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Trade Secrets

Acquisition and Scope of Protection

Trade secrets comprise "any information including a formula pattern, compilation, device, method, technique or process that (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy."7 In this respect, trade secret law affords the widest scope of protection, which continues as long as the infor­mation is kept secret. Nonetheless, trade secret law protection is weaker than that afforded by patent law. The body of law that developed to protect trade secrets comprises doctrines of fed­eral intellectual property law, state and federal unfair competition law, state trade secret laws, and federal criminal law.

Certain considerations should be taken into account when deciding on limiting the protection of a certain intellectual asset to trade secrets law. First, trade secrets do not guard against reverse engineering or independent invention. Therefore, they are more suited to protection of inventions relating to processes rather than products, except if the product is designed in a way that it can­not be reverse engineered. A good example of such products are food recipes, such as the Coca-Cola recipe, which has been kept a trade secret for over 100 years. Trade secret protection is not suited for intellectual assets whose commercial value depends on publication and dissemination (i.e., works protected by copyrights9 and trademarks). Once something is recognized as a trade secret, the courts will enjoin competitors from using the trade secret without authorization of the owner, and may award damages up to twice the actual losses of the owner.

Trade secret protection is one of the most critical for the protection of an organization's intel­lectual assets. When it comes to processes, methods of production or operation, schemes, busi­ness plans, market studies and analysis, product and/or services strategies, and the like, the only available protection is that of trade secret. In addition, trade secret protection has been applied by courts to cover negative information. 'The definition [of a trade secret] includes information that has commercial value from a negative view point, for example, the results of lengthy and expen­sive research which proves that a certain process will not work."10 The importance of trade secret protection lies in the vast number of intellectual assets that can be covered thereby, including all types of know-how, whether business or technology related. Estimates provide that over 90 per­cent of all new technology is covered by trade secrets. This wealth of knowledge comprises the organization's most valuable intellectual assets, the misappropriation of which may threaten the its vitality.

Implications for Legal Management

Most trade secret infringement occurs through the recruitment and competitive intelligence processes. When it comes to the recruitment process, care should be taken in employing for­mer employees of the competition at the negotiation stage, particularly if the prospective employee is still in the employ of or just left the competition. This is particularly true for key employees whose positions provides them with knowledge of the employer's trade secrets. Similar considerations apply when a key employee is leaving the organization, and both an exit interview and a letter to the new employer should caution against use of the trade secrets in the possession of the departing employee. This is one of the most complex areas of the law since the law has to balance between the employer's proprietary rights to the trade secrets and the employee's ability (and need) to use the experience gained in the previous workplace in career development.

The second consideration relates to competitive intelligence wherein management should ensure that the practices used are lawful and do not amount to improper means of trade secret appropriation. Competitive intelligence and detecting the competitor's moves and strengths is of utmost importance, but care should be exercised that staff are not carried away with the desire to collect more intelligence. Reverse engineering and collection of information from public sources as well as trade fairs are all lawful means of competitive intelligence. Searching the competition's trash, aerial photographing of plant sites, breaking in, and inducing employees to divulge trade secrets are all unlawful means.

A third consideration that has been addressed in Chapter 12 is guarding against cyber espi­onage by hackers. Appropriate technological measures should be taken and firewalls established to ensure the security of an organization's databases, intranet, and online communications.

Infringement, Enforcement, and Litigation

In general, the steps outlined under Patents should be followed with changes to steps 1, 3, and 4 as follows:

1. Determine the occurrence of infringement:

Track the movement of key employees and examine the circumstances in which they leave the organization;

Track the competitive intelligence activities of the competition to detect the use of unlawful measures.

3.   Determine the type of infringement:

Foreign countries or agents involved. Criminal liability may arise here. The suspected infringement should be reported to the U.S. Attorney General's Office for appropriate action to be taken.

Competitor(s) involved. Willful intention to misappropriate the trade secrets may arise here. Evidence should be collected of the competitor's activities, particularly commu­nications with key employees.

Employees involved. Where key employees sell the organization's trade secrets to out­side parties or use it to get a better job offer.

4.   Assess the strength of the trade secret:

Assess the validity of the trade secret. Whether the information acquired trade secret standing by being identified as such and being subject to reasonable security meas­ures under the circumstances.

Assess the scope of the trade secret. The extent to which the information protected by trade secret is not part of general knowledge and the time it would take those skilled in the art to uncover such knowledge.

Assess the value of the trade secret. The commercial value that the owner gleans from the information remaining secret. Records of sales revenues and profits or cost sav­ings related to the use of the trade secret should be maintained.

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