How In-House Counsel can Protect Company Trade Secrets
Trade secrets differ from other forms of Intellectual property (“IP”) in that the mode of their protection is not codified under Kenyan law. This does not mean that they are not important. In fact, if well protected, trade secrets can give an organisation a distinctive competitive advantage. This article considers ways in which in-house counsels can drive the trade secret protection agenda in their organisations.
WHAT IS A TRADE SECRET?
As stated in the preceding section, there is no legislation in Kenya governing trade secrets and hence no local definition of the term “trade secret”. However, Kenya is a member of the World Trade Organisation and by extension a party to the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. This Agreement sets the minimum standards for regulation of various forms of IP, including trade secrets. According to Article 39 (2) of TRIPS, trade secrets contain three distinctive characteristics: –
- 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;
- commercially valuable because it is a secret; and
- reasonable measures have been put in place to keep the information secret.
Accordingly, any and all information that meets the above requirements may be considered a trade secret. Typical examples of trade secrets include strategy and business plans, customer/client lists, pricing lists, products, models, marketing and sales plans, financial projections, financial statements, budgets, test procedures, proposed products, source code, software, hardware, employee employment records, salary, etc.
TRIPS further provides that the owner of a trade secret has the right to prevent the information from being disclosed, acquired or used by others without their lawful consent.
STEPS FOR PROTECTING TRADE SECRETS
In-House counsel can drive the protection strategy in the ways discussed below.
1. Sensitize Management
In-House projects work best when supported by the leadership and other key stakeholders within an organisation. As a first step, the Head of Legal or the departmental leader should sell the agenda of trade secret protection to management teams so as to get their buy-in. The most effective way to get buy-in is to demonstrate the benefits of the project to the organisation. Some potential advantages include:-
- unlike other forms of IP such as trademarks, patent or copyright, trade secrets do not expire within a defined period. As long as the information remains unknown to the public, it remains a trade secret.
- when you apply for a trademark or patent, you must disclose the trademark or invention that you intend to protect. A trade secret remains secret meaning no disclosure is required to attain protection.
- trade secrets are relatively cheap and easy to obtain because they do not require a registration process or fee.
2. Develop Trade Secret Protection Procedures
Trade secrets can be protected through a raft of internal and external measures. Internal protection measures include IT security measures such as data encryption, data access controls, firewalls, etc. Physical controls are also useful in internal protection. For example, biometric access should be installed for strong rooms, filing spaces and any other place where trade secrets are kept. Further, use fireproof safes for storing confidential information. Finally, use physical controls to restrict access to office spaces. For documents, consider measures such as marking hard and soft copy information as confidential. Finally, endeavor to limit access to confidential information by sharing it on a need-to-know basis.
When working with external parties, such as suppliers and contractors use a confidentiality agreement. You can get more information on 3rd party confidentiality agreements in my earlier article accessible here.
3. Determine Applicable Enforcement Measures
According to the World Intellectual Property Organisation, 80% of trade secrets are leaked or stolen by employees and trusted insiders. If there are no consequences for breach of the policy, then it will be hard to get the desired results from your employees. Demand adherence to trade secret policies in your employment policies and contracts by stating that deliberate leakages may lead to termination of employment. Contracts can also specify further action such as seeking injunctive orders to prevent further leakages and monetary compensations (damages) for any loss suffered.
4. Maintain a Culture that Promotes Secrecy of Information
Prior to hiring, conduct reference checks on prospective employees. The checks should determine the employee’s propensity to leak/mishandle company information. Once they join the company, train them on the need to maintain confidentiality and require them to sign employee confidentiality agreements. During the course of employment, conduct regular refresher training on confidentiality. There is no hard and fast rule on the frequency of the training but at a minimum, they should be done annually. Conduct exit interviews and remind employees that the duty to protect trade secrets continues post-employment. The duty to maintain confidentiality survives the employment contract. This means that if there is an attempt to move with the information to a competitor, the employee should be informed that the enforcement measures will still apply.
5. Promote Employee Loyalty
Keeping trade secrets confidential is an uphill task that cannot be fully accomplished by merely setting out organizational policies and processes. If employees do not commit to the success of your policies, they will have limited effectiveness. Employee commitment comes from loyalty and this in turn comes from developing a favourable workplace culture. Employees will feel committed to your cause where the organisational culture is open, low power distance, genuine care, and concern and a general familial feel. Advocate for cultural change through the initiation of staff welfare activities or attractive pay packages that encourage observance of trade secrets protection.
Compared with other forms of IP, it is fairly easy to protect trade secrets. A Trade Secret Policy can help in effective management of trade secrets. The success of this policy hinges on the culture of your workplace. Without a transparent culture that promotes loyalty, you may not get enough traction in your promotion activities.