1. A Business-Oriented Overview of IP for Law and Management Students Geneva, May 29-31, 2007 Small and Medium-Sized Enterprises (SMEs) Division World Intellectual Property Organization (WIPO)

2. TOPIC 3 Keeping Confidence: Managing Trade Secrets as a Business Strategy

3. 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. What are trade secrets? Do-it-yourself form of IP

4. General principles: 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.

5. This Presentation 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? 8. If you have the choice: TS or patent? 9. What to bear in mind if you sign CA?

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

7. TRADE SECRET Provides competitive advantage Potential to make money Kept confidential

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

9. –Business plans & strategies –New product names –Financial projections –Marketing plans, unpublished promotional material –Cost & pricing information –Sales data –Customer lists –Info re: new business opportunities –Personnel performance Typical examples

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

11. 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

12. not generally known among or easily accessible to persons within the circles that normally deal with this kind of information Not required that be known only by one person –e.g. based on supplier relationship, joint development agreement, due diligence investigation, etc. 1. Secret

13. Must confer some economic benefit on 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) How to demonstrate: –benefits derived from use –costs of developing the TS –licensing offers; etc. –actual or potential 2. Commercial value

14. 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

15. Caution: Who owns the TS? TS (e.g. new technology) developed by employee … TS developed by external contractor To avoid disputes: WRITTEN AGREEMENT + ASSIGN in advance all trade secrets developed during employment or commission

16. Question 3 WHEN CAN YOU GET COURT RELIEF ?

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

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

19. What is lawful? Discovery of the secret by fair and honest means 1. Independent creation –without using illegal means or violating agreements or law – patent TS protection provides no exclusivity !

20. What is lawful? 2. Reverse engineering –Common practice among companies: studying competitors' products to make a product that will compete with it –Solution: contractually forbid reverse engineering (in license agreement) –Technological protection measures BUT! Legality in question Inconsistent with copyright or antitrust laws?

21. Question 4 HOW ARE TRADE SECRETS LOST OR STOLEN ?

22. A Growing Problem. Why Does It Occur? –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 (DVD, external memories, keys) –Expanding use of wireless technology

23. –departing or disgruntled employees –intentional (malicious) –inevitable (knowledge acquired) –by ignorance 80% of trade secret loss < employees, contractors, trusted insiders!

24. Case Coca-Cola Trade Secret Trial Prosecutors say a former Coca-Cola secretary took confidential documents from the beverage giant and samples of products that hadn't been launched with the aim of selling them to rival Pepsi Faces up to 10 years in prison if convicted of conspiracy. AP Business, January 15, 2006

25. Question 5 HOW TO PROTECT YOUR TRADE SECRETS?

26. 1. Identify trade secrets Accurate record keeping is important.

27. Factors to determine if 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? –What is the value of the information for your company? –What is the potential value for your competitors? –How much effort/money spent in developing it? –How difficult would it be for others to acquire, collect of duplicate it?

28. 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

29. –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

30. 3. Restrict access to only those persons having a need to know the information computer system should limit each employees access to data actually utilized or needed for a transaction

31. 4. Mark documents –Help employees recognize TS prevents inadvertent disclosure –Uniform system of marking documents paper based electronic (e.g. confidential button on standard email screen)

32. 5. 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

33. 6. 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

34. 7. Maintain computer secrecy –Secure online transactions, intranet, website –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

35. 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 Reqts Limits

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

37. 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

38. Question 6 MAY TRADE SECRETS BE SOLD OR LICENSED?

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

40. TS Licensing Definition of the secret subject matter –what is to be kept confidential? –marked as such or broad clause? Permitted use –disclosure to employees, professional advisors? –modification of technology? Precautions to be taken Exclusions

41. TS Licensing Duration of secrecy obligations Royalties Sanctions Should not be subject to alternative dispute resolution

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

43. 1. Contract law When there is an agreement to protect the TS NDA/CA anti-reverse engineering clause Where a confidential relationship exists attorney, employee, independent contractors 2. Principle of tort / unfair competition Misappropriation by competitors who have no contractual relationship theft, espionage, subversion of employees TS protection may be based on...

44. 3. Criminal laws e.g. for an employee to steal trade secrets from a company e.g. unauthorized access to computers theft, electronic espionage, invasion of privacy, etc. circumvention of technical protection systems 4. Specific trade secret laws US: Uniform Trade Secrets Act; Economic Espionage Act

45. 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 TS at trial 4. Precautionary impoundment of the articles that include misused TS, or the products that resulted of misusing Remedies

46. 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)

47. Question 8 PROTECTING INVENTIONS: TRADE SECRETS OR PATENTS?

48. What is difference between TS and Patent?

51. 1. ANY innovative idea should be kept as a secret in the beginning –to preserve option of patenting (or industrial design) at later stage Things to bear in mind

52. INNOVATIVE IDEA Secret ! InitiallyLater stage Not patentablepatentable patent TS Strategic business decision TS Part of the idea TS © ID

53. 2. Choice between patent or TS must be made both from legal and business perspectives (if patentable) Things to bear in mind

54. Patentable idea Public disclosure necessary? Technology changing rapidly? Easy to RI, independ. discover? TS P Def.publ Revenue potential > IP costs? New area of technology? Licensing opportunity? N N NN NN Y Y Y Y Y © Mark Sokoloff

55. 3. If you apply for a patent, only give up what is necessary –The decision to apply for a patent does not necessarily require giving up all of ones TS! –However, patent application must contain : enough to enable skilled person to practice the invention the best mode known to the applicant for practicing the invention (Software P in USA: required to disclose source code?) Things to bear in mind

56. INNOVATIVE IDEA inventions on A, B, C A C TS B P A B C Applying for patent on C may not require giving up TS on A & B

57. 4. If you apply for a patent, your TS may still be protected for a while –In most countries: only publication after 18m. You may withdraw application any time < publication –In USA: possible to request non-publication of the patent application until the patent is issued Things to bear in mind

58. 5. Once patent published TS lost in ALL COUNTRIES –patent documents easily accessible to public –if patent application published and later rejected you lose both patent and TS rights –some technology (e.g. software) may be patentable in USA but not in Belarus or Europe … Things to bear in mind

59. Question 9 WHAT TO BEAR IN MIND IF YOU SIGN A CONFIDENTIALITY AGREEMENT FOR A CLIENT ?

60. TS protection for financial, commercial & (secret) technical information: develop effective internal TS program to maintain trade secret status restrict access impose obligation of confidentiality to anyone who has access

61. 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

62. TS: Only legal protection against dishonest acquisition/disclosure/use You can sue someone who violated your TS, but that often doesnt save the TS Consider alternative protection Remember...

63. The choice between TS 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 Remember...

64. Patent and TS 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). Remember...

65. THANK YOU Email: german.cavazostrevino@wipo.int http:/www.wipo.int/sme