1. A Business Oriented Overview of IP for Law Students Geneva, Switzerland, May 29 to June 1, 2006

2. Laying the Foundation: Managing Trade Secrets Lien Verbauwhede-Koglin Consultant, Consultant, SMEs Division World Intellectual Property Organization (WIPO)

3. This Presentation PART 1 - Outline –Definition –Legal requirements –Legal rights –Enforcement PART 2 - Proper Management of Trade Secrets –Protection strategies for trade secrets PART 3 - Trade Secret or Patent? –Legal considerations –Business considerations

4. PART 1 WHAT ARE TRADE SECRETS ?

5. Definition: What are trade secrets? any confidential information which provides an enterprise with a competitive edge can qualify as a trade secret  entitled to legal protection

6. Typically, a company will have confidential information... Which may be protected by other types of IP –application for protection foreseen in the near future –no application foreseen Which doesn’t qualify for protection under other types of IP

7. A trade secret can relate to different types of information Trade Secret

8. Technical and scientific information: –product information technical composition of a product: medicine, paint, beverage technical data about product performance product design information –manufacture information manufacturing methods and processes (weaving technique, device process) production costs, refinery processes, raw materials specialized machinery –know-how necessary to perform a particular operation

9. Technical and scientific info (contd.): –designs, drawings, patterns, motifs –test data, laboratory notebooks –computer codes

10. Commercial information: –customer list –business plan –marketing strategy –supplier arrangements –customer buying preferences and requirements –consumer profiles –sales methods

11. Financial information: –internal cost structure –pricing information –salary and compensation plans –price lists

12. Negative information: –details of failed efforts to remedy problems in the manufacture of certain products –dead-ends in research –unsuccessful attempts to interest customers in purchasing a product

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

14. Three essential legal requirements: 1.The information must be secret 2.It must have commercial value because it’s secret 3.Owner must have taken reasonable steps to keep it secret

15. 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 wheel technique for pottery is no trade secret no absolute requirement  NDA/CA –e.g. based on supplier relationship, joint development agreement, due diligence investigation, etc.

16. 2.It must have commercial value because it’s 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 actual or potential not easy to know exact value of trade secret because it is a secret

17. 3.Owner must have taken reasonable steps to keep it secret under most trade secret regimes, a TS 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

18. Legal rights: What kind of protection do you have under the law?

19. 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) Legal rights:

20. 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

21. Reverse engineering is taking apart an object to see how it works in order to duplicate or enhance the object

22. 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

23. Example no. 2 Patent for stud and tube coupling system (the way bricks hold together) But: Today the patents have long expired and the company tries hard to keep out competitors by using designs, trademarks and copyright

25. Enforcement: What can you do if someone steals or improperly discloses your trade secret?

26. Trade secret protection may be based on... –Contract law when there is an agreement to protect the TS –NDA/CA –anti-reverse engineering clause (enforceability debated) 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

27. –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 US: Uniform Trade Secrets Act; Economic Espionage Act

28. Remedies 1.Order to stop the misusing 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 that resulted of misusing

29. 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)

30. PART 2 BUSINESS STRATEGIES TO HANDLE & PROTECT TRADE SECRETS

31. 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 the money to be made in stealing high tech IP –storage facilities (CD-ROM, floppies, etc) –expanding use of wireless technology

32. 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

33. 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 avenging employee –theft by former employee of business plans –ignorance

34. What can be done?  9 basic protection strategies

35. 1. Identify trade secrets Considerations in determining whether information is a trade secret: –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?

36. –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 of duplicate it?

37. 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

38. –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 and repetition –TS protection must be part of the enterprise culture Transform every employee into a potential security officer Every employee must contribute to maintain the security environment (e.g. anonymous security hotline) –Monitor compliance, prosecute violators

39. 4. 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

40. 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)

41. 3. Educate employees –Prevent inadvertent disclosure (ignorance) –Employment contract : Brief on protection expectations early NDA/CA/NCA obligations towards former employer! –Departing employees : exit interview, letter to new employer, treat fairly & compensate reasonably for patent work, further limit access to data

42. 6. Physically isolate and 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 –Oversight; audit trail

43. 7. Maintain computer secrecy –Secure online transactions, intranet, website –Authorization (password); access control –Mark confidential or secret (legend pop, or before and after 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

44. 8. 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, physical handling of work in progress, etc –Overheard conversations –Documents left in plain view –Unattended waste baskets

45. 9. Third parties –Sharing for exploitation –Consultants, financial advisors, computer programmers, website host, designers, subcontractors, joint ventures, etc. –Confidentiality agreement, non- disclosure agreement –Limit access on need-to-know basis

46. PART 3 PROTECTING INVENTIONS: TRADE SECRETS OR PATENTS?

47. Introduction Certain types of inventions may be protectable under patent + trade secret law. However, not under both.

48. Choice between patent protection and trade secret protection is a LEGAL and BUSINESS decision

49. Legal Considerations

52. Business and Marketplace Considerations

53. 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

54. 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

55. 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. cleaning fluid)  P

56. 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

57. 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?

58. Conclusion 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

59. 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).

60. 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

61.  Only legal protection against dishonest acquisition/disclosure/use  Consider alternative protection

62. Thank You! WIPO’s website for SMEs : www.wipo.int/sme