Secrets — What are the reasonable steps to take in protecting trade secrets? Trade secrets are an important, but a transparent if not invisible component of a company’s intellectual property portfolio of assets.
Trade secrets can add tremendous business value, so they need to be properly and professionally managed, and looked after.
Many companies fail to create a “culture of confidentiality” when it comes to protecting their valuable trade secrets. If a company does not take reasonable steps to protect such assets, then these assets may become extremely fragile and be impossible to defend in court.
What is “Reasonable”?
The term reasonable is always relative and applies to whatever is appropriate for a particular situation. Various factors influence whether a particular action or set of actions is considered reasonable. The dictionary defines reasonable as an intelligent approach supported or justifiable by reason; fair, proper, sound behavior that avoids needless error and steers clear of extremes.
In law, judges often ask, “What would a reasonable person do?” in the situation before the court and then compare what the parties in the case did in comparison to the hypothetical reasonable person.
In negligence cases, for example, the reasonable person standard is the standard of care that a reasonably prudent person would observe under a given set of circumstances. An individual who subscribes to such standards can avoid liability for negligence. Similarly, a reasonable act is that which might fairly and properly be required of an individual.
Reasonableness & Intellectual Property
Why is it important for the IP community to have a good understanding and appreciation of this particular word and what it means in practice? Allow me to link the two together.
Trade secrets can be one of the most important assets in the intellectual property portfolio of an organization. Trade secrets are at least on a par with other forms of intellectual property such as patents and trademarks. Some would argue that trade secrets are the crown jewels of any intellectual property portfolio.
A trade secret is a formula, practice, process, design, instrument, pattern, commercial method, or compilation of information which is not generally known or reasonably ascertainable by others, and by which a business can obtain an economic advantage over competitors or customers. The scope of trade secrets is virtually unlimited.
A trade secret is therefore defined as any information that is:
- Not generally known to the relevant business circles or to the public. The information should also not be readily accessible.
- Confers some sort of economic benefit on its owner. This benefit must derive specifically from the fact that it is not generally known, and not just from the value of the information itself. It must have commercial value because it is a secret. Commercial value encompasses potential as well as actual value.
- It must have been subject to reasonable steps by the rightful holder of the information to keep it secret. What is reasonable can vary depending on the specific circumstances.
A trade secret continues for as long as the information is maintained as a trade secret. However, information may no longer be considered to be a trade secret once it becomes easily accessible, is no longer properly protected or has no commercial value.
The third bullet point above is most interesting as it requires the trade secret owner to take reasonable steps to keep it secret. This implies that a company must actively do something. Doing nothing is not acceptable. Organizations possessing trade secrets need to take reasonable efforts to protect these assets.
Reasonable Steps to Protect Trade Secrets
I would strongly argue that reasonable steps here consist of a combination of administrative, technical and legal measures.
Administrative Measures may include having robust trade secret policies and procedures in place. At a minimum, a reasonable policy should require that a company identify trade secret material as just that, with a big ‘Trade Secret’ stamp on the document itself. Then limit the number of people who have access to the trade secret. Educate the employees about the trade secret policy of the organization.
Technical Measures may include various access control and security measures to make it difficult for the trade secrets to be stolen. With the increase in cyber security threats, hacking, electronic espionage, malware, etc. trade secrets that are stored in electronic format must be properly protected.
Legal Measures may include special confidentiality agreements in place with those individuals given access to the trade secrets, non-compete clauses in their employment contracts (to the extent allowable in a given jurisdiction), and standard contract provisions with respect to trade secrets with third parties.
Best Practices in Protecting Trade Secrets
When considering what qualifies as reasonable, I suggest that companies should also look at best practices in this area. Best practice refers to commercial or professional procedures that are accepted or prescribed as being correct or most effective.
I accept that there is great variability from one company to another regarding how they manage their trade secrets. However best practice suggests:
- Assigning ownership of the trade secret management process to someone senior in the organization.
- Having a robust fit for purpose trade secret policy and associated procedures in place.
- Utilizing confidentiality agreements as these play an important role in protecting trade secrets.
- Having an awareness and education program to ensure that all employees are aware of this trade secret policy and associated procedures. This can be included within a broader intellectual property awareness and education program.
- Determining which types of information should be deemed as trade secrets within the organization, and the qualifying criteria.
- Identifying all of the trade secrets across the organization and mark these documents in the proper and professional manner. Of course this inventory of trade secrets will change over time as new trade secrets are identified and perhaps some older trade secrets no longer warrant being treated as such.
- Classifying these trade secrets in terms of the nature of the secret, the date created, responsible person(s), etc. etc. plus of course the value of the trade secret to the business.
- Determining the administrative, technical and legal measures that are needed to properly protect each trade secrets. The exact measures may differ from one trade secret to another.
- Ensuring fit for purpose access control measures are in place.
- Putting effective computer security measures in place.
- Having the appropriate physical security measures in place for the office and other business premises, to keep unauthorized persons out.
- Ensuring IP issues in general and trade secret issues specifically are addressed in both entry interviews of new employees and exit interviews of departing employees.
- Developing contract provisions and working mechanisms in relationships with outside business partners, including joint venture partners, to protect trade secrets.
- Conducting regular trade secret audits.
Hazel Helps Companies Identify Rank & Protect Their Trade Secrets
The Hazel Trade Secret Asset Management System may help your company manage its trade secrets and trade secret processes. Hazel can keep track of your corporate trade secrets and help you determine an appropriate level of protection for each trade secret recorded. Hazel can record who in your 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. Contact the Hazel Team today to learn more.
Caution by Penubag (Own work in Inkscape) [Public domain], via Wikimedia Commons
Judges by “Quiz” John Paget Mellor (1862-1929) – Published in Vanity Fair, 25 March 1893, as “Judges” Number 40.Downloaded from http://www.theakston-thomas.co.uk/acatalog/25031893%20An%20old%20fashioned%20judge.jpg, Public Domain, Link