Trade Secrets protect business know-how.
Trade Secret Basics
- What is a trade secret?
A trade secret may consist of any formula, pattern, device or compilation of information, which is used in one’s business and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.
- What do trade secrets protect?
Trade secrets protect the unique way a business does things and gives the business an edge over the competition, because no one else knows about it. Trade secrets may be your:
- “secret sauce” or recipe, like the world’s most famous trade secret, the formula for Coca-Cola;
- special manufacturing process, like how long you heat that recipe for or a method for fast drying a product that allows you to move product through the manufacturing process faster;
- proprietary information that every business has, like a list of customers and all the data you collect about them or your special pricing formulas;
- inventions before you file for a patent are trade secrets.
- How do I register for trade secret protection?
There is no registration process for trade secrets. Unlike copyrights, trademarks and patents, the person, business, or entity with the trade secret must keep them secret.
- How long does a trade secret last?
If you protect your trade secrets properly, they can last forever, making them very valuable. For example, the formula for making COKE soda has been protected as a trade secret for over 100 years. If the Coca-Cola Company had patented the formula, the patent would be long expired and, thus, free for anyone to copy today
- Where can I use my trade secret?
Trade secret law exists here in the United States. It does not exist everywhere in the world. If you choose to deal with overseas suppliers, manufacturers, etc. you should hire a lawyer from that country to represent you. With that said, DO NOT RELY ON THE COUNSEL OF THE COMPANY YOU ARE NEGOTIATING WITH. Hire your own attorney.
The Trade Secret Process
How to Protect Trade Secrets
In order for something to be considered a trade secret, it must be a secret and you have to continuously keep it secret. If it is common knowledge in the industry, it is not a trade secret. If every employee in your business knows about it, it might not be a trade secret, depending on how big your business is.
If you have a trade secret, protecting the secret is as important as anything else you do in your business. Trade secrets do not protect themselves. You have to actively protect your trade secret.
When taking steps to protect your trade secrets, consideration should be given to the following:
- Trade secrets must be identified. Not everything in your business is a trade secret. Trade secrets are specific. You have to be able to point them out, and say this is a trade secret and this is not.
- You may need to limit employee access to trade secrets. Only those who need to know the secret should be told. The baristas at Starbucks do not know why prices are set the way they are. They make coffee, and they do not need to know the pricing structure that determined why a vente decaf mocha is $5. Think about how this applies in your own business. Your employees do not all need to know everything.
- If you know you have trade secrets in your business, you should consider placing controls on visitors to your workplace. You may need to track them when they are in the building by having them sign-in and out or by givingive them a special visitor’s badge or accompanying them to the conference room or your office. You should consider whether you can reasonably limit their access to sensitive areas of the building (like a laboratory or the manufacturing floor.)
- Educate your employees. Education is a key to intellectual property success in general.
- If your business invents things and/or has trade secrets, it is important to have confidentiality agreements, written intellectual property policies, and internal procedures for all employees.
- Lastly, if you have to disclose your trade secret to a third party, for example, if you are hiring a company to manufacture your product for you and you need to give over the “secret sauce,” consider having a written confidentiality agreement of indefinite length. Confidentiality agreements should be signed BEFORE ANY disclosure of confidential information including trade secrets. No information should change hands before a written agreement is signed.
A Couple of Important Things to Know About Trade Secrets
1. The Risks of Keeping a Trade Secret
By choosing to keep something a trade secret, you are essentially foregoing the right to file for patent protection. This decision comes with a certain amount of risk. Patents give you a limited monopoly. You can stop other people from making, using, or selling your patented invention.
That is not the case with trade secrets. If someone else legitimately discovers and uses your secret, you cannot stop them.
What is considered legitimate discovery?
- Independent invention: If people are out there working on the same problem and they come up with the same solution as you do, with no help from you or your employees, etc., they can use it.
- Legitimate reverse engineering.
- Disclosure by employees of trade secret owner or authorized third parties who are not under a duty of confidentiality. If you do not take the precautions discussed earlier, then there is very little to stop your employees from sharing your trade secrets.
Your employees are the biggest risk when it comes to trade secrets.
Employees talk. The talk can be innocent. They talk to their friends and family. They talk to someone they meet at the bar on a business trip. It is not uncommon for employees to give over trade secrets in exchange for a job, or personal gain, or to get back at the company.
The task of policing your trade secrets is harder with the advancement of technology and the Internet. In the past employees had to photocopy documents and sneak them out of the building, but today anyone with an Internet connection can send and receive stolen information. It really highlights the need for updated confidentiality agreements and social media policies.
2. Trade Secret Theft and Industrial Espionage
Another area of trade secret loss that is becoming increasingly common is outright theft. Foreign governments and foreign companies are waging war against U.S. business. In fact, some foreign governments have been know to actually send their citizens to work in the United States for the express purpose of learning the trade secrets of American companies and passing them over to the foreign government.
It is known as “industrial espionage” and it is so common that the United States government actually has declared it a matter of national security. Over a billion dollars in revenue is lost every month to trade secret theft.
Why do they do this? For many foreign companies, it is cheaper and easier to steal your technology than it is to develop it on their own. Their governments often help them steal what they need.
What are the thieves looking for? The thieves are looking for technology, pricing, and data.
The most highly sought-after technology is computer (both hardware and software), biotech and pharmaceuticals, aerospace, and lasers and optics technology. Of course, anything related to defense is a high-profile target as well.
Small technology start-ups are great targets for theft. They typically do not have sophisticated Intellectual Property protection in place, they are willing to talk to anyone who will listen, and they are looking for funding so they will disclose a lot with the hope of getting money. Academic institutions are also a popular target because of lax Intellectual Property policies and security.
Unfortunately, even the big guys can have serious trade secret problems.
Here are just a few examples.
- An employee for Sanofi Aventis just received prison time for stealing compounds that she was working on and other she had access to through her job as a research scientists. She stole over 100,000 compounds and gave them to a Chinese company that she was part owner in.
- An employee in the finance department of Akamai who also is currently serving jail time, contacted the consulate of a foreign government and offered to pass along trade secrets and confidential information to help his homeland. In this case the consulate got the FBI involved and he was caught.
- An Intel design engineer stole trade secrets from Intel so that he could use them in his new job at AMD, Intel’s chief competitor. He also is serving jail time.
Trade secret theft is a real crime. In each of the above cases, the perpetrator is serving jail time in a real Federal prison.
Unfortunately, trade secrets are the most ignored form of intellectual property. Most companies are simply unaware that trade secret theft is so prevalent. It is just not how most Americans do business. In fact, Americans often have a hard time grasping the concept of industrial espionage in general.
As always, knowledge is the first step to taking positive action. So, now that you know this activity happens, be proactive.
Take a look at your business (or at your clients).
- Are you in a target market?
- Do you have security measures in place to combat the theft of your intellectual property?
- Where is there room for improvement?
If you have questions, consider hiring an intellectual property attorney to help you identify your trade secrets and put the systems and procedures in place to help protect them.