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

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