The Importance of Legal Protection of Trade Secrets

Trade secrets are information organizations keep secret to support their competitiveness. The types of information that may be kept as trade secrets are broad. Trade secrets may include, for example: client lists, how products are made (e.g. manufacturing processes), and how products or services function (e.g. computer algorithms).

The first source of #tradesecret protection is simply keeping the information completely secret. In order to benefit from trade secrets, however, organizations often need to share trade secrets with other people. Organizations will, for example, expose trade secrets to their workers, so that their workers can develop products or services that use the trade secrets. Organizations may also #expose trade secrets to business partners, to help develop products or services together, and bring them to market. Once other people become aware of trade secrets, the only protection remaining for trade secrets is #legalprotection.

Legal protection of trade secrets can occur in a variety of forms. The most common form is #enforcement of contracts between trade secret holders and those they share trade secrets with. These include employment contracts and non-disclosure agreements with business partners. Where there is no contract, or even where there is a contract, trade secret holders may seek non-contractual remedies using legislation, common law and equity. The presence of such non-contractual avenues for legal protection, and their effectiveness in protecting trade secrets varies across jurisdictions.

In order to attract non-contractual legal protection, trade secrets must first meet the legal definition of a trade secret under the specific form of legal protection sought. There is no uniform legal definition of trade secrets across countries. In some cases the legal definition of a trade secret varies within countries. The closest we have to a common legal definition of trade secrets across countries is the definition of trade secrets under the World Trade Organization #TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreement.

Under Article 39(2) of the #TRIPSagreement, a trade secret is information that: “(a) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; (b) has commercial value because it is secret; and (c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret”.

The #secrecyrequirement of the definition may sound familiar if you are familiar with other intellectual property rights. Depending on the jurisdiction, the secrecy requirement of trade secrets may coincide with the novelty requirement for patent protection, the novelty requirement for industrial design protection, and the originality requirement of integrated circuit design protection. In other words, legal protection of trade secrets may support protection of intellectual property before other legal protection is sought. Not all trade secrets may meet the remaining criteria for patent, industrial design or integrated circuit protection, however, and in those cases, legal protection as a trade secret may remain the residual form of protection for that information.

The importance of legal protection of trade secrets extends not only to what they could become, such as patented information, but also to how trade secrets may be shared.

Trade secret holders may be required to disclose trade secrets to regulatory authorities to obtain regulatory approval to use a product associated with the trade secrets. This commonly occurs where the safety of a product for employees working on it, and for consumers who may use the product must be established. In other words, trade secret holders may be required by law to disclose trade secrets to be able to develop and market the trade secrets. This is where legal protection of trade secrets is particularly important, because regulatory bodies may also have public information disclosure requirements, that can be interpreted rather broadly to support other public policy objectives, such as a transparent government. In other words, a #tradesecretholder may be required to disclose trade secrets by law to a regulatory body, who may be required by law to disclose them to the public, including competitors of the trade secret holder.

The legal protection of trade secrets from disclosure by regulatory bodies is particularly important, and led, for example in the TRIPS agreement, to specific requirements under Article 39(3) that reflects such a policy balance: “Members, when requiring, as a condition of approving the marketing of pharmaceutical or of agricultural chemical products which utilize new chemical entities, the submission of undisclosed test or other data, the origination of which involves a considerable effort, shall protect such data against unfair commercial use. In addition, #Members shall protect such data against disclosure, except where necessary to protect the public, or unless steps are taken to ensure that the data are protected against unfair commercial use.”

The problem is more insidious with workers. #Workers, such as employees and labourers, may learn of their employer’s trade secrets in the performance of their regular duties. Workers may then leave their employer to work with another organization, including a competitor of their employer. Worker mobility is particularly important for workers, as well as for the functioning of economies, and so is often strongly supported by employment and labour law. Where organizations rely on contracts to limit exposure of trade secrets by their workers after they leave the organization, the employment and labour law of the jurisdiction may limit the enforceability of those contracts, as they represent potential restraints on worker mobility. In other words, to work with the trade secret, the organization must expose it to workers, who then may legally work for competitors and legally expose the trade secrets to competitors, in spite of having signed a contract to the contrary.

The promotion of disclosure of trade secrets occurs in other contexts as well, including the protection of whistleblowers and the protection of freedom of expression of the media.

In each case, there are strong policy objectives supporting the laws that promote trade secret exposure, and without similarly strong legal protection for trade secrets, trade secrets may be readily and legally exposed by regulatory bodies, former workers, and the media. This is particularly likely given the more sympathetic nature of the policy objectives that support trade secret exposure, compared to the policy objectives that support trade secret protection.

The policy objectives supporting #tradesecretexposure, such as open government, mobility of workers, public safety, and freedom of the media may be readily juxtaposed in litigation against the policy objectives supporting trade secret protection, which are readily cast in the light of individual profit. Where the facts of the case before the Court are in addition particularly sympathetic for trade secret exposure, the juxtaposition may have more impact, and Courts may be more motivated to support trade secret exposure. Without strong trade secret legal protection, it may be difficult to ensure consistent Court decisions, and that may lead to legal uncertainty in trade secret protection. Ideally legislators would identify the correct balance between the potentially competing policy factors to ensure consistent decision-making by Courts on a principled basis. We, unfortunately, do not see that often in trade secret law.

Legal protection of trade secrets is necessary to protect the development of trade secrets into other intellectual property, and into products and services that reach the market. Given the breadth of subject matter that may be protected as trade secrets, this necessity extends to a broad array of competitive information in jurisdictions. Given competing policy interests that can favour exposure of trade secrets, legal protection of trade secrets requires breath of application in jurisdictions, and ideally clear legislative guidance to balance the operative policy factors.


By: Ferguson

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