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25th November 2019

Trade Secrets: Prized Possessions Worthy of Protection

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How does a company protect its trade secrets - a company’s most prized and valuable assets?  They are considered valuable because they give the company a competitive advantage and need to be protected from competitors. I like to make a comparison to my mother’s recipes, which are closely guarded secrets, and they are among our family’s most prized possessions. She has written them down, and they are on frequent rotation in our household.

On occasion, my husband makes dinner using one of these recipes. Much to our disappointment though, despite having step by step instructions on how to make the dish, the outcome of his hard work is always a bit ‘off’. He insists it is not because he is a bad cook, but because there must a ‘secret way’ that she combines her spices with the other ingredients, making her the top chef in our family.

Trade secrets come in a variety of forms such as R&D information, software algorithms, inventions, designs, formulas, ingredients, devices, sales/distribution methods, marketing plans, and customer lists to name a few.

Some of the world’s most famous trade secrets include the recipe for Coca-Cola, the formula for WD-40 and the software algorithm for Google’s proprietary search engine. These trade secrets have immense value.

Unlike patents, trade secrets have immediate effect and they are protected without registration or any other procedural formalities and their associated costs. Not only does this prove to be cost-effective for some companies, this also means that trade secrets can be protected for an unlimited amount of time.

But there is a catch. For the information to be considered a trade secret, it must be treated like a secret and protected as such.

In the UK, there is a robust and well-established legal framework offering protection for trade secret-holders. This framework got a bit stronger when the Trade Secrets Regulations came into force in June last year.

The regulations implement the EU’s Trade Secrets Directive, which creates a minimum level of protection for trade secret holders across the EU*.

Given the level of trade secret protection already available under the UK’s legal framework, the regulations supplement this framework. A unique aspect of the regulations is the introduction of a statutory definition of a trade secret.

If a company wants to rely on the regulations for protection of its trade secrets, it must prove that it has taken ‘reasonable steps’ to protect its trade secrets.

Increasingly, the courts are also saying that companies need to take ‘reasonable steps’ to protect confidential company assets and that these efforts include not only securing computer networks, but also embedding trade secret protection into business operations and processes.

This is because once a trade secret is made public, anyone can have access to it and use it at will.

If a company is intent on protecting its trade secrets, it should focus on developing a company culture that embraces trade secret protection at all levels of the organisation and across all departments, whilst recognising trade secret protection as a compliance issue, with potentially serious reputational, financial and legal implications.

Coca-Cola Company, WD-40 and Google quickly realised that the value of their intellectual assets lay in their secrecy and by treating them as trade secrets, they have been able to sustain their competitive advantage.

So, whether it is a composition of spices, chemicals, numbers or words, if it is unique to your company and it has helped to make your company successful, start taking those reasonable steps now to protect your trade secrets…… or risk a competing company finding out about your prized possessions.

*Subject to any change of policy by the government, the Trade Secrets Regulations are set to remain in force in the UK after Brexit.

This article was first published in Business Weekly.