Business development · 9 July 2018

Understanding the new rules for protecting trade secrets

Intellectual property
A new three-part definition of a trade secret has been introduced

As the EU Trade Secrets Directive is incorporated into UK law, Grid Law founder David Walker explains the new definition of what a trade secret is and how the legislative changes will affect small business owners in Britain.

We’re all looking for ways to give our business a competitive advantage. When you find one, it’s likely to have been through the investment of considerable time, resources and expertise, so naturally you will want to protect it.

In many situations, intellectual property rights will give you this protection. For example, you can register a patent to protect how an invention works or register a design to protect how a product looks.

However, in some circumstances these intellectual property rights don’t give you the protection you need.  Some ideas, for example the secret recipe for Coca Cola, are very difficult to protect because they don’t qualify for patent or registered design protection.

Others ideas, such as Google’s search algorithm, are constantly evolving. Applying to register a patent can take years, so before your patent is granted, the evolving technology will be out of date and the patent will be worthless.

Another disadvantage of the patent system is that in exchange for being given the exclusive right to commercially exploit your invention, you must disclose to the world how it works. This means your competitors can review your patent (because it’s available for free on an online database) and if it isn’t as strong as it could be, they may be able to find a way around it.

So, how do you protect your ideas in these circumstances?

It sounds simple, but you could keep them secret and this may have advantages over other forms of intellectual property.

There’s no time limit on how long a trade secret will protect confidential information (unlike a patent that expires after 20 years) and in some cases they can create myths and intrigue which are a marketing goldmine.

For example, KFC’s recipe of “11 herbs and spices” is a closely guarded trade secret. I’ve heard stories that when KFC upgrades its security systems, the original copy of the recipe (which was hand written by Colonel Sanders himself) is moved to a secure location in an armoured car escorted by a high-security motorcade.

Whether this is true or not doesn’t matter, it’s a great story which gets KFC talked about.

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In the UK, we’re very lucky because English law is seen as the “gold standard” across the EU for protecting confidential information. However, a new piece of legislation, the EU Trade Secrets Directive, has been introduced to harmonise the laws relating to the protection of trade secrets across the EU.

As Brexit hasn’t happened yet, we have incorporated this EU Directive into English law by enacting the Trade Secrets (Enforcement etc) Regulations.

Our existing laws already provide a higher standard of protection than these new regulations but there’s one key difference that all business owners must be aware of.

This difference comes from a new three-part definition of what a trade secret is. The Regulations say a trade secret is information that:

  • Is secret in the sense that it’s not generally known among or readily accessible to people within the circles that normally deal with the kind of information in question;
  • It has commercial value because it is secret; and
  • The holder of the information has taken reasonable steps to keep it secret.

It’s this third element that makes the difference. Now, if your trade secret is ever stolen and you want to take legal action to recover damages for your losses, you will have to show that you took reasonable steps to keep it a secret.

However, the Regulations don’t define what “reasonable steps” are and it will take a while for cases to go through the courts to decide this. In the meantime, we should all be taking practical steps to proactively protect our trade secrets.

What is considered “reasonable” will be different for every business and will depend on the value you place on your trade secrets. It will also be different for a business actively involved in developing new technology compared to another business where trade secrets may occasionally be discovered by chance.

So, where do you start?

First, you need to carry out an audit so know what trade secrets your business already has and to understand how new trade secrets are created.

When you know this, you need to decide how they will be stored. For example, should they be written down on paper or saved onto discs and memory sticks to guard against computer systems being hacked?

What other security measures are needed to protect them? Do they need to be encrypted or kept in a safe?

Are the folders, discs, memory sticks etc clearly labelled so that it’s clear they contain trade secrets and confidential information?

Your business will need to use the trade secrets – so how will confidentiality be preserved while they are out of secure storage? Will access to them be restricted to only a few employees? What happens when these employees need to share them? What if something goes wrong with this process?

Think for a moment about how easy it is for an email to go to the wrong person. If this errant email contains a trade secret, it could be disastrous for the business. To prevent this, perhaps there should be a policy where employees all look at the same computer or paper copies are distributed instead.

If an employee commits the trade secret to memory and leaves, how will you ensure secrecy is preserved? Do all your employees have strict confidentiality provisions and restrictive covenants in their contracts?

Training and procedures will also be important. Everyone must understand the importance of trade secrets to your business, the damage that’s likely to be caused if a trade secret is lost and the procedures to follow in the event that a trade secret is created.

These are just some ideas of what might be considered reasonable and no doubt you will have your own ideas about how trade secrets can be protected in your business.

A final point to remember is that once a trade secret has been disclosed, the secret is lost for ever. You cannot make information confidential again after it has become public knowledge.

So, not only will these procedures help you in any future legal action, they should also help prevent trade secrets from being inadvertently lost through unauthorised disclosure by an employee.

In reality, this is more likely to happen than trade secrets being stolen because employees will have easier access to them. Inadvertent disclosure through an employee’s mistake is also likely to be more damaging to the business because you won’t be able to recover compensation for your losses.

If you have any questions about protecting your trade secrets or confidential information, please feel free to email me at editors@businessadvice.co.uk and I’ll happily answer them for you.

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ABOUT THE EXPERT

David Walker is the founder of Grid Law, a firm which first targeted the motorsport industry – advising on sponsorship deals, new contracts and building of personal brands. He has now expanded his remit to include entrepreneurs, aiding with contract law, dispute resolution and protecting and defending intellectual property rights.

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