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Why Trade Secrets Could Be An Important Part Of Your IP Strategy

Trade secrets could unlock serious business growth, but only when handled correctly.

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Trade secrets could unlock serious business growth, but only when handled correctly.

Opinions

Why Trade Secrets Could Be An Important Part Of Your IP Strategy

Trade secrets could unlock serious business growth, but only when handled correctly.

Share this article

Most tech companies will consider patents to be a “must-have” element of their intellectual property (IP) strategy, but the strength of trade secrets is becoming more evident. Trade secrets can be  particularly useful as a complement to patents or when patent protection is not available.

Recently, Bumble filed a lawsuit accusing its competitor Match Group (Tinder’s parent company) of fraudulently requesting that Bumble provide “confidential and trade secret information” which Match Group said they “needed to provide a higher offer for Bumble” during acquisition talks.

Patent protection is not available in Europe for ‘business methods’ or to protect confidential business information that may provide a competitive edge. In today’s digital economy, trade secrets are becoming ever more important - as demonstrated by this ongoing spat between Bumble and Match Group.

Patents vs. trade secrets

But how do you decide when to keep something a trade secret or when to patent it?

For many companies, trade secrets can be an important part of a strategy to protect and exploit a potentially wide range of intangible intellectual property (IP) assets such as manufacturing innovations, customer lists, sales techniques, improved recipes, or confidential information about a new product launch.

A well-kept trade secret potentially has an infinite term of protection compared with the maximum 20 year term offered by a patent. Coca-Cola, for example, has successfully kept its recipe secret since the formula was first mixed more than 125 years ago. It would not have been able to achieve that with a patent.

Indeed, a key requirement of a patent is that it has to be published. By effectively placing the invention in the public domain along with instructions on how exactly it works, it can be readily recreated with impunity once the patent has expired.

coke

Coke keeps its secret recipe on a piece of paper in a huge vault

However, when an innovation is kept a trade secret, third parties can reverse-engineer it or indeed discover the innovation independently. In this instance, trade secrets offer little protection and patents can be more beneficial as they offer exclusive monopoly rights that prevent anyone else from performing a protected invention, even if it was an independent discovery.

There is also the risk that a reverse-engineered trade secret is patented by the other party. It would severely restrict the original innovator to develop or commercialise the product further. ‘Prior user rights’ could apply, but they are quite limited in practice.

When might a trade secret be preferred over a patent?

There are many factors at play when it comes to deciding if a patent or trade secret would give the most appropriate level of IP protection.

One way to help determine the best approach is to discern between a company’s ‘transparent’ and its ‘opaque’ behaviours. Patent protection should be strongly considered for transparent behaviours if possible.

Take the popular Rubik's Cube: the end-product is ‘transparent’ and once it had been placed into the public domain it was easily reverse-engineered. Ernő Rubik quite rightly secured patent protection for his invention. Those patents have long-since expired, but the highly successful Rubik’s Cube would not have been anywhere near as profitable had a patent not been in place during those crucial early years.

In contrast, the secret formula of the lubricant WD-40 has never been patented to prevent competitors from discovering exactly what is in it. It’s reportedly mixed in three separate parts, at different locations, before it’s shipped to the manufacturers who combine the separate components into the final product.

WD-40, while patentable, is a good example of an ‘opaque’ product, which has clearly provided more value to the company by keeping it a trade secret.

How to keep a secret

Organisations can take action to prevent their trade secrets from being disclosed to, acquired by or used by others, provided the information has been kept secret, has commercial value, and reasonable steps have been taken to keep the information a secret.

The fewer people who have access to trade secrets, the less likely they are to get out. In Coca Cola’s case, the recipe is rumoured to sit in a guarded safe while only two people at any given time know the exact formula, and those two people are not allowed to travel together. These are of course quite extreme measures.

With trade secrets, it’s good practice to keep robust records; to mark information and documents as ‘confidential’ where necessary; to restrict and track who has access to the information; to maintain computer security and use modern techniques such as meta-data; and to secure confidential materials safely during out-of-office hours.

Non-disclosure agreements (NDAs) and suitable confidentiality clauses within employment or consultant contracts should also be used, as these are readily recognised by courts.

However, unlike patent laws that are generally well-established, the laws relating to trade secrets can vary greatly between different countries.

secret

Secrets are harder to keep if they cross national borders

The Trade Secrets Directive

Recognising the increasing importance and value of trade secrets in IP strategy, a recent EU Directive (2016/943) requires Member States to harmonise their national laws to protect against the unlawful acquisition, disclosure and use of trade secrets by 9 June 2018.

This harmonisation will give trade secret holders in each EU member state the same level of protection, and the same access to remedies in the event of misappropriation. Injunctions may also be granted that restrain the use and disclosure of confidential information.

This may be particularly important in the world of high-tech companies and start-ups where people often work on short or fixed term contracts. As workers frequently change jobs the risk of  a trade secret becoming public increases. Or they could be utilised elsewhere causing the original company to lose their competitive edge.

In practice, every situation is different and the IP strategy adopted by a company will depend greatly on its business plan and budget, and also on other factors such as whether the company has a high turnover of employees and whether it uses a lot of suppliers or contractors, to name a few.

With the implementation deadline for the Trade Secrets Directive fast approaching, companies should consider, now more than ever, how best to incorporate trade secrets into their IP strategy to maintain their edge in the market. Always seek expert advice from a qualified patent attorney when developing any IP strategy, not least because, as they say, you can’t re-cork the champagne bottle…

Graham Spenceley is senior associate at IP law firm Gill Jennings & Every.

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