IN CONFIDENCE: PUTTING IN PLACE A TRADE SECRET PROTECTION PROGRAM Najmia Rahimi Senior Program Officer, SMEs Division World Intellectual Property Organization

Outline Whats 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

Whats a Trade Secret? Lets 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.

Whats 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 companys 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 companys 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 companys 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 companys 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 secret That 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 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 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 companys 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 defendants 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 Secrets Coming 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 companys 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 secrets Verification 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.

Thank you!