protectable under patent + trade secret
law.

However, not under both.

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Choice between patent protection and
trade secret protection is a

LEGAL and BUSINESS

decision

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Legal Considerations

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 Trade Secrets Patents

no registration costs fees

but: costs to keep secret registration + maintenance

can last longer limited in time

- but: limited to economic life - generally: max 20y
- uncertain lifespan: leak out is irremediable - but: can be invalided

no disclosure disclosure
- but: practical need to disclose - publication 18m after filing
- if leak out: TS lost - if P not allowed: no TS
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 Trade Secrets Patents

Large subject matter Subject matter limited:

Protection of virtually anything - Requirements: new, non obvious, useful
maintained in secret by a business - Scope: patent claim
that gives competitive advantage

Only protection against Right to exclude

improper acquirement/use monopoly to prevent others from
exploiting the invention

More difficult to enforce "Power tool"

- some countries: no laws
- ability to safeguard TS during litigation

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Business and Marketplace
Considerations

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1. 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

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 2. Difficulty of maintaining the
subject 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
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 3. Likelihood of subject matter
being 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. raw material) P
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 Example 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

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 In the past, you could not buy Coca-
Cola in India, because Indian law
required that trade secret information
be disclosed

In 1991, India changed its laws, and

Coca-Cola can now be sold in the
country 61
 Examples no. 2

Secret technique
for jeans washing

Secret textile
weaving techniques
for saris

Content of dye
mixtures
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 Example no. 3

Glamourmom applied for

patent for breastfeeding bra
Allows mothers to discretely and
confidently breastfeed
Built-in soft cup frame and
elastic shelf provides full nursing
bra support.
But unlike any other nursing bra
on the market, it covers the
tummy. Looks like a regular top.

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 4. Likelihood of subject matter
being 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 64

 5. 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? 65
 Example - Invention for putting a
permanent image on a piece of
apparel

Cond System Inc. produces The fabric remains soft and

DyeTrans Wearables by absorbent with less pile than
using a patented process to cotton or cotton blends and
treat fabric so it captures resists wrinkling and
photographic-quality artwork shrinkage.
and text in the fabric rather
than on the surface of the
fabric.

Source:
http://www.corporatelogo.com/articles/031feat3.html 66
 Potential long market life
Potential many licensees
Would be difficult to keep secret
many licensees
risk for reverse engineering

Patent: only 20y,

but exclusive rights
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 TS v Patent - Conclusions

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.
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 TS v Patent - Conclusion

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).
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 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

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Only legal protection against dishonest
acquisition/disclosure/use

Consider alternative protection

Get legal advice, whenever useful

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 Thank You!

WIPOs website for SMEs :

www.wipo.int/sme

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