What do Coca-Cola, WD-40, and Chanel No 5 have in common? The answer is simple. They are all protected trade secrets as no one but the manufacturers have the recipe.
Trade secrets are protected under EU Directive 2016/943 as long as they fulfill three cumulative requirements:
- The secret is known only to a small group of people;
- The secret has commercial value because it is secret; and
- Reasonable steps have been taken to keep it secret.
Trade secrets cover information that is not generally known outside of your company. They can protect your know-how and give you a competitive edge.
It’s also interesting to note that even ‘failed’ attempts can qualify as know-how. This is because knowing which things or processes don’t work can be of probative value, particularly as this knowledge could very well save your competitors significant time and resources.
Contrary to other known intellectual property rights, trade secrets are not required to be made public after a set amount of time and have the potential to be protected forever.
IDENTIFYING AND DEFINING THE INFORMATION THAT COULD BE TREATED AS A TRADE SECRET
Trade secrets can be applied to a huge range of different types of information or know-how within a company if the information is clearly identified and defined. Trade secrets could be:
- Secret formulas and recipes
- Distribution methods, including lists of suppliers and clients/customers
- Technical information
- Financial information
- Designs and drawings of software, programs, etc.
Identifying information that is known only inside your company and has commercial value because it is secret is relatively straightforward. However, what reasonable steps are sufficient to protect a trade secret?
As yet there is no set definition of what constitutes ‘reasonable steps’. The requirement can be met in different ways depending on several factors, e.g. the nature of the secret, its storage, and the way it is used.
Examples of reasonable steps include physical barriers (e.g. locks, covering or shielding production facilities from outside spectators), protecting technical information by using methods like encryption, and, of course, the existing legal restrictions.
WHAT HAS A RECENT DECISION IN THE HIGH COURT IN DENMARK TAUGHT US ABOUT TRADE SECRETS?
Did you know that many disputes in relation to trade secrets are between an employer and a former employee? This is one crucial reason why it is important to protect your trade secrets both internally and externally.
In a recent decision in the High Court, U 2022.1255 Ø, a company’s trade secrets were determined to have been unjustifiably used by an infringer, who had recently employed three employees from the company.
These employees had great insight and experience with the company’s devices and were directly involved in the development of the infringed devices. The company’s software - which contained a variety of recipes, models, and algorithms along with its underlying data - was found in the infringer’s products leaving no doubt that the functionality of the company’s devices had been copied.
WHAT REASONABLE STEPS CAN YOU TAKE TO PROTECT YOUR TRADE SECRETS?
While there are no set rules on what constitutes reasonable steps, here is a non-exhaustive list of points that should be taken into consideration when protecting your trade secrets. Remember that you must actively enforce and be able to document that the relevant steps are being followed.
- Review which employees “need” to have access to the information;
- Label confidential documents as such and ensure that only limited copies are circulated;
- Keep a log of who has access to the information, who accessed the information, and any and all loans, downloads, etc. of the information;
- Secure computers with multi-step authentication and require that passwords are changed intermittently;
- Password protect and/or encrypt digital files containing any sensitive information containing trade secrets;
- Limit the access to the information by placing physical and technological barriers;
- Require exiting employees to return any and all trade secrets and materials and delete any access to emails, accounts, etc.;
- Set up internal training policies and annual training on how to handle confidential documents and information and the importance thereof;
- Legal restrictions, i.e. contractual protections, however, must be used with caution and in compliance with any relevant employment law regulations;
- Be prepared and able to describe and document all reasonable steps taken to protect the trade secret.
Potter Clarkson has produced SafeGuard - a very simple fixed price/fixed outcome audit tool designed to audit, assess, and protect your trade secrets. Please don’t hesitate to get in touch with us if you want to learn more.