Trade secrets are a valuable and highly useful form of intellectual property right and Coca-Cola is testament to this. They are the global leader in the beverage industry, and it is no wonder that the secret for the formula of the most popular soft drink in America is valued at millions of dollars.
By successfully keeping the secret under lock and key for over a century, they have managed to retain their formula much longer than any 20 year patent would have bought them. This proves that if managed carefully trade secrets can be of great value to a company.
Trade secrets are based upon three essential elements: 1) a trade secret must not be known by the general public or by your competitors; 2) it must give the owner a competitive advantage or be capable of generating economic benefit; 3) the owner must take reasonable measures to protect the confidentiality of the information.
During business dealings or negotiations with third parties, whether it be potential partners, suppliers, contractors, licensees, or customers, your trade secrets can be protected by applying the following simple and sensible precautions:
- give only a general overview during your meeting and take care not to give away any proprietary information during the initial meetings
- share only rough sketches of designs, plans or strategies so that the business partner will not be able to recreate your business/project
- invite potential partners to your business premises to see any of your work instead of sending them something
- know when to walk away and do not be afraid to do so
During the negotiation process it is also recommended for parties to sign non-disclosure agreements (NDA) so that the duty to maintain confidentiality is made clear.
Non-disclosure agreements are quick and inexpensive. They are widely used in China and well-accepted by Chinese courts, so a Chinese third party that is unwilling to sign an NDA is not likely to be a trustworthy potential business partner and should be treated with caution.
The non-disclosure agreement should describe the trade secret that is being disclosed to the other party, so that they will not be able to later deny receipt of the trade secret, or argue that they did not know the information they received is confidential.
Sometimes an NDA on its own is insufficient to protect your IPR, especially for companies in the manufacturing industry or companies sourcing their products from China. Under these circumstances, a non-disclosure/non-use/noncircumvention agreement (NNN) may be used.
- The non-disclosure provisions will cover the unauthorised disclosure of confidential information,
- the non-use provisions will state that the Chinese manufacturer cannot produce your product or any similar products for anyone other than you, and
- the non-circumvention provisions will prevent the Chinese manufacturer from by-passing the protection or circumvention means or technologies that you put into your product (for example, anti-counterfeit micro-chips).
A lawyer may help you in writing agreements before proceeding with negotiations. In case the potential partner is offended, the lawyer will explain that it is the client’s policy to have non‐disclosure agreements in place before negotiations to demonstrate the respect for their IPR as well.
Protection of a trade secret can, in theory, extend indeterminately and therefore may be more advantageous than patent protection, however there will be no protection in the event that the information is uncovered.