Trade secrets, generally not addressed by your intellectual property (IP) attorney, are an underestimated and disregarded asset that is often not even considered and protected in a small or medium sized company (SME). The challenges surrounding trade secrets are many and come from both sides, the IP attorney and the SME side. On the IP attorney side it is often related to the lack of incentive to mention or work with trade secrets, since the business model of the typical IP firm is not taking trade secrets into account and therewith there is no economic incentive to provide help to SME’s who want to establish or manage trade secrets. This in itself leads to a lack of expertise in the area for the IP attorney. On the SME side a lack of awareness of trade secrets is the main reason why the question is not addressed and typically not handled as such. However, in an ever more competitive world, awareness and corresponding management of trade secrets becomes more and more important.
What comes first?
But what comes first? For an SME it is the question “What are our trade secrets?” Often SME’s and even big corporations are not even aware of their trade secrets, and they do not have a system in place to categorize and identify/manage them. But which aspects or items can actually be trade secrets? Usually, trade secrets are part of each company and organisation at least in some form. Further down below you see a definition and a non-exhaustive list of potential trade secrets and a general definition.
What are trade secrets?
The general definition is “information that (a) is secret, (b) has commercial value because it’s secret, and (c) is subject to “reasonable steps” to keep it secret.”
Examples may be:
Technical and Scientific Information: This is often the most readily recognized category of trade secrets and may include:
- Recipes and Formulas: Encompassing not just food and beverages, but also pharmaceuticals and chemical compounds.
- Manufacturing Processes and Methods: The unique steps and techniques that give you a competitive edge in production.
- Materials: Specialized or uniquely sourced materials that are integral to your products.
- Software and Tools (Algorithms and Source code): Both the proprietary software you develop and the unique ways you utilize commercially available tools.
- Technical Solutions and Innovations: Novel solutions to technical problems and the pipeline of future innovations.
Commercial Information: This category pertains to the operational and customer-facing aspects of your business and may include:
- Client Portfolios and Customer Lists: Detailed information about your clients, their needs, relationships and their history with your business.
- Distribution Networks and Strategies: The "how" and "where" of getting your product or service to market.
- Supplier and Vendor Information: Including not just names, but also negotiated pricing, terms, and relationship details.
- Client requests and feedback: Requests and Feedback from clients gives you a hint where your product/service/process should go from here and is therewith to be treated as a trade secret.
Internal Business Information: This category focuses on the inner workings and human capital of your organization and may include:
- Employee Training and related Documentation: The specialized knowledge and skills you impart to your workforce.
- Recruitment Strategies and Candidate Attributes: Your unique methods for identifying and attracting top talent.
Financial and Strategic aspects: This type of information, while less tangible than a formula or a machine, is often what provides a significant long-term competitive advantage. It may include:
- Financial Data and Projections: This encompasses more than just raw revenue figures. It includes your pricing strategies, cost structures, profit margins, internal financial forecasts, and detailed budget information.
- Business Plans and Corporate Strategies: Your long-term business plans, marketing strategies, expansion plans, and research and development roadmaps are invaluable.
- Marketing and Advertising Strategies: Beyond just distribution networks, the creative concepts, target audience analysis, and specific tactics of your marketing and advertising campaigns can be a trade secret.
Example of its own: “Negative Trade secrets”
"Negative" Know-How and Research Dead Ends: The knowledge of what does not work can be just as valuable as knowing what does. Documenting failed experiments, unsuccessful marketing campaigns, or abandoned product designs can save significant time and resources in the future. This "negative" knowledge is a protectable trade secret that prevents your competitors from learning from your mistakes BUT even negative trade secrets need to be treated as such (see paragraph below).
Further, depending on the industry you are working in there may exist trade secrets related to regulatory, and risk related procedures and other industry specific trade secrets.
Identifying your Trade secrets
If you are not aware of the trade secrets in your organisation, a workshop or harvesting session with key stakeholders and staff is advisable. Typically, this will require to conduct interviews with key stakeholders and staff and documenting the findings. Then a group consisting of individuals having internal and potentially external expertise evaluate and categorize the findings. This will give your organisation a starting point for trade secret management.
What is next after you are aware of your Trade secrets?
“Treat them as such and protect them”
If your trade secret is publicly available as a leaflet in your cafeteria or on your website, you might want to consider a serious walk over your trade secrets. The law and legislation states that trade secrets must be subject to reasonable steps to keep them safe and secret. These reasonable steps may include:
- Access controls
- Audit trails
- Employee training
- Non-Disclosure Agreements (NDAs) in place for and prior to critical conversations with third parties (preferable: NO discussions with third parties about trade secrets but not always possible)
- Exit-interview protocols, and so on.
Management and Access
This means you will need to catalogue, access-protect and regulate your trade secrets carefully. So, after you identified your trade secrets, it is time to categorize them, identify who should have access and to make sure that they are treated as trade secrets, with proper physical and electronic access control. There is specific software for managing trade secrets but generally a proper simple and safe setup can get you a long way, this can even be a carefully maintained and safeguarded database table. Many traditional tools or cloud-based solutions, such as for example salesforce, dynamics, sharepoint or other enterprise grade cloud solutions also allow granular access controls. In case you use such cloud suppliers, regular supplier safety audits may be advisable. So, a clear and long-term vision of safeguarding and properly managing your trade secrets is key. This also includes continuous trade secret harvesting within your organisation for establishing future trade secrets.
Documentation of Trade secrets
Once the management and safeguarding is in place, preparing documentation that identifies how you manage trade secrets and briefly explains what each of the managed trade secrets is about without revealing trade secret details, is advisable. Such documentation that does not disclose your trade secrets but gives the receiver, which may be a potential investor, a basic idea about your trade secrets underlines the value that your trade secrets generate in your organisation.
Employees and staff vs Trade secrets
Another aspect is the people risk lifecycle for staff who has or had access to sensitive information and trade secrets. On-boarding, ongoing training and off-boarding of your staff is needed. Typically, most leaks happen when employees are somehow involved and this will issue will only increase with a generation that has grown up with a “everything is always available and for free, especially information” - attitude entering the work force. The return of devices and strict management of such devices as well as reminding staff of obligations relating to these is of importance. In addition, recent changes in non-compete clauses, which face bans in the US and growing antitrust scrutiny in the EU, SMEs need airtight confidentiality and trade-secret practices instead of relying on post-employment restraints. Be proactive instead of reactive when it comes to trade secrets.
Trade secrets vs Patenting
For trade secrets of technical nature, it is important to consider whether to:
- keeping a technical innovation a secret or,
- patenting the technical innovation.
A lot comes down to the probability of “reverse-engineering” of the technical innovation. If it is easy to reverse-engineer the technical innovation then patent protection is advisable. If it is not easy to reverse-engineer the technical innovation then keeping it a secret may be a more economic and long term-value-building solution. Keeping a technical innovation a secret comes however with the risk that a third party may come up with the same technical innovation and patent protect it, which then means you need to be able to document and proof that you were aware of this technical innovation earlier, used it and kept it as a trade secret. Such proof may avoid a lawsuit or royalty payments down the road.
Collaboration, vendors and suppliers
Be careful when collaborating with various parties, especially from different jurisdictions; - different standards may apply. Often such collaboration includes the exchange of material and information, which can contain at least partial trade secrets. This material and information need to be treated carefully and preferably hidden in “black boxes” when material or information is exchanged between your organisation and a third party. As mentioned above, also regarding this aspect employee training can be of high importance. For contracts relating to collaborations, especially when the collaborations comprise sensitive and secretive aspects, it is of great importance to have proper contracts in place with such collaborative parties. In general trade secret law is not that strong these contracts should be drafted by specialised attorneys to make sure that they cover sensitive material and knowledge for the client.
What happens if a trade secret is leaked?
In case that, despite your safeguarding, a trade secret has been leaked you can request the return of information, claim damages or pursue criminal penalties (fines and imprisonment); seek an interim injunction (vitesförbud) to quickly stop further spread before the final ruling (SE); engage IT-forensic expertise to trace and secure evidence (important for all jurisdictions); and, in cases involving information protected by copyright, apply for an intrusion investigation (the civil-law equivalent of a search warrant), search damages and request the destruction of infringing goods (EU) or enforce injunctions and ex-parte seizures (US).
Final comment
All in all, trade secrets are a tool to protect the competitive advantage and edge of your organisation It needs to be carefully managed and require specialised knowledge. Do not forget trade secrets; -proper intellectual property management includes the management and leveraging of trade secrets.
If you would like guidance on building or auditing a trade-secret programme, please do not hesitate to contact us.
