The key to unlocking a successful trade secrets strategy

Many companies encounter the dilemma between, on the one hand, seeking to protect their valuable innovations via patenting, and, on the other, seeking to protect them as trade secrets.

More commonly, however, companies will both file patent applications and maintain trade secrets in relation to their innovations. Thus, in addition to any patent filing programme, businesses must determine how to protect vast swathes of confidential information, ranging from the innovative to the more mundane, much of which will have commercial value to their competitors.

Protecting these diverse repositories of confidential information globally does however require a coherent strategy that addresses the most common risk scenarios. In this article, we consider the different components needed within an overall trade secrets strategy, as well as the relevant stakeholders and skillsets that may need to be involved.

Where do trade secrets issues arise?

It is a truism that most trade secrets disputes involve employees or former employees in some capacity, such as when employees transfer from one competitor to another, or when employees leave to start a business. Such scenarios therefore often begin with the company’s HR, employment, or IT personnel, before IP and litigation specialists become involved.

It is also common for disputes to begin with the dissolution of a collaborative relationship, such as a joint venture, at which point what may have involved a mutually beneficial sharing of IP can quickly descend into acrimony. Whilst complex joint venture agreements often have specialist IP input, corporate and transactional counsel will draft with commercial priorities in mind, and forum selection and arbitration clauses may mean that further specialist input is needed at the dispute stage.

In addition, more dramatic trade secret breaches and thefts can occur, such as industrial espionage or wholesale theft, either by rogue employees or third parties. Such breaches can pose an existential threat to companies and will have criminal implications, requiring the additional involvement of white-collar criminal lawyers, cybersecurity professionals, and forensic examiners, among others.

Accordingly, while a company’s IP lawyers might have overall responsibility for management of the company’s IP, effectively addressing these scenarios requires the involvement of a range of other stakeholders.

Employee contracts, corporate policies and ongoing education

The starting point for any trade secret protection within a business is a close collaboration between the IP specialists and the employment/labour law and HR professionals. This is because a key part of the matrix of trade secret protection is the contracts entered into between the company and its employees.

Not only must these contracts contain robust confidentiality provisions and restrictions that are tailored to the employee and their role (eg, restrictive covenants, where permitted), but they must be actively managed as the employee’s role evolves and their seniority and information access rights change. Going further, for key individuals, companies may also consider bonus and incentive schemes that are designed to protect IP.

Contractual provisions should be supported by policies, both in relation to trade secrets and information security more generally. A thoughtful approach is needed, with clear, precise policies that can be understood and complied with by employees. This should be supported by ongoing training, educating employees as to the information that needs protecting, as well as the legal framework surrounding trade secrets and the employees’ obligations thereunder.

A holistic approach to the entire employee journey is also important. For instance, at the point of departure, all appropriate checks should be undertaken (including in relation to IT security and computer forensics—see further below) in order to identify any cause for concern, with any negotiated departures (which of course can happen for many reasons) being conducted mindful of any trade secrets risks.

Further, the approach taken will need to meet with the local practice in all key jurisdictions, calling for a joined-up, multi-jurisdictional effort, rather than national silos.

Effective management of collaborations

A second but unrelated area of challenge relates to corporate collaborations and other complex, IP-rich deals, which are an increasing feature in many sectors.

Such transactions can involve large-scale corporate transformations, often driven by high-level strategic priorities for the overall business. However, it is also typical for such transactions to involve significant technology transfer, as well as ongoing collaborative R&D. In all such cases, there may be extensive sharing and creation of know-how, trade secrets, and other IP.

Drafting agreements that appropriately cater for these issues requires specialist IP transactional counsel at the outset. However, to ensure that trade secrets are protected, those involved in the transaction must also have a clear view of how and where new IP (including trade secrets) will arise during the collaboration and how that IP will be owned, protected, used and shared going forward.

This means that, even at the time of contracting, businesses must have an understanding of what will happen at the point of termination, ensuring that: (i) their IP and trade secrets will remain protected; and (ii) they will have the freedom to develop their businesses as they would wish.

These matters will require monitoring and updating throughout the lifetime of the deal, ensuring the contract remains fit for purpose and that parties adhere to relevant policies and procedures (eg the processes by which IP and confidential information are shared). Sensitive information may also need to be actively ring-fenced and monitored, to ensure that it remains traceable and recoverable upon termination.

Trade secret identification, audit and awareness

A further element of any trade secrets strategy is the process by which relevant confidential information and trade secrets are identified and categorised so that companies can protect them.

There is no ‘silver bullet’ in this area, but IP professionals must maintain an active dialogue with technical and R&D teams to understand where trade secrets and valuable know-how are being created. This will often be an extension of work undertaken to identify patentable inventions.

Trade secrets registers may be used to log the trade secrets that are held within a business, potentially serving as a useful reference point at the time of litigation. From a process and security perspective, however, this also requires careful management, with ongoing and active involvement from both technology teams and IP professionals.

Whatever the approach, the objective must be to ensure that protections can be tailored to the trade secrets and confidential information concerned. This may well also involve a classification system, whereby different grades of confidential information are afforded different levels of protection.

Preparing an emergency response

At the more dramatic end of the spectrum, however, companies must recognise that serious trade secrets breaches can and do occur, and that time is likely to be of the essence in such a scenario. For this reason, companies may wish to prepare an emergency response plan, considering in advance:

• Who would be involved in any emergency response team and what will its governance structure be? This is likely to include a combination of senior management, IP, employment, HR, PR, IT security / computer forensics, and litigation specialists;
• Where might action be needed? In addition to the stakeholders above, this may require local business representatives and external counsel in the jurisdictions that are most likely to be impacted.
• Given the various people who would be involved, how will those people be briefed, either in advance or in the event of a crisis? It is likely that useful materials can be prepared in advance, to allow the response team to move more quickly (eg, preparing templates to seek emergency injunctive relief in court);
• Crucially, based on the work outlined in section 3 above, companies will also need to have a clear view of the importance of their trade secrets, to be able to prioritise their actions and explain their position to any relevant court.

Companies may also create a playbook, and undertake ‘war-gaming’, to plan and test their response. This may also be aligned with a more general cyber-security response plan, given the areas of overlap.

Cyber security, monitoring and record keeping

A further element of any trade secrets strategy is the process by which relevant confidential information and trade secrets are identified and categorised so that companies can protect them.

There is no ‘silver bullet’ in this area, but IP professionals must maintain an active dialogue with technical and R&D teams to understand where trade secrets and valuable know-how are being created. This will often be an extension of work undertaken to identify patentable inventions.

Trade secrets registers may be used to log the trade secrets that are held within a business, potentially serving as a useful reference point at the time of litigation. From a process and security perspective, however, this also requires careful management, with ongoing and active involvement from both technology teams and IP professionals.

Whatever the approach, the objective must be to ensure that protections can be tailored to the trade secrets and confidential information concerned. This may well also involve a classification system, whereby different grades of confidential information are afforded different levels of protection.

This article was first published on WIPR Insights.