Saturday, April 3, 2021

Is Trade Secret a Good Strategy? A Trade Secret Assessment

The most widely identified Trade Secret is, of course, Coke Cola. (The original formula included caffeine and cocaine – thus the name – but that is a different discussion!) In 1903, cocaine was removed, leaving caffeine as the sole stimulant ingredient, and all medicinal claims were dropped. But the Coke-a-Cola trade secret lives on. Sections below: 

Most Widely Acknowledged Trade Secrets

Other trade secrets include WD-40, Thomas’s English Muffins, the Google search algorithm, Listerine, Mrs. Field’s Chocolate Chip Cookies, Kentucky Fried Chicken, Big Mac special sauce, Bush’s Baked Beans, and the New York Times Bestseller List algorithm

When you look at Strategic Business Planning Company’s Perpetual Innovation™ series of books, you will find descriptions of Trade Secrets and when they might be best utilized. In many cases, trade secrets that are ultimately released in commercial products are more advertising gimmicks than true secrets. Someone with a refined pallet, and a spectrometer, can identify all the elements that go into a bottle of Coke, for example. In which case, the copyrights © and Trademarks ® are more important than the (open) secret. We have had clients that wanted to use Intellectual Property (IP) protection for food products and consumer electronics. In both cases, the secret would be out there for an industrious competitor to reverse engineer once the product is launched. An “outed” secret in a competitor’s hands! A ruthless competitor could utilize all the powers of Intellectual Property against you, and all the powers of unethical business (like knock-offs) as well. 

Probably the best trade secret is related to internal manufacturing where the finished product gives no evidence as to the innovation that yields a competitive advantage. In fact, we have had clients who patent an internal manufacturing process but have no way of determining if competitors adopt the technique inside their factories. The patent application tells them how to improve their processes. Our advice might have been to keep this invention internal as a trade secret. However, once the patent application was filed (published really), the next best approach was to manufacture and sell the new machines that capitalized on the invention. Everyone in the industry needed to upgrade to realize the production improvement.

Our Trade Secrets Assessment Tool

SBP has a Short Trade Secret Checklist and a regular checklist to see if new technology should be considered for protection as a Trade Secret. Here is the short form (with only 6 of the original 11 questions).

As well, here is the interpretation of the checklist assessment in this Short Form example; the score was 4.8 (out of 10). The Longer Form (not shown here) for this same business case was slightly higher at 5.1, up slightly from a low to a medium trade secret position.

If a trade secret is the decision for IP protection, then you will want to develop a Trade Secret Plan. The plan will include how to protect the secret by limiting who knows the secret, confidentiality agreements, etc. The Trade Secret Plan will also address what happens when the secret is exposed. Note the when, not if, here. There might be circumstances where you would expose the secret yourself, maybe in the disclosure associated with a patent application.

#TradeSecret #IntellectualProperty 
#IntellZine #IPplan #SBPlan

Uniform Trade Secrets Act (UTSA)

This is from the UTSA (with 1985 Amendments):

The USTA (Uniform Trade Secrets Act) "trade secret" (UTSA § 1.4) “means information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

The UTSA also provided refinement through comments to the definition of a trade secret itself:

  • Multiple parties may hold rights to the same trade secret, as they may all individually derive value from it.
  • A trade secret ceases to exist when it is common knowledge within the community in which it is profitable. This means that the secret does not need to be known by the general public, but only throughout the industry that stands to profit from it.
  • A party that reverse engineers a trade secret may also obtain trade secret protection for their knowledge, provided the reverse engineering process is non-trivial.
  • Knowledge preventing loss of funds, such as that a particular idea does not work, is valuable and as such qualifies for trade secret protection.

Regarding reasonable efforts to maintain secrecy, the UTSA maintained that actions such as restricting access to a "need-to-know basis" and informing employees that the information is secret met the criteria for reasonable efforts. The UTSA stated that the courts do not require procedures to protect against "flagrant industrial espionage" were not necessary.(Uniform Trade Secrets Act with 1985 Amendments". Retrieved 2020-04-19.)

Remedies. The UTSA provided for several potential remedies for wrongs committed under the act, including injunctive relief, damages, and attorney's fees.

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