"Apple's DNA is innovation, and the protection of our trade secrets is crucial to our success."
-- Apple Computer, Inc.
Intellectual property is the capital of ideas. It is everything within a company that’s left over after cash and tangible assets. These days, that can add up to most of any given company. It is “intellectual” because it is value that’s created from the neck up. It is “property” because it can be legally protected, bought, sold, traded, donated, collateralized or otherwise controlled.
There are four primary legal boxes in which intellectual property assets are placed: trade secrets, patents, trademarks, and copyrights. They are not mutually exclusive. They can and should overlap in strategically sensible ways, providing belt and suspender protection and perhaps adding revenue streams (e.g., royalties from renting out technologies you’ve patented and separate licensing income from brands you’ve created and trademarked around them). In other words, intellectual property assets are not just legal rights that lawyers care about; they’re strategic business assets with lots of profit potential.
In this piece we provide an overview of trade secrets. But why start there?
Digging Deeper into Trade Secret Management
The answer is that all intellectual property starts with an idea – a “secret” by definition. Of course it doesn’t have to stay that way. Secrets can be voluntarily disseminated. This can be altruistic, as is the case of certain scientific clearinghouses that choose to freely share information. It can also be strategic, as is the case of a company choosing to publish an idea in order to block others from patenting it (you can’t patent an idea that’s in the public domain).
Still, as a form of protectable intellectual property, the fact that a trade secret is a valuable idea borne of someone’s creative insight makes it portable and lightweight. It fits within the confines of a few brain cells. This also means that it is easily transmissible (some say increasingly transmissible with every beer), and therefore can be difficult to control, manage, maintain, protect and preserve.
Setting aside the serious issue of economic espionage and cyber intrusion, trade secret management can be as much a function of trust and loyalty as anything the law might have to offer. A creative and visionary corporate culture thus contributes to the integrity and ultimate success of a company’s IP management program.
Defining Trade Secrets
What they look like
Trade secrets are know-how that can take many forms:
- Data compilations
- Customer lists
- Marketing & sales strategies
- and more
To summarize, a trade secret is anything that has actual or potential value by virtue of not being known by a competitor.
How long they last
There is no time limit for the legal protection of trade secrets as opposed to, for example, a 20-year term for patents. They can be perpetual so long as “reasonable care” is taken to protect them.
An analogy may be drawn to the corporate form of doing business. Shareholders will be insulated from personal liability so long as the corporation maintains itself and acts like a corporation. This means following certain corporate formalities, such as not commingling personal and business funds, maintaining proper levels of capitalization, appropriate record keeping, memorializing certain corporate activities in the form of minutes or memoranda, etc. Failure to follow such formalities can result in a “piercing of the corporate veil” and expose shareholders to personal liability.
And so it goes with trade secrets. Information regarded as a trade secret must be continuously maintained as secret. Merely putting in place a trade secret policy or program will not be enough. Secrets must actively be kept secret if there is to be a remedy for misappropriation. Examples include:
- Badges and sign-ins for visitors on site
- Marking relevant documents, emails, etc. as confidential/company trade secret
- Erasing white boards
- Computer memory dumps
- Proper non-disclosure language in third-party and employee agreements
- Physical site security
- Data security measures so that information is not generally accessible
- Proper intake and exit procedures
The fact that a competitor does not know exactly how you do what you do so well is an effective barrier to entry or equivalence in your market space. One decides strategically whether, and when, to sacrifice a secret for some other form of protection. The Coca-Cola Company, recognizing the enduring value of its product as formulated, chose to maintain the formula as a trade secret rather than enjoy the more limited legal exclusivity of a patent. The Coca-Cola formula has remained a trade secret for over a hundred years.
Trade Secrets and Other Forms of IP Protection
The maintenance of valuable company information as a trade secret must always be considered, even in view of a decision to pursue some other form of legal protection. The exclusivity afforded by a patent, for example, begins only when (and if) the patent is issued after a lengthy process. In the interim, until your pending patent application is published by the national government office you filed in, the specifications, claims and related information that comprise the patent application should still be regarded and treated by you as trade secrets.
Another example would be a decision to register certain computer source code as a copyright. Fragments of the code might be considered trade secrets. It is possible, within certain limitations, to black out trade secret portions of source code submitted to the Copyright Office for copyright registration.
The law governing trade secrets largely varies from state to state, with some degree of “uniformity” throughout. There are national coverage statutes, such as the Federal Economic Espionage Act and the Defend Trade Secrets Act of 2016, which are recognized regardless of the court’s state. To take full advantage of the legal protections existing and applying to trade secrets, one should devote time to creating a robust structure around them in consultation with competent legal counsel.
The Value of Trade Secrets
And trade secrets can be quite valuable. The magnitude of loss from trade secret theft in the United States is difficult to quantify but there is wide consensus that it’s substantial. It has been estimated that such losses to U.S. businesses exceed $100 billion a year, primarily in the technology sector. PricewaterhouseCoopers took a good shot at estimating the economic impact of trade secret theft here: https://www.pwc.com/us/en/forensic-services/publications/assets/economic-impact.pdf. It is the real or perceived value of innovation to various players for various reasons that drives such theft, and that alone suggests the wisdom of a well thought-out trade secret program.
Keeping Control Over Trade Secret Management
For organizations with a lot of idea flow, it is important to maintain and keep track of your inventory of trade secrets for several reasons:
- It can add to the deal value in a merger or acquisition
- It can increase shareholder value
- It can provide a ready base of knowledge for further innovation
- It can save time and expense in litigation (on defense or offense)
The problem is that successful maintenance is difficult to do manually. Things will inevitably slip through the cracks if you’re maintaining the information in banker boxes, file folders and various spreadsheets. There are better ways to augment your human efforts.
Good tools and technologies exist to provide an organized, categorized, central secure repository of trade secrets. Decipher® from Innovation Asset Group is one example. And along with trade secret management, it makes deriving value from your other IP assets easier than ever.
To request a demo and free trial of Decipher, click here.