Trade, Information, Secrets

Could you be giving away trade secrets?

02 Dec 2003 | (Survey)

In a recent survey conducted by the SBPOA on Shared Services and BPO a third (33%) of respondents stated that a lack of control and loss of internal knowledge are the main issues when considering to outsource. To enable vendors to work more effectively with their clients information on process and operations needs to be passed on. But did you know that this information could be a trade secret?

Businesses usually associate trade secrets and proprietary information in general with technical innovations. In fact, technical or technological secrets constitute only a fraction of the body of valuable sensitive commercial information. A proprietary process, data, system or device continuously used in business operations may constitute precious trade secrets.

Each company or institution has proprietary information which gives it competitive advantages or has a great value in the eyes of the public. Therefore, protection of such information must be uniquely tailored to each business. An information protection system must be created, implemented and continuously maintained by the company after auditing of procedures and information accumulated and generated by all of its departments.

Boris Parad, Principal of Parad Law Offices, P.C. consults U.S. companies on protection and making money off their proprietary information (through sales, cross-licensing and licensing) and other vital intellectual assets. “My experience with the research for my book on industrial espionage countermeasures yielded an unexpected conclusion: Americans do not care about [anyone] stealing their technology. They give lip service that it is a good idea to protect their innovations and trade secrets but no one wants to spend money or educate employees about the basics of safeguarding and capitalizing on their R&D investments” says Parad. The accumulated intellectual wealth may be quickly depleted by actions of disgruntled employees, computer hackers, internet viruses and worms, and unscrupulous competitors. Trade secrets (such as a cooking recipe or Coca-Cola formula) have an unlimited life span, while patents are granted only for 20 years.

As a guide for businesses, Parad provides examples of commercial information that qualify as trade secrets, provided that companies do not voluntarily disclose them to third parties through their literature, trade shows or otherwise:

Technical Information

Manufacturing techniques; Maintenance and repair data; Equipment specifications; Product ingredients; Computer programs; Lock picking techniques; Compilation of standard and non-standard formulae (even if it was kept in the employees' memory); Blueprints; Research data and analysis; Prototypes and concepts; Flow charts; block diagrams; Data codes in accounting methods; Software; Process equipment not shown to the general public; Compilation of "dos" and "don'ts" for certain methods; Field test data; Data research (e.g. oil deposit location calculation on the basis of a geophysical data); Engineering (using screws in lieu of welds or stress reducing design); Ideas (some courts refused to give trade secret protection to ideas); Knowledge of research (successful and unsuccessful) results (knowledge of design "blind alleys" gives competitive advantage); Identity of material or product tests.

Marketing Information

License contents, Contracts; Market analysis; Customer list; Advertisements and advertising campaigns; Market research for advertisements blueprints; Marketing and advertising strategy; Research data and accumulated information as to competitors' products, services and personnel; Economic forecast for the company as well as the related industry; Agreement expiration date (knowledge of the insurance policy or investment agreement expiration date allows the competition to more effectively solicit and take away business); Market research (e.g. as to what advertising technique should be used for a particular business, to what company personnel such advertising should be addressed, the most beneficial time or territory for selling a product, etc.); Marketing plans.

Business Operation

Equipment and its exploitation efficiency; Acquisitions and mergers; Product delivery schedules; Equipment efficiency factors; Alternate suppliers of low(c) priced suppliers; Knowledge of lead times in component supply; Collection of quotations; List of suppliers, unless the alternate suppliers of identical equipment can be found on the market; Employee training methods; Methods of maintaining, operating, and installing business equipment; Business operation manual (e.g. McDonald's operation manual for franchisees); Supplier's information (contact men, product specifications).

Personnel Data

Salaries of employees; Salesmen's commissions; Members of a new project team; Hiring of key employees; Transfer of key employees; Removal of key personnel; Corporate buyer's identity; Evaluation of employee performance; Employee's background; Identification of the most talented employees; Work force analysis; Projected promotion data.

Financial Data

Product costs; Raw material costs; Manufacturing costs; Fixed costs; Financial arrangements with vendors; Profit; Pricing plans; Manufacturer/supplier/dealer discounts; Research and development budget; Marketing and sales advertising budgets; Methods for determination of cost/price for a custom built products or systems; Bidding procedures; Pricing formulae; Budget priorities; Profit and loss statement.

All the above sounds daunting and the list can probably be expanded according to your personal experience, but giving away trade secrets (or avoiding to) is definitely something to consider in the pros and cons of each outsourcing deal.

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