Trade secrets: What you need to know


19. April 2022
Categories
Trade secrets

By Mariana Volpi. Lawyer.

Have you ever wondered why there is no other beverage that tastes quite like Coca-Cola, or that no other algorithm understands what you are looking for like Google’s? Or maybe you have been curious about the exact criteria the New York Times uses for its Best Sellers List, that makes it so influential? If so, I regret to inform you might keep wondering for a while: all this information is protected under Trade Secret.

Trade Secret is used to safeguard the confidential information that a business wishes to remain private. The protection applies to any information of a business that is not known either by the experts of the sector or the public at large, has a commercial value derived from its secrecy, and is subject to reasonable steps/measures taken by the rightful holder to ensure its secrecy.

As long as it meets the above conditions, the information can be technical, commercial, financial, or a combination of these. It might also be a formula or a recipe. From a marketing strategy to the results of a survey or the list of a business’s most valuable customers, can all be protected by Trade Secret.

When are Trade Secrets used?

1. Trade secrets are often used at the early stages of the creation of IP Rights, to ensure the invention or design is unrevealed before the formal filing of the patent or design application.

2. Secrecy protects any information that gives a business advantage, as long is not generally known. In this sense, Trade Secrets are a good option for information that cannot be protected by any of the other IP rights. For example, a list of suppliers and customers, the recipe for a new fragrance, or an unprecedented market-research analysis is ineligible for trademarks, patents, copyrights, or design protection. However, if the business has an interest in maintaining that information out of its competitor’s radar, it can be protected using trade secrets.

3. Even in cases where patent or design protection is available, it might be convenient for a business to use secrecy instead. This is mostly due to three reasons:

a. Obtaining and managing an IP portfolio can be quite expensive and time-consuming, and not all businesses have the necessary resources to do this. SMEs and start-ups might rely on secrecy to avoid IPR prosecution expenses and the several years the process might take.

b. To file for a patent, copyright, or trademark, a business must disclose the secret with the risk of the application being denied. The reluctance to unfold their secret to the public sometimes encourages companies to rely on secrecy instead.

c. Trade secrets can last as long as the information remains a secret. Once the secret is out, and competitors can use this, the business will probably lose its value. If the asset is something that can remain valuable for a longer term than the protection that the IPR grants, often companies go with secrecy instead.

However, expert advice is recommended to make this decision. Some of the things that must be considered are the ability of the business to ensure secrecy, the probability of competitors discovering the secret through reverse engineering or other methods, and the likelihood of someone else patenting your asset.

How are Trade Secrets protected?

Unlike other IP Rights, secrecy does not involve a formal registration process at a government office: this do-it-yourself protection requires each business to take the appropriate steps to have its secrets protected. Companies should basically take all necessary steps to ensure that their asset does not fall into the wrong hands.

The first step should be limiting the access to the information only to those essential, to avoid the risk of someone leaking the information. The asset, if physical, should be stored in a secure environment, accessed by a password/keycard or biometrical security, for example.

For the protection of digital data, companies often issue their employees with work-exclusive cell phones or computers, use strong passwords and encryption, and control access to networks.

Employees should always be trained on the importance of trade secrets and the appropriate way of handling them. In addition, both employees and business partners should sign non-disclosure agreements (NDAs) that preclude them from sharing the secret for as long as the business finds necessary; and non-compete agreements (NCAs) to prevent them from entering into competition when their employment/service agreement ends.

This is not, of course, a restrictive list, and all measures that a company finds appropriate for protecting their trade secret are encouraged.

When can Trade Secrets be enforced?

The main disadvantage of Trade Secrets is that they are not exclusive rights, and therefore cannot be enforced against anyone who discovers the secret and uses it freely. Either if a competitor independently uncovered it or used reverse engineering to learn a trade secret, once it is out there it is no longer protected.

However, trade secrets are legally protected from unauthorized use, acquisition, or disclosure of secret information against honest commercial practices. In these kinds of situations, businesses are entitled to pursue damage and other legal remedies.

How are trade secrets protected in the rest of the world?

Trade secret law is mostly governed by national legal systems. However, there are international standards for protecting secrets:

The Paris Convention for the Protection of Industrial Property (Paris Convention) administered by WIPO deals partly with the protection of trade secrets.

The World Trade Organization’s (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). In principle, the 159 countries that are members of the World Trade Organization are bound by the TRIPS agreement.

 

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