12-10-19 As seen in the Rochester Business Journal "Company valuables include often hard to define trade secrets."

Posted on December 10, 2019

Katie McGuire, Esq., Chair of Woods Oviatt's Intellectual Property Department speaks on trade secrets in the Rochester Business Journal article from 11-29-2019.

VOLUME 35, NUMBER 35 WWW.RBJ.NET NOVEMBER 29, 2019

By ANDREA DECKERT

Corporate trade secrets are an important part of a compa­ny’s intellectual property, but they can often be overlooked, says Jeffrey Allen.

“Trade secrets are like the little brothers at the kids table at Thanksgiving,” says Allen, a mem­ber at Bond, Schoeneck & King PLLC.

But Allen believes shoring up a firm’s trade secrets should be a company’s top priority.

“They are absolutely vital to a company’s value,” he says.

A trade secret is a type of intel­lectual property in the form of a formula, practice, process, design, instrument, pattern, commercial method, or compilation of informa­tion that is not generally known or reasonably ascertainable by oth­ers, and by which a person or com­pany can obtain an economic ad­vantage over competitors.

But unlike its other intellectual property counterparts – patents, copyrights and trademarks – trade secrets do not require a registra­tion and can be harder to protect, area experts say.

Local attorneys who are well versed in intellectual property say it is important for businesses to determine if they have trade se­crets – which can range from an assembly line process to a client list - and then put safeguards in place to protect them.

Laws have arisen recently to help companies shield their trade secrets.

The Defend Trade Secrets Act of 2016 is a federal law that allows an owner of a trade secret to sue in federal court when its trade se­crets have been misappropriated. Since the federal law was put in place, most states have adopted a statute of their own governing trade secrets law, modeled after the federal Uniform Trade Secrets Act.

New York, however, does not have a statute governing trade se­crets law. Instead, it is based sole­ly on the common law, which is the compilation of prior court decisions in the state.

Allen says the laws provide con­sistency when it comes to deter­mining what is, and is not, a trade secret.

“Consistency in the law is better for business,” Allen says.

Allen has litigated a number of cases involving trade secrets, whether he was advocating for a firm which claims trade secret in­fringement or defending a person, or business, accused of misappro­priating one.

One case involved a software company which claimed its cus­tomer pricing list was a trade se­cret. The pricing was individualized based on the customer and that price structure, along with main­taining its confidentiality, was valu­able to the company, Allen notes.

When proving a trade secret, courts look at certain factors, in­cluding the steps a company takes to protect that information, as well as the monetary value that comes from it.

“Just because something is con­fidential it doesn’t necessarily qualify as a trade secret,” Allen says.

The software company, for ex­ample, was able to show the effort it took to protect is property, such as implementing internal and ex­ternal controls to protect its infor­mation.

Allen saw more cases related to trade secrets when he was working in California, particularly with cli­ents in the Silicon Valley, but with the rise of high-tech companies in the Rochester area it becomes an important issue, he says.

Trade secrets can hold a lot of a company’s value and are often list­ed as assets for the company, Al­len says.

When determining what is a trade secret, it is beneficial to work with an attorney who can help build the necessary safeguards to pro­tect trade secrets.

Areas that need to be reviewed include who needs to know the in­formation, should it be encrypted, who needs to sign non-disclosure agreements or memorandums of un­derstanding both inside and outside of the company. Also important is a record of how much money a com­pany invested in developing this trade secret, Allen says.

Having that documentation in place up front can help offset future challenges, he adds.

“An ounce of prevention really is worth it,” Allen says.

Katherine McGuire, a partner at Woods Oviatt Gilman LLP and chair of its Intellectual Property practice group, says trade secrets are not as common as patents.

“It can be hard to establish a trade secret,” she says.

However, unlike a patent which has a shelf life of 20 years, a trade secret can be in place for an indef­inite amount of time, she notes.

“Trade secrets can provide a long-lasting value to a company as long as that secret remains protect­ed,” she says.

Since something cannot be both a patent and a trade secret, McGuire works with clients to determine which would be the best fit.

McGuire also notes that compa­nies often have assets that could be considered trade secrets, most no­tably proprietary customers lists or even the company’s business plans.

It is important for a company to have a checklist of items it needs to keep confidential, she says.

“If it is a trade secret, companies need to make sure they do the things the law says they need to do to establish it,” McGuire says.

Jeffrey Wadsworth, a partner at Harter Secrest & Emery LLP, also lit­igates a number of cases around the country related to trade secrets. Wad­sworth leads the firm’s Antitrust and Commercial & Intellectual Property Litigation practice groups.

Among his cases, Wadsworth has litigated against Chinese telecom gi­ant Huawei, which was found guilty earlier this year on numerous charges related to trade secret misappropria­tion.

His firm also works with clients to advise them on what constitutes a trade secret and how to create poli­cies and procedures to protect them.

Perhaps the most famous trade se­cret is the recipe for Coca-Cola, which remains closely guarded, Wadsworth explains, but adds a trade secret need not be the cornerstone of a business. It could, for example, pertain to a company’s marketing or pricing strat­egies.

Questions about trade secret mis­appropriation can often arise when an employee leaves one business and goes to work for a competitor. The question that follows is did that former employee share information that pre­vious employer considered a trade secret, Wadsworth says.

It is important to take precautions to protect such trade secrets and al­most every company has potential trade secrets, he notes.

He has seen a marked increase in the number of cases involving trade secret misappropriation and believes an increased awareness of them has led to the higher number.

“More people are understanding valid intellectual property rights and are taking steps to make sure they are protected,” Wadsworth says.

It also makes sense for a company to sit down with an attorney who can conduct an audit to determine what its trade secrets may be and how to protect them.

“It’s about creating a culture of awareness and protection within your business,” Wadsworth says.

Andrea Deckert is a Rochester-ar­ea freelance writer.

“If it is a trade secret, companies need to make sure they do the things the law says they need to do to establish it.

— Katherine McGuire

Reprinted with permission of RBJ. Copyright © 2019. All rights reserved.

Katherine H. McGuire