Protecting trade secrets: how organizations can meet the challenge of taking “reasonable steps”

Author:John Hull
Position:Queen Mary Intellectual Property Research Institute, London, United Kingdom

Trade secrets are widely used by businesses across the economy to protect their know-how and other commercially valuable information and thereby promote competitiveness and innovation. Amid their growing use and commercial value, what practical steps can businesses take to protect their trade secrets?

A report by Forrester Consulting published in 2010 entitled The value of Corporate Secrets: How Compliance and Collaboration Affect Enterprise Perceptions of Risk, suggested that “…enterprises in highly knowledge-intensive industries like manufacturing, information services, professional, scientific and technical services and transportation accrue between 70% and 80% of their information portfolio from trade secrets.” The significance of trade secrets is also borne out in other studies, including the European Commission’s Study on trade secrets and confidential business information in the internal market (see parts 4.1 and 4.2). These studies suggest that businesses, irrespective of size, consider secrecy to be as, if not more, important than patents and other forms of intellectual property (IP).

Small and medium-sized enterprises (SMEs), in particular, are more likely to rely on trade secrets to protect their innovations for a variety of reasons. In a nutshell, trade secrets have no subject matter limitations; they require no time consuming or expensive procedures; they ensure a seamless relationship between practical and legal protections and they are an immediate complement to contracts and security measures.

Moreover, many of the most commercially valuable trade secrets do not relate to patentable subject matter. The most highly valued trade secrets tend to reside in information about commercial bids and contracts, customer or supplier lists and financial information and planning.

Policymakers seek to enhance trade secret protection

Given the commercial value of trade secrets – and their vulnerability to threat, particularly by insiders – their misappropriation is of growing concern in many countries. For example, trade secret litigation in courts in the United States has increased significantly in recent years, where perceived threats to confidential information have led to the adoption of the Economic Espionage Act in 1996, and more recently to the Defend Trade Secrets Act (2016), which introduces a federal dimension to related state laws.

The picture is similar in other countries. A European Commission Study on trade secrets and confidential business information in the internal market, published ahead of the EU Trade Secrets Directive (EU 2016/943), highlighted the concerns of businesses faced with misappropriation from external and internal sources. The study revealed that in the preceding 10 years, 20 percent of businesses surveyed had experienced at least one attempted misappropriation of confidential information, and nearly 40 percent of them perceived that the threat of such misappropriation...

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