Whether a business is just beginning or flourishing and growing, trade secrets are crucial to consider and protect. They are often what make a business unique and can effectively set a business up for sustainable and long-term success. While trade secret theft may seem uncommon, several current cases suggest otherwise. “Tappy”—the automated robot used to test iPhones at T-Mobile—is at the center of trade secret theft charges against Huawei Device Co. and Huawei Device USA Inc. Huawei was originally contracted in 2010 by T-Mobile to supply phone handsets, but used the relationship to gain access to and photograph the testing robot and allegedly copy the robot’s design.
Huawei is scheduled to appear before the U.S. federal court on March 2, 2020 and is looking at paying up to $5.5 million for all combined charges brought against the company including trade secret theft, wire fraud, and obstruction of justice. This would total over three times the actual worth of the iPhone testing robot—a grim forecast for the Huawei company, who was under U.S. criminal investigation just last year for export violations related to trade with Iran.
The current case pending against Huawei is an example of a trade secret breach of confidence and illustrates the necessity to protect against trade secret theft. Unlike patent, trademark, and copyright law, there is no way to register a trade secret with U.S. federal or state governments, so protecting this type of proprietary information requires a different strategy. In addition, many businesses are not even aware that they have developed a trade secret and/or do not know to protect it. Luckily, with legal counsel and valuable information, a business’s trade secrets can be identified and protected.
What is a Trade Secret?
Trade secret law, which evolved from common tort law, has a different and somewhat more complex history than other areas of intellectual property law. A path of court cases and claims produced under common tort law were accumulated under the Uniform Trade Secrets Act (UTSA), which has now been adopted in 47 states. This act intends to define trade secrets as well as condense claims associated with trade secret use, in order to create clarity and consistency under the law.
The UTSA and relevant case law define trade secrets as tangible or intangible unique information that is essential to yielding economic value for the entity who holds it. Examples of trade secrets include, but are not limited to, programs, patterns, processes, devices, or methods that are unique to a company and give financial advantage to that company over others. For instance, in the case discussed above, “Tappy” is considered a trade secret of T-Mobile because it is a unique device that yields an economic return for T-Mobile.
Trade secrets can exist in many different forms. This is evidenced by recent allegations made against Lidl in another trade secret theft case. In this case, a German-based grocery chain, ALDI, has accused a similarly formatted company, Lidl, of stealing confidential location mapping and strategy planning information. The accusations identify the mapping and strategy planning information as key and essential trade secrets of ALDI. Clearly, the nature of trade secrets can be exceptionally different depending on the business.
When identifying the trade secrets of a company, it is helpful to consider the following questions:
- What is unique about the process or functioning of your business?
- Does this unique component give an economic advantage over competitors?
In addition to this, an experienced intellectual property and business attorney can help clarify the exact nature of a trade secret.
Steps to Protect Your Business From Trade Secret Theft:
When seeking to protect a trade secret, it’s important to think about all of the ways trade secrets can be exposed in a worst-case scenario, which tends to be more common than many people think.
In the case against Lidl, described above, the alleged trade secret theft may have been perpetrated by an employee. Lidl hired the former director of real estate for ALDI to help turn Lidl around. The former director, along with an enlisted co-worker, gathered maps of ALDI’s confidential location mapping, as well as information on their expansion plans. Both parties began working and transferring information to Lidl while they were working at ALDI.
While it is unfortunate to consider, it is important to be aware that current employees, as well as past employees and contracted workers, or any other party who has access to company information, are potential perpetrators of trade secret theft. Luckily, there are several ways to mitigate potential trade secret exposure.
Non-disclosure agreements: Potentially the most important component to legal protection of trade secrets is the creation of a non-disclosure agreements (NDAs) with the help of a trusted attorney. These legally binding documents must articulate that employees are not allowed to share the employer’s confidential information during or after employment. An NDA will typically be enforced by a court in the event of a trade secrets theft claim and will help to ensure your business is protected.
Managerial precautions: There are steps that can be taken in the work environment that are managerial based and simple. Conceptually, the goal is to clearly identify what is considered a trade secret and to minimize human involvement and contact with those elements of your business to only those employees whose work requires the information. First, make it clear what is confidential. Both electronic documents and files, as well as tangible files and documents, must be labeled as confidential. Locking up documents in cabinet files or storing trade secrets in secured rooms with minimal access is also essential to minimizing access to sensitive information. Other forms of protection include creating passwords for computer files or restricted access to certain rooms. It is also important to monitor sensitive information, so that you and your business are aware of who has access to trade secrets and when. Another strategy is to only allow access to certain pieces of confidential information only to certain parties on a need-to-know basis.
Employee training: Another key role in establishing the protection of trade secrets is informing employees of company policies and the treatment of confidential information. As an employer, this is important to ensure reasonable protection efforts of trade secrets and will ensure streamlined dissemination of protocol for confidential information.
Establishing a Trade Secret Claim
In the current case against Lidl, because ALDI’s took precautions and steps to try to prevent against the disclosure of trade secrets, they are now in a position to bring a potentially successful case against Lidl. ALDI is requesting a review of Lidl’s business strategies and plans in the discovery phase, as well as an injunction and restraining order on ALDI’s former employees. T-Mobile also has significant legal leverage in its case against Huawei because of its prior preparation to protect its intellectual property.
Due to the complexity of trade secret law, it is wise to seek the advice of an experienced and knowledgeable intellectual property and business law attorney to draft non-disclosure agreements for your business and put proper safeguards and systems in place. Doing so is essential to establishing a successful trade secret claim.
Generally, there are three criteria to establish a trade secret claim:
- The ‘secret’ must qualify for trade secret protection;
- Precautions were made to protect the ‘secret’; and
- The information was misappropriated, either through breach of confidence or improper means.
It is important to note that the law allows replication if reverse engineering was used, the information was discovered for oneself, or if the originator of the secret does not take reasonable precaution to protect it.
Unlike criminal law, the legal burden of proof in a civil trade secret claim requires that the plaintiff proof each element of the claim by a preponderance of evidence. While this protects those in possession of trade secrets, it requires sound legal advice to really ensure proper protection and enforcement.
If you need assistance identifying or protecting the trade secrets of your business, or if you believe your business may have suffered from trade secret theft, contact our highly knowledgeable trade secret lawyers today for a consultation. We would be happy to set up a time to discuss how to secure the proprietary information that sets your business apart.