Trade secrets, tips and considerations

Ever wondered which recipe gives Coca-Cola its specific taste or which formula is needed to make the unique Chanel No. 5 scent? Trade secrets are omnipresent in our daily lives, yet in our fast-paced digitalized world, the threat of trade secret theft and unauthorized copying is bigger than ever. We therefore appreciate the recent implementation by the Belgian legislator of Directive (EU) (2016/943) on the protection of undisclosed know-how and business information(the “Trade Secrets Directive”)allowing trade secret holders to act against the unlawful disclosure, acquisition or use of their trade secrets. Although trade secrets are the most commonly used method in Europe for protecting intellectual creations and innovative know-how, they do not seem to provide a one-size-fits-all solutionregarding the protection of intellectual property assets.

What are trade secrets?

Trade secrets can refer to any kind of information. For small and medium sized enterprises they often come in the form of know-how, business methods, formulae and R&D data. In general, in order for a given piece of information to qualify as a trade secret, the relevant information must (i) be a secret (i.e. not known or readily accessible to a wide range of people within circles that normally deal with this kind of information), (ii) have commercial value and (iii) have been subject to measures aimed at maintaining its secret status.

How do trade secrets compare to traditional intellectual property rights?

Compared to traditional intellectual property rights (such as patents, copyright and design rights) the main benefits of trade secret protection are to be found in its (i) field of applicability, (ii) cost and (iii) duration:

(i) a wide range of information can be protected by trade secrets, allowing trade secrets to fill in the gap whenever certain knowledge or inventions are not patentable, or protectable by copyright;

(ii) as trade secrets do not require any form of registration, they tend to be a lot cheaper than intellectual property rights (such as patents) which require high registration fees and ongoing annual fees;

(iii) while classic intellectual property rights such as patents and design rights only provide for protection during a limited period in time (approximately 20 to 25 years), trade secret protection is indefinite as long as the information is kept confidential.

On the downside, the European legislator does not qualify trade secrets as intellectual property rights which creates issues relating to (i) the degree of protection they provide and (ii) their necessary secret status.

Compared to intellectual property rights, trade secrets do not give the holder a monopoly right, meaning competitors are not prevented from copying or reverse engineering your trade secrets as long as they do so in a legitimate way.

Once a trade secret is revealed to the public, it loses its secret status, and allows third parties to obtain intellectual property rights on the disclosed knowledge.

Therefore, when assessing whether to protect your intellectual property assets by intellectual property rights or trade secrets, think of the likelihood of a third party independently discovering your secret information and the need for preventive measures to avoid such unexpected discovery.

How to prevent your trade secrets from coming out?

At first, you should identify all information within your business that could possibly qualify as a trade secret (based on the definition mentioned above) and make sure that every segment of your business is educated on the importance of keeping such information confidential. Secondly, all documents containing secret information should expressly be marked as “confidential” together with the implementation of technical measures restricting access to such documents on a “need to know basis”. Thirdly, make sure adequate non-disclosure clauses are integrated in all your agreements and use well drafted non-disclosure agreements whenever entering into new commercial relations.

For any further questions, you can reach out to the authors or to any other person at Cresco.