Trade secrets play a crucial role in the innovation ecosystem. With the fast pace of innovation, often rendering recent technology quickly redundant or even obsolete, relying on patent protection as a sole basis for IP protection may not be appropriate or cost-effective.
Nevertheless, Deloitte's recent IP 360 Survey shows that 29 per cent of respondents do not actively capture their trade secrets, while an additional 14 per cent do not have standardized processes or guidelines for identifying them.
A robust trade secret strategy is complementary to traditional registered IP protection to boost monetisation options and prevent catastrophic corporate losses. With trade secret litigation on the rise, robust policies and procedures to manage trade secrets are more important than ever.
10 quick strategies for in-house counsel to consider when formulating a smart trade secrets strategy for their organisation are as follows:
1. Define your trade secrets
Ensure your organisation understands the difference between the terms "confidential information," "trade secrets" and "know-how." They should not be used interchangeably. Understand how they are defined, where they overlap and how each is treated in law.
Once these terms are understood by the organisation, conduct an audit of your asset portfolio to identify your trade secret assets and assess your existing policies and procedures to identify gaps and areas for improvement.
2. Develop a trade secrets policy and operational systems
A trade secrets policy should be at the heart of any organisation's overall IP policy. Even if you plan to seek additional protection through a patent or design filing program, secrecy must be maintained if novelty is to be established.
There are two key aspects to creating a trade secrets strategy:
- Procedures: Ensure data secrecy, such as encryption, restricted access, prohibition of private email, limitations on "bring your own" hardware and strict marking of secret documents.
- Policies: Preserve data secrecy, such as training, codes of conduct, employment contract provisions and non-disclosure agreements (NDAs).
Having a robust trade secrets policy allows you to identify and enforce any misappropriation or misuse of those trade secrets. Many components of a good trade secret policy support broader business planning, IP strategy and data privacy/confidentiality compliance objectives.
3. Use strong NDAs and confidentiality clauses in your agreements
Trade secrets often require protection via an NDA – and getting this right is crucial. Enforceable NDAs must provide context as to why the information is secret and why it must remain so. An effective NDA outlines:
- What information is being treated as confidential and who owns it.
- That the information is being communicated in strict confidence.
- That any use of the information outside of the specifically defined purpose is misuse, which will be actionable.
Breach of an NDA will often be the foundational cause of action against a departing employee who leaves with stolen trade secrets. The law may differ subtly around the world – so getting good local advice is crucial.
NDAs are not the only way trade secrets can be shared. Ensure all of your third party agreements contain strict confidentiality clauses that set out how the information should be managed during and after termination of the agreements.
4. Share only what is necessary and use secure data sharing protocols
When it comes to commercial exploitation, trade secrets may need to be shared for development and manufacturing purposes. When sharing confidential information of any kind, you should:
- Release no more information than is absolutely necessary.
- Restrict physical access to the lowest number of key people.
- Set rules for the treatment of secret material in terms of reproduction, locked storage, the deletion or destruction of working papers, etc.
- Pay close attention to IT rules, particularly when working with universities – which can be notoriously "leaky."
Avoid sharing data in the cloud. If it is essential, use effective Secure File Transfer Protocols and share as little as possible. Remember, disputes about trade secrets are fact-driven.
5. Create awareness of your trade secret policies and procedures
Trade secrets are complex and can more easily flow in and out of companies undetected. They require a multi-disciplinary approach to management with oversight from a company's intellectual property, corporate, human resources and cyber/data privacy teams.
Once you roll out new policies and agreements, develop staff guidelines and training materials for employees to follow. These are necessary for creating a business culture that recognises and protects trade secrets.
Asset management tools can also be helpful in capturing and managing access to trade secrets. If you're upgrading or adopting new systems and processes (IT, security, tracking, etc.), ensure employees are made aware and receive training on these systems where appropriate.
Creating a culture of trade secret protection helps ensure that all employees understand how important trade secret protection is to the organisation, and the consequences that may be visited upon them for misappropriation.
6. Prepare policies and processes for on-boarding and off-boarding employees
To create a culture of trade secret protection, your policies and processes must begin with on-boarding, through to exit interviews and off-boarding. Best practices for off-boarding employees who had access to trade secrets include:
- Conduct an exit interview that asks, "Where are you going?", "What're you going to be doing there?", etc. They do not have to answer, but you can draw inferences to assess risk.
- Complete an audit to discover what they have been downloading and accessing, and then determine if those actions were appropriate to their role and station.
- Require outgoing employees to give back all equipment, project resources, etc. and receive written confirmation that they have given it all back.
It is better to prevent trade secret theft than to litigate after information has left the business. Litigate only when necessary and do everything you can to enact policies and procedures for the entire cycle of an employee's employment to prevent theft in the first place.
7. Enforce your trade secrets both legally and technologically
Having strong trade secret policies and procedures to track and maintain control over trade secrets is important, but equally so is the ability to enforce trade secrets rights if unauthorised use occurs.
Although many countries have laws outlining how misappropriation of trade secrets is a crime, enforcement can be a long and costly process. Further, unless one can quickly identify a misappropriation and contain it, the trade secret may be lost.
Proactive management allows you to:
- Take rapid action when a trade secret breach happens or is threatened.
- Have response plans at hand to help employees identify a breach early.
- Mitigate potential damage by catching the breach before it becomes public.
Assume that you are a target and plan accordingly by investing in technologies like continuous threat monitoring and detections, encryption and penetration testing to protect your trade secrets.
8. Understand how new technology impacts your trade secrets strategy
Although certain technology allows for the tracking and identification of potential security breaches, it can also facilitate the speedy transmission (including inter-jurisdiction transmission) of information, which can result in significant losses to the owner.
For example, advancements in AI can be useful in threat detection, verifying users by sifting through behavioural data and in threat attribution. However, AI can similarly automate the process of creating new viruses, weaponise phishing attacks and generate malicious code.
Just as you should assume that you are a target – assume that malicious actors are also using the latest in tech in their attacks and plan accordingly.
9. Adapt, review and repeat
Policies and procedures should not be static. Laws, business and commercialization plans change – and your trade secrets policies should too. It's imperative for businesses to review their policies and procedures, training, protocols and other materials on a regular basis.
10. Leverage advise from an IP professional
The solution for most organisations comes down to taking reasonable efforts to identify, protect and evaluate proprietary information. For those unsure of where to begin, an IP professional can walk you through the steps, helping you:
- Determine which types of information are protectable.
- Implement strategies to manage, commercialize and enforce your valuable information assets.
To dive deeper into trade secrets, we covered practical approaches to protection in our recent webinar, Trade secrets protection 101: Covering your bases.
Our cross-practice trade secrets team is here to help you throughout the whole lifecycle – from audit / identification over creating a smart trade secrets strategy to implementation and training as well as management and assist with the enforcement of trade secrets, including litigation.