Trade Secrets 2.0: Stepping Up to 21st Century Trade Secret Protection

• Author: Nicole D. Galli
• Pages: 40-64

Published in Landslide® magazine, Volume 12, Number 5, a publication of the ABA Section of Intellectual Property Law (ABA-IPL), ©2020 by the American Bar Association. Reproduced with permission. All rights reserved.

This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

By Nicole D. Galli

Nicole D. Galli is the founder and managing partner of the Law Ofces of N.D. Galli, a boutique law rm with

ofces in Philadelphia and New York. She advises clients on enhanced trade secret protection, and is co-lead of the

Sedona Conference Working Group 12 Team 5, Governance and Management of Trade Secrets, and vice chair of the

Licensing Executives Society’s Intellectual Capital Management Standards Project, IP Protection in the Supply Chain

standards drafting team. She can be reached at ndgalli@ndgallilaw.com.

Trade Secrets 2.0

Stepping Up to 21st Century

Trade Secret Protection

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Published in Landslide® magazine, Volume 12, Number 5, a publication of the ABA Section of Intellectual Property Law (ABA-IPL), ©2020 by the American Bar Association. Reproduced with permission. All rights reserved.

This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

and data protection, thinking that those efforts will save the day.

Despite newsworthy examples of “stranger danger”—efforts by

hackers and nation-states to inltrate a company’s computer net-

works and steal trade secrets—studies show that, historically,

the vast majority of trade secret loss comes from insiders.6 These

insiders include employees, former employees, business partners,

suppliers, customers, and joint venture partners.

Against this landscape, many companies are starting to think

more broadly and holistically about trade secret protection as

a matter of business processes and not merely legal protection.

Indeed, in-house attorneys who use these “trade secret 2.0 meth-

ods” regularly report that if they end up in trade secret litigation, it

is because the business process (not just legal efforts) failed. While

helpful by-products of modern trade secret management are being

in a better position for and reducing the cost of enforcement, the

real end goal is to avoid the need for enforcement altogether.

So, what is modern trade secret management? It is a host of

things and usually needs to be very company-specic because

a one-size-ts-all approach is not effective. Some are propo-

nents of a very formulaic approach to this effort, expecting that

all companies should follow a set series of steps or method-

ology—e.g., identify, categorize, protect, and value the trade

secrets. While each of these components has value and should

be considered in an effective trade secret management pro-

gram, the exact best approach will likely vary depending on a

wide variety of factors, including but not limited to:

• the stage in the business life cycle (i.e., startup, growth,

or established);

• the size (in terms of employees and revenues);

• the location (e.g., one vs. multiple, domestic vs. inter-

national, since trade secret laws can vary widely);

• the nature of the trade secrets (e.g., business vs.

technical);

• the extent and strength of associated patent protection;

• the speed at which the protected technology is evolving;

• the age of the trade secret and time period in which it

was developed;

• the availability of documentary records underlying the

trade secret, its value, and protection efforts to date;

• the value of the trade secrets;

• the existing data and cybersecurity protection policies

and procedures;

• the sophistication of the workforce;

• the number of people who must handle the trade secrets

within and outside of the company;

• the extent to which other’s trade secrets are being

shared with the company (intentionally or unintention-

ally, such as by new employees);

• the company culture;

• whether or not there is an in-house legal team, the size

of that team, and the experience of that team with trade

secret protection;

• the existence and quality of contractual documentation

(e.g., NDAs, employment agreements);

• whether or not there has been any enforcement efforts

to date and the outcome of those efforts; and

• the availability and feasibility of new technologies such as

blockchain to use in the trade secret protection program.

Trade secrets are among a company’s most valuable assets

but are often poorly understood, undervalued, and not

well protected. The protection landscape is changing, as

companies are increasingly turning to measures beyond non-

disclosure agreements (NDAs) and litigation to protect these

vital assets. There are few readily available resources, however,

to guide companies in these efforts, and most lawyers do not

have experience in assisting clients in developing comprehen-

sive and interdisciplinary trade secret protection programs. In

addition, trade secret protection, by its very nature, needs to be

highly customized and depends on a myriad of factors. This arti-

cle explores some aspects of what I call “trade secrets 2.0,” or

enhanced trade secret protection, especially in contexts where a

business needs to share trade secrets with other businesses.

Trade Secret Management

One study has shown that 84 percent of the Fortune 500’s

value is no longer in bricks and mortar assets, as it had been 50

years ago, but rather is now in intangible assets.1 Among the

most valuable intangible assets are things like public or reg-

istrable intellectual property (IP)—patents, trademarks, and

copyrights—as well as trade secrets, which derive their com-

mercial value from their secrecy. Several recent studies in the

United States2 and abroad3 show that trade secrets are considered

the most important form of IP by many businesses, even more

important than patents. Factors leading to this conclusion include

the growing intangible nature of the modern technologies and

the challenges to maintaining patent protection in the United

States for crucial areas of innovation such as software, diagnostic

medical testing, and business methods. Other factors include the

availability of new trade secret laws here and abroad, including

the Defend Trade Secrets Act of 20164 in the United States and

the 2016 European Union directive on trade secrets.5

Despite the evident paramount importance of trade secrets

to today’s businesses, IP lawyers regularly talk about the three

forms of IP—patents, trademarks, and copyrights—and some

even question whether trade secrets should be categorized as

IP. To be fair, the potential of what can be a trade secret is vast

and covers not only technical trade secrets, including formu-

las, recipes, processes, and research and development (R&D)

information, which all fall within the scope of what one would

consider IP, but also customer information, business plans,

marketing plans, nancial forecasts, and other business infor-

mation that we would not necessarily think of as “intellectual

property.” Indisputably, trade secrets are important business

assets. Therefore, IP lawyers need to become more educated on

this area of the law, as well as on how businesses are currently

thinking about trade secret protection.

For many years, the primary way that businesses protected

trade secrets was through condentiality agreements, restrictive

covenants in employment agreements, and enforcement in litiga-

tion, typically by employment lawyers and commercial litigators.

Sometimes, IP lawyers, especially patent lawyers, will think about

trade secrets in the context of deciding whether or not some-

thing is patentable. Typically, patent protection is encouraged by

patent lawyers, businesspeople, and even investors who see pat-

ents as an important hallmark of investment-worthy companies.

More recently, companies have relied heavily upon cybersecurity