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US businesses spill secrets on choosing between trade secrets and patents

Counsel at GE, Bristol-Myers Squibb and Heraeus share practical tips on managing trade secrets in the aftermath of the America Invents Act and the Defend Trade Secrets Act

Should valuable proprietary information and technology be patented or kept as trade secrets? While patents are usually the preferred option because of their guaranteed exclusivity, trade secrets offer some advantages worth noting, such as preventing biosimilars from coming to market in time.

Alternatives to patents are particularly important to consider because patents have become less available or enforceable since the US Supreme Court’s Alice decision and the enactment of the America Invents Act (AIA).

Since the AIA, trade secret protection has become more attractive because “patents are too volatile,” says Friedrich Laub, senior IP counsel at Bristol-Myers Squibb (BMS). “It’s not enough to just get a patent anymore; it now has to hold up at the Patent Trial and Appeal Board,” he explains.

Since Alice, trade secrets have become an option to protect now-unpatentable inventions that involve software, data, or algorithms. Trade secrets are also an alternative to patents where there’s a lot of prior art, such as processes to manufacture biologics. An important characteristic that would disqualify a technology or process from being kept secret in any industry is if it could be easily reverse-engineered.

In the pharmaceutical industry, a hurdle to protecting information as a trade secret is regulation and the disclosure requirements it entails. For example, the FDA often requires very specific information about the manufacturing process, because it has huge implications for the efficacy of the drug. While the FDA may not plan to disclose that information publicly, Freedom of Information Act requests can force the agency to disclose it anyway, which is a risk.

Jurisdiction is another variable to keep in mind. The Defend Trade Secrets Act (DTSA) in the US and the Trade Secrets Directive in the EU support the strength of trade secrets by granting more powerful remedies when they are breached, such as injunctions. Mark Conklin, senior IP counsel at GE, says that the DTSA has “has given us consistency and more ammunition,” and is particularly helpful because there isn’t inevitable disclosure.

On the other end of the spectrum, India does not recognise trade secrets at all, so everything has to be enforced through contracts. If contracts are not in place or properly worded, enforcement can be extremely difficult. While China does recognise trade secrets, discovery is very limited, which makes enforcement difficult there as well.

When enforceability varies so much, it’s best to be proactive and implement preventive measures. “My preference is to do as much in-house as possible,” says Conklin, “but sometimes that’s not always practical”. When it’s not achievable in-house, NDAs are vital to contracting with other companies. “Senior leadership needs to be involved in that decision,” says Conklin, “because there’s a cost both ways”.

In terms of monitoring and limiting access to secret information, there are a lot of tools on the market. “It just comes down to how much you want to spend,” according to Kim Jessum, chief IP counsel at technology company Heraeus. Some options include: forensics/monitoring software, dummy laptops for travel, security apps that can wipe all secret information remotely and work computers without USB or CD drives.  Other options businesses might consider are forced logouts after a certain period of time, limited networks, policy that disallows working from home or using cloud networks, visible security personnel.

Culture of respect

Having the right tools is a step, but the important part is using them, and creating a culture of respect around secrecy. “It can be difficult to convince people from a Silicon Valley culture to not share broadly,” says GE’s Conklin. Patents have natural incentives, such as prestige, so inventors of trade secrets should be similarly rewarded in some way. Changing culture is a slow process, but it starts with education.

At Heraeus, Jessum says that they are in the process of formalising their trade secret strategy with workshops and procedures, which required buy-in from the C-suite and cooperation with the HR and IT departments. Workshops train employees, and also help provide evidence of a strong trade secret programme should the issue get to court. “My one pet peeve is these NDAs,” shares Jessum. “The trade secrets are just put in there, and I ask the business, why are we risking these? Employees have to understand what they mean”.

If secrets are guarded too heavily, “it can hamstring the business,” says Conklin. “Most folks treat the IT management standard (ISO 20,000) aspirationally, because it’s near impossible to comply and have a functioning business”. Instead, a compromise between security and accessibility must be constructed for each piece of sensitive information or technology.

Each secret and its security should be clearly defined and regularly reviewed. The definition is important when it comes to enforcement, because the FBI or judge would ask for it “and you should be ready with that detail,” asserts Conklin. In addition, BMS’s Laub recommends secret-holders should “define secrets’ commercial value,” also in preparation for litigation.

Regular meetings to review the secret’s status can also be important, as Jessum attests: “Our formulations branch kept everything as trade secrets, and that’s what everyone did,” she says. “Then one of our competitors started filing patents and sued, and we ended up having to license. Keep in mind, what might be a good strategy in one moment might change the next moment”.

One policy that Laub has found particularly helpful at BMS is keeping trade secrets on a need-to-know basis. “Our lead scientists in manufacturing are quite attuned to these issues,” he says. “They divide information between stakeholders, so different people know different sub-compositions, and only one individual knows the ultimate soup for manufacturing”. Secret information must be applied for, with an explanation of the business case. In this way, access is limited to relevant parties.

What happens when those relevant parties want to leave? “We would be hesitant to let critical inventors go,” says Laub, but when they do leave, it’s important to review the innovation policy in the exit interview. Jessum adds that a severance package with cash incentivises people leaving to keep the company’s secrets secret. Non-compete agreements are also important to have in place with key employees that carry secrets with them, to limit competitors’ access.

In high-risk cases, GE’s Conklin suggests sending a warning letter to the employee’s future employer that says “we’d be upset to find out they’re doing the same thing for you. It at least puts them on notice, and lets them know they might be getting into a situation they might not want to be in”.

If a company is in that position of hiring a valuable employee from a competitor, it’s important to not be contaminated with any trade secrets which could introduce some unwanted liability. “It’s one thing  to have it in the employment contract,” says Laub at BMS, “but in practice, if someone starts and creates something amazing very quickly, we dig deeper and ask, what did they do before?”

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