From Idea to Intellectual Property – Season 3 Episode 1: “If I told you, I would be giving you the keys to the enterprise”: Unpacking Trade Secrets

Francis Gurry:

One of the longest standing, commercially extremely valuable trade secrets is Coca-Cola.

Nobody has been able to crack it through reverse engineering, and nor has anyone been able to obtain the secret.

An urban legend tells us that the secret is written down on one piece of paper only, which is torn into two parts, and each part is deposited in a separate bank.

And it’s known to only four persons at any one time, and those four persons never travel in the same car together, nor in the same aeroplane.

So they take extreme measures, but they’ve been very successful in maintaining it.

Lots of people have had a crack, as you know, Pepsi tried to produce something similar, but it’s not quite the same.

Lisa Leong:

How easy is it to keep a secret?

You tell just one person who tells just one person, and, well, your secret’s not a secret anymore.

So why are trade secrets such a critical part of your intellectual property arsenal?

And what are the practical steps you can take to keep your trade secrets safe?

I could tell you, but then I’d have to kill you.

Lieutenant.

Well, that’s one way.

Thanks, ma’am.

We’ll have Tom Cruise, Top Gun, 1986.

Hello, I’m Lisa Leong, and this is season three, From Idea to Intellectual Property.

It’s a podcast about today’s big ideas and the IP considerations behind them.

If you’ve joined us for our other seasons, welcome back.

And if you’re fresh, hello.

Well, you’re in for a treat, because one of our faves is back again, Dr. Francis Gurry.

Well, he’s an IP legend, former director general at the World Intellectual Property Organization.

He was recently awarded an Order of Australia for his distinguished service to IP, research and tertiary education, and he’s a strategic advisor for IPH.

So Francis, what makes something a trade secret?

Dr. Francis Gurry:

First of all, the information has to be confidential.

That is, not generally known, not generally available.

Secondly, the owner or proprietor, the holder of the trade secret, has to take measures to preserve its secrecy, so you don’t publish it on the internet, obviously, because it loses its confidential status.

Those measures ought to be reasonable, but not excessive, you know, not necessarily in the Coca-Cola variety.

And the information has to have some commercial value to be protected.

Lisa Leong:

And what would you say to someone who says, nah, trade secrets, you know, how important can they be compared to something sexy, like a patent or a trademark?

Dr. Francis Gurry:

Unless I’m mistaken, it’s probably the view that most people have is that trade secrets are not necessarily very important.

However, a couple of years ago, the National Science Foundation in the United States of America did a survey of all companies, with more than 10 employees, all companies that had performed or funded finance, research and development in the previous year, and that was the year 2018.

And they asked them to rank in importance the various intellectual property rights.

And perhaps surprisingly, trade secrets came out as the most valued by all of those enterprises in the United States of America, the largest funder of research and development in the world, some $800 billion every year.

All of those companies said trade secrets were most important.

So enterprises obviously regard trade secrets as extremely important.

And why?

Well, for a lot of reasons, one, especially in the digital age, so much information is generated by the activities and operations of an enterprise.

And a lot of that can tell you exactly what processes and procedures an enterprise uses.

And this is fundamental to competitiveness of the enterprise, because that’s what gives them their advantage over others.

If others have access to that information, they no longer have that advantage, that competitive advantage.

Lisa Leong:

So Francis, why is it so hard to keep a secret and a trade secret at that?

Dr. Francis Gurry:

Well, I think you can lose the confidential status of some information, secret information.

You can lose that either accidentally, or you can use it by a deliberate intrusion or a deliberate attempt to acquire it by someone, either inside or outside an enterprise or organization.

So you have to take measures in relation to that in order to protect the confidential status of the information.

And those measures have to be, on the one hand, legal.

You usually ask employees to sign agreements where they will respect the confidential status of the confidential information or trade secrets of the enterprise both during and after their employment.

Now those are generally non-disclosure agreements after the employment.

They are subject to some control by the courts to make sure that they’re not wholly unreasonable and to make sure that the scope of information claimed as confidential is not too broad and doesn’t impede the employee from using his or her ordinary expertise.

So it has to be rather specific information, not just the whole enterprise’s information.

So those are some of the legal measures that you must take.

Then you have, as we’ve discussed, the practical measures of making sure that it’s not easily accessible.

You don’t leave it around, the information around, you’d lock it away.

And then you add on the digital age.

And of course, we have cyber intrusions going on, on a daily basis around the world.

And then there’s all of the peripheral information which may not be quite of the standard of patentability, but which may nevertheless be extremely important for the functioning of an invention.

And all of the experience afterwards that the enterprise has with the invention.

So any invention is surrounded by a lot of pre and post confidential information, which is protected through trade secrecy.

Lisa Leong:

And this idea of the importance of keeping these trade secrets, I mean, we can trace this back really to the beginning of trade, to the beginning of the notion of businesses. It’s almost as old as business itself.

So what are some of the first instances of trade secrets being stolen?

Dr. Francis Gurry:

Yes, you’re absolutely right.

Espionage has been going on for time immemorial, really.

One of the famous early cases was in the time of the Emperor Justinian in the sixth century.

Two monks actually persuaded the Emperor Justinian that they would be able to acquire the secrets of silk production from China.

And he endorsed their little venture, and they made their way into China, and they smuggled out in a cane walking stick, stuffed also with some straw to maintain the silk worms, inside the cane walking stick.

And they brought the silk worms back to Constantinople at the time, and that was the foundation of the Byzantine silk industry.

And it spread throughout the world, as we all know.

The rest is history, yes.

Lisa Leong:

And what would you say is the modern version of smuggling silk worms out in a walking stick?

Dr. Francis Gurry:

Well, I’ll give you two examples of some recent, quite notorious cases in the United States of America.

The first was Genentech, you know, the big biotech company, one of the first biotech companies ever established, and now owned by Hoffman Laroche, Swiss company.

Two employees left Genentech, and they took basically the secrets to the production of certain blockbuster cancer and cystic fibrosis drugs of Genentech, and they left, and they enlisted several other employees, and they went and founded their own enterprise in competition in Taiwan.

And that gives you an example of the difficulty there is, because suddenly they’re in Taiwan, and they’ve got an enterprise there.

Now tracing the information and knowing what they have is not exactly easy.

Another one, a recent case, was called Appian and Pegasystems.

And they are the two major competitors and the major corporations in business process, so automating business processes.

And Appian sued Pegasystems because Pegasystems was using an employee of a contractor to steal the information when on the premises of Appian about all of their techniques.

And Appian won the case, and they got a judgment of $2.04 billion in damages.

So that gives you an idea of the value of information.

Lisa Leong:

Let’s get practical now.

So if I’m running a small business, what are the steps that I can take to protect my trade secrets?

First of all, they should do an audit of what is special to them and that others don’t know and that they need to protect.

That’s the first thing.

Then the second thing is they need everyone in the enterprise, no matter how small, five persons, ten persons, everyone to be aware of the value of their confidential information and aware of the need to protect it.

And they can back up that educational communication with a legal obligation in the employment contract.

Then they have to be careful to say, anyone that they’re dealing with outside is a potential leakage.

Now that ranges from contractors who might be coming in and doing various things, sometimes innocuous things, or they might be contractors in their supply chain, in their value chain of production of whatever it is that is their particular piece of technology.

There is also the cyber dimension of all that.

So a lot of that is going to, of course, be captured digitally, and then they must have proper cyber security measures in a world which is extremely leaky.

Lisa Leong:

Practically, it’s quite hard because as a small business, usually you’re trying to go out to spread the word. You might even want to get some funding.

I guess that’s where the non-disclosure agreements once again become really critical.

Dr. Francis Gurry:

Absolutely.

They’re going out and they have to tell what they’ve got to attract an investor.

Investors will push them and push them to know what it is because naturally they’re concerned to have some security or to cover their risk and to know where it is.

So it’s a very fine judgment that the founders of a startup have to make as to how much they reveal in order to attract.

You know, we’ve got the greatest thing.

It’s okay if you think, it depends a bit on the technology.

Now, if you think of Google when they started up, which by the way wasn’t so very long ago, it’s about 20 years ago, you know, and trillion dollar company now, it was an algorithm, just one algorithm for search.

Now, that’s much easier at that stage to protect, and it’s also at this stage to protect, if it’s just a single algorithm at the start.

But unfortunately, not everything is as inaccessible as an algorithm.

You know, so a lot of pieces of technology, which might cover whatever sphere, may be much more easily exposed.

And so it’s a big challenge, and they have to be very much aware of it.

Lisa Leong:

Do you think that trade secrets will still be number one, top of businesses’ minds, if we ask them to do that survey 10 years from now?

Francis, I feel like it might not even be worth the paper that it’s written on in the future.

Dr. Francis Gurry:

I think it will, Lisa, because we’re living in the age of big data.

And amongst that big data, there’s a lot of very valuable information.

So we are producing massive qualities of data.

You know, it’s a little frightening in some respects.

For individuals, it’s concerning for their privacy if such a concept still exists.

And for enterprises, of course, it’s exactly the same thing.

All of their movements, everything they’re doing is leaving a digital imprint somewhere.

And so they have to be, I think, very conscious of this.

Lisa Leong:

So, reflection time, what trade secrets might you be sitting on?

I have a finely tuned warm-up routine that I’ve developed to prepare for my radio show and before presentations.

It’s not patternable, but could it be a trade secret?

I could tell you, but then I’d have to kill you.

Exactly, Mav, Tom Cruise.

So, Francis, is there effectively a trade secret or two in all of us?

Dr. Francis Gurry:

I think they’re everywhere, and I think it’s extremely important for the functioning of our economy.

If we were not able to create relationships with other enterprises, and they may be, as I’ve mentioned, suppliers, contractors, builders, anyone in your value chain, all of those complex relationships depend on the passage of information.

And so secrecy actually is something that makes the wheels of commerce turn, because it is a way of enforcing trust.

Just as in our social relations, secrecy, which many people might say, well, that’s not such a good thing, that secrecy is extremely important.

If you go to a doctor, you don’t want the doctor to go to the golf club and say, well, look, so-and-so came to see me, and did you know what?

So that relationship couldn’t function without secrecy.

All of these relationships depend on trust, which is enforced through the protection of confidential information within the relationship.

Lisa Leong:

Thank you so much, Francis.

It’s always a pleasure.

Dr. Francis Gurry:

Likewise, Lisa, always a pleasure.

Lisa Leong:

That was Francis Gurry, strategic advisor to IPH, former director general of the World Intellectual Property Organization.

Thanks to our producer, Kara Jensen-McKinnon, this podcast is brought to you by IPH, helping you turn your big ideas into big business.

I’m your host, Lisa Leong.