Blockchain and Trade Secrets: an interesting combination, surely, but how do they fit? It is worth to mention that know-how and trade secrets are among those intangible assets which have historically been difficult to protect for companies, as they do not fall under the scope of the more classical intellectual property rights, by nature (actually, by law) easier to protect or to enforce. The most frequent and recurrent example of a trade secret is the Coca-Cola recipe, kept secret for generations of CEOs, and apparently often changed, as the rumours whisper. This example shows the importance of trade secrets and the investments that companies make in order to protect such valuable information.
The problem of trade secrets lies in time. As much as it may sound like a philosophical sentence, it is actually true. Trade secret holders, in fact, are most affected by the lack of evidentiary documentation, able to clearly establish a specific date of creation and ownership of a particular document. Of course, the traditional notarial system is a perfectly viable way, as it effectively and legally accredits possession of specific documentation and is legally binding, although it may result to be extremely expensive and time consuming as well as not flexible as notaries require physical presence, which in these uncertain times of Covid-19, can indeed represent a hurdle in securing evidence.
In order to better understand the problem and how blockchain may be a useful tool to this purpose, it is necessary to take a step back.
To get started with, a trade secret, in order to be considered as such, must meet three requirements, according to TRIPS. Under art. 39.2 TRIPS: (a) not generally known or readily accessible to the people who deal with such kind of information, (b) be commercially valuable and, finally, (c) it has to be kept secret.
The EU Trade Secrets Directive adopted on 9 June 2018, lays down the definitions and minimum requirements for trade secrets and know-how protection in the various Member States of the European Union. According to Article 1, the Directive not only provides minimum standards for trade secret protection across Europe but also allows the Member States to provide for "more far-reaching protection against the unlawful acquisition, use or disclosure of trade secrets than [required under the] Directive".
The first recital of the directive states that businesses significantly invest in "acquiring, developing and applying know-how and information, which is the currency of the knowledge economy and provides a competitive advantage". Some of that information may be the object of intellectual property protection (i.e. patents, design rights, copyright), although other kinds of information do not meet the minimum requirements for such protection, risking therefore the unlawful acquisition or disclosure to competitors and third parties which may result in substantial damage, due to the fact that the trade secret holder, once the disclosure has taken public effect, cannot revert the situation to before the loss of the trade secret (recital 26).
In other words, Trade secrets are an alternate way to appropriate the results of innovation thereby protecting "access to, and exploit, knowledge that is valuable to the entity and not widely known" (1st recital). The requirements for the existence of a trade secret are outlined in article 2, paragraph one, of the directive (identically transposed text from the TRIPS article 39.2):
- it is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
- it has commercial value because it is secret;
- it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret;
In light of the above-stated, notwithstanding the fact that the Trade Secrets Directive (TSD) represents a fine piece of legislation, the TSD does not provide guidance on how shall a trade secret be stored, therefore leaving to the discretionary power of the courts to determine whether the trade secret holder has effectively undertaken all the necessary steps in order to keep the information secret.
Pragmatically, the hardest part of a trade secret lies in this last requirement, which means, on one hand, to take all the reasonable steps to protect it and, at the same time, needs solid proof of its existence and creation. Such combination of factors is not particularly easy to find. The real question here is what are the "reasonable steps" and how does a trade secret holder keep his/her information safe but, at the same time, accessible and tangible in order to enforce it? It is clear that a Court would need to have at hand various elements in order to determine the ownership and its potential infringement, such as: (i) a description of the trade secret in order to verify whether it meets the minimum requirements, (ii) the moment of its creation, in order to determine the ownership and the chronological creation/existence, and (iii) the guarantee that such a piece of information has been kept secure by the holder (i.e. not disclosed).
Bearing in mind that the "safe storage" of trade secrets is not a requirement under the Trade Secrets Directive as such, a practical solution to what has been outlined in the earlier paragraph may lie in the adoption of blockchain, a third party neutral network which gives the possibility to safely store value through cryptography. In fact, through the use of blockchain in its time-stamping application, trade secret holders would have the opportunity to upload documents which may describe the desired information to protect (i.e. early notes, further details, recipes, processes, etc.) and, thanks to the so-called "zero-knowledge technology", such information will have been certified in time but never disclosed, not even to the blockchain provider, who encrypted a digital fingerprint of the trade secret onto the blockchain. To better explain it, what is meant when a document is "uploaded" the blockchain is that the blockchain, by being a list of records, simply tracks the creation of a transaction and generates an ID corresponding to the transaction itself. This ID will be the proof that at a certain moment in time value has been uploaded on the blockchain. The uploading and the creation of certificates, or tailor-made evidentiary proof is realized by providers who have created ad hoc API (Application Programming Interfaces) solutions that connect the trade secret holder with the blockchain and allows him/her to have an intelligible proof of ownership, which may be used for enforcement. Therefore, in this context, blockchain allows trade secret holders to avoid the burden of both keeping it safe at all times and dread to lose such documents, as well as providing a time seal, a certificate of ownership, all of that in guaranteed environment such as blockchain, incorruptible, safe and immutable.
Many of the readers may now wonder how can the blockchain actually 'fit' into the trade secret context, how can it help to comply with the definitions and requirements laid down by the directive. The answer lies in article 2(1)(c): the reasonable steps that have to be taken by the holder in order to keep the trade secret safely stored. In fact, the blockchain permits to secure commercially valuable information on a private network through encryption, which would allow the trade secret holder to comply with the requirement set forth by the aforementioned article 2(1)(c) of the Directive.
Thus, blockchain may be indeed a measure through which one could secure a trade secret. Nowadays, there are already providers offering such kind of service, i.e. a blockchain-based service which allows holders to upload the trade secret confidentially on the blockchain, issuing a certificate to the owner that indicates that said document, accessible at all times, was uploaded (hence proof of ownership) on a certain date.
Indeed, the Blockchain is not the only solution, but may only be one among the possible solutions to many IP-related issues, one of them being the delicate protection of trade secrets and know-how. These are of vital importance for companies, which invest hugely in its development and subsequent protection.
To conclude, notwithstanding the fact that Trade Secrets holder may still live without the use and implementation of the blockchain, it actually provides for a secure, fast, time-stamped proof of when the trade secret was created and what is the object of such protection.
Moreover, blockchain-based evidence would be easily enforceable before Courts, as they would provide for a time-stamped, secured evidence on a cryptographic incorruptible platform.
In fact, the "traditional" storage of a trade secret or know-how in a safe place (i.e. in banks, home safes, etc.) still represents an act compliant with the new Trade Secrets Directive. Having said that, the burden of the proof is on the Trade Secret holder, as it is up to him/her to prove the chronological origin and validity of such documents. As stated before, the notary is still the most secure "tool" for holders, although undoubtedly the most expensive one too.
Can the Blockchain solve the long-lasting issue of time-sealing trade secrets and know-how and, at the same time, be compliant with the law? We have to wait and see whether and when blockchain-based evidence will be accepted before the Courts across the EU Member States. In the meantime, as the EUIPN (European Union Intellectual Property Network) has announced in its CP12 paper on Evidence of use in Trade Mark Appeal Proceedings (https://bit.ly/3gzBYLi), time-stamped evidence based on blockchain is recommended and may be considered as valid.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.