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A trade secret refers to information which meets the following requirements:

  1. it is secret, meaning 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;
  2. it has commercial value because it is secret; and
  3. it has been subject to reasonable steps under the circumstances, by the person in control of the information, to keep it secret.

The type of information that can be considered as a trade secret is therefore highly diversified, including know-how, technological knowledge, business and commercial data such as lists of customers, business plans, recipes or manufacturing processes. Even though most business information could potentially be regarded as a trade secret, in practice most of it does not need to be treated as such since it has no commercial value. It is therefore important that companies are aware of the information that they consider secret, allowing their effective protection and management.

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Trade secrets are not protected by a specific intellectual property right. Therefore trade secrets do not confer “proprietary rights”, meaning that the holder of a trade secret does not have exclusive rights over the information. Thus, to protect trade secrets, organisations are advised to take measures and implement a range of best practices to make sure that the trade secret is kept confidential.

These measures and best practices include:

  • assessing the company’s valuable confidential information;
  • developing an internal trade secret policy;
  • storing confidential information safely;
  • creating employee awareness of the importance of keeping trade secrets safe;
  • concluding non-disclosure agreements in the case where trade secrets must be discussed with business partners;
  • including non-disclosure clauses within agreements such as licence agreements, consortium agreements or partnership agreements, where the exchange of confidential information is very likely and/or necessary.

 

These measures are highly important since once the information is leaked, others can use it freely since no proprietary right to the trade secret exists.

However, if the information was leaked by someone under the obligation to keep confidentiality, such a disclosure would constitute a breach of contract allowing remedies for the trade secret holder. Moreover, if a person obtains the trade secret by dishonest means (such as in the case of espionage), all countries in the European Union offer some form protection under unfair competition law.

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 PatentUtility ModelTrade Secret
Advantages
  • exclusive right
  • effective tool against imitators
  • protection up to 20 years, which is generally considerably longer when compared to utility models
  • exclusive right
  • effective tool against imitators
  • lower registration costs when compared to patents
  • no registration costs 
  • protection not limited in time
  • no disclosure required
Disadvantages
  • costs for registration can be high 
  • the invention must be disclosed in the application
  • not available in all countries
  • costs for registration
  • shorter protection than patents
  • not available for all kinds of inventions
  • often not an effective tool for product inventions
  • limited remedies available 
  • not easily enforceable
  • can be patented by others 

 

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Non-disclosure agreements, also called confidentiality agreements, are legally binding contracts establishing the conditions under which one party (the disclosing party) discloses information in confidence to another party (the receiving party).

Depending on the number of parties disclosing information, non-disclosure agreements may be “one-way” (also known as unilateral) with one party disclosing information and one party receiving information, or “two-way” (also known as bilateral or mutual) when there is a bilateral disclosure. Whenever the two parties wish to disclose information instead of relying on a “two-way” agreement, it is also possible to sign two unilateral non-disclosure agreements, which may sometimes facilitate negotiations on the drafting of such an agreement. Sometimes you may also see multilateral agreements, with more than two parties involved.

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All types of information can be exchanged under non-disclosure agreements, such as ideas, know-how, descriptions of inventions, chemical formulas, research or business information and negotiations, among others. The common characteristic, however, is that the disclosed information is valuable to the disclosing party to the extent that it must be kept away from the public domain.

In fact, in the European Union several types of intellectual property rights, in particular patents and industrial designs, demand novelty as a requirement for acquiring protection. In most of the EU countries, a creation is considered new if it has not been previously made available to anyone anywhere, unless under confidence obligations. Moreover, some intellectual assets are generally not patentable in many countries of the European Union, such as methods for doing business, and therefore can only be protected if kept out of the public domain. On the other hand, organisations can strategically decide that keeping information confidential is the most appropriate way of protection. Independently of the reason, in all these scenarios, non-disclosure agreements are the recommended tool to use for the purpose of protecting information when it is necessary to transmit it in confidence.

Thus, it is best practice to conclude non-disclosure agreement before engaging in negotiations for licence agreements and R&D projects, or whenever necessary to show innovative ideas, products or technologies to potential business partners or other persons. Confidentiality obligations may also be part of a larger agreement, such as license agreements, consortium agreements and employment contracts.

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In certain cases, having licence rights to a patent will not be enough for the licensee to use, exploit or manufacture the related invention in an efficient way. Beyond the patented innovation, the licensee will in many cases need access to the unpatented technical information which relates to it.

In such cases, instead of a mere patent licence, it may be worthwhile to conclude a “patent and know-how licence” in order for the licensor to grant access not only to its invention, but also to the technical know-how relevant thereto. This will enable the licensee to fully use and understand the invention.

Of course, licensing know-how will only make sense insofar as this know-how has been kept secret, i.e. that there is an economic value to it and a need for the licensee to gain access to that knowledge, which would otherwise not be known nor be readily accessible.

Licensing secret know-how can involve some risks linked to its potential, unwanted disclosure to third parties. For this reason, a patent and know-how licensing agreement should address questions of confidentiality and non-disclosure in a thorough manner, in order to define as precisely as possible the ways in which the licensee can use and further disclose the licensed know-how. The licensee, its staff and relevant third parties (such as possible subcontractors) should be given confidentiality obligations which are, in their scope and strength, at least as stringent as those put into place by the licensor to protect its trade secret.

Finally, special attention should be given to the duration of the intellectual property right being licensed, since the period of the licence cannot exceed the maximum duration of the right (e.g. 20 years for patents). In the case of a patent and know-how licence, this means that the parties should make a clear difference between the patent licence (which cannot last past the expiration of the patent) and the know-how licence (which the parties may wish to keep in force after the expiration of the patent).

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Although an idea - a business information or valuable know-how - is not protectable by specific intellectual property rights, it can still be secured via contractual mechanisms - by setting up confidentiality obligations. When you meet potential business partners you will have to disclose your idea, explain its intended purpose and describe your expectations concerning the future product or service. It is true that once learned information/know-how cannot be forgotten by your interlocutors. Therefore, it is the best practice to ensure that a person to whom you are about to disclose your ideas signs a confidentiality agreement before the meeting starts. The purpose of a confidentiality agreement is to obtain a guarantee that once you disclose information to another party, the latter will not be able to use it for his purposes or reveal it to someone else without your consent, regardless of the fact whether you have agreed on a partnership or not.

Furthermore, any confidential business information (e.g. an innovative idea) which can be of considerable commercial value to businesses and which provides an enterprise with a competitive edge, may be considered a trade secret. You can protect your trade secrets as long as you do not allow the confidential information to flow into the public domain. In other words, you shall safeguard your idea by confidentiality measures including clauses in employee contracts and the aforementioned confidentiality agreements. The unauthorised use of such information by anyone other than the owner is regarded as an unfair practice and a violation of the trade secret. Depending on the national legal regime, trade secrets are subject to the protection provided for in unfair competition, labour, criminal, or civil law, to name a few.