Trade secrets: can you keep a secret?

Whilst the IP world waits with bated breath for further progress on the Unified Patent Court, in another corner of Brussels, steps are being taken to boost an alternative and often overlooked form of protection: trade secrets. At the end of November 2013, the European Commission published a proposal for a new directive for the protection of trade secrets, which seeks to harmonise national laws by providing a uniform definition of a “trade secret”, as well as new common measures and remedies for trade secret misuse. It is hoped that the new directive would make it easier for national courts within the EU to deal with trade secret cases and for victims of trade secret theft to receive damages.

The new proposal was put together following an in-depth evaluation of the protection of trade secrets in the EU Member States. According to the Commission, as many as 1 in 5 companies has suffered an attempt to steal its trade secrets within the last 10 years and this number is apparently growing, not least because of the increasing use of digital technologies. At present, however, there is no unified EU system for the protection of trade secrets and whilst some EU states provide specific trade secret legislation, many states (such as the UK) do not. The proposal has therefore been generally welcomed across the business world and it is hoped that harmonisation will be particularly beneficial for SMEs, for whom the cost and resources needed to obtain and enforce patents may be prohibitive. If adopted, the new rules could enter into force by the end of 2014.

Trade secrets are a form of protection that is often overlooked by businesses in favour of other more ‘tangible’ IP rights, such as patents. However, trade secrets can be valuable business assets and offer a useful tool in the IP arsenal of a business, to protect commercially important information that may otherwise fall through the gaps between patent and copyright protection.

What Is A Trade Secret?

A trade secret can be any business information that is commercially valuable and that is guarded by confidentiality measures in order to obtain a competitive advantage. Trade secrets can potentially be used for a very wide variety of information. A trade secret may be technical in nature, such as a new process or recipe, or more commercial in nature, such as a customer list or marketing information.

When Might A Trade Secret Be Useful Instead Of A Patent?

A trade secret may be useful in the protection of an ‘invention’ or know-how that is unpatentable, for example, because it is not sufficiently technical, or would not be considered to be inventive. Examples include a formula or recipe, an optimised manufacturing process, a computer algorithm and technical know how. A trade secret may also be useful to protect an invention that has a short commercial lifetime, which may be shorter than the time required to obtain patent protection.

What Are The Potential Advantages Of Trade Secrets vs Patents?

• No registration costs and protection is immediate. This makes the use of trade secrets particularly attractive for SMEs, who may have limited resources for seeking patent protection. Patents, in contrast, are relatively expensive and typically take several years to obtain.
• Not limited in time and can provide protection indefinitely, so long as the secret is not disclosed. Patents provide protection for a maximum of 20 years.
• Provide protection for valuable ‘inventions’ and know-how that are unlikely to be protectable by patents or copyright.

And The Potential Disadvantages?

• Trade secrets are unregistered. The scope of protection can therefore be difficult to define.
• The protection from trade secrets is non-exclusive (unlike patents and other IP) so anyone who comes up with the same information independently or through reverse engineering is free to use it.
• Trade secrets are currently difficult to enforce, although this would hopefully be improved if the proposed EU directive comes into force.
• Maintaining the confidentiality of a trade secret may be difficult (and potentially expensive). It can be difficult to control the spread of information, in particular where third parties are involved.
• Maintaining trade secrets often relies heavily on employee loyalty. Movement of employees between competitors increases the risk of the secret being disclosed.
• Once the trade secret becomes public, even if through a breach of contract, there is no way of preventing its use by third parties.

What Should I Do To Protect My Trade Secrets?

As the name suggests, an essential criteria for a trade secret is that the information can be (and is) kept secret! It is therefore important to take the necessary steps to retain the confidential nature of the information. These steps may include: identifying and cataloguing trade secrets, limiting access to secret information to those employees who need it, securing documents (e.g. with encryption or passwords), using confidentiality agreements with third parties, including confidentiality clauses in employment contracts and educating employees on their confidentiality obligations.

If you would like more information about how to protect your trade secrets, please contact us.

This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking before any action in reliance on it.