Trade Secrets

‘Know-how’ and ‘trade secrets’ are subsets of ‘confidential Information’ which is the generic term referring to any information that is important to a business whilst it is not available to the public. While the former indicates knowledge of how to do something efficiently and is often acquired through one’s own experience, the latter denotes a more specialised knowledge or skill that has a value to the business.  

Well-known examples of trade secrets include the recipe for Coca-Cola or the mixing ratio of KFC’s sauce. After more than a century since its inaugural sale by Jacob’s Pharmacy in 1886 for 5 cents per bottle, Coca Cola’s ingredients and recipe still remain a secret to the public. More interestingly very few members know the recipe within the company, and as a result it is known that they do not travel by the same vehicle even when they have to travel together, in case there is a car accident.  

Although trade secret is a type of intellectual property, measures to protect and manage it differ significantly from those protecting industrial property rights such as patents, trade marks and designs. Above all, trade secrets do not require registration through the Intellectual Property Registry or any other national institution such as IP Australia. Further, the court will only recognise a trade secret if extensive measures have been taken to safeguard its secrecy. For instance, the documents containing such information should be assigned to a classification that limits its use to authorised persons, have appropriate security features installed with passwords regularly updated and adequate staff is also desirable. The court will only take cognizance of trade secrets that satisfy these requirements and accordingly order remedies such as damages.  

Noting that trade secrets are often divulged through former or current employees, employers are recommended to insert in their employment contract a clause precluding an unauthorised use of information acquired in the course of employment both during and after the employment.   

Sometimes, it may also be necessary to disclose the company’s trade secrets to third parties for the purposes of, for example, making an investment or a partnership proposal to a third party. If such circumstance arises, the company must enter into a Non-Disclosure or a Confidence Agreement prior to the meeting to ensure that information acquired during the meeting shall never be disclosed or used for any other purposes than for the meeting without consent. Remedies for divulgence of trade secrets include an injunction, a seizure order and/or a damage but in the case of breach of fiduciary duty through misuse of position or information obtained through their employment, a penalty up to $200,000 may be imposed pursuant to sections 182 or 183 of the Corporations Act 2001 (Cth).  

Whether to protect commercially valuable skills or knowledge through patent registration or by treating it as a trade secret is a strategic decision that depends entirely on the owner. Although patent registration grants an exclusive right for 20 years, it has a downside of having to disclose the details of invention to the public. In addition, even if the patent application fails to meet the requirements so that it is rejected by the Patents Office and the details will be in any event published to the public. On the contrary, trade secrets can be protected permanently as long as it is secured completely although it suffers from the risk of uncontrollable leakage once it is divulged. For this reason, it might be strategically better to secure an exclusive right to the invention for 20 years through patent registration if the knowledge or information can be easily discovered through reverse engineering by an expert and otherwise protect it as a trade secret.  

There is an equitable maxim that “equity aids the vigilant, not the sleeping ones”. The owner whose rights are curtailed is no doubt a victim but if the latter was negligent in protecting his own rights, there would be a limit to the extent which equity can assist.

If you have any questions or would like to discuss any of the above further, please contact us at mail@laminarip.com.

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