Consumer products and IP (Part 6): deriving a copyright for consumer products
Consumer Law

Consumer products and IP (Part 4): demystifying the impact of trade secret misappropriation for consumer products

Consumer products and IP (Part 4): demystifying the impact of trade secret misappropriation for consumer products

Trade secrets protect consumer product companies by preventing competitors from stealing unique knowledge. Rights under trade secret law cover valuable knowhow that is not publicly known. In enforcing their rights, companies can prevent the exchange of information, taking of documents, and even movement of employees. Not understanding when a trade secret is improperly acquired, used, or disclosed can result in costly litigation and liability for the misappropriator.

What are trade secrets and trade secret misappropriation?

The federal government and most US states (all but New York and North Carolina) and territories, have enacted a version of the Uniform Trade Secrets Act (UTSA).
Under the UTSA, a trade secret is information:

  • That derives independent economic value from not being generally known or readily ascertainable; and
  • Has reasonable efforts employed to maintain its secrecy.

Trade secrets can relate to anything from a company’s research and development, finance, or business departments, with common examples including:

  • Customer lists
  • Software
  • Manufacturing methods
  • Chemical formulas
  • Business plans

Once a company establishes trade secret rights, it can take actions against others for stealing that information. Under the UTSA, trade secret information is stolen if it is:

  • Acquired through improper means;
  • Used with knowledge that it was acquired through improper means; or
  • Acquired by accident or mistake and used, despite being known to be a trade secret.

How do trade secrets and patents differ?

Trade secrets and patents differ in at least one fundamental aspect: public availability.

After the mandated publication, and in some other instances, a patent and everything it discloses is public. This includes, for example, identities of the applicant and inventors as well as the substance of the invention.

Publication destroys secrecy of that material.

In contrast, trade secrets protect information that is not publicly disclosed.

What to do to protect trade secrets

Trade secrets provide powerful opportunities for companies to assert rights indefinitely. But, companies must take sufficient precautions.

A company should start by understanding and identifying the trade secrets they possess. Companies can then catalog steps taken to protect the information’s secrecy. These steps could include:

  • Requiring non-disclosure agreements;
  • Implementing password-protection schemes;
  • Establishing annual trainings; and
  • Ensuring competitors cannot access information in publicly available products.

Once a company takes reasonable steps to protect secrecy, the company must consistently apply those steps. Regular “check-ups” on competitors’ products and activities can help determine if competitors have misappropriated trade secrets. If misappropriation took place, a company may send cease-and-desist letters or, if necessary, commence litigation.

Why do consumer product companies care about trade secrets?

Trade secrets provide powerful opportunities for companies to assert rights indefinitely when employed correctly. For consumer-product-related companies, a common trade secret is customer-related information. In the United States, courts protect this information because it often derives from considerable time, money, and energy to create a marketplace advantage.

The Ninth Circuit recently upheld that password-protecting a customer list and requiring employee confidentiality agreements could be sufficient to protect secrecy. Another court held that providing trainings on the importance of customer-related information bolstered the claim of sufficiently maintaining secrecy. On the other hand, disclosing information about potential trade secrets in marketing materials may eliminate the requisite secrecy.

Formulas and source codes are other common trade secrets. Once a company puts a product into the stream-of-commerce, the company risks competitors reverse engineering and unmasking trade secrets like these.

Reverse engineering includes when a competitor deconstructs a product to determine how the product was built, how it works, or what it comprises.

But, safeguards can protect against this activity. For example, contracts can prohibit reverse engineering. Or, companies can help prevent reverse engineering through restrictions such as prohibiting public access to manufacturing facilities.

Though broad and amorphous, trade secret protections allow companies to enforce rights rooted in a key business concern: knowhow that provides value to the company.

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