How to protect your trade secrets

Trade secrets, confidential  information and know-how play an increasing role in the life sciences industry and the need to protect such information from  disclosure is becoming more important than ever. This article  presents practical ways of protecting your valuable information.

As most information is stored and shared today in digital form and can be accessed and reproduced instantly,
the risk of unauthorised use is increasing.  Arguably the modern work culture emphasises speed of response to the detriment of time to reflect and compose, we do not always take the appropriate time to consider what is confidential and what should not be disclosed.
Disclosure of trade secrets and other confidential information typically  occurs in connection with Exploration of the potential for commercial collaborations

Due diligence investigations in connection  with mergers  and acquisitions
Actual commercial collaborations, e.g. research collaborations and out-licensing of technology Employment relationships.

 What are trade secrets?

There is no authoritative legal definition of trade secrets, however typical examples within the life sciences industry include technic al information such as formulae and recipes, genetic material, know-how and research data and commercial information, such as customer and supplier lists,business strategies and methods and price information.

According to a recent  report from the European Commission,there is no harmonised system for the protection of trade secrets  in the EU and the manner and eff ectiveness of legal protection varies significantly from state to state.

Draw up effective non-disclosure agreements

These situations will normally be covered by non­ disclosure agreements [NDAs) and it is obviously important to ensure that such agreements are sufficiently effective. An NDA (or the non-disclosure provisions in other agreements) should, as a minimum, cover the following key areas:

  •  A clear definition of confidential information it is important that the definition  of confidential information is as wide as possible and that the confidentiality and non-use provisions  include not only the information itself but also all results based on any use the recipient may make of the confidential information. Know-how should be defined specifically.
  • A duty to use the information only for the permitted purpose
    The agreement must  define the purpose for which the information may be used, typically  for the evaluation of a proposed  collaboration or transfer of rights.
  • The duration of the agreement
    Most NDAs have a single, overall duration of 5 or10 years covering  all information. There is, however, an important difference between  the lifespans of different types of information. The commercial value of general business information, organisational structures etc. will typically be relatively short lived whereas actual trade  secrets such as know-how, unpatented methods and formulae  may retain their commercial value indefinitely.
    A party disclosing such information must therefore consider  whether  it is acceptable for the recipient to have such information at its free  disposal at the expiry of a f1ve-year term or whether the confidentiality period  for trade secrets should be indefinite.
  • Permitted disclosures
    NDAs must set out the circumstances in which,  and the  persons to whom, the  receiving party may disclose  the  information.  Disclosure to employees and advisers is usually permitted and it is generally
    seen as too  onerous to request that all employees  and advisers who receive the  information sign separate agreements with  the  discloser.                                                                                                                                                                 Legally it is, however,  often impossible to control trade secrets which become  part of the  general skill set  of an employee  of a recipient, and it is reasonable to request that confidential information is disclosed strictly on a need-to-know basis and that the receiving party takes full  responsibility for breaches of confidentiality by its employees  or advisers.
  • Return of confidential information
    The N DA should provide for the  return or destruction of the  confidential information in the  event  that the project or transaction does not  proceed, or, in some cases, on demand, although a receiving party may be legally required to retain certain records containing confidential information (such as board minutes).

Follow the 10 good housekeeping rules

In addition to making sure  that appropriate NDAs are in place, the  following good housekeeping rules  will help to minimise  the  risk  of breach of confidentiality.

  • On a day-to-day basis:
    Ensure  that employee  contracts contain clear and appropriate confidentiality provisions;
    Implement company-wide policies  for the  protection of know-how (and personal data)  and have a robust security policy addressing both  physical  and electronic  document security, including secure email systems, encryption of documents,use of USB keys etc.;
    Provide  regular training to employees  on confidentiality and make sure  that training covers the  particular risks  of digital storage and IT issues such as the  meta-data which are  embedded in and may be extracted from electronic documents; Maintain records of which projects each employee has worked  on and remind departing employees  and consultants of their duty  of confidentiality and ask them  to conf1rm in writing that they  have returned all company  property; and                                                                                                                                                      Audit  security procedures frequently.
  •  When commercial negotiations make it necessary to disclose truly confidential information or high-level trade secrets:
    Make sure  that confidential information or trade secrets are disseminated on a need-to-know basis only and that documents are marked  confidential; Restrict access to areas  where  confidential processes are conducted, or developments are being made;
    Keep a contemporaneous written record of the negotiations and disclosures- in practise this can often boil down to little more  than  creating a separate folder of all relevant correspondence (from both lnbox and Sent  Items!) in Outlook; Hold back the  most confidential details until the  fmal stages of the  negotiations (staggered disclosure); and
    Limit  the  use of  electronic documents and instead use hard copies, which can be numbered and taken back at the  end of the  negotiations.

The material contained in this article is provided for general purposes only and does not constitute legal or other professional advice. Appropriate legal advice should be sought for specific circumstances and before action is taken.

© , October 2012

Please contact:

Thomas Bjorn- Consultant Solicitor

DD +44 (0)20 7553 9930

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