In-In, In-Out, Out-In and Out-Out

Trade secrets:

Trade secrets constitute an important part of a company’s IP portfolio and they are generally any practice or process not known outside of the company. Specifically, for a practice or process of a company to be considered a trade secret it must fulfill three criteria:

• it must be secret (i.e. not public information),
• it must provide an actual or potential economic advantage for the company,
• it must be actively protected (i.e. the company exercises reasonable measures to maintain it as a secret).

Some examples of trade-secret include scientific processes, formulas, product blueprints, algorithms, raw or processed data, software, manufacturing processes, customer lists, financial information, market research studies, internal costing and pricing information, etc.

Growing in importance:

Although trade secrets have been the neglected step-child of IP, this is slowly but surely changing for a variety of reasons, including:

• Law changes (DTSA in USA; EU Directive on Trade Secret in Europe; Anti Unfair Competition Law in China, etc.)
• Increased trade secret litigation particularly involving US companies but not exclusively so
• Growing interest in trade secrets by the tax authorities (e.g. OECD BEPS Guidelines, Patent Box Tax Regimes including trade secrets as qualifying IP)
• Cyber criminals trying to steal trade secrets
• Companies embracing Open Innovation and sharing trade secrets with one another
• The changing nature of employment
• Developments in technology, meaning that trade secret protection is a more suitable approach in many instances
• Trade wars which some link to trade secret theft
• IP reform weakening other forms of IP to some degree

Trade secrets are a very important part of any IP portfolio. It is no exaggeration to say that virtually every business possesses trade secrets, regardless of the size of the business or the industry sector in which it operates.

Trade secrets are an important, but oftentimes an invisible component of a company’s IP portfolio of assets. However, trade secrets can also be the crown jewels within the portfolio.

Segmenting a trade secret portfolio:

As with any portfolio of assets, being able to segment the portfolio is usual a useful exercise. There many ways to segment a portfolio of trade secrets. One simple approach for example is to divide these assets into technical and non technical, although I am unsure of the value of this.

I suggest that one very useful approach for an organization to take, is to segment their trade secret portfolio of assets as follows ...

• In-In
• In-Out
• Out-in
• Out-Out

Allow me to explain.

In-In:

These are those trade secrets in the portfolio created internally within the company and kept within the organization, never divulged to anyone else. Many trade secrets within organizations will fall into this category.

In-Out:

These are those trade secrets in the portfolio created internally within the company but which have been divulged to others outside of the organization, perhaps key collaboration partners or clients.

These trade secrets are a most interesting subset of the trade secrets within an organization. More and more of the trade secrets within organizations will fall into this category, especially as companies embrace outsourcing and/or open innovation.

There is one major challenge with these trade secrets, namely how to ensure that the other party to whom the trade secrets have been divulged looks after the trade secrets with the right level of tender loving care.

Out-In:

These are those trade secrets in the portfolio created by others outside of the company such as by key collaboration partners or suppliers and then given and entrusted to the company.

It is important to note that these trade secrets do not legally belong to the company, but the company almost certainly has a legal obligation to care for these assets.

Again, more and more of the trade secrets within organizations will fall into this category, especially as companies work more closely with key suppliers, vendors, collaboration partners, and others.

That said, there may be some trade secrets in this 'out-in' cluster that do legally belong to the company. One comes across such trade secrets oftentimes as a result of subcontract R&D projects, where the trade secrets are created outside of the company but then immediately assigned to the company.

Out-Out:

What about the 'out-out' trade secrets I hear you ask? These are trade secrets created by others and not shared willingly with you. I trust that you have no such trade secrets in your portfolio, otherwise you may wish to go read some of my papers on trade secret disputes.

Summary:

There is no legal requirement to segment one's trade secrets. Nowhere in the Defend Trade Secrets Act, in the EU Directive on Trade Secrets or in the Chinese Anti Unfair Competition Law does it mention anything about being able to segment one's trade secret portfolio.

However, this should not stop any company from considering some ways and means to segment its trade secret portfolio, particular if there are more than a handful of such assets in its portfolio.

I trust that this 'in-in', 'in-out', 'out-in' and 'out-out' segmentation concept is of interest and of value.

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Donal O'Connell is the Managing Director of Chawton Innovation Services Ltd.

His company offers trade secret management tools to companies as well as to Legal & IP Firms to help with the management of these important but fragile assets.

More details on the Hazel Trade Secret Asset Management tool are available on request.

More details on the Sycamore Trade Secret Management Audit tool are available on request.