To protect its Intellectual Property Rights (“IPR”) by demonstrating that certain information qualifies as a trade secret, companies should consider the following:
1. Develop and Implement an Overall Intellectual Property Rights Protection Program.
Whether a company is just starting out or is a multinational company with enormous revenues, an effective IPR protection strategy or program (“Program”) is critical to a competitive advantage. The four intellectual property rights: patent, copyright, trademark and trade secrets, each need to be considered in developing, implementing and maintaining a Program.
One important detail of a Program is to assign an employee as the initial IPR Officer of the company. We have seen employees from any number of areas be appointed to this position (e.g. legal, finance, IT, human resources). All employees are to be informed of the appointment, and the IPR team, if the needs of the company demand a team. Our experience shows that the most effective IPR team draws from various disciplines within a company, based, among other factors, upon the business of the company, number of employees, size of the IP portfolio, types of IP and jurisdictions in which business is conducted. The team members whom companies most often fail to include are persons experienced in the full‐range of human capital issues, i.e. understanding and guiding company culture, compensation and benefits, issues of motivation and morale, legal issues as well as internal contracts, policies and procedures. Such a person will add significant value to the IPR team.
2. Conduct a Trade Secrets Audit
Conduct a trade secrets audit to identify information that can be classified as trade secrets. It has been our experience that audits are expensive and audits without a plan and timeline for completion are the most expensive and time‐consuming and can become a waste of resources producing little benefit. First plan the audit, then successfully conduct the audit.
Questions to be answered to assist trade secret identification include the following:
Is the information known outside the company? To what extent?
Is the information known inside the company? By whom, categorically? To what extent?
What steps have been taken to keep the information secret?
What is the value and/or competitive advantage in keeping the information secret?
What has been the cost (time, resources, expenses) in developing the information?
How would such information be properly (i.e. without misappropriation) obtained or duplicated? How difficult would this be?
Could such information be properly developed or duplicated? How difficult would this be?
It is important to note that a company should not identify all its potential confidential information as trade secrets because being over‐inclusive could potentially trivialize the trade secret portfolio.
3. Employee Policies, Procedures and Training
The importance of employee policies, procedures and training cannot be over‐emphasized in the development of the IPR Program. In addition to the policies that are discussed in detail below, a company should also consider adopting the following policies to assist in protecting its trade secrets: external communications policy, electronic mail policy, internet usage policy, new confidential information notification policy, new inventions notification policy, lab and engineering notebooks policy, information classification policy and a computer usage policy. Policies should be drafted to work with other policies and, as always, considering the business, IP portfolio, types of IP, size and culture of the company. Initial and ongoing training on the policies and procedures is a crucial piece of a successful Program. Drafting and implementing policies is only the beginning. The key to an effective program is continued compliance with all policies as well as updating policies as necessary.
4. Record Keeping, Document Retention and Destruction Policies
Companies should have record keeping, document retention and destruction policies in place for a variety of reasons, including trade secret protection. As with all policies and internal procedures, the company must be vigilant in making certain that its employees comply with the policies. Unfortunately, these policies are most often vetted during litigation, when discovering the strengths, weaknesses, and compliance with them is sometimes too late.
5. Document Classification
Practitioners often advise companies to adopt a policy that requires documents containing or reflecting trade secret information be labeled “Confidential.” The policy has more impact if it contains more details about a series of potential classifications and access, and employees are furnished instructions and provided detailed training, with concrete examples of information to be and not to be labeled. Over‐labeling will make it more difficult for a company to prove in litigation that its own designation has meaning, while under‐labeling could mean the critical trade secret document is not properly labeled.
6. Access
Limit access to trade secrets to a need to know basis only. If you have the secret formula for Coca‐Cola for example, how many people should be given access?
7. Agreements
Agreements are ubiquitous in trade secrets litigation and are often the best ammunition a company has in its arsenal to protect its trade secrets. In fact, this topic could easily stand alone as an article. Like laws related to trade secrets, contract laws are governed by state law.
a. Employees
Trade secret protection begins prior to employment. Offers for employment should be made contingent on an employee executing a proprietary information and invention assignment [and non‐compete] agreement (a “PIIA”). In developing its PIIA, a company should determine whether or not it will include restrictive covenants not to compete, not to solicit customers, not to hire, not to raid and/or not to solicit employees and, if they are to be included, the parameters of the covenants based on the controlling state law.
b. Independent Contractors
It is arguably more important that independent contractors sign agreements similar to a PIIA. Unlike employees, independent contractors do not necessarily owe a duty of trust, duty of loyalty or other common law duty to the company and, as such, no common law duty to keep information secret. Moreover, there is no work for hire theory, so independent contractors own their copyrights unless they are assigned to the company. Equally, even if an independent contractor were hired to invent something, an independent contractor is not presumed to have assigned such inventions to the company. As such, PIIA type contracts should be executed by independent contractors and subcontractors alike.
8. Third Parties
In contracts with outside vendors, customers, suppliers, purchasers, business partners and other entities, companies should ensure that strict confidentiality provisions protect any trade secret information disclosed as part of the relationship. Potential joint‐venturers and potential acquirers must also be required to maintain confidentiality. We see numerous times a potential suitor will look under the hood of a company, only to quickly thereafter begin to compete with the company. A potential business partnership relationship should be entered into cautiously and certainly pursuant to a non‐disclosure or other detailed confidentiality agreement.
9. Conduct exit interviews
Trade secrets most often walk out the door with employees. The last opportunity a company may have to either try to learn if it should be concerned with IP misappropriation and/or to provide guidance to an employee of his or her continuing obligations to the company is in an exit interview. Based on the person’s position leaving the company, an HR, IPR or legal person, or a combination, might conduct the interview. Traditionally, these interviews were used strictly as a human resources tool to understand the attrition and, if possible, discover looming HR problems within the organization. With the increase in IP litigation, especially trade secrets litigation, the exit interview has become increasingly important to protect a company from losing its IP.
If possible, during the interview, it should be determined where the person is going to work (competitor or not) and what the person will be doing at the new position, for a potential inevitable disclosure argument. Another copy of the PIIA should be provided to the exiting employee and, in a non‐threatening manner, the employee should be reminded of his or her various continuing obligations, including the non‐disclosure provision and any restrictive covenants.
With the increased mobility of employees as well as information itself, it is critical for a company to gear its culture towards protection of it’s intellectual property and to establish practices to protect its trade secrets.