Erin Austin: Hello ladies, welcome to this episode.
Just a quick note to let you know that this episode was originally recorded as
a LinkedIn Live, where I had some nice slides to go with the conversation.
So if you'd like to check those out, you can see the recording on my LinkedIn
page or on my YouTube page, and we'll have links to those in the show notes.
Thanks.
Hello everyone.
Thank you for joining me for another last Wednesday of the month for a LinkedIn
Live where we talk about different things For hourly to exit journey for
experts who are interested in turning their expertise into intellectual
property, decoupling their income from their time, and creating saleable and
scalable assets in their business.
So this month we're going to talk about trade secrets.
And I call it the hidden intellectual property because it's one that
most people aren't familiar with.
I mean, we think of trade secrets as being confidential information,
but we don't think about them as being intellectual property.
so I.
Think one of the reasons is, unlike the other types of intellectual property,
trade secrets are not registered.
The value in a trade secret is that it stays secret.
you think about our copyrights, we register them in the copyright office.
Same with trademarks, patents.
And so we get our protection through intellectual property
laws, by registering.
. Unlike trade secrets, we get that protection by
keeping them secret, so just.
Talk about a couple of famous trade secrets here.
of course, we are all familiar with K F C and their secret recipe
for their Kentucky Fried Chicken.
Coca-Cola, another famous trade secret for this secret ingredient in
their Coca-Cola formula Google has an algorithm that is a trade secret.
So each of these companies have decided to use trade secrets
to protect their intellectual property instead of using patent.
because patents are registered and all patent registrations are
public information like, copyrights and trade secrets, and trademarks.
patents also are registered and are publicly available, to
anyone who knows how to use and, and search those registries.
That way no one can, come and find that secret ingredient that happens
to be in Coca-Cola and reproduce it so long as they keep it secret.
Of course.
what is a trade secret?
So a trade secret is information, and I'm going to say confidential information.
It has an independent material economic value, and the value is because it
is a secret that it's not easily ascertainable, without some sort of
theft, that you can't easily reproduce it.
And that the second major element is that it is subject to reasonable
efforts to maintain its secrecy.
So we're gonna take all of.
Elements in turn as we go through.
But first, a couple of possible trade secrets that we may have
in our businesses as professional services providers as experts.
databases, you have a collection of information that you've
gathered over the course of.
term as building your expertise that you use to inform the work
that you do for your clients.
You have proprietary business models or methodologies.
Maybe you have client lists that other people would die for.
internal market analyses and forecast, r and d information, algorithms,
formulas, methods, you get it.
things that we are using in our businesses that we keep confidential
cuz it's part of how we, build our businesses and provide our e.
And so why do I have possible in italics?
Because while these may be confidential information, they may
not necessarily be trade secrets.
there are key differences between confidential information and trade secret.
what is confidential information?
confidential information is the broad category of non-public information.
So anything that you keep in your business that's not public
is confidential information.
examples of that are your financial statements and your employee records.
these are things that obviously, you would not wanna have anyone to have
access to it without protections in place.
So we know that we use.
NDAs non-disclosure agreements, maybe call 'em confidentiality agreements, to
protect our confidential information.
let's say, someone's looking at your business cuz they wanna buy it.
So they're looking at your financials, they're looking
at all your internal records.
you would make sure that you have an n d a in place before you share any
of that confidential information in it that N D A will say that they can.
Only use it for the purposes of, evaluating your business for
acquisition and that they cannot disclose it to any third parties.
that's how you get contractual protection when you're disclosing your
confidential information to third parties.
but that is different than a trade secret.
So a trade secret, yes, it's confidential information, but
it also has these elements.
So I have, underlined some of the key, parts that elevate a trade secret from a
confidential information, and then we will go through each of these in turn, it has
that independent material economic value.
It is not readily ascertainable by proper means, and it is
subject to reasonable efforts.
independent material economic value.
I like to look at this is does it provide some competitive advantage for you?
let's talk about those financial statements.
You absolutely wanna keep your financial statements private, right?
does it provide economic value to.
. Yeah.
You wanna know your numbers.
It's an important part of running a business and being the c e o of your
business is knowing your numbers.
But does it provide a competitive advantage?
there a value in the market for your financials?
the answer to that is no.
I'm gonna say no matter how impressive they are, I'm pretty
sure that answer is gonna be.
it fails the first, element of whether or not something would
qualify as a trade secret.
remember, when I'm making this decision between trade secrets
and confidential information, it's because trade secret is intellectual
property under intellectual property law, whereas confidential information
is just a contractual protection.
so your financial statements would fail that first test of whether or not
something would qualify as a trade secret.
the next element is it that it's not readily ascertainable.
would it be extremely difficult for it to be discovered independently?
So let's think about K ffc.
Or, Coca-Cola.
I imagine that for the last a hundred years, however long Coca-Cola's
been around, people have been trying to figure out what that secret
ingredient is, but they have not been able to hard as they try So, is.
Independent economic value in that secret.
Yeah.
is it readily ascertainable, obviously, cuz nobody can figure out what it is.
Coca-Cola's, formula
ingredients
Erin Austin: have met those first two elements of economic value
and not readily ascertainable.
and then the third element is that you use reasonable
efforts to maintain its secrecy.
So as we talked about, when we have confidential information, we do
not disclose it without having some version of confidentiality agreement.
in place.
and, considering the number of NDAs I review pretty much every day, almost
every day, one crosses my desk for review.
I know that people are using NDAs.
but isn't NDA enough.
and the answer to that, it's enough to get that contractual protection.
It is not enough to create a trade secret.
And so, Elevate your confidentiality, your confidential information
into a trade seeker protected by intellectual property law.
There are some additional things you want to do.
those extra steps.
you need to put physical restrictions in place.
So that would mean putting things under lock and key.
I think, famously the formulas, the KFC formulas and the Coca-Cola
formulas are in some sort of safe, so you have physical restrictions.
also physical restrictions may be, you You have, a formula that is
in writing that you have stamped on it, you put a classified
stamp on it, hopefully it works.
or, you confidential information watermark, maybe you've seen
those or you've received something that has a footer that says
confidential information on it.
you'll also might even see it in emails, where you'll say like, this
is considered, confidential as.
you will have technical restrictions, so you will require passwords or you may have
it set up so that it cannot be accessed outside of a company owned environment.
so they're technical restrictions.
You would share it on a need to know basis only.
let's say you have your, proprietary database of, you research that
you've done, and you use that to provide services to your client.
. Well, the client does not need to have access to the research that you're
using to provide the services You provide that only on a need to know
basis, and if you do need to know it, then you make sure that if you do need
to share it, then you also need to make sure that that third party that
gets access to it, Has restrictions on who they can share it with.
So a common provision in an NDA would be that you can only share it, you with
your lawyers or with your auditors, and that you can't otherwise share it.
And then limiting printing and copying, that's another version of
technical and physical restrictions.
the other is, you wanna make sure that you retrieve that confidential
information when the use is over.
let's say there is, something that you do need to share, there's some
part of your methodology that you need to share with your client,
in order to provide the service.
When you are done, make sure you get all those materials back.
it's more likely that it's going to be shared with someone who's
providing services for you.
So let's say, you have hired someone to do an analysis for you and you've shared,
your confidential information with them.
In order for them to do the analysis, the analysis is done.
They send you the report, then they should return to you.
All of the confidential information that you shared with them.
And then a final element would be that you received verification that
they had either returned all those copies or they have destroyed them.
there a lot of extra steps in order to get that elevated.
protect.
but the reason that you need to do that is that you cannot unring the bell.
If for whatever reason a trade secret becomes public, it loses
trade secret protection, under.
intellectual property laws.
even if it happens accidentally, you're at a WeWork office and you leave your,
business plans at the WeWork, including, you your prototype for your next product.
You leave it in the office and the next person comes along and finds
it, and puts it on the internet.
Poof.
your trade secret is, or if, an employee has access to it and they take it
with them when they leave, that would obviously be an illegal disclosure.
but still the bell cannot be on rung, which is why you wanna make
sure that there are restrictions about how someone can access it.
Why if it is a trade secret, how could they walk out with it?
Right?
So you wanna make sure you have those protections in.
and if it is independently, discovered, like so for instance
that Coca-Cola recipe, if someone independently discovers what it is, then
Coca-Cola is trade secret goes away.
that is not illegal to independently, discover.
I just wanna say that the amount of resources that you use to protect
your trade secrets should be in line with the value of that trade secret.
what you do to protect your trade secrets is not gonna be the same
thing that Coca-Cola does to.
fair trade secrets, but that's where that term reasonable comes in.
What's reasonable to protect a trade secret worth billions of
dollars is different than what's reasonable to protect a trade secret
that's worth a million dollars.
Right.
you might be thinking, well, there's no registration process in place, so why
do I need to do all this extra stuff?
I've got my NDAs.
I get my contractual, protections through my NDAs.
Why do I need to do all this other stuff?
Well, because when it is a trade secret and therefore protected by intellectual
property laws, , then there are additional protections that you have,
additional remedies that you have.
in addition to getting injunctive relief.
So injunctive relief would mean a court orders someone to stop using your IP or
to force them to prevent the disclosure of something that's confidential.
and that you could also get damages, meaning you could get compensated
for your losses, based on their, appropriation of your trade secret.
but the other main, issue is that trade secret misappropriation is.
A crime.
that is a pretty nice deterrent.
the idea that you are going to be federally prosecuted if
you steal my trade secrets.
So being able to say, okay, this is a trade secret, and therefore
it receives the protection of federal law, is an extra layer of
incentive to, not steal your trade.
there you go.
thank you so much for joining me today.
as I mentioned, I, am always happy to, tackle, these intellectual
property issues, issues regarding turning expertise.
Into IP based, revenue streams.
If you have any questions, do feel free to, reach out to me.
You can find me@thinkbeyondip.com or on LinkedIn.
I'm Erin Austin And so we also have a newsletter where we talk about all these
things and a free resource library that I'm pretty proud of that has digestible,
easy to understand explanations of all these concepts and more.
And of course, also, please join me at my podcast, which is Hourly to Exit.
Thanks.