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TRADE
SECRETS

This
is the final part of the article where we will examine trade secrets. We will
also distinguish trademarks, patents and trade secrets.

Definition
of trade secrets

The Black’s
Law Dictionary
defines trade secrets as “A formula, process, device, or
other business information that is kept confidential to maintain an advantage
over competitors; information — including a formula, pattern, compilation,
program, device, method, technique, or process”. Thus, any confidential
business information which provides an enterprise a competitive edge may be
considered a trade secret.

As I
referenced in the second part of this article, not all “inventions” can be
protected as patents. As a result of this, scientific theories, food recipes,
mathematical methods and commercial methods cannot be patented. You can read
more on the part two of this series here. Part one of the article can also be
read here as well.

However,
certain “inventions” which are valuable can still be protected as trade
secrets. It may be argued that strictly speaking, a trade secret is not an
intellectual property right (IPR). However, in practice it has the same legal
and commercial relevance as other IPRs and so it is dealt with in the same
manner as other IPRs.

Article
39 of the Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS)
provides for the protection of trade secrets. The TRIPS
is an international legal agreement binding on all member nations of the
World Trade Organisation (WTO). It sets out the minimum standards for the
regulation by national governments of IPRS.

The
factors that qualify confidential information as trade secrets are highlighted
by TRIPS are as follows:

a)    It
is a secret not generally known to the public;

b)   Due
to the fact that the information is not publicly disclosed, it must have
commercial value:

c)    It
is the subject of reasonable efforts by the holder to maintain its secrecy.

Unique
nature of trade secrets

Trade
secrets can be broadly classified into two:

i)    trade
secrets that protect inventions or manufacturing processes that do not meet the
patentability criteria and therefore can only be protected as trade secrets. An
example of this is a manufacturing process or customers list that cannot be
protected as a patent but is considered valuable; and

ii)     trade
secrets for inventions that fulfil the patentability criteria and could
therefore be protected by patents.

A
unique trait of trade secrets is that they are protected without registration
or any procedural formalities. Thus, unlike patents and trademarks that are
registered for a period of time, a trade secret can be protected for an
indefinite period, provided it is not disclosed to the public.

Furthermore,
unlike the United States of America that has a Uniform Trade Secrets Act, trade
secrets in Nigeria and several countries are not protected by statute but are
governed by contract, tort and other basic legal principles.

Popular
trade secrets

Some
popular trade secrets include the following:

Coca-Cola 

Rather
than patent his formula, the inventor of the Coca-Cola soda, Mr. John
Pemberton, decided to protect his recipe as a trade secret. In 1891, Asa
Candler purchased the rights to the formula from Pemberton’s estate and
founded the Coca-Cola Company. The formula for the Coca-Cola drink has
remained a trade secret ever since then. This may be considered as a good
business move because if Coca-Cola had patented the formula (which is
questionable) it may have been disclosed to the public. 

However,
the danger behind not patenting this valuable formula was seen when it was the
subject of corporate espionage as in 2006, an employee stole the recipe and
attempted selling it to Pepsi for $1.5 million. Although a fierce rival of
Coca-Cola, Pepsi immediately notified the authorities and the employee was
arrested and charged[1].

The
Google Search Algorithm 

Google
has almost become synonymous with the internet as it is the top search engine
in the world today. Google’s algorithm searches out web pages that contain
the keywords used in a search. It then assigns a rank to each page based
on several factors.

The
algorithm used by Google for its search engine remains one of the most valuable
trade secrets in the world.

Kentucky
Fried Chicken 

Kentucky
Fried Chicken (KFC) is reportedly made with a secret recipe of 11 herbs and
spices. Legend has it that the founder, Colonel Sanders, memorized the recipe
and never disclosed it to anyone when he first started out. Today, the recipe
is kept in a closely guarded safe in Kentucky. Only a few employees are aware
of the contents and they are bound by a confidentiality agreement.

To
show the extent to which this recipe is kept as a secret, a company blends the
herbs while another company mixes the spices. They are then processed and sent
to the different restaurants. KFC with this recipe has become the second
largest restaurant in the world (measured after sales) and has a revenue of
over $23bn[2].

McDonald’s
Big Mac Special Sauce 

The
McDonald’s Big Mac Special Sauce is so coveted that it was alleged in 2017 that
it had been leaked online[3].

The
trade secret was so well kept that when it got missing in the 1980s, it was
only one of the former CEOs, Mr. Fred Turner, who remembered it when he was
re-hired by the company.  

Protection
of trade secrets

Due
to the fact that trade secrets cannot be subject to public disclosure, owners
of trade secrets protect them with legal and technological procedures. If the
owner of a trade secret intends to disclose a trade secret to a third party, it
is advisable that he executes a confidentiality agreement or a
non-disclosure agreement (NDA)
with the third parties as this may be the
only way he may be able to protect his trade secret and prevent the third
parties from using his invention or idea.

An
NDA is an agreement that creates a confidential relationship between the
parties whereby they agree to protect confidential and proprietary information
or a trade secret.

An
NDA can protect any type of information that is not generally known. However,
NDAs can also contain clauses that will protect the person receiving the
information so that if they lawfully obtained the information through other
sources they would not be obligated to keep the information secret. 

 Some
common issues covered under an NDA include:[4]

·        outlining
the parties to the agreement;

·        the
definition of what is confidential, i.e. the information to be held       confidential.

·        the
disclosure period – information not disclosed during the disclosure period
(e.g., one year after the date of the NDA) is not deemed confidential;

·        the
exclusions from what must be kept confidential.

·        the
term and conditions (in years) of the confidentiality, i.e. the time period of
confidentiality;

·        the
term (in years) the agreement is binding;

·        permission
to obtain ex-parte injunctive relief;

·        description
of the actions needed to be done with the confidential materials upon agreement
ending;

·        the
obligations of the recipient regarding the confidential information:

·        types
of permissible disclosure

·        the
law and jurisdiction governing the parties.

Some
additional ways owners of trade secrets can protect them include the following:

a)    Executing
non-compete agreements with the employees. This agreement will place an
obligation on the employees and prevent them from using trade secret even after
they have stopped working for the employer.

b)    Keeping
the trade secret in a safe location and granting access to a few individuals.

c)    Ensuring
that the employees are loyal and will not sell the trade secret to competitors.

Conclusion

This
three-part article has considered different intellectual property rights. In a
nutshell, we can highlight the following differences that exist among trade
secrets, trademarks and patents:

1)           Trade
secret has the advantage of not being limited in time. Patents last for 20
years and trademarks last for 7 years although they are subject to renewal. A
trade secret may therefore last indefinitely as long as it is not revealed to
the public.

2)           Trade
secrets do not need to be registered and they take immediate effect. Generally,
trademarks and patents must be registered before they can enjoy protection.

3)           Trademarks
and patents are territorial rights and so must be registered in each country
where they will be used. A trade secret is not limited by territories and
guarantees protection anywhere it is used.

4)          A
trade secret is more difficult to enforce than a patent or trademark.

5)           The
moment a trade secret is made public, anyone may have access to it and use it
at will. Patents and trademarks do not face the same disadvantage as they ought
to be disclosed to the public.

6)          A
trade secret may be registered as a patent by someone else who has access to
similar information.

7)          Trademarks
protects the mark that is used to identify a product. Patents protect the invention.
Trade secrets protect the confidential information.

I
hope this has been enlightening.

[1]Pepsi Alerted Coca-Cola to Stolen-Coke-Secrets Offer (Fox
News July 06,
2006)

[2]https://sites.mediaserver.com/mmc_m/instances/sigw4yo7/items/z3i7rq3o/assets/srvq5grd/0/Yum_2013_NY_Investors_Conference.pdf

[3]McDonald’s secret Big Mac sauce recipe allegedly leaked
online
http://www.foxnews.com/fooddrink/2017/08/25/mcdonalds-secret-big-mac-sauce-recipe-allegedly-leaked-online.html

[4] Hanson, by Mark J.; Thompson,
Joe R.; Dahlgren, Joel J. “Overview of Confidentiality Agreements”. Iowa
State University Extension and Outreach.
Davidson Oturu LL.M MCIArb

Partner at Aelex (Franchising, IP
& Brand Protection/Corporate & Commercial/Dispute Resolution)



Source: LinkedIn 


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