Category: Trade Secrets

Careless Behaviours Can Destroy Trade Secrets

Trade secrets can provide an organisation with a strong competitive advantage, provided they are reasonably protected.  A recent case highlights how the careless use of remote working software can undermine that protection, resulting in the information losing its trade secret status and the owner losing control over it.

 

Trade Secrets – An Important Intellectual Asset

Trade secrets are an important form of intellectual property that protect information that has value to a business and its commercial activities, but is generally not known outside of the organisation.

Typically, trade secrets are characterised as:

  • Not in the public domain
  • Contributing significant value to a business
  • Subject to reasonable steps to keep the information secret

Examples of the types of confidential information that may qualify as trade secrets include: business processes, practices and methods; business strategies; customer information; ideas for commercial opportunities; formulae; recipes.

Trade secrets define a business’s competitive advantage, and if leaked, they have the potential to damage the organisation’s market position.  The law provides protection to prevent third parties using this information, without authorisation, to gain an unfair competitive advantage.  However, steps must have been taken to protect the information, such as contracts, non-disclosure agreements, restraints of trade, access control, and staff education.

 

Poor Use of Video Conferencing Software Can Compromise Trade Secrets

The Covid-19 pandemic has resulted in many companies and their employees working away from the office.  This often involves the use of a variety of remote working and video conferencing software tools.

A recent ruling from the USA (Smash Franchise Partners, LLC v. Kanda Holdings, Inc) highlights the importance of good business practices when adopting and using new technologies.

The defendant in the case (Todd Perri) was interested in obtaining franchise rights from Smash Franchise Partners (“Smash”) and had participated in a number of meetings with Smash and some of its franchisees to learn more about the business.  The videoconferencing technology from Zoom was used in preference to in-person meetings because of the current pandemic.

Perri subsequently decided to launch his own business without working with Smash.  Smash accused him of misappropriating its trade secrets, and sought an injunction to stop the use and disclosure of this information.

The court noted that, assuming the information concerned did qualify as trade secrets, Smash had not taken reasonable steps to protect the information when using the videoconferencing software.  In particular, they had not utilised the various security features that the Zoom software provides:

  • Meeting passwords were not used
  • The waiting room feature was not used to screen participants, in order to verify their identity and control access to the meetings
  • The same meeting code had been used for all meetings
  • Meeting details were made freely available to anyone who expressed an interest in the franchise and had completed an introductory call
  • There was no obligation on invitees to keep the meeting details secret and participants could readily share the meeting link with others

The court also noted that, although Smash had some procedures in place, these were not followed either:

  • A roll call should have been taken at the beginning of a meeting, and anyone who should not have been on the call should have been removed – this was not done
  • Twenty meeting participants could not be identified, and thus it could not be determined whether these people had signed NDAs.

Since the information concerned had not been managed in a way that would be expected for a trade secret, the injunction to stop the use and disclosure of the information was denied.

 

Ensure Your Business Understands and Protects Its Intellectual Assets

If managed appropriately, trade secrets can last forever and provide immense value to a business.  The recipe for Coca-Cola, and the search algorithm behind Google, are prime examples.

However, trade secrets as an intangible asset are often be overlooked by employers and employees alike.  If not managed and protected accordingly, they can be instantly lost with potentially severe consequences for a business.

The way we work is constantly changing, whether through ongoing technological innovation, or because of the impact of major events such as Covid-19.  Anyone engaged by an organisation (e.g. directors, employees or contractors) needs to ensure their business responsibilities, including those to intellectual property, are not forgotten or left behind.

Adhering to relevant business processes, as well as understanding and making appropriate use of the security features of the technologies being used, is extremely important.  Seemingly innocuous acts or oversights can easily and inadvertently undermine or destroy a company’s competitive position.

Alistair Curson

 

References

Bainbridge D. (2012). Intellectual Property, 9th edn, Pearson Education Limited, Harlow, England.

Baldocchi J, Stover E. (2020, September 08). “No Trade Secret Protections for Information Discussed Via Open Zoom Call”. Retrieved October 20, 2020, from: https://www.paulhastings.com/publications-items/details/?id=f470fe6f-2334-6428-811c-ff00004cbded

Batty R. (2016). “’Trade Secrets’ Under New Zealand Law”. Canterbury Law Review 22, 235-268. Retrieved October 19, 2020 from: http://www.nzlii.org/nz/journals/CanterLawRw/2016/12.pdf

Chintalapoodi P, (2020, October 06). “Court Finds That Trade ‘Secrets’ Aren’t Secret on Zoom Call”. Retrieved October 19, 2020, from: https://www.chiplawgroup.com/court-finds-that-trade-secrets-arent-secret-on-zoom-call/

Curson AD. (2019, August 20). “Trade Secrets – Overlooked and Undervalued”. Retrieved October 19, 2020, from: http://adcpatentsearch.co.nz/IP_Analytics_NZ/?p=235

EverEdge Global. (2019, July 30). “Preventing the Leakage of Confidential Information”. Retrieved August 14, 2019, from: https://www.everedgeglobal.com/blog/confidentialinformationleak

EverEdge Global. (2019, July 30). “Understanding Trade Secrets and Confidential Information”. Retrieved August 14, 2019, from: https://www.everedgeglobal.com/blog/tradesecrets

EverEdge Global. (2019, July 30). “US$600 Billion and Rising: Confidential Information and Trade Secret Theft”. Retrieved August 14, 2019, from: https://www.everedgeglobal.com/blog/tradesecrettheft

McDonald A. (2019). “Trade Secrets and Confidential Information”. Retrieved October 19, 2020, from: https://www.amcdonald.co.nz/information/intellectual-property-law-barrister/trade-secrets-confidential-information/

Ministry of Business, Innovation and Employment Hikina Whakatutuki. (2019). “Types of intellectual property”. Retrieved October 19, 2020, from: https://www.business.govt.nz/risks-and-operations/intellectual-property-protection/types-of-intellectual-property/

New Zealand Crimes Act 1961, s230. Retrieved October 19, 2020, from: http://www.legislation.govt.nz/act/public/1961/0043/latest/DLM330238.html

New Zealand Intellectual Property Office. “Trade Secret”. Retrieved October 19, 2020, from: https://www.iponz.govt.nz/assets/pdf/IP-cards/ip-card-trade-secret.pdf

Nirwan P. (2017, December). “Trade secrets: the hidden IP right”. Retrieved October 20, 2020, from: https://www.wipo.int/wipo_magazine/en/2017/06/article_0006.html

Peart S. (2018, May 30). “Protection of Trade Secrets”. Retrieved October 19, 2020, from: http://www.marksandworth.nz/news/articles/protection-of-trade-secrets

Smash Franchise Partners, LLC v. Kanda Holdings, Inc [2020] Court of Chancery of the State of Delaware, C.A. No. 2020-0302-JTL.  Retrieved 20, October 2020, from: https://law.justia.com/cases/delaware/court-of-chancery/2020/c-a-no-2020-0302-jtl.html

Suleymanova R. (2020, October 18). “As new wave of COVID-19 cases hits, remote work becomes the norm”. Retrieved October 20, 2020, from: https://www.aljazeera.com/economy/2020/10/18/with-new-lockdowns-looming-remote-work-feels-like-forever

Tillery MK, Cline JJ, Wheatley EL. (2020, August 28). “Delaware Court of Chancery: Companies Must Maintain Trade Secret Confidentiality in a Remote World”. Retrieved October 20, 2020, from: https://www.troutman.com/insights/delaware-court-of-chancery-companies-must-maintain-trade-secret-confidentiality-in-a-remote-world.html

Learning Lessons from Cartographers to Protect Intellectual Property

Most businesses will have copyright-protected works as a part of their overall IP portfolio.  For some, these works may be the core of their business, such as literary works or other documents, music, art or software code.  How can these businesses effectively protect themselves against copyright theft and infringement?

 

Copyright Infringement and Independent Creation

For a work to attract copyright protection, it must be original.  This does not mean that the work is new.  Rather that it originated from the author who displayed reasonable independent labour, skill and judgment to create the work.  In other words, the author didn’t copy the work from another source.

It is possible for two authors to independently create very similar works.  Provided they did not copy from either each other (or from someone else) then there would be no infringement of copyright.

For copyright infringement to occur, the following need to be satisfied:

  1. There needs to be a valid copyright in a work and ownership of it
  2. The alleged infringing work needs to show a level of objective and striking similarity to the copyright-protected work – a clear resemblance
  3. There needs to be a causal connection between the two works – facts that suggest that copying of the copyright-protected work is likely to have occurred in the creation of the infringing work
  4. There should be copying of a “substantial part” of the copyright-protected work – this is based on quality rather than quantity, as well as the relative importance of the copied elements to the copyright-protected work

Any evidence, or that lack thereof, to support an independent pathway of creation will be important in deciding a case of copyright infringement.  This is where copyright traps can be particularly useful, especially for establishing a causal connection between works.

 

Copyright Traps and Paper Towns

Copyright traps are an established technique to address infringement and plagiarism across a range of works.

The practice involves including a small or trivial item of false information within a work, or details and design features that are unique to the work, and are thus highly unlikely to originate at random in a separate work from a third party.  The latter are often used to ensure the integrity of the original work and the information it contains are not compromised nor misleading to the end user.  In both scenarios, these traps provide a strong causal link to demonstrate that copying had occurred.

Within the discipline of cartography (map making), the use of “paper towns” is the inclusion of a non-existent town, or other unique details such as road widths, on a map.

A famous example is the fictitious town of Agloe in New York State, USA.  Included in maps drawn by the General Drafting Company in 1937 as a copyright trap, an actual hamlet with a general store, gas station and two houses, was eventually built on the site (although it has now long since been abandoned).

In another case from the early 2000s, the UK’s Ordnance Survey (national location and mapping agency) won a £20m compensation from the UK’s Automobile Association (the AA) for the unauthorised copying of its maps in the publication of various atlases, town plans and maps by the AA.  In the conclusion to a long running dispute, the Ordnance Survey were able to demonstrate evidence of copying based upon specific style features and design elements included in their maps, which also subsequently appeared in the AA maps.

 

Applications to Other IP Rights

The principle behind copyright traps and “paper towns” can be applied to a number of IP rights to guard against theft and infringement, and to provide important evidence to resolve disputes.

The technique has applications in documentation relating to trade secrets to detect the leakage of the information to third parties.  Within software development (a field of particular relevance to the tech industry here in New Zealand), the practice of embedding a unique identifier within a piece of code is known as “watermarking”.

Such traps can be a standard inclusion within documentation, software code and other works.  Alternatively, they be applied on an ad hoc basis to investigate suspected ongoing theft or infringement by introducing a change or false information and seeing if it is propagated by the alleged infringer.

Proving IP theft and infringement can be difficult, time-consuming and expensive.  Provided the use of “paper towns” and copyright traps do not lessen the quality or integrity of the product or service you provide, then this is a strategy to consider in order to protect your intellectual property.  They can provide you with valuable evidence and put you in a strong position to stop the theft of your IP and the subsequent damage to your business.

Alistair Curson

 

References

Bainbridge D. (2012). “Intellectual Property”. 9th edn, Pearson Education Limited, Harlow, England.

Clark A. (2001, March 06). “Copying maps costs AA £20m”. Retrieved April 02, 2020, from: https://www.theguardian.com/uk/2001/mar/06/andrewclark

Curson A. (2019, August 06). “Copyright – Originality”. Retrieved April 01, 2020, from: http://adcpatentsearch.co.nz/IP_Analytics_NZ/?p=231

Fasthoff Law Firm. (2016, November 27). “Anatomy of a Copyright Infringement Case: Defenses to Allegations of Copyright Infringement”. Retrieved April 01, 2020, from: https://www.fasthofflawfirm.com/anatomy-copyright-infringement-case-defenses-allegations-copyright-infringement/

Grundhauser E. “Agloe, New York”. Retrieved April 03, 2020, from: https://www.atlasobscura.com/places/agloe-new-york

Hamilton J. (2010, July 08). “What is software watermarking?”. Retrieved April 03, 2020, from: https://jameshamilton.eu/research/what-software-watermarking

Interlego A.G. Appellant v Tyco Industries Inc. and Others Respondents [1989] AC 217.

Ladbroke (Football) Ltd v William Hill (Football) Ltd [1964] 1 WLR 273.

McDonald A. (2019). “Copyright Law”. Retrieved April 01, 2020, from: https://www.amcdonald.co.nz/information/copyright-law-barrister/

New Zealand Copyright Act 1994, s16. Retrieved April 01, 2020, from: http://www.legislation.govt.nz/act/public/1994/0143/117.0/DLM345923.html

New Zealand Intellectual Property Office. “Copyright: Ownership and Protection”. Retrieved April 01, 2020, from: https://www.iponz.govt.nz/about-ip/copyright/ownership-and-protection/

O’Connell D. (2020, March 27). “Trade Secrets & Paper Towns”. Retrieved April 01, 2020, from: https://www.linkedin.com/pulse/trade-secrets-paper-towns-donal-o-connell/?trackingId=UPyO0WRnS6GZYnDa8PrRLw%3D%3D

Ordnance Survey. (2020). “About us”. Retrieved April 02, 2020, from: https://www.ordnancesurvey.co.uk/about

Wikipedia. (2020, March 13). “Agloe, New York”. Retrieved April 03, 2020, from: https://en.wikipedia.org/wiki/Agloe,_New_York

Wikipedia. (2020, March 02). “Fictitious entry”. Retrieved April 01, 2020, from: https://en.wikipedia.org/wiki/Fictitious_entry

Wikipedia. (2020, March 26). “Ordnance Survey”. Retrieved April 02, 2020, from: https://en.wikipedia.org/wiki/Ordnance_Survey

Trade Secrets – Overlooked and Undervalued

At the time of writing, there is a case being heard at the District Court of New Zealand (Te Kōti ā Rohe) of an Auckland-based architect accused of stealing trade secrets.  His former employer claims he had downloaded, without appropriate authorisation, a large number of proprietary documents to a memory stick, including the company’s annual business plan, project files and pricing models.

This case highlights the importance of understanding trade secrets and other confidential information, how to protect them, and the obligations of those with access.

 

What is a Trade Secret?

Trade secrets protect information that has value to a business and its commercial activities, but is generally not known outside of the organisation (i.e. is not in the public domain).

Trade secrets define a business’s competitive advantage, and if leaked, they have the potential to damage the organisation’s market position.  The law provides protection to prevent third parties using this information, without authorisation, to gain an unfair competitive advantage.

To qualify as a trade secret, the information concerned should have arisen through the investment of significant time, energy, skill and expense, thus contributing to the value of the business.  Further, the business must have taken reasonable steps to keep the information secret.

Examples of the types of confidential information that may qualify as trade secrets include: business processes, practices and methods; business strategies; customer information; ideas for commercial opportunities; formulae; recipes.

 

Trade Secrets as an IP asset

In the US alone, for example, it is estimated that the economic losses from intellectual property or intangible asset theft are between US$225 and US$600 billion each year.  Almost every country and company have the potential to be affected by this type of crime.

For many organisations, trade secrets are often neglected or overlooked.

Recommended good practice towards the effective management of trade secrets involves steps that include firstly identifying the intangible assets your business owns.  Following this, determining which of these assets are critical and which less so, and attempting to value them.

This leads to the assets being identified as trade secrets, confidential information and general information.  Confidential information, for example, may also be important to a business’s market position, but would have less of an impact than a trade secret if leaked.

Once the assets have been categorised, a business should prepare proactive policies and processes to assert, monitor and protect the information.  This can include contractual guidelines, non-disclosure agreements, restraints of trade (non-competes), access control, and education and awareness programmes for staff.

Should a leak occur, this would typically be remedied through breach of contract, or in the absence of a contract, breach of confidence

 

Summary

Trade secrets is an area within the field of intangible assets that can often be overlooked by employers and employees alike.

Businesses and employers may not realise the value of this type of information and thus not protect it appropriately.  They should ensure that they fully evaluate the information that is critical to their commercial activities and manage it accordingly.

Whether a director, employee or contractor, those engaged by an organisation or other entity should understand the importance of trade secrets, as well as their own obligations, both during and after their period of engagement, with regards the information to which they may have become privy.

Alistair Curson

 

References

Bainbridge D. (2012). “Intellectual Property.” 9th edn, Pearson Education Limited, Harlow, England.

Batty R. (2016). “’Trade Secrets’ Under New Zealand Law”. Canterbury Law Review 22, 235-268. Retrieved August 14, 2019 from: http://www.nzlii.org/nz/journals/CanterLawRw/2016/12.pdf

EverEdge Global. (2019, July 30). “Preventing the Leakage of Confidential Information”. Retrieved August 14, 2019, from: https://www.everedgeglobal.com/blog/confidentialinformationleak

EverEdge Global. (2019, July 30). “Understanding Trade Secrets and Confidential Information”. Retrieved August 14, 2019, from: https://www.everedgeglobal.com/blog/tradesecrets

EverEdge Global. (2019, July 30). “US$600 Billion and Rising: Confidential Information and Trade Secret Theft”. Retrieved August 14, 2019, from: https://www.everedgeglobal.com/blog/tradesecrettheft

Hurley S. (2019, July 19). “Auckland architect accused of stealing trade secrets”. Retrieved August 15, 2019, from: https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12250740

McDonald A. (2019). “Trade Secrets and Confidential Information”. Retrieved August 10, 2019, from: https://www.amcdonald.co.nz/information/intellectual-property-law-barrister/trade-secrets-confidential-information/

Ministry of Business, Innovation and Employment Hikina Whakatutuki. (2019). “Types of intellectual property”. Retrieved August 10, 2019, from: https://www.business.govt.nz/risks-and-operations/intellectual-property-protection/types-of-intellectual-property/

New Zealand Crimes Act 1961, s230. Retrieved August 14, 2019, from: http://www.legislation.govt.nz/act/public/1961/0043/latest/DLM330238.html

New Zealand Intellectual Property Office. “Trade Secret”. Retrieved August 10, 2019, from: https://www.iponz.govt.nz/assets/pdf/IP-cards/ip-card-trade-secret.pdf

NZCity. (2019, July 10). “An Auckland architect is facing a rare charge of stealing trade secrets”. Retrieved August 11, 2019, from: https://home.nzcity.co.nz/news/article.aspx?id=293572

Peart S. (2018, May 30). “Protection of Trade Secrets”. Retrieved August 14, 2019, from: http://www.marksandworth.nz/news/articles/protection-of-trade-secrets