keeping confidence: putting in place a trade secret protection program prof. dr. ida madieha bt....
TRANSCRIPT
KEEPING CONFIDENCE: PUTTING IN PLACE A TRADE SECRET PROTECTION PROGRAM
PROF. DR. IDA MADIEHA BT. ABD. GHANI AZMI
PRIVATE LAW DEPARTMENTIIUM.
Ahmad Ibrahim Kulliyyah of Laws, IIUM
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Outline of presentation
Economic importance of SMEs in Malaysia
Role of trade secrets Law of trade secrets in Malaysia
Breach of confidential information Essential features Sample of decided cases
SMEs and the economic value of trade secrets
Ahmad Ibrahim Kulliyyah of Laws, IIUM
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Economic importance of SMEs
Integral component to Malaysian economy
Challenges Increased liberalisation New entrants to the market Technological development THUS, need to remain competitiveDef:sme_definitions_english.pdf
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Economic importance
As at 2003, there were 523,132 establishments in the manufacturing, services and agriculture sectors,
518,996 (99.2%) comprised SMEs A no. of SMEs in the electrical and
electronics (E&E) industry, as well as precision plastics components, stamping, tooling and machining activities, have evolved to become global suppliers to MNCs.
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
SME’s role in maintaining Malaysia’s competitive edge in
IP US Trademarks Granted to OIC Based Countries Trademarks 2000-2004 Turkey 168 Saudi Arabia 21 Malaysia 107 Egypt 12 Indonesia 96 Guyana 11 Nigeria 44 Kuwait 10 UAE 33 Syria 10 Mauritius 32 Iran 30 Pakistan 30 Lebanon 28 Jordan 21 Source: www.uspto.gov
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Where are we in the Muslim world?
US Patents Granted to OIC Based Inventions Patents 1977-2004 Malaysia 547 Nigeria 29 Saudi Arabia 212 Pakistan 26 Indonesia 162 Jordan 20 Turkey 144 Kazakhstan 16 Kuwait 78 Syria 14 UAE 42 Lebanon 42 Source: www.uspto.gov. Iran 32 Morocco 30 Nigeria 29
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Challenges to SMEs
(a) limited involvement in R & D Activities Only 59.4% -process improvement 44% - new product development 21.9% - innovation and technology
Only 19% registered their trade marks and 3% patents
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Constraints
(b) lack of technical, professional and management expertise and entrepreneurial skills Inability to attract and retain suitable
talents Need for proper human capital
management Best business practices in terms of
maintaining co’s competitive advantage
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Importance of trade secrets in competitive
environment Like gold nuggets – almost all business has
it! Maintaining ‘lead’and ‘competitive edge’ in
business but also crucial to your existence Stop others from undercutting business Leakage of info Pinching customers Unfair competition from ex employees or
business partner
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Importance of trade secrets
Applicable for start ups – higher up the value chain! Even for small scale bus. or home bus.! Small-scale Food Processing Enterprises In Malaysia.htm
Estimated loss of $50 billion annual loss to Fortune 1000 companies to trade secret theft Product development, product localization Franchise, licensing and technology transfer Manufacture of goods under contract R & D Customer’s list, sales list, etc. Business plans, formula, ingredient, bid etc.
Trade secrets in the cycle of innovation process
Ahmad Ibrahim Kulliyyah of Laws, IIUM
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Copyright Industrial design
Integrated Circuits
Patents Confidential Information
Trade Marks
Technical report or specification
x x
x
Engineering drawing on paper
x
Engineering drawing on screen
x
Electrical Device x x x
Mechanical Device x x x x
Computer program x x x
Manufacturing method x x x x
Test method x x x x
Name of product x x x x x
Pictorial design or logo x x x x
Interface between the various IPRs
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
The bare idea, in the inventor’s mind only Discussion with friends and colleagues Idea expressed in tangible form, e.g. in writing, on drawings, in a computer memory Preliminary negotiations with potential manufacturers Patent application (assumed successful) Further negotiations with potential manufacturers Put invention into production and sell articles made to it
Establish a reputation associated with the product
Confidence
*** Maintain air of confidence Maintain air of confidence Only in respect of things not disclosed in the patent application
Copyright
***
Protected for author’s life plus 50 years
Patent
***From priority date
Up to a maximum of 20 years
Trade marks ***If applied for For as long as renewed
Passing off *** For as long as reputation associated with article
Stage in the life of an invention Form of intellectual property right
Table 1.4 The life of an invention
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Choosing between patents and trade secrets
Patent Trade secrets
Subject matter Specific and limited bystatute (machines, articles ofmanufacture, processes, andcompositions of matter
Applies to broad range ofintellectual property andbusiness information
Requirements NovelInvolves an inventive stepIndustrial application
Must be potentially usefulMust not be generally knownNeed not be novel or obvious
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
PATENT v TRADE SECRET
Definition Defined strictly by languageof the “claims”
Often difficult to define withequal precision, but can be asbroad as the “equities’ of aparticular case require
Disclosure required Any disclosure must belimited and controlled
Protection Defined by narrow butspecific statuteMonopoly granted
Varies depending uponcircumstances and courtBased on many theoriesProtection only against thosewho independently discoveror reverse engineer
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
PATENT v TRADE SECRETS
Duration 20 years from the filing date Potentially unlimited
Expense ProcuringPolicing infringement
Protecting from unauthoriseddisclosure or use
Risk invalidity Independent discovery orinadvertent disclosure
Marketability Licensing easier Licensing more difficult andrequires policing of licenseesecurity measures
Law of confidential information in Malaysia
Ahmad Ibrahim Kulliyyah of Laws, IIUM
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Law of confidential information in Malaysia:
brief Confidential information Basic elements Duty of confidentiality
‘fiduciary’ Business relationship
Mode of securing confidentiality Physical steps (keys and locks) Contract
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
overview
Law not codified Law very fluid, case law based Breach either on contract or equity or
both Courts have been very adverse towards
any business info theft (at least in Malaysia)
Civil remedies not criminal industrial espionage Silicon Valley Man Sentenced to Economic Espionage Act Violation Relating to Intel Trade Secrets (December 11, 2001).htm
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Confidential information: defined
Electro Cad Australia Pty Ltd & 2 Ors v Mejati RCS Sdn Bhd & Ors [1998] 3 AMR 2555 Confidential information is generally
information which is the object of an obligation of confidence and is used to cover all information of a confidential character. This includes:
(i) trade secrets (ii) literary and artistic secrets (iii) Personal secrets (iv) public and government secrets.
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Types of information Classes of information classified as
‘confidential information’ is endless business, information
Sales information, marketing techniques Photograph, equipment Technology, technical secrets, know-how
(know who!), formula, recipe Government secrets Personal information
Marital relationship (or extra marital!) Private collection Private life of celebrities
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Classes of information
Common knowledge
Available easily Public source
Confidential information
Not known to the public
Limited access valuable
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Criteria: value of information
2 levels: acquiring and developing info and maintaining info.
To what extent is known to others Value of the information
The time, labour and expenditure spent to develop a certain information
Ease or difficulty of which to attain in the information Extent of measures taken to maintain its secrecy How readily the information could be properly
acquired, duplicated or reverse engineered by others
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Relevant Factors
The Law of Intellectual Property: Staniforth Ricketson:
(1) the extent to which the information is known outside his (the owner’s) business;
(2) the extent to which it is known by employees and other involved in his business;
(3) The extent of measures taken by him to guard the secrecy of the information;
(4) the value of the information to him and his competitors;
(5) the value of effort or money expended by him in developing the information;
(6) the ease or difficulty with which the information could be properly acquired or duplicated by others (i.e. by their independent endeavours).
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Essential requirements: Coco v AN Clark (Engineering) Ltd [1969] RPC
41
(a) that the information was of a confidential nature,
(b) that it was communicated in circumstances imparting an obligation of confidence, and
(c) that there was an unauthorised use of information
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Duty of confidentiality
Includes information imparted in the course of business Eg technical specifications and design, operation
of a product and source of manufacturing materials, equipment and parts
Yeohata Industries Sdn Bhd v Coil Master Sdn Bhd [2001] 6 CLJ 418
Mosquito coil making machine, info acquired under licence agreement
Marketing strategy of the P Customers list and portfolio Cost of production and marketing Pricing strategy Supply of materials, equipment and parts
Security measures: keeping confidential info
under wraps
Ahmad Ibrahim Kulliyyah of Laws, IIUM
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Security measures
Keep in secured place ‘NO ENTRANCE LIMITED ACCESS Security measures Security check Key! ‘CONFIDENTIAL’ Cost!
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Security measures
Contractual Remedies
Ahmad Ibrahim Kulliyyah of Laws, IIUM
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Contract: keeping confidential information
under wraps Maintaining ‘confidentiality’ Especially for workers, raw materials
supplier, distributor and all involved Cost of maintenance! ‘biar pecah diperut jangan pecah dimulut!’ Sample:Sample
Contracts - Manufacturing Agreement - Handspring Inc_ and Flextronics (Malaysia) SDN_BHD - Competitive Intelligence for Investors.htm
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Contract : Non Disclosure Agreements
Clear terms Binds action, time and place All key figures must be identified
Eg employees, business partners Any third parties
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Sample clauses
at no time shall the meetings, discussions, advice and/or amendments to be made known or in any way disclosed to any other individual or company and shall be treated as strictly confidential.
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Contractual remedies
Breach of contract Civil suit and not criminal
Equitable remedies
Ahmad Ibrahim Kulliyyah of Laws, IIUM
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Fiduciary relationship
Always internal leakage Fiduciary relationship Rights arising from equity Examples of fiduciary relationship
Lawyer Banker Accountant Doctor
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Fiduciary relationship
The higher you are in the company, the more stringent the duty is
Does not end with the termination of contract of employment, or employee leaving the company
Even in the absence of contract! e.g ex director and consultant in
Electro Cad Australia Pty Ltd – anti car theft device
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Mejati RCS Sdn. Bhd
A was the director of ABC Company. ABC has been offered to manufacture a new anti car theft product, ‘Stopcard’ Auto Theft Device. B, one of the director of ABC soon resigned and set up a different company DEF. DEF, later developed and offered to the public an anti-car theft product known as “Stop Car”. DEF claimed that the Stopcar product was derived from their own technology
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Mejati RCS
Held : by virtue of his position as a director, B owed certain fiduciary duties to ABC. The duties of a director are those fiduciary duties owed by senior officials of the company and as such are higher than those owed by employees and managers.
Obtaining information is akin to that of obtaining an advantage. A director will be precluded from using any advantage obtained by virtue of his position as a director, especially with regard to confidential information obtained, after he resigns, more so when his resignation is seen to have been motivated by a desire for himself the advantage actually sought by the company.
Human Capital Management
Ahmad Ibrahim Kulliyyah of Laws, IIUM
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Strategies
Develop confidentiality policies Educate personnel about the importance
of trade secrets Warn them of the consequences of breach Implement creative barrier eg break a job
into parts so that no single employee, division or supplier knows all the parts of a trade secret
Teach employees to look for signs of corporate espionage
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Human Capital Management
Legally monitor business related channels of communication
Conduct checks to ensure compliance with corporate policies
Hold exit interviews, secure the return of all electronic equipment and remind them of the confidentiality of trade secrets
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Employee relationship: Non competing clause
Binds employees from working or dealing with rival company or divulging business secrets to competitor or set up competing co Duty of fidelity and good faith!
Schmidt Scientific Sdn Bhd v Ong Han Suan [1998] 1 CLJ 685
Co deals with specialised imported equipment and instrument and sold them to various hospitals, research centers universities and industries
Employee left the co and set up a distributing co Info pertaining to cost prices, quoted prices, specific
needs and requirements of the customers and suppliers, status of all ongoing negotiations with customers and price list
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Chinese walls
Par. for big companies with large no. of depts and employees
Chinese walls – set barricades to access of info - Prince Jefri Bolkiah v KPMG [1999] 2 AC 222.
P former chairman of an investment agency established to hold and manage the general reserve fund and external assets to the Govt. of Brunei
D, a firm of chartered accountants which has rendered accounting service to the P.
D appointed as agency to conduct investigation into the activities of the agency
Different team working on the case Risk of inadvertent disclosure, files moving within the
co
Relationship with business partners and relevant third
parties
Ahmad Ibrahim Kulliyyah of Laws, IIUM
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Business dealing
Careful disclosure of information cakap biar bertempat!’
Non disclosure agreement Don’t disclose everything Emphasize on the confidentiality of the information Importance of maintaining competitive lead in business
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Strategies
Record every meeting Careful with documents Follow up by correspondence Monitor business partner’s
business dealing Your business partner can be your
worst enemy!
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
In summary
Adopt the proper strategy Business secrets are valuable and vulnerable! Identify your trade secrets and take measures to
protect them! (trade secret audit) Maintain and enhance competitiveness Capitalise on business opportunties Crucial for all business enterprise from all sectors –
from start ups to MNCs Par for bus driven by technology and innovation Need to adopt best business practices in retaining
valuable information Human capital management Prudent relationship with 3rd parties
Should we criminalise corporate espionage?
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
US – Economic Espionage Act 1996
The term ‘trade secret’ means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorized physically, electronically, graphically, photographically, or in writing if (a) the owner thereof has taken reasonable measures to
keep such information secret; and (b) the information derives independent economic
value, actual or potential, from not being general known to, and not being readily ascertainable through proper means by the public
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Economic Espionage Whoever, intending or knowing that the offense will benefit
any foreign government, foreign instrumentality, or foreign agent, knowingly
(1) steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains a trade secret;
(2) without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys a trade secret,
(3) receives, buys, or possesses a trade secret, knowing the same to have been stolen or appropriated, obtained or converted without authorization,
(4) attempts to commit any offense described in any of the above paragraphs.
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Theft of trade secrets (a) whoever, with intent to convert a trade secret, that is related
to or included in a product that is produced for or placed in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof. And intending or knowing that the offense will injure any owner of that trade secret, knowingly-
(1) steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains such information
(2) without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys such information
(3) receives, buys, or possesses such information, knowing the same to have been stolen or appropriated, obtained, or converted without authorization;
Attempts to commit any offense described in para (1) to (3) above
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of
SMEs
Points to ponder
Should we criminalize theft of trade secrets as in USA?
Thank you