Importance of Management of Trade Secret

INTRODUCTION

Trade Secret is a crucial information or valuable secret in any of the form which needs to be hidden in order to protect the potential economic advantage over others. In layman language this information should not be known to the public therefore at any cost needs to be a secret and provides economic benefits. There are various trade secrets and the information which has to be kept secret is decided on the basis of the particular industry and its usages.

The information which a person wants to get a trade secret protection must not be in public domain and it must provide a competitive edge to the business.  

REASONS FOR THE PROTECTION TRADE SECRET

The protection of trade secret is a must in order to protect the value and reputation of any particular company. The reasons for the protection involve -

The efficiency and the originality stay intact only if the trade secret is kept protected

Preserve and even promote the standards of equal and fair opportunities and no undue advantage to anyone, trade secret also must be kept a secret as the disclosure of it leads to unfair competition and the innovation can be used by the competitors without bearing costs.

TRADE SECRET AND TRIPS

Trade-Related Aspects of Intellectual Property Rights is a pact which mentions about the protection of the invention or creation or the rights in intellectual property rights.

Article 39[1] of TRIPS agreement state the protection of Trade Secrets. This article mentions that for a trade secret to be protected, the information must be of a

• Commercial Value
• Secrecy should be maintained,
• Reasonable steps must be taken to ensure the information remains confidential

The information can be a technical information or a commercial information or even combination of information but it should hold a commercial value. Trade Secret should be protected in order to avoid unfair competition and for that there must be a mechanism.

One of the case named Saltman Engineering Co. Ltd. v. Campbell Engineering Co. Ltd. (1948)65 RPC 203[2] the court talked about the confidentiality of the document and mentioned that when any document is produced, that document can be considered a confidential document if the creator of that document has used his/her intellectual and the particular document can only be made through that very process.

TYPES OF TRADE SECRETS

Technical Information

Technical information basically involves the fundamental functioning of the business. This technical information can be in a form of recipe or method or any such secret ingredient used in preparing the outcome. Even the manufacturing process or the blueprint or the code base used are technical information. For example- KFC has secret ingredients and procedure which holds trade secret.

Business Information

Business Information also gets trade secret in order to hold a dominant position in the market. It includes the details of customers and there purchasing pattern or any other crucial information which are important for the business. The marketing strategies of a business, financial arrangement or the costing structure is also covered under trade secret. Every business has its own planning, statistics and market projection which is kept confidential for the benefits of the business and to protect the business for any unfair competition.

The Technical information and Business information can also be said to be the pillars over which any trade develops.

TRADE SECRET v. PATENT

Both Trade Secrets and Patents are protected under IP Laws where Trade Secrets on one hand must be undisclosed, valuable and is for economic benefits, Patents on the other hand are disclosed in public domain and are novel and is focussed upon the rights of the patentee.

The Patent right is provided for 20 years duration whereas when it comes to trade secrets no such time limit.

TRADE SECRET V. COPYRIGHT

Trade Secret protects the formula, pattern, procedure or any method of creating something which is not known to the public, also trade secrets are only protected if they provide any economic benefit and reasonable efforts should be taken to the keep it a secret. Copyright on the other hand is provided on an original and creative work. It protects the ownership rights and the authorship rights.

The Copyright is provided for a period of author’s lifetime + 70 years whereas the trade secret has no such time limit.

MANAGEMENT OF TRADE SECRET

Management of Trade Secret is of utmost importance for safeguarding the establishment’s intellectual property and even for any competitive advantage. For the purpose of safeguarding the company’s intellectual property and to prevent any use or leak which is an unauthorized there should be strong measures taken, only after this proper management of the trade secret the company’s secrecy could be maintained and protected from unauthorized use.

A proper management of trade secret is necessary as it preserves and protects the commercial value as well as provides competitive advantage in the market to the company. If the management of trade secret is taken care of in a proper manner it reduces the risk of any further financial loss in legal terms.  

1. There should be a proper system in order recognise the trade secret. If the trade secret is recognised then it becomes easy to identify that which particular information needs to be protected.
2. Every establishment should evolve and create a security policy to protect their information from any unauthorised use. This information security policy includes which information will be protected and the procedure to protect, need to protect and even how much to information is sensitive information.
3. Restrictions and Details must be in writing and the policy must include-

• Non-Analysis Clause- This clause is an important clause as it prevents an employee form analysing and reverse engineering the process of the confidential information in order to maintain the confidentiality and competitive advantage.
• Non-Solicitation Clause- This clause mentions in an agreement that an employee will not solicit company’s customer for their own benefit to a competitor.
• Non-Raiding Clause- This clause restricts a party from hiring an employee of the disclosing party for a certain period of time. It is a contractual clause that is specifically added in the contract for the protection of the trade secret owner from suffering the loss of confidential information which is of commercial value to the company.

4. Limited access should be given. Only authorised and relevant employee should be given access to paper records and the record must be labelled for better understanding and must be unapproachable to the employees that are not concerned with the confidential records.
5. Document marking- Documents must be restricted and limited to managers and relevant person only. Documents must be marked in order to classify the confidentiality as-

• Third party confidential
• No copies
• Limited distribution
• Covered under Non-Disclosure Agreement
• confidential [3]

6. Method to protect Trade secret-

• Computer access with the confidential information must be protected by strong passwords and should not be left unattended. Also any changes or additions should be made only by a certified person.
• Shredding method is also one of the effective methods in order to protect trade secret.

7. Proper protection measures must be ensured in Partnerships and collaborations.
8. Employees of the company must be aware of the policy and must be employed on the basis of their ability and expertise.
1. The Employee must be trained on the protection policy and security officer must be present.

The Trade Secret of a company cannot be disclosed must be mentioned in the Non- Disclosure Agreement which is signed by the employee after the employee is hired. Even if an employee further leaves the company, the employee after the completion of course of employment cannot disclose the trade secret of the company to the any competitor or others.

There have been challenges faced by well-known companies like KFC, Google, COCA-COLA which have their secret recipe as trade secret and even the method as trade secret.

During the 20^th century KFC faced a challenge where their trade secret was at risk when one of the franchise restaurants among the several used KFC’s trade secret recipe to make their own fried chicken and sell. After this KFC took legal implications against the restaurant which misused the trade secret even after the non- disclosure agreement was signed between the parties.

KFC has a secret recipe and a process which is confidential and in order to protect their trade secret there is a whole process followed. KFC recipe is said to be made of 11 herbs and spices which is known by very less number of people who have signed contract according to which they cannot disclose the trade secret. The method of safeguarding the KFC secret continues as these ingredients are not known by one company entirely. Two different companies mix the ingredients at two different locations and there is a different location to combine these ingredients and both the companies are bound to not to disclose it to the other company. Also, a computer processing system is used to blend the correct amount of mixture together. This method of safeguarding the confidential information of KFC is taken to ensure that nobody other than the relevant person knows the entire recipe of KFC.[4]

Google which is used and known across the globe. They have a secret search algorithm which is protected and safeguarded by google, there are continuous changes and improvements made in their secret algorithm to make sure it is never revealed. Even after which Google’s trade secret was at risk when a previous employee of google who later joined Uber was accused to disclose Google’s self-driving car technology to Uber. This incident emphasized attention on the importance of a non– disclosure agreement[5]

Similarly, the well-known brand Coca cola whose secret formula has remained a secret since 1886 which is known as Merchandise 7x also faced an incident where their trade secret and strategies were at risk as several employees working there tried to sell the trade secret of coca cola to their competitor PepsiCo. Coca- Cola took legal measures to protect their trade secret and informed FBI which further resulted in arrests of the people who were trying to infringe Coca Cola’s trade secret.[6]

These companies have really expensive and crucial trade secret and these companies have a competitive edge since they have taken proper measures to manage and protect their trade secret. Still these incidents took place where people have tried to infringe there trade secret. Therefore, these cases are perfect examples for all the companies to not neglect the management of their trade secret.

CONCLUSION

Trade secret being an invaluable asset for business as well as an intellectual capital of property rights, it drives innovation, sustained profitability and market differentiation, in this era of rapid industrialisation and technological advancement and great competition among businesses. Good trade secret management is now essential for businesses looking to prosper in this changing environment and is no longer just a luxury but a necessity for organisations to thrive in this dynamic landscape. The bedrock of trade secret is the identification and classification of confidential information, with the implementation of access controls, employ training’s and confidential agreements. All these factors form a strong management program for trade secrets. It is important to incorporate digital security and staying on top of technological advancements. Encryptions, cybersecurity or data backup are crucial to protect trade secrets from cyber threats. Conducting regular audits and monitoring help can help in identifying issues and ensure compliance that may involve legal and regulatory requirements as well. Trade secret protection also comprises of employee loyalty and their commitment to keep confidential information. To foster a culture of trust and accountability there should be clear communication fair trust and a safe working environment. With protection of trade secrets, comes its challenges as well such as employee turnover and technological advancements, that is why trade secret protection is essential. By investing in trade secret management strategies, it can create a competitive advantage which can help figure out the risks concerning intellectual property rights.

To conclude, trade secret protection is not merely a compliance issue but also a strategic imperative. A more proactive and comprehensive approach should be adopted for trade secret management through which businesses and industries can safeguard their own innovations and build a more sustainable future. Trade secret protecting is an ongoing process that may require businesses to constantly evaluate and adapt to the rapid changes. This can not only help them identify cyber threats to trade secrets as well help derive royalty out of it.