New law: Businesses review how they protect trade secrets following new law
Businesses will welcome new EU laws harmonising trade secret laws in all member states. These are aimed at stopping employees and others from acquiring or using their trade secrets without permission, or disclosing them to anyone else.
This update was published in Legal Alert - November 2018
Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.
To a large extent, the new laws mirror existing UK law, but many businesses are using them as a reason to review and improve the measures they already take to protect their trade secrets.
The new law defines trade secrets as information which:
- has a commercial value because it is secret;
- is not generally known or readily accessible to those in the circles that normally deal with that kind of information, and
- is information that the business has taken reasonable steps to keep secret.
There are obvious examples of trade secrets, such as the Coca Cola formula, and the ingredients in the Kentucky Fried Chicken coating. However, trade secrets can also include information about matters such as your manufacturing processes or marketing campaigns; the way you price your goods or services; the results of market research; and how you pitch for work. Trade secrets are often summarised as information that could cause real or significant damage to your business if your competitors knew it.
Employees owe their employer a general legal duty of confidentiality. While some employers rely on their employees complying with this duty to prevent unauthorised use or disclosure of trade secrets to third parties, further steps are strongly recommended, such as:
- identifying all trade secrets in the business (which may even flush out some trade secrets the business did not realise it had), giving someone responsibility for protecting them, and developing a formal, written confidentiality policy;
- restricting access to your trade secrets to authorised personnel, eg, by password-protecting and/or encrypting confidential information on your IT systems, and keeping hard copy information secure (in a locked room, filing cabinet or safe);
- recording authorised personnel, their level of access and, where appropriate, a record of when and/or why they access confidential information;
- including how to identify and protect trade secrets and confidential information through employee induction and training;
- including obligations and penalties in employees’ contracts of employment and staff handbooks;
- marking information as confidential (whether stored online or offline) so anyone gaining access to it, even inadvertently, can clearly see it is confidential.
Third parties learn confidential information about a business while dealing with it, for example, as an IT or marketing contractor, supplier or business partner. Businesses should, therefore, expressly agree not to use or disclose trade secrets or other confidential information they discover through their work by signing confidentiality agreements; or include appropriate clauses in contracts of engagement, supply contracts, joint venture agreements, and so on, with them.
Where the relationship is as a business partner or joint venture, it may be necessary to agree who should own new trade secrets and confidential information created during the collaboration.
Confidential information, including trade secrets, can sometimes be registrable at the UK or European intellectual property registry, for example, as a design or an invention. While this gives significant protection, there are downsides. For instance, to protect an invention by registering a patent, a business has to make the invention public. Given the importance of trade secrets to many businesses, it is good practice to take professional advice.
- Businesses should consider reviewing the measures they take to protect their trade secrets and other confidential information, in light of the new EU laws.
Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.
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