Can You Have Too Much Trade Secret Information?

Secrets — Can a company have too much information about its trade secrets? Could this information harm the company during litigation? The answer to both questions is: Of course. But the “chameleon on plaid” trade secret strategy works as well for companies as it doesn’t for real chameleons.

Just as companies carefully craft their patent applications, their design registrations, and their trademark applications, companies and their legal advisors should also exercise skill and professionalism in the development of a trade secrets strategy.

Is it wise to post with trade secret metadata a valuation for the trade secret prepared by a manager having no expertise in valuation who performed the valuation in a few minutes and without consulting any of his colleagues? Quite possibly this is not a good idea.

But what about a professional valuation for the same trade secret? Unless there’s a reason why the valuation would only become discoverable by virtue of its association with trade secret metadata, then maybe. But this seems unlikely, as the valuation is quite likely discoverable on its own.

Judgment and skill are needed in deciding what trade secret metadata to record in a trade secret asset management system. While Hazel allows recording of an essentially unlimited amount of trade secret metadata, we don’t recommend that companies record everything possible about a trade secret.

The Changing Universe of Trade Secret Laws

Recently implemented laws, such as the Defend Trade Secrets Act and the EU trade secrets directive, seem to require a greater degree of rigor in protecting trade secrets than might have been required under various state trade secret laws, in addition to the greater rigor required in federal courts. Some legal commentators have also noted that the DTSA may require greater rigor for plaintiffs than state trade secret law. One could suppose that these increased demands for rigor may eventually filter down to state courts.

The Hazel team noticed that interest in Hazel spiked shortly after the implementation of the DTSA. So, we’re not the only folks who suspect that more might be required now in federal court, and this increased rigor may eventually filter down to state courts as well.

Moreover, there are other changes looming on the trade secret horizon that may require even greater rigor in how multinational corporations handle their trade secrets.

Our understanding of the new OECD BEPS rules is that once implemented multinational companies are going to need to provide tax authorities with information about valuable trade secrets. If a company doesn’t tell the tax authorities about a trade secret but then sues for its theft that could possible provoke a tax penalty.

The OECD BEPS rules are in the process of being implemented into national law. If multinationals are eventually going to need trade secret information for tax reporting, they might as well start recording them now. Of course, there’s also the possibility that these tax rules could filter down in some form to all companies.

Does Trade Secret Management Commit a Company to Positions that It Will Want to Change in Litigation?

A trade secret asset management system provides a tool for entering information about trade secrets that are already known to a company or at least known to functions within a company. In other words, the only way this metadata wouldn’t come out during discovery is if someone for the company essentially lies during a deposition or refuses to turn over information that should be disclosed.

What a trade secret asset management system does for a company is allow the company to have greater management control over its trade secrets. If bench-level employees know that the trade secret has already walked out the door, then senior management might possibly prefer to know this rather than depending on expensive but skillful lawyering during litigation to suppress this information.

Of course, if a company discovers that something it thought was a trade secret really isn’t, then management knows that anything beyond bluffing about the trade secret comes with increased risk.

Isn’t that better information to have than not? What would the board of directors say if presented with this question?

Consult Legal Counsel in Designing the Template for Trade Secret Metadata

Trade secret laws vary from country to country. Nuances of trade secret law may also vary within the same country. Tracking these nuances and their changes over time is the work of seasoned legal counsel familiar with the trade secret laws of a given jurisdiction.

Companies are advised to consult with trade secret counsel in terms of how to configure Hazel. So, for example, with HazelGo, the Hazel team can record the information according to the template approved by the company’s trade secret counsel.

Companies operating in multiple legal jurisdictions are similarly advised to consult trade secret counsel in all the relevant jurisdictions for their trade secrets.

By Categorizing Trade Secrets, Will the Company Be Worse Off?

This question seems to assume that there is value in ranking a company’s trade secrets against each other. In other words, posting in a company’s trade secret metadata something along the lines of: “Our customer lists are more valuable than our secret formula for making steel.”

The Hazel team is unclear why anyone would want to do this, as it doesn’t seem like particularly helpful information. A trade secret asset management system should not become a receptacle for  useless, irrelevant and potentially dangerous information about a trade secret.

Hazel Helps Companies Identify Rank & Protect Their Trade Secrets

The Hazel Trade Secret Asset Management System helps you manage your trade secrets and trade secret processes. Hazel can keep track of corporate trade secrets and help you determine an appropriate level of protection for each trade secret recorded. Hazel can record who in an organization is responsible for a given trade secret, who is responsible for protecting the trade secret, and who has access to the trade secret, among other things. Hazel can also help with various corporate functions such as a tax and human resources. Contact the Hazel Team today to learn more.

For Secrets, I’m Tom Ewing.

Credits:

Cover: Chameleon on Plaid, collage prepared by author, courtesy Herbert Hoover.

Skilled woodcarver Karl Ragnar Gjertsen KrgThis photo was taken by Karl Ragnar Gjertsen.Please credit this photo Karl Ragnar Gjertsen in the immediate vicinity of the image. – Own work, CC BY-SA 3.0, Link

Charlie Chaplin in Modern Times by movie studio (ebay) [Public domain], via Wikimedia Commons