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8/11/2019 8.Trade Secrets
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TRADE SECRETS
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What are Trade Secrets
Trade secrets are confidential information that
has commercial value by virtue of being kept
secret and reasonable steps have been taken to
keep it secret.
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.
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General principles:
Information that hascommercial
valueand that has been
scrupulously kept confidentialwill be
considered a trade secret (TS).
Owner will be entitled tocourtreliefagainst those who have
stolen or divulged it in an illegal
manner.
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TRADESECRET
Financial
information
Technical &
scientific
information
Commercial
information
Negative
information
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Technical and Scientific Information
product information
technical composition of a product (medicine,
paint, recipe for a sauce), data about product
performance, product design information
manufacture information
manufacturing methods and processes
(weaving technique, device process),production costs, refinery processes, raw
materials, machinery
know-how necessary to perform a
particular operation
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Commercial Information
customer list
business strategies/plans
marketing strategy/researchcustomer buying preferences and
requirements
consumer profiles
sales methods
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Financial, Legal and HR Information
Pricing information
Salary and compensation plans
Employee evaluation
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Secret Documents of a Firm:
Technical data about product performance.
Software development agreements
Pending patent applications
Business plans & strategies
New product names
Financial projections
Marketing plans, unpublished promotional
material
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Secret Documents Of a Firm: (Cont.)
Cost & pricing information
Sales dataCustomer lists
Info re: new business opportunities
Personnel performance
Software design documents
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Three essential legal requirements:
1. The information must be secret
2. It must have commercial valuebecause itssecret
3. Owner must have taken reasonable stepsto
keep it secret
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1.Secret
Not required that be known only by
one person
e.g. based on supplier relationship, joint development
agreement, etc.
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2. Commercial value
Must confer some economic benefit on the holder
This benefit must derive specificallyfrom 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
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3. Reasonable steps
you cannot have a TS unless you have
taken reasonable precautions to keep the
information confidential
Reasonablecase 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
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How are trade secrets stolen?
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 changesOrganized crime : discovered the money to
be made in stealing high tech IP
Storage facilities (DVD, external memories,
keys)
Expanding use of wireless technology
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departing or disgruntled employees
intentional (malicious)
by ignorance
80% of trade secret loss
< employees, contractors, trusted
insiders!
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Factors to determine if information is a TS
(Cont.)
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?
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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
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3. Restrict access
to only those persons having
aneed to know
the information
computer system should limit each
employees access to data actually
utilized or needed for a transaction
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4. Mark documents
Help employees recognize TS
prevents inadvertentdisclosure
Uniform system of marking
documentspaper based
electronic (e.g. confidential
button on standard email
screen)
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5. Physically isolate and protect
Separate locked depository
Authorization
Access control
log of access: person, document reviewed
Surveillance of depository/company premise
guards, surveillance cameras
Oversight; audit trail
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6. 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 mediaNo external drives and USB ports
Monitor remote access to servers
Firewalls; anti-virus software; encryption
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Trade secret audit
Conducting an TS audit is to determine
whether or not you have any trade secret
assets; then to identify them; and final to
take measures to make sure they retaintheir status as protectable trade secrets
Should be done periodically
Teamtrusted people who know the
company
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Why should you conduct a TS audit
Identify assets that would otherwise be
unknown
By identifying and protecting prevent their
loss
A court is more likely to give TS status to
information identified internally as TS
Establish clarity
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Patent or Trade Secret Protection
Such information may qualify for patent
protection or trade secret protection. A
company may choose trade secret
protection even for information that qualifyfor patent protection.
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Trade Secrets or Patents
No registration
(costs/time factor)
Duration is not limited
to specified period oftime
No disclosure
Wider information
Difficult to enforce
No protection against
independent
discovery
Registration required
(cost/time factor)
Limited duration
Disclosure required
Limited to claims
Easier to enforce
Exclusive rights
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1.ANYinnovative idea should be kept
as a secretin the beginning
to preserve option of patenting (or industrialdesign) at later stage
Things to bear in mind
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2- Choice between patent or TS
must be made both fromlegal
andbusiness perspectives
(if patentable)
Things to bear in mind
(Cont.)
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3. Once patent publishedTS lost
in ALL COUNTRIES
patent documents easily
accessible to public
if patent application published and
later rejected you lose both patent
and TS rights
Things to bear in mind
(Cont.)
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Remember...
No need for absolute secrecy, but
reasonable measures
Developing and maintaining TS
program< good business practice to prevent
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TS: Only legal protection against
dishonest
acquisition/disclosure/use
You can use someone who violated
your TS, but that often doesnt save
the TS
Consider alternative protection
Remember...
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The choice between TS and
patent protection for an invention
is a turning point.Therefore: carefully consider all
relevant advantages and
disadvantages from each choiceboth from legal and business
viewpoint
Remember...
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Patent and TS are often
complementaryto each other:
Patent applicants generally keep inventions secretuntilthe patent application is publishedby the patent
office.
A lot of valuable know-how on how to exploita
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...
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As to whether TS or patent is the moreappropriate protection depends on thekind of product, nature of the business and
the policies of the company.Some products have a short commercial
life (TS better), some information may bedifficult to keep secret and some productsmay be more easily reverse engineeredthan others (patent better).
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Remedies
Civil remedies based on breach of contract
or tort law; damages, injunctions, seizures
and impoundment
Criminal remedies - rarely a criminal
offense in its own right but could attract
criminal liability by committing criminal
offenses for procuring the information(theft, trespass etc)
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Final thought
You may not know that you have valuable
business information recognized by law as
trade secrets till it is too late.
Identify and protect them
They may be the key to your
competitiveness