The Importance of Proper Management of Trade Secrets WIPO National Seminar on IP for SMEs in the Textile Industry Damascus October 13 and, 2010 Mrs. Lien Verbauwhede Koglin Consultant, SMEs Division, WIPO

Idea: By keeping valuable information secret, you can prevent competitors from learning about and using it and thereby enjoy a competitive advantage in the marketplace. Do-it-yourself form of IP What are Trade Secrets?

Information that has commercial value and that has been scrupulously kept confidential will be considered a trade secret (TS). Owner will be entitled to court relief against those who have stolen or divulged it in an illegal manner. But: if others find out in legal manner → not much you can do about it. General Principles:

1. What information qualifies as a TS? 2. What makes something a TS? 3. When can you get court relief? 4. How are TS lost or stolen? 5. How to protect your TS? 6. May TS be sold? 7. How is TS protection enforced? This Presentation

Question 1 WHAT KIND OF INFORMATION QUALIFIES AS A TRADE SECRET ?

TRADE SECRET Financial information Technical & scientific information Commercial information Negative information

Product information technical composition of a product (e.g. fibers, biosensors in smart clothes) technical data about product performance (e.g. breathable, waterproof) product design information Manufacture information manufacturing methods and processes (e.g. weaving technique, coating process) production costs, refinery processes, raw materials specialized machinery (e.g. specialized cameras to detect color variations in textile fabrics) Know-how necessary to perform a particular operation (e.g. how to apply a dye to textile fabric) Examples Technical and Scientific Information

Drawings, designs, motifs, patterns Computer technology hardware + software (esp. source code) algorithms, formulas, data flow charts, specific procedures that are implemented in the software or website Software design documents Software development agreements Laboratory notebooks Pending patent applications (e.g. waterproof article for use in protective clothing)

The trade secret of cotton dyeing Indian textiles were also noted for their brilliant colors and prints. Cotton, like linen, naturally resists dyes, but Indian craftsman learned early on the secrets of mordants and dyes and how to manipulate them. Remarkably, India managed to keep the complex technique of cotton dyeing secret from the world until the seventeenth century. Colorfast dyeing in Europe prior to the seventeenth century was rare and expensive, available only to the wealthy and/or aristocratic.

Customer lists Customer profiles, buying preferences List of fabrics importers Business plans and strategies New product names Supplier arrangements Sales methods Personnel performance Info re: new business opportunities Examples Commercial information

Financial projections Cost & pricing information Sales data, price lists Internal cost structure Salary and compensation plans Examples Financial information

Details of failed efforts to remedy problems in the manufacture of certain products Dead-ends in research (e.g. treatment for dry wrinkle resistance) Unsuccessful attempts to interest customers in purchasing a product Examples Negative information

Question 2 WHAT MAKES SOMETHING A TRADE SECRET ? When do you have legal protection?

The information must be secret It must have commercial value because it’s secret Owner must have taken reasonable steps to keep it secret Three Essential Legal Requirements:

What if many employees need to know? What if others need to know? suppliers, joint development agreement, due diligence investigation, etc. What if you want to license technology? 1. Secret Required that be known only by one person?

“not generally known among or easily accessible to persons within the circles that normally deal with this kind of information” What is ‘generally known’ ? matters of common knowledge information you find at library, online database, trade journals, patent information, etc price list on website 1. Secret

Not required that be known only by one person If you need to share If you license technology which has limited distribution  possible to protect confidential information by contractual means 1. Secret

Must confer some economic benefit How to demonstrate benefits derived from use costs of developing the TS licensing offers, etc. actual or potential 2. Commercial value

Under most TS regimes, you cannot have a TS unless you have taken reasonable precautions to keep the information confidential ‘Reasonable’  case by case reasonable security procedures Non-disclosure agreements (NDA) such that the information could be obtained by others only through improper means Importance of proper TS management program 3. Reasonable steps

TS developed by employee TS developed by external contractor E.g. technique providing very good home laundering durability To avoid disputes: WRITTEN AGREEMENT + ASSIGN in advance all trade secrets developed during employment or commission Tip for SME: Who Owns the TS?

Question 3 WHEN CAN YOU GET COURT RELIEF ?

COURT RELIEF if: TS + “THEFT” Courts will only grant relief if someone has improperly acquired, disclosed or used the information Only theft if wrongful !

2. Confidentiality agreement or NDA e.g., employees, suppliers, consultants, financial advisors 1. Duty of trust implied or imposed by law e.g., employees, directors, lawyers 3. Industrial espionage, theft, bribery, hacking, eavesdropping What is Typically Wrongful?

1. Independent creation Discovery of the TS without using illegal means or violating agreements or law  patent TS protection provides no exclusivity ! What is Lawful?

2. Reverse engineering – What? Take product apart and see how it works E.g. reverse engineering a hand bag E.g. laboratory analyses of coating Common practice among software companies: to make software that can interoperate with the software being studied to make a software product that will compete with it What is Lawful?

Reverse engineering of machines New technologies (e.g. CAD/CAM, 3D scanners and lasers) allow to measure an object and then reconstruct it as a 3D model - Make a 3D model of your own product - Asses competitor’s products Textile machine CAD

2. Reverse engineering – Why? Interoperability Product analysis: How does it work? What components does it consist of? Cost? Potential patent and copyright infringements? Digital update/correction Security auditing Military or commercial espionage Removal of copy protection, circumvention of access restrictions Creation of unlicensed/unapproved duplicates Academic/learning purposes or curiosity Competitive technical intelligence

2. Reverse engineering – Solution? Contractually forbid RE (in software license agreement) “The customer may not carry out any "reverse engineering", decompile or depacketize the software, or try by any other means to discover the source code of... Technological protection measures E.g. employ sensors to detect and prevent this attack. BUT! Legality in question Inconsistent with copyright or antitrust laws?

Trade SecretPatent Prevent others to imitate invention because of unawareness of it Prevent others to imitate invention by publishing it + getting exclusivity right for 20 y. Very low cost Cost If invention cannot be learnt from the product sold E.g. methods of manufacturing E.g. pyhisical process to manufacture a certain chemical substance (temperature, pressure) If product itself shows the inventions: only way to protect is to file patent application before marketing E.g. structural inventions related to an engine Tip for SME: Patent or TS?

Trade Secret Permanent risk that others become legally aware of invention (esp. transfer of employee) → Other can make unrestricted use of invention → Other can get patent protection If other gets patent → you keep right of prior use, but limited: → only to the same kind of use (e.g. if only sold, you cannot manufacture) → only using the invention, not licensing → only in the country where the TS was used before (no exports) TIP: Documentation TIP: « Hidden » publication Tip for SME: TS and Pitfalls

Question 4 HOW ARE TRADE SECRETS LOST OR STOLEN ?

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: external memories, keys A Growing Problem – Why Does It Occur?

Question 5 HOW TO PROTECT YOUR TRADE SECRETS?

1. Identify Trade Secrets Accurate record keeping is important

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

Educate and train: Clear communication and repetition Copy of policy, intranet, periodic training & audit, etc. Make known that disclosure of a TS may result in termination and/or legal action Monitor compliance, prosecute violators

3. Restrict 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

4. Mark Documents Help employees recognize TS  prevents inadvertent disclosure paper based electronic (e.g. ‘confidential’ button on standard screen)

5. Physically Isolate & 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

6. Restrict Public Access to Facilities Log and visitor’s pass Accompany visitor Sometimes NDA/CA Visible to anyone walking through a company’s premises type of machinery, layout, designs, physical handling of work in progress, etc

7. Maintain Computer Secrecy Secure online transactions, intranet, website Password; access control Mark confidential or secret (legend pop, or before and after sensitive information) Lock up: computer tapes, discs, other storage media Firewalls; anti-virus software; encryption

8. Measures for Employees 1. New employees Brief on protection expectations early Obligations towards former employer! Assign all rights to inventions developed in the course of employment NDA/CA Non-compete provision Requirements Limits

2. Current employees Prevent inadvertent disclosure (ignorance) Train and educate NDA for particular task 3. Departing employees exit interview letter to new employer treat fairly & compensate reasonably for patent work

Non-Competition Clauses (covenants not to compete) in Labor Contracts After employee leaves prior employer: May he work for competitor? May he work in related job? May he open a competing business? Is covenant not to compete enforceable?

Some jurisdictions: NC covenant binding if ‘reasonable’ limited in time limited in area limited in type of industry special compensation to be paid to employee for his obligation not to compete Some jurisdictions: in writing + payment

9. Measures for Third Parties Sharing for exploitation Consultants, financial advisors, computer programmers, website host, designers, subcontractors, joint ventures, etc. Confidentiality agreement, NDA Limit access on need-to-know basis

Question 6 MAY TRADE SECRETS BE SOLD OR LICENSED?

Most TS sales occur as part of the sale of the business Sale e.g. in combination with patent license e.g. part of franchise Advantage: additional revenues Disadvantage: risk of disclosure (potential loss) In some countries, restrictions License

Question 7 HOW IS TRADE SECRET PROTECTION ENFORCED? What can you do if someone steals or improperly discloses your TS?

1. Order to stop the misuse 2. Claim 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 TS at trial Remedies

infringement provides competitive advantage reasonable steps to maintain secret information obtained, used or disclosed in violation of the honest commercial practices (misuse) To Establish Violation, the Owner Must Be Able to Show :

TRADE SECRETS FOR BUSINESSES CONCLUSIONS

develop effective internal TS program to maintain trade secret status restrict access impose obligation of confidentiality to anyone who has access (1) TS Protection for Financial, Commercial and Technical Information :

information or technology which is part of a product sold to the public and can be reverse- engineered mass-marketed technology or products where competition is so intense, that very likely to be independently developed by others within short time if great deal of personnel movement between competitors (2) Certain Aspects of Business/Products Cannot Be Maintained as a TS :

Make reverse engineering difficult Technological protection measures Patents or utility models Copyright protection (4) Be careful about signing confidentiality agreements and non-compete covenants (3) Alternative or Additional Protection for TS :

Thank You! The Importance of Proper Management of Trade Secrets