Trade secrets - a Q&A

Tom Lingard, head of intellectual property at Stevens & Bolton, answers the most frequently asked questions. 

What is a trade secret?

The term “trade secret” refers to confidential information which is commercially valuable, treated as a secret by the business and gives the owner a competitive or commercial advantage. It may be technical information or it may be commercial business information such as future business plans, pricing and customer information, provided that it meets the requirements for protection.

What are the requirements for protection?

In a business context the important definition to be aware of is that set out in the Trade Secrets (enforcement etc.) Regulations 2018[i]. This is based on the definition in TRIPs[ii] and was described by Judge Hacon in a recent case in the Intellectual Property Enterprise Court[iii] as the “best” guide to the distinction between information that is confidential and that which is not:

“trade secret" means information which -

• is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among, or readily accessible to, persons within the circles that normally deal with the kind of information in question,
• has commercial value because it is secret, and
• has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret;

What practical steps should I take to protect the information?

Audit and identify the secret information you wish to protect. Restrict access to it, including by using technical means (for example, encryption and password protection) and other measures such as clear desk policies. In some circumstances it is also possible to “seed” data (i.e. putting harmless false entries into it) which can serve as definitive proof of copying as opposed to independent creation. Consider carefully who needs to have access and make them all aware of its confidential nature. Be able to demonstrate that you have done so as this will be important evidence if the matter comes before a court.

What about contracts?

Contractual obligations are often the best protection. These include specific non-disclosure agreements as well as confidentiality obligations in a wide range of contracts including employment contracts, licences, collaboration agreements, joint ventures and service agreements. Consider carefully who will be creating potentially valuable and confidential material and who will be disclosing what. Avoid over-broad definitions of confidential information as this can lead to difficulties of enforcement. If you are disclosing information to another party, make sure that the purpose for which they may use the information is narrowly defined, and include an obligation to return and deliver up hard and soft copies of information on termination.

How should I respond if there is a breach?

It is important to have a plan in place so that everybody knows what to do and is able to act quickly to identify the source and extent of the breach. Once disclosed and “out there” the information cannot be taken back, so these are the kind of circumstances when the court may be willing to grant an interim injunction (with or without notice). If there is reason to fear that the infringer will destroy digital evidence, it may be possible to obtain an imaging order. This provides for a computer expert to take a complete image of all data on the defendant’s devices, in order to preserve this as potential evidence. However, in most cases a letter before action (“cease and desist”) will suffice to resolve the matter, especially if, as is often the case, the infringer has taken the information without any clear plan to use it.

Can you comment on the most usual scenarios?

The scenario we see most frequently is that of the exiting employee who takes technical or customer information with them to a new employer or sets up a competing business. Many such employees are naïve rather than malicious and the matter can be settled relatively easily as the new employer is unlikely to want a dispute on their hands. Another very frequent scenario is where confidential information is disclosed to a supplier or licensee for a particular purpose, but the recipient uses it for a different purpose. Some recipients do not understand that they have an obligation not to use the information for unauthorised purposes, so this is an area where educating the other party on this point at early stage can pay dividends.

What are the take-away points in practice?

To summarise:

• Think carefully about what you have, why it matters, who has access, to whom it has to be disclosed and whether it is properly protected by contractual obligations.
• Review and regularly update employment contracts and restrictive covenants.
• Make sure you have clear policies in place and can track employees’ use of data.
• Have a plan to respond to breaches and make sure everyone knows what it is.