90 2 Trade Secret Enforceability Loss and Consequences


Okay, let’s spend 9 minutes or so discussing
enforceability of trade secrets. I mean, think about it, since there are no
trade secret filings or registrations or certificates, how do you even know if you even have an enforceable
trade secret? Well, you can’t know for sure until you
try to enforce it in court against a thief. So, let’s consider the enforceability question
in terms of how a court would look at it. Now, this varies state to state and country
to country, but here are four general considerations: First, is the information proprietary to you,
and does your proprietary information provide a valuable competitive advantage as long as
it’s kept secret? For example, does your algorithm for assessing
investment data provide an edge over rival firms as long as these rivals don’t know
the algorithm? Second, were your trade secret protections
operational and adequate based upon the value of your trade secret? For example, did you have a strict trade secret policy in place to restrict access on a need-to-know basis? Did you have the right physical security in
place with all the right access controls, passwords, encryptions of messaging, firewalls,
and other technical security? And did you have the right legal safeguards
in place such as the use of non-disclosure agreements and trade secret markings on documents? Third, did you rigorously follow your trade
secret process? Because it’s one thing to HAVE trade secret
policies and processes in place; it’s just as important to be able to prove you rigorously
followed them. Can you prove you followed your own trade
secret policies and processes? Fourth, was your secret still secret at the
time of the theft? Because the main weakness of a trade secret
is that once it’s publicly disclosed, your trade secret is gone. If your answer to any of these questions is
no, you do not have an enforceable trade secret. So, what’s the loss to you if your trade
secrets are exposed to the world? Well, your company will lose the competitive
advantage that went hand-in-hand with that trade secret. Your trade secreted technology might be the
main reason you’re able to differentiate your products and services in the marketplace. It might be giving you the lowest cost, the
fastest delivery, or the best quality. But, it’s even worse than that. Keep in mind, trade secrets don’t just appear
out of nowhere. You’ve probably invested a fortune in time
and money developing and maintaining your trade secrets. You need exclusivity to get a return on your
massive investment. With the loss, not only will you lose your
exclusivity, your competitive advantage, but since your competitors will get it for free,
you’ve handed them a massive financial advantage. Since they don’t have to get a return on
the investment they never made, they’re actually ahead of you. So, what about personal consequences? What if you didn’t steal the trade secrets,
you were just careless? Well, being the person who lost a valuable
asset will stay with your forever. You might always be known as the one who gave
away the corporate jewel. Your reputation could be permanently stained. All the good you’ve done throughout your
career could evaporate, be replaced by this mistake, this mistake that could cost your
employer millions. You could lose promotions, pay increases,
and even your job. And, it gets much, much worse if you did more
than just LOSE it or inadvertently give it away. If you stole the trade secret and sold it
or used it elsewhere, you’ll lose a lot more than your reputation and your job. With theft, you can also lose your freedom. A few years ago, an Austrian court convicted
a man from American Superconductor for selling trade secrets to their number one customer,
Sinovel. He was sentenced to a year in prison and two
years of probation. Yes, that was probably a miserable year for
him. But, the company paid an even bigger price. You see, the only reason Sinovel was paying
American Superconductor as a supplier was because Sinovel didn’t know how to make
the software for controlling the flow of electricity in connection with wind turbines. It was an American Superconductor trade secret. As soon as Sinovel discovered the secret,
they stopped buying from American Superconductor. Because of this trade secret theft, American
Superconductor suffered damages of over 800 million dollars and their stock plunged by
almost 80%. Yes, the thief went to jail, but the company
was devastated. In March 2014, a man was found guilty of stealing
the trade secreted process for the whitening powder for Oreo cookies from a US company,
du Pont, then selling that trade secret to a state-owned company outside the US. But, this secret wasn’t just about the creamy
filling. It applied to hundreds of products including
paints, plastics, paper, rubber, and cosmetics, with worldwide sales of around 17 billion
dollars. Since the trade secret theft was for the benefit
of a government which is foreign to the US, the guy was convicted under the US Economic
Espionage Act and sentenced to 15 years in prison. In another case, on August 8, 2012, a man
was sentence to three years in prison after being convicted for stealing almost a billion
dollars’ worth of technical trade secrets from Intel to use in his work at AMD. I think this guy now appreciates the foolishness
of thinking he could get away with stealing trade secrets from a company who’s founder
coined the phrase, “Only the paranoid survive.” Keep in mind, when you leave your employment,
you cannot take your trade secret information with you. Notes, designs, prototypes, lists, or any
other confidential information. You don’t own your company’s trade secrets,
they do—even if you developed the technology. And while you cannot erase what’s in your
head, if it’s trade secreted information, you can’t use it anywhere else. Now, most of us are honest and want to do
what’s best for our employer—and most of us don’t want to go to prison. But having an honest personality doesn’t
mean we won’t destroy trade secrets by accident. Remember, trade secrets can be extremely fragile. So, let’s discuss how trade secrets are
typically lost. The number one way to lose trade secrets usually
occurs without malicious intentions. Simply tell someone who doesn’t need-to-know
and in a moment your trade secret could evaporate. Imagine a trade secret circle. Those who need-to-know are on the inside and
those who do not need-to-know are on the outside. Never disclose a trade secret outside of the
circle. And keep in mind, ANYONE can be outside of
the circle, not just competitors. It could be customers, prospects, government
officials, even co-workers; co-workers who may have been thoroughly trained on trade
secrets; managers, directors, it doesn’t matter. If they don’t need-to-know, they’re outside the trade secret circle, and you cannot tell them. So, what’s the number one reason why this
is the number one way trade secrets are lost? People are unaware. They’re unaware of the rules associated
with trade secrets. They’re unaware of the fragility of trade
secrets. They’re unaware of who they can tell. So, if you’re in doubt about whether you
can tell someone the secret, don’t tell them without approval from your supervisor
or legal counsel. Okay, another way companies lose trade secrets
is by reverse engineering. If experts in the marketplace can take your
product or process or formula and figure out how you do it, it’s not a trade secret
anymore. With this in mind, if you believe your product
can be reverse engineered, a trade secret is not the right form of intellectual property
for you. Instead, you should consider patent protection. Okay, another common way to lose a trade secret
is by competitive intelligence. As the value of your trade secrets increase,
so must your vigilance. If you have a valuable secret, there are people
out there who will do almost anything to get it. They’ll read everything you post online. They’ll be at your conferences and trade
shows, listening and piecing together information. They’ll hack you. They’ll dive into your dumpsters. They’ll be deceitful. They’ll bribe, they’ll steal. Corporate espionage is real. For this reason, be vigilant, be paranoid. Thank you and have a great day!

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