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Front End I Electronic Components Supply Network


Trade secrets… yet more legislation


In an attempt to protect the confidential information critical to the pursuit of innovation and economic growth, legislators in the US have introduced the ”US Defend Trade Secrets Act 2016“. The EU's equivalent legislation, the snappily named “Directive of the European Parliament and of the Council on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure”, has been handily abbreviated by our representatives to the ‘Trade Secrets Directive’. Both pieces of legislation were signed and adopted in May 2016 although the EU Directive will not come into force until 2018. “It’s yet more new legislation for all parties in the global electronic components supply network to consider,” says Adam Fletcher, chairman, ecsn, who reviews some of the key points and considers it’s likely impact


I What’s a trade secret?


guess a good place to start is by attempting to define a trade secret? The World Trade Organisation's Agreement


on Trade Related Aspects of Intelligence Property Rights (TRIPS), which was agreed in 1994 suggests that the key factors that define a trade secret are: 1/ it is not generally known to the public; 2/ the holder gains an economic benefit from it not being publicly known and 3/ the holder has taken reasonable steps to maintain its secrecy.


A classic example of a trade secret is the blend of ingredients required to produce Coca Cola, which has survived without breach for many years, despite the attempts by many competitors to produce the same or a broadly similar product.


Trade secret or patent? Part of the premise of all Intellectual Property (IP), be it a new product, process, software, or data, is that it starts out as a secret and needs its value to be acknowledged and controlled with the granting of a patent, trademark or copyright. Trade secrets don’t have to be technical, they can simply be anything of commercial value that is not in the public domain. And trade secrets, unlike patents, have no expiry date.


For many organisations in a technology driven industry such as electronic components it may be important to hold a patent on the fundamental physics or properties of a product, process, software or data. This is no less so for derivatives or extensions that can easily be worked around by competitors using a slightly different solution. There remains a strong


12 November 2016


reliance on patents to protect IP but the cost of gaining meaningful global patent protection along with the protracted timescales needed to achieve it and the fact that significant information has to be placed in the public domain has made patent protection less attractive.


Harmonisation and UK law The principles of English law were established in the 19th Century based on the laws of equity. Basically a derivative of common law, IP protection legislation has two primary themes: 1/ the ‘tort of misuse’ of personal information and 2/ an ‘equitable breach’ of confidence in commercial or technical secrets. Like much of English law it is entirely judge made and based on the evidence presented in court. Because trade secrets are not classed as ‘property’ the Courts held that they cannot be stolen and consequently there is no criminal sanction against their disclosure or use. However the deliberate taking or using a trade secret can be severely punished in the Civil Courts provided the claimant can demonstrate the significance, secrecy and value of what has been taken. For this to be successful it is necessary to prove that a breach of confidence has taken place and that the loss or damage in financial or reputation terms can be established. Recent changes to US legislation


concerns movement from a State to a Federal law, which makes protection of trade secrets significantly easier to enforce. The EU legislation aims to achieve a similar harmonisation position across EU members, effectively codifying existing English law.


Components in Electronics


Confidential information There are many relationships where information has to be shared and confidentiality maintained i.e. between doctor and patient, lawyer and client, within business organisations and between employer and employee. That said, it is very difficult to prove the existence of a duty of confidentiality if no written contract between the parties exists. This is why in most business-to-business transactions confidentiality issues are highlighted by Non-Disclosure or Confidentiality Agreements to be separately agreed by the parties or included as clauses in their general terms and conditions of trade.


Adam Fletcher


process variables in novel combinations. If an employee leaves company A for a competitor company B and uses the 'fine- tuning' expertise he gained in his previous employment to enhance the performance of company B…? The same analogy may be equally applied to many employer/employee relationships, where there will always some “leakage” of IP and trade secrets in both directions. Following the strengthening of trade


secret legislation there is now a greater incentive for all parties to act appropriately. I suspect many organisations will increasingly seek to identify their trade secrets and work on how they can define, use and/or communicate them whilst still


There has been a trend to the


increasing use of duty of confidentiality clauses in employment contracts as employers seek to ensure their trade secrets are not disclosed by existing or former employees. Many employers now routinely seek to formally bind their former employees for a specific period of time, but once employment has terminated it can be very difficult to determine the extent of an employee’s obligations to their former employer.


Soft IP


One of the major risks to employers and employee’s is the potential loss or misuse of less tangible information or trade secrets gained in the course of employment. Best described as “soft IP”, its loss can be equally as damaging to an organisation. An example: In semiconductor manufacturing, where many organisations use the same or very similar process equipment, achieving a maximum yield (percentage of good product) can have a dramatic impact on profitability. In a very complex manufacturing process it can come down to the fine tuning of the many


benefiting from legal protection. Employers may also need to consider how as the (possibly unwitting) recipient of a trade secret that was unlawfully obtained, they can protect themselves from the wrongful activities of their employees. Conversely, employees will also have to consider how to reasonably recognise a potential or actual trade secret within the information they have access to and what information they may reasonably pass on to others without breaching the latest trade secrets legislation. There are some pretty obvious steps that organisations in the electronic components supply network need to take to protect their trade secrets and confidential information starting with their Employment Contracts, Non-Disclosure Agreements, Terms and Conditions of Trade etc., but importantly, they must also ensure all employees, particularly new employees from competitor organisations, recognise, understand and respect the policy and procedures for honest commercial practice that they are signing up to.


www.ecsn-uk.org www.cieonline.co.uk


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