Protecting trade secrets: an insiders' guide to best practices

In the universe of intellectual property rights, trade secrets have something of the status of dark matter – enigmatic, invisible by their nature and at times misunderstood, yet essential to fill in the gaps and hold the system together.

Almost all businesses have confidential information which constitutes part of their business success, and in some cases may be as important in protecting business advantage as more formal rights such as patents.

Using the full toolkit

Fergal Clarke, Director of IP Business Analysis at Lenovo, sees all forms of IP as just different tools in the kit for managing problems. Patents may help with freedom to operate and reduce in-licensing costs, but they do not prevent competitors from “inventing around”. Trade secrets cannot prevent competitors from using the same idea if they come up with it independently, but until someone does they contribute to keeping the business ahead for as long as possible. 

And they can protect aspects of a business which may not be patentable. He gives the example of Lenovo’s acquisition of Motorola Mobility from Google, minus the patents. Lenovo was already established in smartphones, especially in the Chinese market, but the Motorola Mobility team brought years of expertise in testing, product reliability, integration of parts from different suppliers into a single products, and so forth – techniques to create a high-end product which could otherwise have taken years to develop.

The four walls of your castle

Don Merino of Transpacific Advisors, formerly in-house IP counsel at Intel, describes the “four walls of the castle” protecting the company’s business advantage as:

• capital (in Intel’s case, the cost of building a semiconductor fabrication plant, or “fab”);
• brand; 
• trade secrets; and 
• patents, 

with patents being the weakest wall of the castle. 

Intel’s strategy was to review each invention an engineer disclosed and decide whether or not to patent, with roughly half remaining protected purely as secrets. Cumulatively, the technical know-how Intel possessed but deliberately chose not to disclose in the form of patent applications formed a second, effective barrier which would have cost rivals substantial time and expense to re-invent, without any certainty of coming up with solutions as effective as Intel’s. This set of inventions also had the potential advantage of remaining exclusive to Intel indefinitely, whereas the life of a patent is only 20 years.

Don says the key point is recognising what is the “secret sauce” which gives a business advantage. It need not be limited to technology; it could be added value at the customer service level.

Known unknowns

Some might see the unregistered nature of trade secrets as a disadvantage: how do you know what you’ve got, or have to protect? But Don disagrees. Intel has a culture which makes sure all of its people and partners take the company’s secrecy seriously. No one entering one of its fabs is allowed to wander around with an electronic device capable of taking photographs; lenses are taped over before the visitor gets through security. The focus is not on identifying any particular technology improvement as a trade secret and then devising a way of protecting it, it is more about making sure the crucial steps in the production process are identified as including secrets and keeping those away from the public domain.

Keeping your secrets secret

Anyone who has engaged with protecting trade secrets knows just how hard that can be in practice. Keeping secrets is not a natural human behaviour, and companies trying to stimulate creativity often bend in the opposite direction, encouraging sharing of ideas and information. Getting employees to share widely internally, but then clam up as soon as they speak to a customer or a conference, needs constant education but also business processes. 

Fergal Clarke highlights some ways of raising awareness:

• The old favourite of labelling documents is one, although this can backfire: documents which escape the labelling may be assumed to be non-confidential by recipients, and by courts. Conversely, over-enthusiastic labelling, where everything including the daily menu in the canteen is pronounced to be confidential, tends to erode employees’ belief in the significance of the label.
• Another method is to make anyone giving a presentation outside the company use templates, which require them to actively choose an appropriate level of confidentiality notice for the document they create rather than simply recycle a one-size-fits-all. Being offered a choice of confidentiality categories and having to consider which one is appropriate is more likely to make the presenter stop and think whether the material they’re planning to include is suitable for presentation at all. 
• Having a clean desk policy, so that confidential information is never left where a passer-by might casually see something they ought not, is also a good system. It may not be easy to get everyone to adopt, but if management conduct regular sweeps and set the example themselves, people will eventually accept it as normal. But it is definitely a question of “say what you do, and do what you say”. Keeping a clean desk is not easy for people working long hours, so if there seems to be one rule for some and another for the rest, it will be resented and less rigorously observed. 

These techniques are easy to articulate and effective, if difficult to implement in an existing business with less awareness of the importance of secrecy. Nevertheless, whichever country’s laws may need to be invoked if a breach of confidence takes place, the chances of succeeding in restraining disclosure are far higher if a company can demonstrate that it took the task of keeping the information secret, seriously.

How strong is your castle?

Protecting confidential information can be crucial to protecting your business’s advantages over its rivals, and as our insiders point out, trade secrets can be a vital part of a business’s IP protection toolkit. 

To maximise the protection for your business, you first need to understand the nature and role of trade secrets for your business – what do you need to keep secret? The challenge then is how you keep it secret. There are innumerable practical techniques, including those mentioned above. But the businesses which do best at protecting trade secrets are those where respect for the value and secrecy of information is embedded within the organisation’s DNA.