A company’s intellectual property (IP) is among its most valuable assets. Anything that helps give a company its competitive edge can be tied to at least one form of IP. The challenge is recognizing the relevant types of IP protection available to help the business drive value from that IP and effectively and strategically acquire and maintain value from that IP protection. While all the major types of IP are important, establishing effective management of trade secrets remains at the forefront of challenges for a typical business.
This memo provides perspective on approaches and best practices for managing these challenges.
Trade secrets are information or things that have economic value because they are not generally known or readily ascertainable by others. The owner takes reasonable measures to keep them secret. Trade secrets can include secret formulas, practices, processes, and designs.
One of the more significant challenges in dealing with trade secrets is finding the right balance between using the trade secret and effectively preventing them from being disclosed. This is critical to obtaining the maximum value of trade secrets.
Once a trade secret goes public, its status is lost forever. How it was disclosed does not matter. The information is no longer a trade secret. Trade secrets have this status and value because they are not generally known, and reasonable steps are taken to keep them not generally known.
Another challenge is that trade secret infringement will require you to prove that the alleged infringer misappropriated your trade secrets. Unlike patent infringement, where the venues for infringement actions are comparatively limited, U.S. trade secret misappropriation cases may be brought in a wide array of state and federal jurisdictions. Specific procedures and policies must be implemented to protect a company’s trade secrets that meet the requirements of many different jurisdictions. Otherwise, the trade secret protections are at risk of being lost.
Practices for Maintaining Trade Secret Protection
In practical terms, numerous approaches may be helpful to maintain information as a trade secret. Limiting access to trade secrets on a need-to-know basis in a company is one way to lessen the risk of public disclosure or theft. This can be done both electronically and physically.
Electronically, many tools are available that allow teams to grant or deny access permissions to employees meeting predefined criteria or levels. It is crucial to keep updating those access permissions as employees leave, join, or move around in the company. For standing meetings among team members working on sensitive projects in the company, calendar invites must be updated accordingly.
Physically, access should also be kept to those on a need-to-know basis for visiting parts of the facilities where sensitive information or activities that include trade secrets are kept or discussed.
Fragment Information
Fragmenting trade secrets is a crucial aspect of protection. For instance, sharing documents containing strategic planning and product marketing information with individuals not working in those areas may not be necessary. It may be more appropriate to share only technical information for developing a product or technology.
Mark Documents
Another step is marking all documents that identify or discuss trade secrets with Confidential or similar language on their face. This helps to convey the vital message that whatever is shared should not be freely disseminated.
Protected Network Connections
In an organization, protected network connections help set access restrictions where appropriate. Using cloud-based systems to store relevant, confidential documents is recommended whenever possible to restrict access, set passwords, monitor access, and prevent downloading. An IT team can help set up the system and fragment it to protect information as much as possible while still giving individuals in the organization access to what they need for business purposes.
Culture
While these suggestions outline steps a company can take to help protect its trade secrets, success ultimately requires consistent observance of them to maintain trade secrets. This leads to another critical challenge. While implementing best practices to safeguard trade secrets from misappropriation is crucial to success, developing a company culture that embraces trade secret protection across all departments is also essential.
Additional Ideas
Trade secret status could be lost in several ways. Here are some additional ways to be proactive in preventing the loss of privileged trade status.
Secure Devices and Spaces That Have Access to or Display Trade Secrets
Secure laptops in the office and when traveling.
Require cleaning a desk from written notes and the like before leaving.
Store and secure sensitive documents that need to be printed. Once printed, be sure to pick them up
Minimize or forbid the use of USB drives to transfer documents.
Pull shutters. Position displays and blackboards so they cannot be viewed outside a meeting room or office.
Wipe blackboards and remove and securely dispose of sheets from flipcharts after meetings.
Set guidelines for the proper use of social media to prevent disclosure of trade secrets.
Trade Secret Policy Compliance
Trade secret protection should be recognized as a compliance issue with potentially serious reputational, financial, and legal implications.
To promote an appreciation for compliance with a company’s trade secret protection policies, it is essential first to understand the type of information the company considers trade secrets. Each department should have a catalog of the information the company considers to be trade secrets. With this information, you can develop policies on the amount of protection that will apply to the different trade secrets.
Different levels of confidentiality may be defined, resulting in respective sets of rules to protect the most crucial information, like:
“Highly Confidential”: Not to be shared outside the company, but if required, it needs to be approved, for example, by a steering committee. A signed confidentiality agreement (NDA) is required before disclosure. The strict control of electronic and printed documents is required internally.
“Confidential”: May be shared outside the company upon approval of the appropriate subject matter leader with a copy to a control person. A signed confidentiality agreement (NDA) is required before disclosure.
Trade secrets relating to product development and innovation can be incredibly challenging. For instance, patent prior art searches may be carried out to assess novelty and nonobviousness preliminarily when dealing with innovation proposals. While the aim is to identify the patentable subject matter, which will eventually be disclosed by publication, there may be other subject matter that would better be protected if retained as a trade secret. Within the same technological development, there may be novel aspects to be protected by filing a patent application and other aspects to be managed as trade secrets.
Companies should determine who implements protective measures to protect trade secrets. There is no one-size-fits-all solution.
Ultimately, every employee is responsible for preserving trade secrets and, more generally, a company's confidential information and knowledge. This is why working toward a company culture that embraces protecting trade secrets and confidential information is essential.
Dealing With Trade Secret Theft
The primary recourse a trade secret owner has for violation of its rights is trade secret misappropriation. Once the company has decided to try to stop and pursue the alleged theft of trade secrets, it must decide the best path for enforcement.
In the U.S., a plaintiff can use federal and state trade secret statutes depending on the circumstances. The recent federal Defend Trade Secrets Act (DTSA) provides a federal civil cause of action for the theft or misappropriation of trade secrets related to a product or service used in or intended for use in interstate or foreign commerce.
DTSA left in place available state law remedies for trade secret misappropriation. These state laws vary from jurisdiction to jurisdiction, but most are based on the Uniform Trade Secrets Act.
Differences between federal and state laws may help determine whether the DTSA, state laws, or both provide the appropriate protection. Under the DTSA, a misappropriation claim must be brought within three years of its discovery or when it should have been discovered with reasonable diligence.
State laws may have different statutes of limitations. It is four years under Ohio law. Illinois law has a five-year statute of limitations.
While there are many things to consider when seeking to remedy the theft of a trade secret, three critical issues are:
What Is the Stolen Trade Secret?
The defendant will argue the plaintiff has failed to identify the trade secret with enough particularity. Different courts take different approaches to such arguments. Some courts have accepted relatively general descriptions of alleged secrets at the motion to dismiss stage.
Other courts have held that a plaintiff’s merely alleging the existence of general categories of confidential information without providing details to define the trade secrets at issue is insufficient to establish a trade secret’s existence.
Even if not challenged initially, defendants will often press for a specific identification of misappropriated trade secrets to limit or delay discovery.
Proactively identifying, marking, and cataloging information that constitutes a company’s trade secrets can be helpful in this regard.
Is the Trade Secret Protected?
Under the DTSA, a company must also take reasonable measures to keep its trade secrets confidential.
This leads to another common issue litigants face: that the alleged trade secrets are public or were not reasonably protected by the company claiming the information as a trade secret. State laws typically have a similar requirement.
The DTSA does not define what reasonable measures are. Whether reasonable measures have been taken is often specific to the case. The more steps a company has taken to implement such measures, the more likely it will be able to provide evidence of reasonable measures to protect the stolen trade secret. Once a theft occurs, it is too late.
What Remedy?
There are generally two forms of remedy for trade secret misappropriation: damages and an injunction. They are not mutually exclusive. A company could get an injunction stopping future misappropriation and damages for past misappropriation. The damages for trade secret misappropriation focus on either the defendant's enrichment caused by the misappropriation or the amount lost by the plaintiff.
DTSA and various state laws permit a plaintiff to seek an injunction and damages.
They also generally provide for exemplary damages to be doubled if the misappropriation was willful or malicious.
The desired remedy may dictate which law to use in bringing a trade secret misappropriation claim. DTSA provides specific remedies unavailable under state law. DTSA allows a court to issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action. Such an order is reserved only for extraordinary circumstances. Nonetheless, this remedy may be essential to stop a trade secret from getting out to the public. DTSA may permit extraterritorial application and recovery of damages outside of the U.S.
The relief offered by DTSA and state laws differs. Since the statute of limitations period may vary, a company may want to consider the type of remedy it seeks and the statute of limitations before deciding. Depending on jurisdictional requirements and the facts of the allegation, a company might consider bringing claims under DTSA and applicable state law.
More Tips and Considerations
Here are some tips to consider:
Regular Training - Conducting and providing regular refresher training is an effective way to engender a company culture that embraces trade secret protection. This ensures that all employees are adequately notified of categories of confidential information and trade secrets. Particular care is needed to address personal devices, personal email accounts, and programs/folders through which files and documents can be shared.
New Employees - Protection plans should be put in place for incoming employees. It is essential to ensure that the onboarding process of new employees includes signing a confidentiality agreement clearly defining what confidential information and trade secrets are and highlighting the obligations of employees when using this information to perform their job duties with the company. New employees must also be informed not to use other companies’ trade secrets, confidential information, and knowledge.A similar approach should be followed with independent contractors and interns.
Departing Employees - Specific departing procedures should be put in place to protect trade secrets and confidential information. This can be critical because disclosure can trigger loss or liability for the company, even if inadvertent or accidental. While human resources employees typically conduct exit interviews, exit agreements should be considered to safeguard trade secrets and confidential information. An exit agreement to be signed by the employee leaving the company should highlight the continued obligation to confidentiality after the employee has left the company. Depending on the jurisdiction and national privacy law, a review of the departing employee's IT data and network activities could also be considered, especially for high-ranking employees leaving for a competitor and having knowledge of the strategy and development plans of the company.
Vendors and Suppliers - Solid and effective procedures should be implemented to ensure consistency in the scope of shared information. Vital confidentiality and development agreements should be made available to the company’s procurement department with checkpoints to prevent inadvertent disclosure.