Protecting IP: The era of relying on trade secrets has passed
Protecting Intellectual Property (IP) and trade secrets are critical to survival in a competitive business environment. IP can range from confidential customer details to high-level technical expertise, methods and product information.
There are two main ways to prevent competitors from accessing IP, and they are maintaining trade secrets, or securing a monopoly through obtaining patents and/or registered designs.
A trade secret can be defined as any confidential business information that provides an enterprise with a competitive edge. When deciding on how to protect their IP, many businesses choose to keep trade secrets by default. They are perceived as requiring little upfront cost since paid employees are relied upon to keep information confidential. For example, The Coca-Cola Company claims to have kept its formula secret for over 130 years by only letting a small group of senior executives know parts of the formula at any given time.
In contrast, patents and registered designs are often regarded as costly liabilities rather than assets. Media reports of patent court battles discourage would-be patent and/or registered design owners from pursuing rights that they do not intend to enforce.
However, contrary to popular belief, maintaining a trade secret can be a complex and costly exercise. Each piece of information needing protection must be identified, labelled, and its storage constantly monitored. Access to that information must be restricted, and adequate security established for both physical and electronic files. Additionally, non-disclosure clauses must be incorporated into all employment, contractor, consultant and vendor/supplier agreements. This incurs costs.
Importantly, trade secret protection only lasts for as long as the information is kept confidential. Once it is made public, trade secret protection ends. Unfortunately, it is only when a trade secret has been disclosed, that many businesses find they cannot prove to a court when seeking to recover damages, that sufficient steps were taken to protect the trade secret from disclosure.
Cybersecurity
Even well-resourced multinational corporates are struggling to protect their confidential information in the digital age. Cybersecurity threats and data breaches have become commonplace, due to the steady increase in digital commerce. This is particularly the case in the Asia-Pacific region, which is one of the fastest growing regions for digital innovation and commerce. In the top six ASEAN countries, digital commerce is projected to increase from USD5 billion in 2015 to USD90 billion by 2025. The average loss caused to a business due to a data breach has now passed the USD1 million mark.
Despite the exponential increase in malware and Trojan software, the biggest cybersecurity threat that organisations face today is the human factor. Around 52 per cent of data leakage in organisations worldwide is caused by employees or ex-employees, either through theft or accidental disclosure. This means that not only must organisations defend their confidential Intellectual Property from external acquisition by competitors, but they must guard it internally from misappropriation by their own employees, the very personnel that are relied upon to keep trade secrets secure.
The easiest way for a competitor to gain access to a trade secret is by poaching employees. Once in possession of secret information, a competitor could file a patent or design applications for that information, claiming it as their own. The genuine owner may need to defend themselves against a cease and desist letter, attempting to stop them from using their own technology. It is difficult and expensive to prove that a secret invention was stolen.
What we offer
At Houlihan2, we think outside the square. When cleverly deployed, the role of patents and registered designs expands beyond the traditional concept of obtaining a commercial monopoly for licensing/enforcement purposes. In the digital age, patents and registered designs also serve as pre-emptive disclosures of selected information, as protection against data leakage and theft. Provided that applications for patents or registered designs are filed for relevant information before any disclosure or data leakage, the subsequent IP rights will hopefully not be affected by trade secret theft or data breach.
Contributing Advisors
