The cat-and-mouse game of trade secrets

Every company with trade secrets needs to have a strategy for managing them and dealing with leaks when they occur. Yet, given the fact trade secrets are not a registerable form of IP like trademarks and patents, owners need to know how best to protect these assets themselves and be aware of what recourse is available to them should they need it.

As quiet as a mouse: What is a trade secret?

What can be protected as trade secrets (sometimes known as confidential information) varies from jurisdiction to jurisdiction. Following Article 39 of the TRIPs Agreement, however, trade secrets generally cover information that is not commonly known or readily accessible, has commercial value because it is undisclosed and has been subject to reasonable steps to keep it hidden. Famous examples of valuable trade secrets include the Coca-Cola formula and the Google search algorithm.

Unlike a patent, a trade secret is not granted by an IP office, and so it is incumbent upon the owner to take all steps necessary to keep the privileged information out of the public sphere. Also, the fact there is no registering office to resolve disputes means cases of trade secret misappropriation are heard before civil courts, with the potential for criminal charges in more grievous instances.

The loss of trade secrets affects every sector, from pharmaceuticals to finance. Recent high-profile cases include:

• In October 2023, pharmaceutical company Novartis took legal action in the United States, alleging that a former employee in Egypt transferred 10,000 files to his personal email and later joined competitor Takeda. The case was later withdrawn.
• Biopharma company HDT Bio sued Indian company Emcure Pharmaceuticals "alleging theft of trade secrets" relating to research on a self-amplifying RNA vaccine for COVID-19. U.S. District Judge James Robart dismissed the case without prejudice in December 2023.
• Valeo sued Nvidia, claiming that engineer Mohammad Moniruzzaman, who used to work for Valeo, disclosed "stolen source code" during a videoconference attended by representatives of both companies.
• In another U.S. lawsuit, RVassets has taken action against ED&F Man Capital Markets (now part of Marex) over software for options trading.

Trade secrets disputes can become long and bitter – as in the spats between X and Meta or between Tesla and Rivian – and can even result in criminal actions. To take an example, a Chinese man was recently arrested in Japan on suspicion of stealing trade secrets from Alps Alpine.

However, in this area of IP, more than most others, litigation does not always deliver a satisfying outcome. By the time a case comes to court, the damage may have already been done; the victim of the trade secret misappropriation might not be able to reassert full control over the information, and depending on the extent of any disclosure, a competitive advantage could be lost.

Not letting the cat out of the bag

The best strategy to maintain trade secret confidentiality is to have robust policies and procedures in place, uphold communication and use practical tools to manage employee access and tackle problems as soon as they arise. This requires collaboration across different corporate functions – including IT, human resources and legal – and strong leadership from management that emphasizes the importance of trade secrets and the consequences of their trafficking.

Every company will have to identify where its risks lie and how best to address them, bearing in mind factors such as the sectors it operates in, location, corporate evolution (particularly mergers, demergers and acquisitions) and competitors.

To guide businesses through this process, here are 10 tips that can be applied across different industries:

1. Contracts and terms of employment: Company policy on trade secrets should be prominent in each employee's standard contract, with the consequences of breaching it made clear. If possible, there should be specific references to what constitutes corporate trade secrets so that there can be no doubt about what is covered.
2. Onboarding: New employees should be informed about the corporate trade secrets policy and procedures for securing sensitive information, including in the contexts of remote working, use of personal devices and participation in public-facing events or webinars. This should also take place whenever a new company is acquired.
3. Adaptive approach: Employees responsible for particularly valuable or sensitive data (such as engineers and software developers) should be provided with tailored policies that apply to them, with extra security measures if appropriate.
4. Training: It is unrealistic to expect employees to remember all the information shared in their contracts. Regular training and refresher courses should be provided either in person or online. This could include tests that can be modified for various job roles.
5. Departures: It is essential that employees leaving the company (including retirements, resignations and redundancies) are reminded of their obligations regarding trade secrets and that all sensitive assets are recovered. These could include databases, logins, passwords and software code, as well as hardware. This process should take place before the employee officially departs the organization as it may be harder to communicate with them after the fact.