In today’s competitive marketplace, it is vital that you have a comprehensive plan in place to protect your intellectual property. While most companies include patents and trademarks as key components of their plan, many overlook the existence, role, and/or value of trade secrets. That mistake can prove costly.
Trade secrets are prevalent in the clean energy sector. In the solar industry alone, the United States has secured convictions of several individuals for economic espionage, e.g., trade secret misappropriation benefiting a foreign government, instrumentality, or agent, with penalties resulting in imprisonment and multi-million dollar restitution awards. Importantly, the vast majority of reported trade secret theft occurs at the hands of current or former employees. And, while a subset of these employees intend to profit from the theft of company secrets, some employees may claim they were unaware of the scope of what they could permissibly disclose. At least with respect to this latter category, some simple steps may help you prevent trade secret misappropriation.
You may wonder whether your company actually possesses enforceable trade secrets. In general, any confidential information that gives your company a competitive edge may qualify as a trade secret, as long as it is not generally known or readily ascertainable by proper means (such as reverse engineering), and provided that you safeguard such information using reasonable measures to maintain secrecy.
Technological trade secrets can develop along two paths. First, you may rationally decide at the outset that trade secret protection would provide greater value than patent protection. This may be the case if a patent would not carve out a meaningful space in the marketplace, if your secret information might provide a competitive advantage for more than a 20-year patent term, if you expect that you can maintain the secrecy of your information, and if you doubt that others could reverse engineer or independently develop your secret. Cost may also be a consideration, as trade secret protection has no upfront costs. However, particularly during early stages of commercialization, it may be difficult to predict when trade secrets will provide greater value than patents.
The second path by which trade secrets develop may be referred to as hindsight recognition. Such trade secrets develop over time, often hand-in-hand with manufacturing experience and the development of technical know-how. These trade secrets may, at times, include combinations of features previously disclosed in patents, provided that the overall trade secret remains valuable, secret, not generally known, and not readily ascertainable through proper means. Particularly if your company engages in commercial manufacture, you may well have trade secrets but not realize they exist. Technological trade secrets often relate to production processes, including chemical reagents, recipes, specialized equipment, process parameters, and/or combinations thereof.
Taking active steps to evaluate and protect your confidential information may help prevent costly misappropriation. First, know your trade secrets. Knowing which information provides you with a competitive advantage will help you devise reasonable steps to protect that information. This may involve a company-wide trade secret audit, resulting in a list of the type of information that may qualify as trade secrets. Importantly, you should balance how broadly you categorize your secrets. Labelling everything “secret” or “confidential” may confuse employees, and devalue the protection of legitimately confidential or secret information. On the other hand, it is important to categorize your secret information broadly enough to ensure that no valuable confidential information falls through the cracks.
Second, once you have a general sense of what type of information needs to be protected, devise a plan for securing that information. Limit disclosure appropriately. For example, limit access to those with a need to know. For facilities where confidential activities like manufacturing occur, restrict access, prohibit photography, and conceal the identities of key components or reagents by using code names. For electronic information, use passwords, encryption, and other appropriate measures. For hardcopy materials, require that employees with access check out materials, and sign and date whenever such information is accessed.
Third, ensure your employees know their responsibilities. This should occur at all stages of employment. Upon hiring, have appropriate terms and conditions spelling out confidentiality obligations; clearly state that the confidentiality of your company secrets never expires. Consider using an employee handbook detailing permissible activities, including whether and/or when employees may work from home, copy company data to personal laptops, or use external ernails or memory devices. For anyone with access to confidential information, implement appropriate levels of training and repeat that training periodically. Importantly, for any departing employees, conduct exit interviews where you explain all ongoing obligations, including at least the obligation not to disclose any company secrets. These issues often confuse employees, so invite discussion, and ask departing employees to contact the company if they are confused about what information they may permissibly tell others. Where an employee has had access to highly valuable information, ask them to formally sign an acknowledgement of their confidentiality obligations prior to their departure. At all times, ensure that employees know what information your company considers confidential, and what steps they need to take to ensure that secrecy is maintained.
Finally, evaluate your agreements with third parties, including vendors, collaborators, purchasers, and any others. When appropriate, ensure that your agreements have robust non-disclosure provisions. If the identity of equipment, chemicals, or other items gives your company a competitive edge, consider including a provision that prevents vendors from telling others about the existence of your business relationship and/or what was sold; discuss these restrictions with the vendors’ sales representatives to ensure that they understand their confidentiality obligations. While it may not be possible to prevent all acts of calculated trade secret theft, these measures may help prevent inadvertent disclosures and thereby help maintain the competitive edge provided by your trade secrets.