Managing Confidential Trade Secrets Belonging to Others

Secrets — Joint development efforts inevitably involve accessing trade secrets owned by others. Today’s companies need to be as innovative as possible to prosper in an increasingly competitive business environment. No company can achieve this in isolation.

Instead companies must cooperate and collaborate with others.  To this end, the development and acquisition of useful information, some of it confidential in nature, is crucial to create and provide new and improved goods and services. Information about technology that makes a company’s product unique, prototypes, and/or lists of key clients or customers are just a few examples of such business information. As much of this information can be of great commercial value and be of significant importance to the company concerned, its uncontrolled disclosure may potentially lead to serious consequences.

Given that many of a company’s trade secrets will have to be shared with others, it is therefore imperative that these other companies fully respect this information, and strive to keep this valuable information confidential. If such confidential information is not properly respected, it may cause damage to the reputation of the company, adversely impact key business relationships and even cause the company to end up being sued in court.

Managing Someone Else’s Confidential Information

At first glance, you may be somewhat perplexed by this heading. When and why should a company be concerned about managing confidential information belonging to some third party? It is tough enough for most companies to properly and professionally manage their own confidential information, let alone worrying about someone else’s confidential information.

However, more and more, companies are indeed facing the challenge of having to manage confidential information belonging to others.

No Company is an Island

When English poet John Donne wrote his famous line “No man is an island,” almost 400 years ago, in many ways he was forecasting the future of business as it operates today.

No company is an island. It may interact with universities, cooperate closely with key suppliers and vendors, collaborate with application developers, content providers, technology house and design houses, plus work with various communities including “open” communities, innovation networks, and standardization setting bodies as well as customers and end-users.  It may also involve working with start-ups and venture capital funded entities.

No company is an island.

Passing Confidential Information Back and Forth

In most if not all of the business relationships listed above, the companies involved will pass confidential information back and forth. Confidential information as used here, may include trade secrets, know-how, restricted confidential information, company confidential information as well as general confidential information.

A Legal Framework for Sharing

A legal framework of some sort is usually put in place between the parties, with the first step usually being the signing of a Non-Disclosure Agreement (NDA). This is a relatively simple legal agreement between a company and a counter-party of that company to exchange information, for the purpose of a project, marketing campaign, R&D or sourcing, etc.

Examples of information which can be protected by a NDA are business proposals, financial data, new ideas and trade secrets. Under an NDA, the signer promises the recipient that he will not disclose certain information to any third parties, except under circumstances described within that contract.

Although NDAs are specifically mentioned here, this legal framework may include a Memorandum of Understanding, a Development Agreement, a Commercial Agreement and more. All of these terms are relatively synonymous names for “contracts.”

The Problem with Trade Secret Sharing

Ideally, whatever legal framework is put in place will contain details of the standard by which the parties involved will handle the disclosed confidential information provided to them by the other party. However this is an aspect that is often overlooked by many companies – both the provider of information and the receiver of it.

Basically Party A divulges confidential information to Party B which Party B then is expected to look after, care for and protect. However, Party A often fails to ask Party B to explain their overall process for managing confidential information and specifically how Party B will actually care for the confidential information entrusted to them by Party A.

Good Practice

One simple question Party A should ask of Party B is for details on how Party B looks after its own confidential information. Perhaps Party A should delve a little deeper and ask a series of questions, such as:

• Does Party B have a trade secret or confidential information policy and associated procedures?
• Does Party B provide education for its employees about the handling of confidential information?
• How does Party B handle access and access control procedures to limit the number of people having access to confidential information?
• What are the various protection mechanisms Party B has in place to protect confidential information?
• Do these protection mechanisms include administrative, technical and legal measures?
• Does party B conduct any regular audits of its process to handle confidential information and if so how are these actually conducted?
• Does Party B have a system or tool in use to underpin its process for handling confidential information?

Of course, Party B if it is providing confidential information to Party A should ask these exact same questions of Party A.

Hazel May Can Guide Confidential Information Sharing

The Hazel Trade Secret Asset Management System may help your company manage its trade secrets and trade secret processes. Hazel can keep track of which trade secrets you have shared with others, and which trade secrets others have shared with you. Contact the Hazel Team today to learn more.

For Secrets —, I’m Donal O’Connell.

Credits:

Sentry guard box by 5DII – Flickr: Changing of the Guard – Royal Gibraltar Regiment, CC BY-SA 2.0, Link

Sharing by A. David Holloway – Day 43: Sharing, CC BY 2.0, Link