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Trade secrets versus patents

Keltie LLP

K2 IP Limited

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secretTrade secrets were the subject of one of the sessions at the recent Mischon de Reya “Patents: A Year in Review” seminar where Martyne Hann took the audience on a whistlestop tour of trade secrets, including recent developments in the US and Europe, and the interplay between patents and trade marks.

The session opened with an overview of the general advantages and disadvantages of trade secret protection.

On the plus side, trade secret protection is a cheap option which provides an immediate right (there’s obviously no registration required and therefore no examination period to wait for). Trade secret protection is also potentially indefinite whereas patent protection is limited to 20 years and covers a wide range of information, though there are limits on what can be protected. Recent changes in the boundary of patent eligible subject matter in the US was raised as a reason why trade secret protection might be more appealing now than previously. On this point, IPcopy suggests that although US case law has had an impact on subject matter eligibility, the boundaries of subject matter (at least in the software world) are still broader in the US so this point may not be as important as suggested.

On the minus side, trade secret protection is difficult to safeguard for long periods of time. Here an analogy was made between the “steel bucket” of patent protection versus the “colander” of trade secrets where information can leak out. Other minus points include difficulties in enforcement (in particular compared to patent protection) and a lack of monopoly rights.

Independent creation of the subject matter of trade secret protection can also mean that a third party can patent the idea first. Good faith prior use exceptions exist (e.g. section 64 of the UK Patents Act) but these are limited (e.g. no licensing of 3rd parties in the UK case).

When considering the trade off between patents and trade secret protection consideration therefore needs to be given to a number of factors such as type of invention (if investment in the invention is high that would probably lean things towards patent protection), budget (patents are expensive, trade secret protection is cheap), the expected shelf life of the technology, ease of maintaining confidentiality and also reverse engineering and the need to communicate information to third parties.

IPcopy also thinks it’s worth noting at this point that patents can be used in a variety of ways from the traditional enforcement option through to control of sub-contractors in a supply chain. They also have value in raising investments and in M&A procedures. In many instances therefore a comprehensive IP protection position may be achieved through a suitable blend of patent protection and protection of know how through trade secrets.

In the UK, the law of confidentiality provides protection for trade secrets and a brief detour via Coco v A. N.Clark (Engineers) Limited [1969] was made to highlight the test for confidentiality. Information must be confidential in nature and quality, it needs to be disclosed in a manner which provides an obligation of confidentiality and unauthorised use of the information must cause damage to the owner of the information.

Two cases were mentioned which highlight the need to particularise confidential information in a sufficient manner: Fraser v Thames TV [1984] where a detailed pitch for a TV show was regarded as sufficiently particularised and De Maudsley v Palumbo [1996] where a discussion at a dinner party was not.

EU Trade Secrets Directive

The EU Trade Secrets Directive was adopted in June 2016 though EU member states have two years from that point to incorporate it into domestic law (so around summer 2018).

Protection across Europe is not currently harmonised with few member states either defining trade secrets or how they should be protected. A patchwork of national rules is currently used to provide some level of cover.

The objective of the EU trade marks directive is to harmonise the law relating to trade secrets and to improve the conditions for business activity, facilitating R&D cooperation across borders and reduce the risks that come with multiple different legislation types.

The EU Directive provides a consistent definition of a trade secret (3 elements: information must be confidential; it should have commercial value; holder of information should have made efforts to keep it confidential) and also introduces definitions for Trade Secret Holder, Infringer and Unlawful acquisition, use or disclosure.

The Directive provides a number of defences (e.g. independent creation and observation of an object made available to the public) and a number of remedies such as interim/final injunctions, corrective measures (e.g. recall and destruction of goods) and damages. A limitation period of 6 years is also established for bringing claims.

US Defend Trade Secrets Act of 2016

Trade secrets in the US are primarily governed by State law with the Uniform Trade Secrets Act being adopted by 47 of the 50 states. At the Federal level, the Economic Espionage Act (EEA) makes a criminal offence of the misappropriation of a trade secret.

The Defend Trade Secrets Act of 2016 (DSTA) was signed into law in May 2016 and amended the EEA to create a federal private right of action for trade secret misappropriation. The DTSA  provides a similar definition of a trade secret to the EU trade secrets directive and also defines four acts which constitute misappropriation.

The DTSA also provides for a number of remedies including injunctive relief, damages, exemplary damages (2 times damages are available for willful misappropriation) and reasonable attorney fees.The DTSA also provides a limitation period though this is only 3 years compared to the 6 years available under the EU Directive.

Wrap up

IPcopy notes that trade secrets form the framework for acquiring intellectual property rights such as patents and designs and can be as important  as other IP rights given that there is no lifespan on confidentiality. The DSTA and EU Trade Secrets Directive give the promise of a more consistent approach to trade secret protection across the member states of the EU and the US with better prospects for enforcement.

Mark Richardson 11 October 2016


1 Comment

  1. Donal O'Connell says:

    The DTSA passed in early 2016 means that simply deciding to keep something secret is not sufficient !

    I suggest that trade secret asset management consist of a diverse range of elements, such as:

    · Having a trade secret policy in place

    · Designing, developing and deploying a trade secret process within the organisation

    · Taking a robust fit for purpose trade secret asset management system into use to underpin that process

    · Including a section on trade secrets to the basic IP training for all employees

    · Identifying trade secrets across the entire organisation

    · Identifying any trade secrets shared with 3rd parties

    · Identifying any trade secrets belonging to 3rd parties and entrusted to the company

    · Putting the appropriate administrative, legal and technical protection mechanisms in place

    · Gathering metadata about the trade secrets for management purposes

    · Installing a culture of confidentiality within the company as far as trade secrets are concerned

    · Putting a governance structure in place

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