Legal IQ interview about trade secrets

IP World Summit 2017Bart GODDYN was interviewed by Legal IQ (a division of IQPC) about trade secrets and the new European Trade Secrets Directive. Below is the transcript of the interview.

Bart will be speaking about this topic at the IP World Summit in Amsterdam on the 25-27 of September 2017. Check out the agenda for more information: https://ipworldsummit.iqpc.com.

 

Firstly, could you summarise what a trade secret is and why someone would choose to rely on one?

The (legal) definition of a trade secret varies by jurisdiction but there are three elements that are common to any such definition. A trade secret is information that (i) is secret in the sense that it is not generally known; (ii) has commercial value because it is a secret; and (iii) has been subject to reasonable efforts to keep it secret.

One reason why someone would choose to rely on a trade secret is that trade secret protection can, in principle, extend indefinitely. This provides an advantage over protection of registered intellectual property rights which last only for a specific duration.

Other reasons are that trade secret protection does not require compliance with formalities such as disclosure of the secret information to a government authority and that trade secret protection involves no registration cost (although there may be high costs related to keeping the information secret).

What would you say are the key pitfalls of relying on a trade secret?

A key pitfall of relying on a trade secret is that a third party may be able to legally discover the secret, such as through reverse engineering, and be thereafter entitled to use it. Also, such third party may choose to obtain patent protection for the discovered information (should he not disclose the discovered information to the public). This could give the third party a stronger position because a trade secret can be more difficult to enforce than a patent.

Another key pitfall is that a company may be relying on a trade secret without realizing that careful and constant protection of the secret information is needed to preserve secrecy in the first place. Without reasonable efforts to keep the information secret (the so-called “reasonable steps”), such company will lose the benefits of trade secret protection.

How are trade secrets documented?

There are no formal requirements for documenting trade secrets. Trade secrets can be all forms and types of information, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing.

In practice, trade secrets can be documented via a number of different methods (and depending on the type of trade secret). This could include using and maintaining laboratory notebooks, invention disclosure forms, change logs, etc.

In the current environment how are IP leaders ensuring that trade secrets are maintained or what steps should they be taking?

This is about the requirement of “reasonable steps” to which I referred as one of the three common elements of the definition of a trade secret at the beginning of this interview.

Taking “reasonable steps” is necessary for confidential and proprietary information to qualify for legal protection under the controlling 1996 World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (known as “TRIPs”), under U.S. state and federal legislation, under the new EU Trade Secrets Directive, and under the laws of many countries. Indeed, the owner (or other controller) of the secret information must undertake “reasonable steps” to keep his information secret.

So, what are these steps? There is a variety of measures that companies can put in place to protect their trade secrets, and that courts have examined and mentioned as “reasonable steps”. These measures range from assessments (of what is valuable for the company), policies, procedures, agreements and other records needed to establish and document protection; to physical and electronic security and confidentiality measures; to risk-assessment efforts to identify and prioritize trade secret risks; to due diligence and other ongoing third party management; to management oversight and coordination, employee and business partner awareness, training, monitoring and measurement, and corrective actions and improvements.

I would like to shed some light on one of these measures, namely on confidentiality agreements. Trade secrets must not be disclosed to third parties unless such third parties sign an appropriate confidentiality agreement (or other agreement containing sufficient confidentiality obligations to protect the company). Such agreements should be prepared and/or approved by legal counsel. A confidentiality agreement is probably the most underestimated type of agreement. It is, for example, sometimes wrongly perceived as something easy, as a “simple, standard, straightforward formality” that facilitates confidential discussions between parties. Such perception may be particularly worrying in an R&D or Business Development environment because employees of these departments typically have an instrumental role in protecting their company’s confidential and proprietary information (and more generally their company’s intellectual property) and should realize that the absence of an effective confidentiality agreement (or the improper or ineffective use thereof) can result in disqualification from patent eligibility for the company disclosing its confidential information. Also, ineffective confidentiality agreements can inspire a receiving party to appropriate the disclosing company’s valuable information for other purposes than the ones agreed. Finally, note that courts have repeatedly reiterated that the use of confidential disclosure agreements is the most important way to maintain the secrecy of confidential information.

What can you tell us about the trade secret route under the new European Directive?

The trade secret legislation across the EU varies greatly. The different national rules are often outdated and have important gaps and shortcomings. The Trade Secrets Directive (“Directive”) was adopted on 8 June 2016 by the European Parliament and the European Council, following a proposal from the European Commission. The Directive aims to standardize the national laws in the countries of the European Union (“EU”) against the unlawful acquisition, disclosure and use of trade secrets.

The Directive harmonises the definition of trade secrets in accordance with existing internationally binding standards (e.g., the 1996 World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights, known as TRIPs). The definition of the Directive contains the three common elements I already mentioned: a trade secret is information that (i) is secret in the sense that it is not generally known; (ii) has commercial value because it is a secret; and (iii) has been subject to reasonable efforts to keep it secret.

The Directive also defines the relevant forms of misappropriation and clarifies that reverse engineering and parallel innovation must be guaranteed, given that trade secrets are not a form of exclusive intellectual property right.

The Directive harmonizes the civil means through which victims of trade secret misappropriation can seek protection, such as: (i) stopping the unlawful use and further disclosure of misappropriated trade secrets; (ii) the removal from the market of goods that have been manufactured on the basis of a trade secret that has been illegally acquired; and (iii) the right to compensation for the damages caused by the unlawful use or disclosure of the misappropriated trade secret.

EU countries must implement the laws and administrative provisions necessary to comply with the Directive by 9 June 2018.

How seriously are people taking the changes to the framework in Europe?

They do take it seriously. Companies, inventors, researchers and creators will be put on equal footing throughout the EU. The Directive offers Member States a common, clear and balanced legal framework which is meant to discourage unfair competition, facilitate collaborative innovation and the sharing of valuable know-how. The Directive is said to make the EU a stronger and more competitive economic region.

What practical steps are people taking to plan for the new framework?

I do not think the new legal framework as such requires people to plan or to take practical steps just because of the new Directive. The requirement to protect confidential and proprietary information to qualify for legal protection as trade secrets is older than the Directive (see TRIPs and certain national laws).

But trade secrets continue to become more important for companies. The need for companies to take effective measures to protect trade secrets internally and with their business partners is becoming a more pressing need in order for companies to preserve their assets, business, value and competitiveness.

As for the effect of the Directive, I suggest to keep an eye on how EU countries implement the laws and administrative provisions necessary to comply with the Directive by 9 June 2018.

 

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