Protecting Trade Secrets

Sharda Balaji
Sharda Balaji, Founder
Posted on Wed, 15 October 2008

You must have read the news last month about an ex-Intel employee being charged with theft of trade secrets. Do you think it was a wilful act or negligence or ignorance?

It is imperative for organizations to educate employees on what is classified as confidential information, treatment of the same and not just have an NDA signed and leave it at that.

To begin with, what is a trade secret?

Most of us are aware of different forms of intellectual property (IP) like patents, copyrights, trademarks, design rights.  Trade Secrets too, is a part of this basket, but often neglected.

Trade secret is any kind of ‘information’ or ‘know-how’ which is not ‘publicly known’, has a ‘commercial advantage’ and the owner takes ‘reasonable measures to keep it a secret’.  Largely, many countries recognise these as the normal components for protection of a trade secret.  Just as I am writing this article, I see that The Department of Science and Technology post the draft bill on The National Innovation Act, which pretty much captures these components in the definition of ‘confidential information’. Check out the draft bill here..

Protection is usually available for any formulae, product specification, manufacturing techniques, pricing, supplier details, strategic business plans, even a customer list which demonstrate the requirements as mentioned in the above paragraph.

Other forms of IP has certain pre-requisites to claim protection.  Example, Patent protection requires novelty, inventiveness and utility of an idea. A copyright requires that the expression of the idea has to be original, creative and fixed on a tangible media.  Whereas a trade secret does not have any such stringent pre-requisites.

If a trade secret is well protected, there is no term of protection. It can be protected for any length of time…like the coke’s formula.  In contrast, other forms of IP have statutorily conferred right of protection for limited period of time- for Patents, it is a 20 year protection, for trademarks it is a 10 year protection (but can be renewed), for copyrights the period varies, example 60 years for literary works.

InIndia, unlike USA or other countries, there is no specific legislation to protect trade secrets. (The National Innovation Act is still in a ‘draft’ stage)  USAhas a model legislation called Uniform Trade Secrets Act (USTA) and about 40 States have enacted various statutes modelled after USTA.

Protection of trade secret is a process of self-administration by the trade secret owner. There is no office / registry where you could file a trade secret application, reviewed by an examiner and granted a trade secret certificate / registration.

The self-administration process is dependent on key factors like, the extent of information known outside the company or amongst the employees; the value of secret to the company or to the competitors; expenses involved in developing the secret; reverse engineering.  Accordingly, the organisation can have its confidentiality policy / ies.

Also, the owner has to exhibit ‘reasonable efforts’ in keeping the information as confidential in order to obtain legal protection.  As in, sharing information with third parties only under duly executed Non Disclosure Agreement, sharing information within the organisation on a need-to-know basis, labelling the information as ‘confidential’ or ‘proprietary’, not leaving the classified information unattended or lying around.

Some must-take steps in order to protect trade secrets are:

  • Ensure that a duly executed non-disclosure agreement is in place before sharing confidential information.  The organisation may have different non-disclosure agreements depending upon the sensitivity of the information shared under the agreement.
  • Label the information as ‘confidential’ or ‘proprietary.  By doing this, you are putting the other party on guard in terms of treatment given to the information.
  • Champion the confidentiality policies amongst all employees, including providing adequate training to all employees.
  • Share the information within the organisation only on a need-to-know basis.
  • Treat and demonstrate that third parties confidential information is protected equally.
  • Have an exit interview with terminated employees.  During the interview highlight/ refresh their memory, on their obligations with regards to the non-disclosure agreement they have signed, on keeping information that had access to during their employment as confidential, it is okay to share best-known-methods with the next employer but under no circumstances can the employee share trade-secrets. Also, the fact that the next employer would understand that the employee cannot share some information because it is confidential.
  • The organisation may also tailor a ‘trade secret acknowledgment form’ which terminating employee could sign-off before leaving. This form primarily helps in enumerating the trade secrets that the employee is aware of during his employment.
  • Other usual security measures of identifying sensitive areas, having certain areas with restricted access, pass-words, badges, document retention / destruction policy, visitor control systems and so on..

Very importantly, the organisation must have a systematic approach in the identification of trade secrets. This would be a continuous process. Most employees tend to believe that they own the outcome of their efforts, be it a document or a drawing or a customer list. Train them on the organisation’s right to trade secrets.

Before signing off, a quick word on ‘contamination’, the scary situation where a third party’s confidential or proprietary information gets mixed up with one’s own, without appropriate licenses or approvals. Caution: the other party has remedies of claiming damages, accounting profits, may be even royalty for every piece sold…

 Trade secrets are valuable assets of the Company.  Protect it.  The above processes are simple indeed, but goes a long way in protecting both employer and employee interests. It is not expensive either…

Would love to hear your comments.

Disclaimer : This is not a legal opinion and should not be construed as one. Please speak with your attorney for any advice.

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