IP Management:

IP Guide for SMEs

Protecting the Trade Secrets of Your SME

 

By: World Intellectual Property Organisation (WIPO). Used by permission.

What is a Trade Secret?

How are Trade Secrets Protected?

Example

Precautionary Measures to be Taken by Your SME

Patents or Trade Secrets?

Cases in Which Your SME May Benefit from Trade Secret Protection

What is a Trade Secret?

Broadly speaking, any confidential business information which provides an enterprise a competitive edge may be considered a trade secret. Trade secrets encompass manufacturing or industrial secrets and commercial secrets. The unauthorized use of such information by persons other than the holder is regarded as an unfair practice and a violation of the trade secret. Depending on the legal system, the protection of trade secrets forms part of the general concept of protection against unfair competition or is based on specific provisions or case law on the protection of confidential information.

The subject matter of trade secrets is usually defined in broad terms and includes sales methods, distribution methods, consumer profiles, advertising strategies, lists of suppliers and clients, and manufacturing processes. While a final determination of what information constitutes a trade secret will depend on the circumstances of each individual case, clearly unfair practices in respect of secret information include industrial or commercial espionage, breach of contract and breach of confidence.

 

How are Trade Secrets Protected?

Contrary to patents, trade secrets are protected without registration, that is, trade secrets are protected without any procedural formalities. Consequently, a trade secret can be protected for an unlimited period of time. For these reasons, the protection of trade secrets may appear to be particularly attractive for SMEs. There are, however, some conditions for the information to be considered a trade secret. Compliance with such conditions may turn out to be more difficult and costly than it would appear at first glance. While these conditions vary from country to country, some general standards exist which are referred to in Art. 39 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement):

  • The information must be secret (i.e. it is not generally known among, or readily accessible to, circles that normally deal with the kind of information in question).

  • It must have commercial value because it is a secret.

  • It must have been subject to reasonable steps by the rightful holder of the information to keep it secret (e.g., through confidentiality agreements).

  • Example

    An SME develops a process for the manufacturing of its products that allows it to produce its goods in a more cost-effective manner. Such a process provides the enterprise a competitive edge over its competitors. The enterprise in question may therefore value its know-how as a trade secret and would not want competitors to learn about it. It makes sure that only a limited number of people know the secret, and those who know it are made well aware that it is confidential. When dealing with third parties or licensing its know-how, the enterprise signs confidentiality agreements to ensure that all parties know that the information is a secret. In such circumstances, the misappropriation of the information by a competitor or by any third party would be considered a violation of the enterprise’s trade secrets.

    Precautionary Measures to be Taken by Your SME

    Trade secrets are widely used by SMEs. In fact, many SMEs rely almost exclusively on trade secrets for the protection of their IP (although in many cases they may not even be aware that trade secrets are legally protected). It is important, therefore, to make sure that enterprises take all necessary measures to protect their trade secrets effectively. This includes:

  • Firstly, considering whether the secret is patentable and, if so, whether it would not be better protected by a patent.

  • Secondly, making sure that a limited number of people know the secret and that all those who do are well aware that it is confidential information.

  • Thirdly, including confidentiality agreements within employees’ contracts. Under the law of many countries, however, employees owe confidentiality to their employer even without such agreements. The duty to maintain confidentiality on the employer’s secrets generally remains, at least for a certain period of time, even after the employee has left the employment.

     
  • Fourthly, signing confidentiality agreements with business partners whenever disclosing confidential information.

  • Patents or Trade Secrets?

    Trade secrets are essentially of two kinds. On the one hand, trade secrets may concern inventions or manufacturing processes that do not meet the patentability criteria and therefore can only be protected as trade secrets. This would be the case of customers lists or manufacturing processes that are not sufficiently inventive to be granted a patent (though they may qualify for protection as a utility model). On the other hand, trade secrets may concern inventions that would fulfill the patentability criteria and could therefore be protected by patents. In the latter case, the SME will face a choice: to patent the invention or to keep it as a trade secret.

    Some advantages of trade secrets include:

  • Trade secret protection has the advantage of not being limited in time (patents last in general for up to 20 years). It may therefore continue indefinitely as long as the secret is not revealed to the public.

  • Trade secrets involve no registration costs (though there may be high costs related to keeping the information confidential).

  • Trade secrets have immediate effect.

  • Trade secret protection does not require compliance with formalities such as disclosure of the information to a Government authority.

  • There are, however, some concrete disadvantages of protecting confidential business information as a trade secret, especially when the information meets the criteria for patentability:

  • If the secret is embodied in an innovative product, others may be able to inspect it, dissect it and analyze it (i.e. "reverse engineer" it) and discover the secret and be thereafter entitled to use it. Trade secret protection of an invention in fact does not provide the exclusive right to exclude third parties from making commercial use of it. Only patents and utility models can provide this type of protection.

  • Once the secret is made public, anyone may have access to it and use it at will.

     
  • A trade secret is more difficult to enforce than a patent. The level of protection granted to trade secrets varies significantly from country to country, but is generally considered weak, particularly when compared with the protection granted by a patent.

  • A trade secret may be patented by someone else who developed the relevant information by legitimate means.

  • Cases in Which Your SME May Benefit from Trade Secret Protection

    While a decision will have to be taken on a case-by-case basis, in the following circumstances it would be advisable to make use of trade secret protection:

  • When the secret is not patentable.

  • When the likelihood is high that the information can be kept secret for a considerable period of time. If the secret information consists of a patentable invention, trade secret protection would only be convenient if the secret can be kept confidential for over 20 years (period of protection of a patent) and if others are not likely to come up with the same invention in a legitimate way.

  • When the trade secret is not considered to be of such great value to be deemed worth a patent (though a utility model may be a good alternative in countries where utility model protection exists).

  • When the secret relates to a manufacturing process rather than to a product, as products would be more likely to be reverse engineered.

  • When you have applied for a patent and are waiting for the patent to be granted.

  • It is important to bear in mind, however, that trade secret protection is generally weak in most countries, that the conditions for, and scope of, its protection may vary significantly from country to country depending on the existing statutory mechanisms and case law, and that the courts may require very significant and possibly costly efforts to preserve secrecy. Patent or utility model protection, wherever possible, will provide much stronger protection.

     

     

     

     

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