Trade Secrets

Recent court cases have shown that one of the major weak areas of trade secrets law is combating the defense of “public information”, in other words when is a piece of information widely known in an industry.  This necessitates erring on the side of caution in having documentation in place to solidly prove the trade secret requirements of value and secrecy.  This is not so much as purely legal as it is good business management practices.  Trade secrets will be started with, as it is the most ongoing management intensive of the three protections of trade secret, copyright, and patent.  Keeping in mind the three basic requirements of trade secrets, being;  secrecy, value, and improper appropriation,  management focus should be on maintaining value and secrecy, and making sure that to obtain the information, potentially damaging competitors must inappropriately obtain it. 

 

Everything must be documented to possibly be presented as evidence later in litigation.  First to list the appropriate ways to obtain information so that a secrecy program can ensure that information that travels these routes in either going to the individuals who need to know and are under a confidentiality agreement themselves, or the information is not secret. 

1. Independent innovation.

2. Reverse Engineering with proper acquisition of the product.

3. Under compliance with a license.

4. Observation of the item in public use or display.

5. Observation of the item in published literature.

Secrecy can be broken down into security and confidentiality, security being the control of outsider invasion and access to the trade secret, and confidentiality, which is preventing insider disclosure, and misappropriation of trade secrets.  There are five general areas that security and confidentiality must be controlled to maintain the all important secrecy requirement of a trade secret; 

1. The trade secret itself.

2. Inside employees.

3. Outside visitors.

4. Any type of public publication disclosures by the company, for instance marketing and sales promotions.
   
   
5. Outside contractors,  vendors, consultants, licensee’s, financial partners, joint ventures, and various Government agencies, or any other entity that had official business with the company holding the trade secret. 

Note that these efforts must be reasonable in relation to the value of the trade secret, a company cannot make everything a trade secret, as if this were the case a company could not do business as there would be so much restriction of commercial activity that no profit could be made.  Courts have implied a reasonableness requirement between the value of the alleged trade secret and its expenditure of protective efforts to ascertain trade secret status. Of course a company should do this also as the maintenance of trade secret status is administratively burdensome, and if it is not worthwhile economically, the trade secret status of that particular item should be abandoned.  

 

1. The trade secret itself -
Must be identified as such in an intellectual property portfolio, and notice of trade secret status be given to all those who would  come in contact with the specified piece of information, not forgetting that many of those who come into contact with the trade secret are outside of the company.  Also all associated documents and mediums of communication that pertain to the trade secret must be identified as a trade secret. 

 

It is also a good idea to have notice posted on the information itself so that if the document does come into the hands of someone who does not have a need to know they at least have notice of the confidentiality.   Access to the trade secret must denied to all individuals and entities who have no need for the information in an official context, and giving to those individuals and entities who have an official need for the information access through keys, passwords, and separate facilities, the idea is to segregate the protected information. 

 

In addition, out of date discarded information must be disposed of - shredded, so as not to allow innocent acquiring of the protected information by outsiders from an open trash container.  Even those who have official business with and access to the information must be made aware of copying restrictions, and electronically saving the data on unauthorized computers that would cause uncontrolled information access.  There must have total control at all times over the trade secret and this especially means no unauthorized copying by anyone or electronic transmissions of the trade secret. 

 

2. Employee procedures -
All employees must execute a confidentiality and non-disclosure agreement and understand the implications of pre and post employment obligations on the part of themselves and the company.  The reasons for having 100% of the employee’s execute the agreement are several; in time it is not known with certainty which employee’s move into and out of inventive positions, thus everyone is covered with a confidentiality agreement, this also puts all the employee’s on notice of confidentiality issues as a non inventive employee could conceivably end up with confidential information and should be aware of its consequences. 

 

The other issue is the contract requirement of consideration, if all employees execute a confidentiality agreement there is no question that the confidentiality agreement is a condition of employment and that the consideration is their pay.  If only a portion of the employee’s execute, those employees who  execute the confidentiality agreement later could be entitled to additional consideration to validate the additional contract, as other non-executing employee’s have access to the same information without execution or change in consideration.   Other items the agreement must cover are the assignments of intellectual property rights, and non-solicitation agreements. 

 

At termination the employee must surrender all sensitive material and be on notice of the requirement of the non-disclosure of all trade secret information the former employee possess, note that information cannot even be disclosed even if just from memory only.  Note that in the absence of a confidentiality agreement if an employee is hired mainly for the purpose of his Inventorship and uses company facilities for research, then what is called “shop rights” exist that give the employer implied in law contract rights to the employee’s intellectual property created while employed.   However, the company only has a non-exclusive royalty free license (not ownership) to use the trade secret and the ex employee can also license the trade secret and bring misappropriation suits after termination.  

 

This is a risky way to operate, and it is always more prudent to have confidentiality agreements in place to minimize misunderstandings.     

The former employee’s new employer should also be put on notice that their new employee is under obligation not to disclose, and converse to this any new hires of the current company should be inquired as to their non-disclosure obligations to former employers. 

 

3. Visitor procedures -
Visitors must sign in, not be allowed to wander alone, have identifying badges, and if they need access to sensitive information, sign confidentiality agreements. 

 

4. Public publication disclosures - marketing and sales promotion -
A review of all releases to the public should be made by persons competent in trade secret law.  If sensitive information must be disclosed the proper proprietary notices shall be given in the document. 

 

5. Outside entities with official business with the company -
Much the same treatment as employees, as these are outsiders who act as employee’s by having official access to sensitive information thus creating the requirement of confidentiality agreements to be executed. 

 

 

The Intellectual Property Portfolio

 

What does an Intellectual Property (IP) Portfolio Contain?

(Note that this list is by no means exhaustive of what could be included in an intellectual property portfolio, it is given as an example of what types of information that an intellectual property portfolio contains)

 

Use this checklist as a starting point for the information in your IP portfolio.

 

Creating and acquiring Patents, Copyrights, Trademarks, Trade Secrets, Trade Dress, Licenses, and Confidentiality Agreements  are only a start; remember that your intellectual property assets require continuous  management to be optimized for the long term. 

           

A.) A listing of all current IP assets with information on:

1. Terms and expiration dates.

2. Geographical coverage.

 

3. An ongoing assessment of current legal and commercial strengths of all IP assets.

 

4. Current status of licensing, assignment, and pending sale issues.

 

5. Current status of pending litigation, applications, disclosures, and opinions.

 

6. Infringement policing activities, and pending oppositions against outsiders.

 

7. Product notices being in place.

 

8. Watch of 3rd party’s issuing of patents in your field of technology.

 

 

B.) Trade Secrets control procedure that includes:

 

1. Proprietary information is identified and classified.

 

2. Security measures to control access to proprietary information.

 

3. Confidentiality agreements are executed and secured in a safe place.

 

4. Document notices in place for trade secrets.

 

5. Employee training, and responsibilities defined to monitor all information flow in and out of your company.

 

6. Monitoring your possible infringement against others.

 

7. Proper documentation of your firm’s creative activity.

 

8. Managing the “transformation of technology” from the conception of an idea, to prototyping, to commercialization, while at the same time protecting the technology with the appropriate intellectual property rights as the idea requires different forms of legal protection.  

 

 

C.) Appointing an employee of your company to be an IP liaison individual to become your in-house focal point for IP issues who does the following tasks:

 

1. Who has extensive product and process knowledge of your company and can be trusted with confidential information.

 

2. Who provides on-going day-to-day support and training for your employees, vendors, and contractors for IP awareness.

 

3. Who monitors compliance with IP related procedures, tracks confidentiality agreements, and answers questions.

 

4. Who maintains control of your IP portfolio for changes in technology, business plans, strategies, and the law. 

 

5. Who is the contact point for your IP attorney and makes the attorney aware of significant IP issues. 

 

6. Who creates an IP budget, defining IP costs, performing financial analysis to maximize value in your IP protection for money spent.

 

7. Who assists in decisions concerning additions and removals from the IP portfolio.

 

8. Who initiates policies to stimulate the “mining” of intellectual property from employees to convert these employee innovations into protected intellectual property that can be assessed for its commercial potential and to facilitate the commercialization process. 

 

9. Who initiates the process for various forms of legal protection for assets in the portfolio depending upon their commercial potential and their fit into the overall business plan.

 

10. Who initiates a system to organize all of a companies intellectual property to minimize the “reinvent the wheel” syndrome, in other words an organized and indexed storage and retrieval system for employees and others to re-use information that has been developed. 

 

11. Who develops a system to constantly evaluate licensing revenue, cross licensing, selling, donating, and collateralizing opportunities for all the assets of the IP portfolio.          

These items create a useful business planning and valuation tool while providing documentation for future IP related issues to help your business grow and prosper for the future.