What are Trade Secrets?

August 22, 2013
Categories: Trade Secret Theft

Continuing our series on intellectual property (IP), in this post we discuss trade secrets.

Trade Secrets are a form of intellectual property which unlike design rights, patents, copyrights and trademarks, are not publicly registered. Trade secrets include confidential technical or business information that is commercially valuable and subjected to reasonable steps to maintain secrecy.

There are many types of trade secrets among different companies and industries. For example:

  • The confidential design of a unique product (e.g., a highly efficient racing tire);
  • The inner workings of a technical system (e.g., an electronics or software product, or online service); or
  • Proprietary business information or know-how (e.g., customer lists, financial data, or new and better ways of manufacturing).

Trade secrets provide companies with competitive product and business advantages because they consist of the company’s proprietary information which is not shared with people outside the company. This type of intellectual property can represent a company’s “crown jewels.”

Companies spend time and resources on research and development to create proprietary information. If trade secrets are not protected, companies risk a tremendous loss of assets to another company and potentially an industry that did not utilize their resources to develop this information.

A European survey by the Trade Secrets and Innovation Coalition found that 91% of surveyed companies had at least one theft or unauthorized disclosure of trade secrets within the past 7 years. In 44% of such cases, the information was believed to have been used to produce a competing product.

The risks of trade secret theft include lost business; loss of competitive advantage and business value; legal claims, damages, and injunctions; and conflicts of interest and compromising of employees and suppliers.

Case in point: Recently Heraeus, a German-headquartered technology company, obtained a $500,000 judgment against a former employee in its North America branch who downloaded hundreds of company trade secrets before resigning from the company. A more staggering example: a former Ford Motor Co. engineer copied 4,000 Ford documents onto an external hard drive and went to work for a competitor. Ford estimated that it suffered more than $50 million in losses.

Although governments are stepping up available remedies for trade secret theft, companies should have procedures in place to protect their trade secrets to avoid court proceedings. Recommended actions include:

  • Robust management of confidential information and physical and IT security, such as “need to know” disclosure, segregation of secret information, and robust physical and IT security standards.
  • Adequate contracts with employees and suppliers—internally and among business partners, which extend to all relevant personnel, require confidentiality, and provide workable redress.
  • Ongoing risk assessment and monitoring, in order to make sure policies and procedures are followed, security is maintained, and trade secrets are not turning up or used elsewhere.

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