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In the second article of our new series, we explain how trade secrets can be safeguarded to prevent misappropriation or unauthorised publication
Our first article in this series: Unlocking competitive advantage: The strategic role of trade secrets in IP protection, set out the broad requirements for information to qualify as a trade secret, as well as jurisdiction specific summaries. We noted the flexibility of trade secrets, leading to their strategic importance as company assets. In this article, we look at how trade secrets can be protected to prevent misappropriation or unauthorised publication, and how to detect any misappropriation.
Protection as a necessary element of a Trade Secret
For information to be classed as a trade secret, all jurisdictions require proof of confidentiality or secrecy. As we noted in our first article, there is a requirement for a trade secret to have commercial value and a necessary quality of confidence. However, there is a further requirement which requires a trade secret owner asserting their rights to show not only that the information is, as a matter of fact, confidential (or was until the act of alleged misappropriation or breach), but also that steps have been taken to keep their trade secrets confidential. TRIPS Article 39 (2) requires that a Trade Secret must have been "subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret."
This requirement applies in all TRIPS signatory countries. It has been adopted in statutory form by both the US in the Uniform Trade Secrets Act, and under the EU Trade Secrets Directive 2016/943 (and was implemented into UK law prior to Brexit). In other jurisdictions such as Australia, where there is no adoption of a statutory definition, by virtue of their signature of TRIPS, the need to show steps taken to protect the confidential information is likely to apply as part of indicating "the necessary quality of confidence" to obtain equitable protection for trade secrets. Of course, meeting this requirement is also a key part of preventing misappropriation of trade secrets.
Preventing Misappropriation
What amounts to reasonable steps to protect trade secrets?
The TRIPS definition recognises that to preserve the flexibility of trade secrets, the reasonable steps will vary "under the circumstances". For example, keeping computer code confidential is going to require a different approach to keeping a recipe for a product confidential.
This flexibility means that each case will be fact and context dependent as to what amounts to reasonable steps. There may be variation from jurisdiction to jurisdiction as to how this requirement is interpreted. However, there are some general principles that should be considered. For example, the steps which would be expected to be taken to protect trade secrets may reflect the value of the trade secret itself – so the steps considered reasonable to protect a very valuable trade secret may be more extensive than for a less valuable trade secret. Commercial considerations are also relevant, so a start-up company may have fewer resources to devote to protecting its trade secrets than a large established corporation, so less exhaustive steps may be considered reasonable. Absolute inaccessibility is not required for information to qualify as a trade secret. Instead, the focus is on whether access to the trade secret is sufficiently difficult to obtain – for example, whether it requires a non-ordinary effort – such that the protective measures can be considered reasonable under the circumstances.
A further general principle is that a trade secret can be shared with others as long as in doing so, secrecy and confidentiality is retained as against the wider world and the trade secret does not become generally known or accessible. Access to trade secrets should be granted to third parties strictly on a need-to-know basis and be subject to undertakings to maintain the confidentiality. In many cases, the sharing with others while maintaining secrecy is managed through the use of contractual provisions on confidentiality. These provisions will generally identify the trade secret broadly and then place restrictions, for example, on further disclosure without consent. However, jurisdictions can vary in their approach to the effectiveness of such contractual clauses. Some may consider these clauses sufficient on their own, while others may require additional practical measures, such as marking the documents or files handed over or the use of encryption where the information is especially sensitive. It is therefore advisable for trade secret owners to ensure they are aware of any specific rulings in their jurisdiction to guide their interpretation of what amounts to reasonable steps in the circumstances to protect their trade secrets.
Owners of trade secrets should consider a range of reasonable and cost-effective steps to protect their trade secrets before any misappropriation or leakage of information into the public domain occurs.
Protecting trade secrets can be limited by other rights
In considering which steps to take, trade secret owners should be aware that asserting and protecting secrecy does not take precedence over all other types of legal rights. The TRIPS agreement provides for certain exceptions to protection for trade secrets, including exclusions for public interest and national security. Further, asserting confidentiality in a trade secret will not be sufficient to stop employees from disclosing misconduct or wrongdoing. For example, in the EU Directive, the need to protect the rights of whistleblowers is expressly acknowledged and confidentiality requirements cannot be used as a restraint on disclosure. Similarly, the need for secrecy will not be allowed to undermine employee rights to data protection.
Different steps which trade secrets owners can consider for their specific circumstances to prevent misappropriation include:
Identification
Description: Clear identification of materials containing trade secrets
Examples/Methods:
- Cataloguing
- Use of central registers
- Labelling ("strictly private and confidential" and/or IP notice and/or restrictions on reproduction/distribution)
- Version control
- Numbering and tracking physical copies tied to specific recipients
Physical Protection
Description: Physically restrict access to material and opportunity to misappropriate
Examples/Methods:
- Hold master materials in vaults
- Restrict access to areas in factories/facilities where trade secrets are in use/visible
- Limiting circulation of confidential material (in both hard copy and electronic)
- Allow inspection or review only in a controlled environment when disclosing to third parties
Electronic Protection
Description: Deploy electronic protections and restrictions
Examples/Methods:
- Restrict access on "need to know" basis
- Use network segmentation to prevent general access
- Ensure appropriate electronic protections such as passwords or encryption and ensure password cycling
- Use appropriate restrictions on printing/copying/sharing/downloading, electronic watermarks
- Restriction access to AI/generative AI systems
- Enforcing employee/end of contract exit procedures with return of materials and/or ensure access blocked
Monitoring
Description: Monitor access to show reasonable steps taken
Examples/Methods:
- Traditional access monitoring such as sign in/out of key locations or files
- Monitoring using cameras or electronic session monitoring for software tools
- Automated auditing tools
- Reviewing and retaining logs
- Monitoring employee activities/emails (however consider data protection/privacy law/specific rules for the protection of employees for all monitoring)
Contractual Protection
Description: Confidentiality provisions in contracts
Examples/Methods:
- Confidentiality restrictions in employment contracts and contractor agreements.
- Consider use of non-compete provisions where possible
- Use of non-disclosure agreements, confidentiality
- Appropriate confidentiality clauses in commercial agreements
- All of the above backed by a confidentiality policy
Education
Description: Educate staff and partners on value and protection of trade secrets
Examples/Methods:
- Regular training sessions as appropriate to organisation/type of trade secret
- Reinforce with employment/confidentiality policies
- Use entry/exit interviews to ensure education of key employees, especially those in-bound/out-bound to competitors
Detecting Misappropriation
Embedding a culture of respect for trade secrets as a valuable asset of the business not only demonstrates that the business has taken reasonable steps to protect its trade secrets, but it will also raise vigilance in the workplace, which will in turn assist in detecting misappropriation.
The misappropriation of trade secrets has evolved significantly over recent years. The growth of technology, the use of own devices, and the expansion of the work from home culture have all increased the risk of leakage of trade secrets from within an organisation. Ever increasingly sophisticated hacks and cyber breaches have also raised the threat from those external to an organisation.
How do organisations detect misappropriation?
The following methods can be useful to help detect misappropriation, but often detection only comes when a competitor's activities appear suspicious.
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One of the key issues with detecting misappropriation is how and when to act. Generally, these decisions become easier with more information about what might have been misappropriated and when. The first stage following awareness of any possible misappropriation or leak should be a review of the protections in place to determine which may have been breached, by whom and when, and exactly what may have been lost.
Conclusion
Taking the time to implement practical protections around your trade secrets has a three-fold benefit:
- it ensures that an owner can meet the requirement of having taken reasonable steps to protect their trade secrets;
- it provides actual protection to a valuable company asset; and
- in the event of a suspected breach, it will help in providing valuable information to assist in enforcement.
Read the next article in this Hidden Value series, where we will explore Trade secrets in the AI era: Navigating transparency under the EU AI Act.
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.
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