[BreachExchange] Trade Secrets: Securing Your Hidden Intellectual Property

[Audrey McNeil]

https://www.lexology.com/library/detail.aspx?g=793fef10-5be7-449c-b053-
e26ec9de9f49

It is hoped that this short note will help the reader better understand (i)
what trade secrets are; (ii) the value of trade secrets; and (iii) how to
better protect trade secrets.The World Intellectual Property Organisation’s
(WIPO) Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS) has recognised “undisclosed information” as an independent facet of
Intellectual Property (IP) – however, in many ways, it differs
significantly from IP rights such as patents and trade marks. Indeed, the
EU has codified the law on trade secrets by way of Directive 2016/943 (the
‘Trade Secrets Directive’) and EU member states must pass laws protecting
trade secrets by mid-2018.

I. What is a Trade Secret exactly?

The EU Trade Secrets Directive defines a trade secret as:

1. Information which is not readily known or generally accessible;
2. Information, the commercial value of which is held in its secrecy; and
3. Information which has had reasonable steps taken to preserve its secrecy.

There are countless well-known examples of trade secrets. Some specific
examples include the eleven herbs and spices used in Kentucky Fried
Chicken; the criteria against which books are judged for the New York Times
Bestseller list; and the yeast strain developed by Guinness which they use
to brew their stout. Non-specific examples include recipes used by food
producers; a business’s list of suppliers; and other hidden manufacturing
techniques and components.

Trade secrets, therefore, differ from IP rights, mainly in their secretive
or undisclosed nature: a trade mark will be published on the register of
trade marks; in order to obtain a patent over an invention, the invention
must be disclosed during the application process. Trade secrets also differ
from other areas of IP, such as patents, copyright and designs, insofar as
the value of trade secrets lies in their secrecy and the secret is
typically intended to remain undisclosed indefinitely – while the value in
other IP rights lies in the monopoly which expires after the relevant
period of time. This is an important consideration to be made – and a point
which we will return to in Paragraph III.

II. What Value Do my Trade Secrets Hold?

As mentioned above, the value of trade secrets lies in their undisclosed
nature. This is what gives businesses a competitive edge. In the same way
as a trade mark brings value to a business as it is a unique identifier for
the origin of the goods – and the goodwill consumers associate with the
brand – trade secrets bring value as they provide a unique aspect to a
business that consumers cannot find elsewhere – for example, a particular
taste or flavour, or an unparalleled standard or specific quality.

Trade secrets can also bring about monetary value in other ways by way of
licencing agreements. Indeed, in the well known Listerine Case, the
licencing agreement was upheld even after the recipe for the famous
‘antiseptic liquid compound’ became public knowledge. The rationale behind
the decision to uphold the contract was that the payments owed to the
licensor were “based upon the business which flows from the formula
conveyed” – without an assumption that the licensee had bargained for
continued secrecy. Such contracts pertaining to licensing agreements ought
to specifically state whether the contract will cease to continue in the
event that the secret is disclosed to the public.

III. How can I Protect my Trade Secrets?

It may be the case that your trade secret does not meet the requirements
for protection under other areas of IP law such as patents or registered
trade marks. However, there are other reasons why you might choose to keep
such an asset as a trade secret. Many start-up companies cannot afford the
cost involved to register a trade mark, design or patent. It can also be
the case that a business intends to rely on their invention for longer than
the term of protection of a relevant right such as twenty years for
patents. For example, the unique strain of yeast developed by Guinness,
which is used to produce their stout, could originally have been eligible
for a patent. However, Guinness has relied on this unique yeast strain to
produce their world-renowned stout since 1759 and assumedly the brewing
giant intends to rely on their unique yeast strain for many years more!

There are risks with trade secrets that do not exist in other areas of IP
however. While the EU Trade Secrets Directive provides us with a broad
definition of what ‘unlawful acquisition’ of a trade secret is, the
directive does not provide suggestions for the protection of such secrets.
Indeed, how to protect a trade secret will depend on the nature of the
secret itself. While legal provisions exist to punish those who unlawfully
acquire or disclose a trade secret, it cannot be denied that “just as good
locks do more than any number of theft or burglary laws, the first line of
defence for any firm concerned to safeguard its … trade secrets is physical
measures.” (Beale et al, 2017).

Businesses can employ general means of protection, for example by educating
employees on the importance of trade secrets; and including confidentiality
clauses in employee contracts to act as a deterrent. However, it should be
noted that electronic data is the fuel of the digital age – the vast
majority of information is stored electronically in this day and age. This
is something to consider when protecting your trade secrets if they are
stored electronically. It might be worthwhile investing in digital
protection: through data encryption; requiring the copying of sensitive
information to be digitally logged; and by use of employee swipe cards to
access sensitive areas on servers.

In conclusion, it is hoped that this note has helped the reader to better
understand trade secrets; their importance and value; and how to ensure
their protection. While the law is transitioning to ensure better legal
remedies for the unlawful disclosure of trade secrets, most businesses
would agree it is more desirable to have their valued trade secrets kept
undisclosed. It is worth assessing what assets your company has which can
be considered trade secrets – and what measures ought to be adopted in
order to maintain the secrecy of this information, thus ensuring the
continued value of your trade secrets.
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