COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Trade Secret Asset Management Fall 2004 Product Security and Intellectual Property Protection Summit

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Nature of Intangible Assets The difference between a company’s market capitalization and its book value represents the market value of its intangible assets. Intangible assets include trade secrets, patents, trademarks, copyrights, and brand. The bulk of a company’s intangible assets value lies in its trade secrets.

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Value of Intangible Assets Typical U.S. companies are now about 20% physical assets and 80% intangibles, a complete reversal from the 1960s. In high-tech companies, the portion of value accruing from intangibles is even higher. Some companies have little or no book value, yet command high share prices.

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Value of Trade Secrets The total market value of U.S. publicly-held corporations is approximately $11 Trillion. The total value of intangible assets held by U.S. publicly held corporations is approximately $9 Trillion. The total value of trade secret information held by U.S. publicly held companies exceeds $5 Trillion.

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Theft of Trade Secrets In 1999, Fortune 1000 companies sustained losses of more than $45 billion from thefts of their proprietary information. – ASIS This number has been growing rapidly as information technology makes information more accessible and more portable.

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Industry Response Industry response has been to secure the access to information. Passwords, firewalls, ID badges, key cards, dongles, encryption, and other technology serve to protect the company’s information from outsiders. The result is that now the greatest threat to corporate information is theft by insiders.

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Theft by Insiders Insiders are those to whom the company’s confidential information must be revealed if they are to do their jobs. No amount of access control technology can control theft by insiders. Different methods are needed to secure information against theft by employees, contractors, vendors, and customers.

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED The Need for Management Access controls only protect against theft by outsiders. Trade secret management protects against theft by both outsiders and insiders. No trade secret protection program can depend on access controls alone. A trade secret management program is required to protect confidential information.

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Protection The means of protection of trade secrets is the credible threat of litigation to defend them. Once access controls have failed or been circumvented, only litigation protects trade secret information from disclosure or use. Effective trade secret management is built around the requirements for succeeding in litigation.

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Six Required Proofs EXISTENCE OWNERSHIP ACCESS NOTICE USE DAMAGES Required only for trade secrets. Should be performed before the infringement occurs! Required for patents, copyrights, trademarks, and trade secrets } }

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Existence Six factors for determining existence of a trade secret: How widely is the trade secret known within the company? How widely is the trade secret known within the industry? How much has been invested to develop this trade secret? What is the economic benefit of the trade secret? How hard would it be to independently reproduce the trade secret? What security measures have been taken to protect the trade secret?

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Ownership There is no “work for hire” doctrine in trade secret law, as there is in copyright law. If your employee, contractor, vendor or customer develops trade secret information absent an agreement assigning trade secrets to the company, they own the information.

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Notice The person must know – or a ‘reasonable man’ in his position should realize – what the trade secrets of the company are to be legally bound to respect the company’s info. If the IP staff has no inventory of the trade secrets – if you don’t know what they are – then how can a non-specialist be said to know?

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Access The person has to have had access to the information. If you do not know where the trade secret information is, do not have processes in place to track it, and cannot tell how and to whom it is disclosed, how can you prove the information was not independently developed?

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Keys to Trade Secret Mgmt. Employee education. Employee/contractor/vendor/customer/visitor agreements. Trade secret inventory. Trade secret assessment. Trade secret access control. Trade secret tracking.

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Employee Education All employees must be educated on: –What trade secrets are. –How trade secrets should be handled. –Their obligations under the law and contract. Ask 10 employees at random what the company’s trade secrets are, and what their obligations are with respect to the company’s trade secrets. If they cannot answer these questions accurately, you have a serious problem!!

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Trade Secret Agreements Every employee, contractor, vendor, customer and visitor must execute agreements to respect the company’s rights to trade secret information to which they will be exposed. Many types of disclosure – even inadvertent disclosure – constitute a waiver of trade secret rights under the law.

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Trade Secret Inventory You cannot protect an asset if you don’t know what it is, where it is, and who has it. To manage trade secrets you must have an inventory. The inventory must list the asset, its location, and the people who have access to it. What is “it”?

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Trade Secret Assessment Existence: Does it qualify as a trade secret? Ownership: Does the company have the rights to it? Notice: Have people exposed to it been informed of the company’s assertion of rights? Access: Are we tracking who has access to it?

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Trade Secret Access Control One of the six factors for existence is: –How widely is the trade secret known within the company? Wide dissemination decreases protection. Access to information within the company should be limited to those with a “need to know”. Resist the common ISO 9000 solution of posting all information on the company’s intranet.

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Trade Secret Tracking You need to track where trade secrets are known or kept, how and to whom they are distributed, and to control casual copying and ing of trade secret information. Records of trade secret distribution should be kept to support the ‘access’ portion of the potential litigation proof.

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Implementation All of this is well and good to say, but How do we do it?!?!

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Implementation: Education You need a culture of trade secret awareness. Employee education alone is not sufficient, but there is no trade secret management without it. Employee education about trade secrets is more important than the typical “how to fill out a timesheet” or “meet the president” meetings! Experienced consulting help in designing employee education programs is vital.

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Implementation: Agreements Visitor agreements should be incorporated into the badge process. Vendor and contractor agreements should be incorporated into the purchase order form. Customer agreements should be signed before any presentation of non-public information. Employee agreements should be handled by HR and signed before employment starts. Beware of trade secret disclosures in the interview process: interviews for some positions may require NDAs first.

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Implementation: Inventory While you may have millions of individual trade secrets, they are accessed in groups, used in groups, stolen in groups, and litigated in groups, so inventory them by groups. –“marketing plans for server products’ –“software requirements for new product” –“fabrication process for 12” sub-micron wafers” –“recipe for Oreo cookies” Automated methods for collection and inventory of trade secret information are in development.

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Implementation: Assessment Assessment should be done against the four proofs – existence, ownership, notice, and access – and against the six factors. Assessments should be kept in a secured database, and periodically updated. One output of assessment may be classification into one or more categories. Automated means are in development.

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Implementation: Access Control Access control methods must be tailored to the company’s business and culture: –Trade secret documents may include status notifications on every page. – systems may include key word searches to defeat casual distribution or distribution outside the company. –Secret and top secret information may be printed on anti-copy ‘black-out’ paper. –Top secret information may be distributed on hard-copy only with tracked, numbered copies.

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Implementation: Tracking Tracking methods must be tailored to the company’s business and culture: –Retention period for records may be specified. –Periodic scans of records searching for security lapses may be performed. –Periodic scans of the public web searching for security lapses may be performed. –Retention period for logs of numbered copies of top secret information may be specified. Exit interviews of employees should review employee obligations re: trade secrets.

COPYRIGHT THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED Summary Trade secrets are important and valuable. Absent proper management, costly losses are inevitable. Proper management is possible, and is getting easier with new technology. Proper management can be justified with an appropriate evaluation of value and risk. Boards and executives will eventually be held liable for losses incurred from poor stewardship.