copyright 2000-2004 the trade secret office, inc. all rights reserved trade secret asset management...

COPYRIGHT 2000-2004 THE TRADE SECRET OFFICE, INC. ALL RIGHTS RESERVED

Trade Secret Asset Management

Fall 2004 Product Security and Intellectual Property Protection Summit


Nature of Intangible Assets

• The difference between a company’s market capitalization and its book value represents the market value of its intangible assets.

• Intangible assets include trade secrets, patents, trademarks, copyrights, and brand.

• The bulk of a company’s intangible assets value lies in its trade secrets.


Value of Intangible Assets

• Typical U.S. companies are now about 20% physical assets and 80% intangibles, a complete reversal from the 1960s.

• In high-tech companies, the portion of value accruing from intangibles is even higher.

• Some companies have little or no book value, yet command high share prices.


Value of Trade Secrets

• The total market value of U.S. publicly-held corporations is approximately $11 Trillion.

• The total value of intangible assets held by U.S. publicly held corporations is approximately $9 Trillion.

• The total value of trade secret information held by U.S. publicly held companies exceeds $5 Trillion.


Theft of Trade Secrets

• In 1999, Fortune 1000 companies sustained losses of more than $45 billion from thefts of their proprietary information. – ASIS

• This number has been growing rapidly as information technology makes information more accessible and more portable.


Industry Response

• Industry response has been to secure the access to information.

• Passwords, firewalls, ID badges, key cards, dongles, encryption, and other technology serve to protect the company’s information from outsiders.

• The result is that now the greatest threat to corporate information is theft by insiders.


Theft by Insiders

• Insiders are those to whom the company’s confidential information must be revealed if they are to do their jobs.

• No amount of access control technology can control theft by insiders.

• Different methods are needed to secure information against theft by employees, contractors, vendors, and customers.


The Need for Management

• Access controls only protect against theft by outsiders.

• Trade secret management protects against theft by both outsiders and insiders.

• No trade secret protection program can depend on access controls alone.

• A trade secret management program is required to protect confidential information.


Protection

• The means of protection of trade secrets is the credible threat of litigation to defend them.

• Once access controls have failed or been circumvented, only litigation protects trade secret information from disclosure or use.

• Effective trade secret management is built around the requirements for succeeding in litigation.


Six Required Proofs

• EXISTENCE• OWNERSHIP• ACCESS• NOTICE• USE• DAMAGES

Required only for trade secrets.Should be performed before the infringement occurs!

Required for patents, copyrights, trademarks, and trade secrets

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ExistenceSix factors for determining existence of a trade secret:

• How widely is the trade secret known within the company?

• How widely is the trade secret known within the industry?

• How much has been invested to develop this trade secret?

• What is the economic benefit of the trade secret?

• How hard would it be to independently reproduce the trade secret?

• What security measures have been taken to protect the trade secret?


Ownership

• There is no “work for hire” doctrine in trade secret law, as there is in copyright law.

• If your employee, contractor, vendor or customer develops trade secret information absent an agreement assigning trade secrets to the company, they own the information.


Notice

• The person must know – or a ‘reasonable man’ in his position should realize – what the trade secrets of the company are to be legally bound to respect the company’s info.

• If the IP staff has no inventory of the trade secrets – if you don’t know what they are – then how can a non-specialist be said to know?


Access

• The person has to have had access to the information.

• If you do not know where the trade secret information is, do not have processes in place to track it, and cannot tell how and to whom it is disclosed, how can you prove the information was not independently developed?


Keys to Trade Secret Mgmt.

• Employee education.

• Employee/contractor/vendor/customer/visitor agreements.

• Trade secret inventory.

• Trade secret assessment.

• Trade secret access control.

• Trade secret tracking.


Employee Education

• All employees must be educated on:– What trade secrets are.

– How trade secrets should be handled.

– Their obligations under the law and contract.

• Ask 10 employees at random what the company’s trade secrets are, and what their obligations are with respect to the company’s trade secrets.

• If they cannot answer these questions accurately, you have a serious problem!!


Trade Secret Agreements

• Every employee, contractor, vendor, customer and visitor must execute agreements to respect the company’s rights to trade secret information to which they will be exposed.

• Many types of disclosure – even inadvertent disclosure – constitute a waiver of trade secret rights under the law.


Trade Secret Inventory

• You cannot protect an asset if you don’t know what it is, where it is, and who has it.

• To manage trade secrets you must have an inventory.

• The inventory must list the asset, its location, and the people who have access to it.

• What is “it”?


Trade Secret Assessment

• Existence: Does it qualify as a trade secret?

• Ownership: Does the company have the rights to it?

• Notice: Have people exposed to it been informed of the company’s assertion of rights?

• Access: Are we tracking who has access to it?


Trade Secret Access Control

• One of the six factors for existence is:– How widely is the trade secret known within the

company?

• Wide dissemination decreases protection.• Access to information within the company should

be limited to those with a “need to know”.• Resist the common ISO 9000 solution of posting

all information on the company’s intranet.


Trade Secret Tracking

• You need to track where trade secrets are known or kept, how and to whom they are distributed, and to control casual copying and emailing of trade secret information.

• Records of trade secret distribution should be kept to support the ‘access’ portion of the potential litigation proof.


Implementation

• All of this is well and good to say, but

How do we do it?!?!


Implementation: Education

• You need a culture of trade secret awareness.• Employee education alone is not sufficient, but

there is no trade secret management without it.• Employee education about trade secrets is more

important than the typical “how to fill out a timesheet” or “meet the president” meetings!

• Experienced consulting help in designing employee education programs is vital.


Implementation: Agreements

• Visitor agreements should be incorporated into the badge process.

• Vendor and contractor agreements should be incorporated into the purchase order form.

• Customer agreements should be signed before any presentation of non-public information.

• Employee agreements should be handled by HR and signed before employment starts.

• Beware of trade secret disclosures in the interview process: interviews for some positions may require NDAs first.


Implementation: Inventory

• While you may have millions of individual trade secrets, they are accessed in groups, used in groups, stolen in groups, and litigated in groups, so inventory them by groups.– “marketing plans for server products’– “software requirements for new email product”– “fabrication process for 12” sub-micron wafers”– “recipe for Oreo cookies”

• Automated methods for collection and inventory of trade secret information are in development.


Implementation: Assessment

• Assessment should be done against the four proofs – existence, ownership, notice, and access – and against the six factors.

• Assessments should be kept in a secured database, and periodically updated.

• One output of assessment may be classification into one or more categories.

• Automated means are in development.


Implementation: Access Control

• Access control methods must be tailored to the company’s business and culture:– Trade secret documents may include status

notifications on every page.– Email systems may include key word searches to defeat

casual distribution or distribution outside the company.– Secret and top secret information may be printed on

anti-copy ‘black-out’ paper.– Top secret information may be distributed on hard-copy

only with tracked, numbered copies.


Implementation: Tracking

• Tracking methods must be tailored to the company’s business and culture:– Retention period for email records may be specified.– Periodic scans of email records searching for security

lapses may be performed.– Periodic scans of the public web searching for security

lapses may be performed.– Retention period for logs of numbered copies of top

secret information may be specified.• Exit interviews of employees should review

employee obligations re: trade secrets.


Summary

• Trade secrets are important and valuable.• Absent proper management, costly losses are

inevitable.• Proper management is possible, and is getting

easier with new technology.• Proper management can be justified with an

appropriate evaluation of value and risk.• Boards and executives will eventually be held

liable for losses incurred from poor stewardship.

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