Trade Secrets

Protecting Your Company’s Crown Jewels in the Age of Information

This is a summary of the lecture by Betrand Denieul and Gil Perlberg about trade secrets from the joint CEIPI European Patent👉 A legal right granting exclusive control over an invention for a limited time. Office Diplom Universitaire IP Business Administration

In today’s hyper-competitive business landscape, intellectual property👉 Creations of the mind protected by legal rights. (IP) is a critical asset for companies of all sizes. While patents and trademarks often take center stage, trade secrets represent a less visible but equally valuable form of IP. They embody the confidential information that gives a company a competitive edge, from formulas and designs to algorithms and customer lists. Bertrand Denieul (BD), a French IP lawyer, and Gil Perlberg (GP), an engineer with extensive experience in project and product development, shed light on the crucial aspects of trade secrets in their insightful lecture on IP Basics. This summary will provide a comprehensive overview of their key points, drawing from their lecture transcript and supporting materials, to help you understand, identify, and safeguard your company’s most valuable assets.

Trade secrets are a vital component of a company’s IP portfolio and a critical driver of competitive advantage. The lecture by Bertrand Denieul and Gil Perlberg provides valuable insights into the nature of trade secrets, the challenges of protecting them, and the steps companies can take to safeguard their most valuable assets. By understanding the legal and business definitions of trade secrets, implementing reasonable measures to protect them, and fostering a culture of awareness within the company, organizations can unlock the full potential of their IP and maintain a competitive edge in today’s dynamic marketplace.

Economic Value: The secret must confer an economic benefit on its holder. This underscores the commercial significance of the information.

Reasonable Efforts: The holder must take reasonable measures to maintain the secrecy of the information. This highlights the proactive steps required to protect the trade secret.

The Business Interpretation

Gil Perlberg shares a more practical business interpretation: “Anything you do not want your competitor to know could (and probably should) be your trade secret.” This definition broadens the scope and emphasizes the strategic importance of identifying and protecting any information that gives a company an edge.

Both experts stress that trade secrets, like patents, are assets that can be sold or licensed. Know-how licenses, in particular, allow companies to monetize their trade secrets by granting others the right to use their confidential information.

The Scope of Trade Secrets

Trade secrets encompass a remarkably broad spectrum of proprietary information, serving as vital competitive assets for companies. Their reach extends far beyond conventional notions, covering diverse elements that contribute to a business’s unique advantage.

• Formulas
  Trade secrets can safeguard the precise recipes and combinations that give rise to unique products or materials. Protecting these formulas ensures that competitors cannot replicate a company’s distinct offerings.
• Designs
  From architectural blueprints to product schematics, trade secret protection extends to original and confidential designs. This prevents unauthorized copying and production of innovative creations.
• Programs
  Software code, algorithms, and proprietary applications can all be protected as trade secrets. Securing these programs safeguards the unique functionality and competitive edge they provide.
• Know-how
  This encompasses the practical skills, expertise, and accumulated knowledge necessary to efficiently execute a process or operation. Protecting know-how ensures that valuable operational insights remain within the company.
• Methods
  Trade secrets can protect unique and confidential methods of operation, production, or analysis. This secures processes that give a company a distinct advantage in efficiency or quality.
• Processes
  Proprietary manufacturing processes, chemical reactions, or business workflows can be closely guarded as trade secrets. This prevents competitors from mimicking efficient or innovative production techniques.
• Customer lists
  Compilations of customer data, including contact information, preferences, and purchase history, can be highly valuable trade secrets. Protecting these lists prevents competitors from directly soliciting a company’s client base.
• Business projects
  Strategic plans, marketing initiatives, and upcoming ventures can be protected as confidential business projects. This safeguards sensitive strategies and prevents competitors from gaining an unfair advantage.
• Algorithms
  As BD points out, algorithms, particularly in today’s data-driven world, often represent critical trade secrets. Confidentiality agreements are essential to protect these unique problem-solving processes, as they often cannot be patented.

As BD points out, algorithms are particularly vulnerable because they can only be protected through confidentiality agreements.

• Using Non-Disclosure Agreements (NDAs): NDAs are crucial legal tools for protecting confidential information shared with employees, contractors, partners, and other third parties. These agreements legally bind recipients to maintain the secrecy of the disclosed information, creating a clear understanding of obligations and potential liabilities.
• Implementing procedures to prevent departing employees from taking confidential information: Establish clear protocols for employee departures, including exit interviews, system access revocation, and reminders of confidentiality obligations. Actively monitor departing employees’ activity for unusual downloads or data transfers that might indicate potential trade secret theft.
• Ensuring employees understand the confidential nature of the information they handle: Comprehensive training programs should educate employees about what constitutes a trade secret, how to handle confidential information responsibly, and the consequences of unauthorized disclosure. Reinforcing this understanding creates a culture of awareness and promotes proactive protection of company assets.
• Tailoring protection measures to the specific needs of the company: A one-size-fits-all approach to trade secret protection is ineffective; measures must be adapted to the specific industry, business model👉 A business model outlines how a company creates, delivers, and captures value., and types of information requiring protection. This ensures that resources are focused on the most critical vulnerabilities and that protection efforts are aligned with the company’s unique risk👉 The probability of adverse outcomes due to uncertainty in future events. profile.

BD emphasizes that “one size doesn’t fit all” and that trade secret protection must be tailored to the specific needs of the company.

The IP Portfolio Iceberg

GP introduces the concept of the “IP portfolio iceberg,” where patents are the visible tip, while trade secrets represent the larger, submerged portion. This analogy underscores that the bulk of a company’s IP value often lies in its trade secrets and know-how.

Risks and Challenges

Both lecturers highlight the significant risks and challenges associated with trade secret protection.

• Insider Threats: A staggering 80% of information loss is attributed to trusted insiders, often due to ignorance or lack of training.
• Sharing Trade Secrets: While necessary for business operations, sharing trade secrets with vendors, customers, and partners can increase the risk of misappropriation.

The Changing Landscape

The lecture emphasizes the urgency of implementing robust trade secret protection measures due to the changing business and legal landscape:

• Increased Employee Mobility: Employees move between companies more frequently, increasing the risk of trade secret leakage.
• Enhanced Connectivity: Remote work and greater connectivity make it more difficult to control the flow of information.
• Legal Developments: The enactment of the US Defend Trade Secrets Act (DTSA) and the European Union’s Trade Secrets Directive have strengthened trade secret protection on both sides of the Atlantic.

Protecting the “Company Jewels”

BD introduces a pyramid model to illustrate how data, information, and knowledge form the foundation of trade secrets. Data, the raw facts, are at the bottom, followed by information, which is processed and organized data. At the top is knowledge, which is the understanding and insight derived from information.

Implementing a 360-Degree Protection

Gil Perleberg argues that many companies have some form of protection, but often it’s not enough. And what I found in my experience is that many companies struggle with how to do this because it’s very complicated. There’s a lot of different threat actors who might want to get access to the information, and there’s a lot of types of information that you need to protect. GP suggests using the 80/20 rule, also known as the Pareto principle, to identify and address the 20% of actions that will yield 80% of the desired results. This multidisciplinary approach includes:

Here are two sentences for each bullet point, based on the provided documents, focusing on the multidisciplinary approach to trade secret protection:

• Processes and procedures: Implementing well-defined processes and procedures provides a structured framework for handling confidential information throughout its lifecycle. This ensures consistent practices for identifying, classifying, storing, accessing, and sharing trade secrets, minimizing the risk of inadvertent disclosure or misuse.
• Legal documents: Properly drafted legal documents, such as NDAs, employment agreements, and vendor contracts, are essential for establishing clear legal obligations to protect trade secrets. These documents should explicitly define confidential information, outline permitted uses, and specify remedies for breaches of confidentiality.
• IT and cybersecurity measures: Robust IT and cybersecurity measures are crucial for safeguarding digital trade secrets from unauthorized access, theft, or destruction. This includes implementing access controls, encryption, intrusion detection systems, and regular security audits to mitigate cyber threats and vulnerabilities.
• Employee training: Comprehensive and ongoing employee training is vital for fostering a culture of awareness and responsible handling of trade secrets. Training should cover topics such as identifying trade secrets, adhering to confidentiality policies, reporting security incidents, and understanding the legal and ethical implications of trade secret misappropriation.

He stresses that everyone in the company, from the CEO to the most junior employee, must be trained and aware of the importance of trade secrets.

Creating a Culture of Awareness

The speakers emphasize the importance of creating a culture of awareness within the company, where employees understand the value of trade secrets and their role in protecting them. According to the lecture, the culture of awareness encompasses:

• Training programs
• A code of ethics that emphasizes confidentiality
• A mindset of sharing only necessary information

Practical Guidance and Takeaways

Here is some practical guidance from the presenters and takeaways for businesses looking to protect trade secrets:

• Conduct a Trade Secret Audit: Begin by identifying all the information within your company that could provide a competitive advantage if kept secret. Then, critically evaluate the existing measures in place to protect each identified trade secret, pinpointing vulnerabilities and areas for improvement.
• Develop a Comprehensive Protection Plan: Formalize a trade secret protection program with documented policies outlining how trade secrets are identified, classified, and handled. Integrate comprehensive procedures and training programs to ensure consistent application of these policies across the organization.
• Use NDAs Strategically: Employ Non-Disclosure Agreements (NDAs) to legally bind employees, contractors, and partners who have access to confidential information. Tailor NDA terms to the specific information being shared and the nature of the relationship to ensure appropriate protection.
• Control Access to Information: Limit access to trade secrets to only those employees who require it to perform their job duties, adopting a strict “need-to-know” basis. Implement technical controls, such as access restrictions and data encryption, to enforce these limitations.
• Monitor Employee Activity: Implement monitoring systems to detect unusual employee activity that might indicate potential trade secret theft, such as large data transfers or unauthorized access attempts. Establish clear protocols for investigating and responding to suspicious behaviour.
• Implement Cybersecurity Measures: Protect digital trade secrets with robust cybersecurity measures, including firewalls, intrusion detection systems, and data encryption, to prevent unauthorized access and data breaches. Regularly update security protocols to address evolving cyber threats and vulnerabilities.
• Train Employees Regularly: Conduct regular training sessions for all employees on trade secret protection, emphasizing the importance of confidentiality and the proper handling of sensitive information. Ensure training covers both legal obligations and practical steps employees can take to safeguard trade secrets in their daily work.
• Enforce Your Rights: Be prepared to take swift and decisive legal action against anyone who misappropriates your trade secrets, including pursuing injunctions to stop the unauthorized use or disclosure of confidential information. A proactive approach to enforcement sends a strong message and deters future violations.