Reverse Engineer

1. ORIENTATION PROGRAM
ON INTELLECTUAL PROPERTY
FOR MANAGEMENT STUDENTS OF
INDIAN INSTITUTE OF MANAGEMENT (IIPM)
Geneva, Switzerland, 2007

2. The Importance of
Trade Secrets
for Businesses
Lien Verbauwhede Koglin
Consultant, SMEs Division
World Intellectual Property Organization (WIPO)

3. • Idea: By keeping valuable information secret,
you can prevent competitors from learning about
and using it and thereby enjoy a competitive
advantage in the marketplace.
What are trade
secrets?
Do-it-yourself
form of IP

4. General principles:
• Information that has commercial value and that
has been scrupulously kept confidential will
be considered a trade secret (TS).
• Owner will be entitled to court relief against
those who have stolen or divulged it in an illegal
manner.

5. This Presentation
1. What information qualifies as a TS?
2. What makes something a TS?
3. When can you get court relief?
4. How are TS lost or stolen?
5. How to protect your TS?
6. May TS be sold?
7. How is TS protection enforced?

6. Question 1
WHAT KIND OF INFORMATION
QUALIFIES AS A TRADE SECRET ?

7. TRADE SECRET
• Provides
competitive
advantage
• Potential to
make money
Kept
confidential

8. TRADE
SECRET
Financial
information
Technical &
scientific
information
Commercial
information
Negative
information

9. – Product information
• technical composition of a product (paint, medicine, beverage)
• technical data about product performance
• product design information
– Manufacture information
• manufacturing methods and processes (e.g. weaving technique)
• production costs, refinery processes, raw materials
• specialized machinery
– Know-how necessary to perform a particular operation
Examples
Technical and scientific information

10. – Computer technology
• hardware + software (esp. source code)
• whether < patent or copyright protection
• algorithms, formulas, data flow charts, specific
procedures that are implemented in the software or
website
• Software design documents
• Software development agreements
– Drawings, designs, motifs, patterns
– Laboratory notebooks
– Pending patent applications

11. – Customer lists
– Customer profiles, buying preferences,
requirements
– Business plans and strategies
– New product names
– Supplier arrangements
– Sales methods
– Personnel performance
– Info re: new business opportunities
Examples
Commercial information

12. – Financial projections
– Cost & pricing information
– Sales data, price lists
– Internal cost structure
– Salary and compensation plans
Examples
Financial information

13. – Details of failed efforts to remedy problems in the
manufacture of certain products
– Dead-ends in research (e.g. waterproof)
– Unsuccessful attempts to interest customers in
purchasing a product
Examples
Negative information

14. Question 2
WHAT MAKES SOMETHING A
TRADE SECRET ?
When do you have
legal protection?

15. Three essential legal requirements:
1. The information must be secret
2. It must have commercial value because it’s secret
3. Owner must have taken reasonable steps to keep it
secret

16. • What if many employees need to know?
• What if others need to know?
– suppliers, joint development agreement, due
diligence investigation, etc.
• What if you want to license technology?
1. Secret
Required that be
known only by
one person?

17. • “not generally known among or easily accessible to
persons within the circles that normally deal with this
kind of information”
• What is ‘generally known’ ?
– matters of common knowledge
– information you find at library, online database, trade
journals, patent information, etc
– price list on website
– graphics & object code of software application you sell
off-the-shelf
1. Secret

18. • Not required that be known only by one person
– If you need to share
– If you license technology which has limited distribution
 possible to protect confidential information by
contractual means
1. Secret

19. • Must confer some economic benefit on the holder
• This benefit must derive specifically from the fact that
it is not generally known (not just from the value of
the information itself)
• How to demonstrate:
– benefits derived from use
– costs of developing the TS
– licensing offers, etc.
– actual or potential
2. Commercial value

20. • Under most TS regimes, you cannot have a TS unless
you have taken reasonable precautions to keep the
information confidential
• ‘Reasonable’  case by case
– reasonable security procedures
– Non-disclosure agreements (NDA)
– such that the information could be obtained
by others only through improper means
• Importance of proper TS management program
3. Reasonable steps

21. Caution: Who owns the TS?
• TS (e.g. new technology, brand, etc) developed by
employee …
• TS developed by external contractor
To avoid disputes:
WRITTEN AGREEMENT
+
ASSIGN
in advance all trade secrets developed
during employment or commission

22. Question 3
WHEN CAN YOU GET COURT
RELIEF ?

23. COURT RELIEF if: TS + “THEFT”
Courts will only grant relief if someone has
improperly acquired, disclosed or used the
information
Only theft if wrongful !

24. 2. Confidentiality agreement or NDA
– e.g., employees, suppliers, consultants, financial
advisors
What is typically considered
wrongful?
1. Duty of trust
– implied or imposed by law
– e.g., employees, directors, lawyers
3. Industrial espionage, theft, bribery, hacking,
eavesdropping

25. What is lawful?
 Discovery of the secret by fair and
honest means
1. Independent creation
– without using illegal means or violating agreements
or law
–  patent
TS protection
provides
no exclusivity !

26. What is lawful?
2. Reverse engineering
– Take product apart and see how it ticks
– Common practice among software companies:
studying competitors' products
• to make software that can interoperate with the
software being studied
• to make a product that will compete with it
– E.g. decompile object code to reveal its structure and
figure out the interface specifications for interoperability
purposes
– E.g. look at a program's input and outputs

27. 2. Reverse engineering
– Solution: contractually forbid reverse engineering
(in software license agreement)
– Technological protection measures
BUT! Legality in question
• Inconsistent with copyright or antitrust laws?

28. Question 4
HOW ARE TRADE SECRETS LOST
OR STOLEN ?

29. A Growing Problem.
Why Does It Occur?
– Way we do business today: increased use of
contractors, temporary workers, out-sourcing
– Declining employee loyalty: more job changes
– Organized crime: discovered the money to be made
in stealing high tech IP
– Storage facilities: DVD, external memories, keys
– Expanding use of wireless technology: devices for
interception of communication without consent

30. – Reverse engineering, independent discovery
– Improper licensing
– Burglaries by professional criminals targeting
specific technology
– Network attacks (hacking)
– Laptop computer theft
– Inducing employees to reveal TS
Examples

31. – departing or disgruntled employees
– intentional (malicious)
– inevitable (knowledge acquired)
– by ignorance
80% of trade secret loss
< employees, contractors, trusted insiders!

32. Case
Coca-Cola Trade Secret Trial
• Prosecutors say a former Coca-Cola secretary took
confidential documents from the beverage giant
and samples of products that hadn't been launched
with the aim of selling them to rival Pepsi
• Faces up to 10 years in prison if convicted of
conspiracy.
AP Business, January 15, 2006

33. Case
Company accused of misappropriating TS
from an inventor
• Inventor of new design for
vacuum cleaner presented
design to vacuum cleaner
manufacturer. Signed NDA
covering the design.
• Manufacturer obtained patent
on the design one year after the
inventor disclosed the design to
them, and made estimated sale
profits of $100,000,000.
• 2004: lawsuit settled. Company
paid $30,000,000 to inventor.

34. Case
High-Tech Company vs. Employee
• Technical manager (employee) of high-tech company
X resigned  Went to work for another high-tech
company Y
• Departing employee used and disclosed TS
• Company X filed suit against departing employee
• Court order: Departing employee prevented from
performing work for his new employer (Y) in
connection with any product that competes with X’s
products.

35. Question 5
HOW TO PROTECT
YOUR TRADE SECRETS?

36. 1. Identify trade secrets
• Accurate record keeping is important.

37. • Factors to determine if information is a TS
– Is it known outside the company?
– Is it widely known by employees and others involved
within the company?
– Have measures been taken to guard its secrecy?
– What is the value of the information for your company?
– What is the potential value for your competitors?
– How much effort/money spent in developing it?
– How difficult would it be for others to acquire, collect of
duplicate it?

38. 2. Develop a protection policy
Advantages of a written policy:
– Clarity (how to identify and protect)
– How to reveal (in-house or to outsiders)
– Demonstrates commitment to protection 
important in litigation

39. – Educate and train:
• Clear communication and repetition
• Copy of policy, intranet, periodic training & audit, etc.
• Make known that disclosure of a TS may result in
termination and/or legal action
– Monitor compliance, prosecute violators

40. 3. Restrict access
to only those persons having a
need to know
the information
 computer system should limit each
employee’s access to data actually
utilized or needed for a transaction

41. 4. Mark documents
– Help employees recognize TS
 prevents inadvertent disclosure
– Uniform system of marking documents
• paper based
• electronic (e.g. ‘confidential’ button on
standard email screen)

42. 5. Physically isolate and protect
– Separate locked depository
– Authorization
– Access control
• log of access: person, document reviewed
• biometric palm readers
– Surveillance of depository/company premises
• guards, surveillance cameras
– Shredding
– Oversight; audit trail

43. 6. Restrict public access
to facilities
– Log and visitor’s pass
– Accompany visitor
– Sometimes NDA/CA
– Visible to anyone walking through a company’s
premises
• type of machinery, layout, physical handling of work in progress, etc
– Overheard conversations
– Documents left in plain view
– Unattended waste baskets

44. 7. Maintain computer secrecy
– Secure online transactions, intranet, website
– Password; access control
– Mark confidential or secret (legend pop, or before and after
sensitive information)
– Physically isolate and lock: computer tapes, discs,
other storage media
– No external drives and USB ports
– Monitor remote access to servers
– Firewalls; anti-virus software; encryption

45. 8. Measures for employees
1. New employees
• Brief on protection expectations early
• Obligations towards former employer!
• Assign all rights to inventions developed
in the course of employment
• NDA/CA
• Non-compete provision •Reqts
•Limits

46. 2. Current employees
• Prevent inadvertent disclosure (ignorance)
• Train and educate
• NDA for particular task
3. Departing employees
• further limit access to data
• exit interview
• letter to new employer
• treat fairly & compensate reasonably
for patent work

47. Non-Competition Clauses
(covenants not to compete)
in Labour Contracts
After employee leaves prior employer:
• May he work for competitor?
• May he work in related job?
• May he open a competing business?
• Is covenant not to compete enforceable?

48. Freedom
to work
Prohibition of
unfair
competition
Autonomy
of individual
Freedom of
contracts
Freedom of
trade &
commerce
Right to
property
- IP, TS
- investment
Protection
of competition
Right to
property:
- knowledge
- experience

49. • Some jurisdictions: NC covenant binding if
‘reasonable’
– limited in time (Slovenia 2 y)
– limited in area
– limited in type of industry
– special compensation to be paid to employee for his
obligation not to compete
• Some jurisdictions: in writing + payment
– Slovenia: implied in labor contract (no written contract
required)
– Slovenia: employer must pay employee during the time he’s
prevented from working

50. 9. Measures for third parties
– Sharing for exploitation
– Consultants, financial advisors,
computer programmers, website host,
designers, subcontractors, joint
ventures, etc.
• Confidentiality agreement, NDA
• Limit access on need-to-know basis

51. Question 6
MAY TRADE SECRETS BE SOLD
OR LICENSED?

52. • SALE
– Most TS sales occur as part of the sale of the business
• LICENSE
– e.g. in combination with patent license
– e.g. software license for highly specialized program
– Advantage: additional revenues
– Disadvantage: risk of disclosure (potential loss)
– In some countries, restrictions

53. TS Licensing
• Definition of the secret subject matter
– what is to be kept confidential?
– marked as such or broad clause?
• Permitted use
– disclosure to employees, professional advisors?
– modification of technology?
• Precautions to be taken
• Exclusions

54. TS Licensing
• Duration of secrecy obligations
• Royalties
• Sanctions
• Should not be subject to alternative dispute
resolution

55. TS Licensing
Can licensee be obligated to
continue paying TS royalties even
if the information has entered the
public domain?
In case of license for patent + related TS:
Can licensee be obligated to continue paying
TS royalties when patent expires or is
invalidated?

56. TS Licensing
Mass-marketed technology
(e.g. software):
Possible to negotiate NDA with every end-user?

57. Question 7
HOW IS TRADE SECRET
PROTECTION ENFORCED?
What can you do if
someone steals or
improperly discloses
your TS?

58. 1. Contract law
• When there is an agreement to protect the TS
NDA/CA
anti-reverse engineering clause
• Where a confidential relationship exists
attorney, employee, independent contractors
2. Principle of tort / unfair competition
• Misappropriation by competitors who have no
contractual relationship
theft, espionage, subversion of employees
TS protection may be based on...

59. 3. Criminal laws
• e.g. for an employee to steal trade secrets from a
company
• e.g. unauthorized access to computers
• theft, electronic espionage, invasion of privacy, etc.
• circumvention of technical protection systems
4. Specific trade secret laws
• US: Uniform Trade Secrets Act; Economic
Espionage Act

60. • Law of June 10, 1993 on Companies (art 39-40)
– Define the term of business secrets and protection
• Law of April 1993 on Protection of Competition (art 13)
– General clause and provisions forbidding special acts
governing disclosure of business secrets
• Employment Act (art 37-40)
• Employment Related Industrial Property Rights Act (art 7)
– employee must protect employer’s secrets
• Paris Convention (art 10bis) + TRIPs (art 39)
– unfair competition
Relevant laws in Slovenia

61. 1. Order to stop the misuse
2. Monetary damages
• actual damages caused as a result of the misuse (lost profits)
• amount by which defendant unjustly benefited from the misappropriation
(unjust enrichment)
3. Seizure order
• can be obtained in civil actions to search the defendant's premises in
order to obtain the evidence to establish the theft of TS at trial
4. Precautionary impoundment
• of the articles that include misused TS, or the products that resulted of
misusing
Remedies

62. To establish violation, the owner must be able to
show :
– infringement provides competitive advantage
– reasonable steps to maintain secret
– information obtained, used or disclosed in
violation of the honest commercial practices
(misuse)

63. TRADE SECRETS FOR
BUSINESSES
CONCLUSIONS

64. TS protection for financial, commercial &
(secret) technical information:
 develop effective internal TS program to maintain
trade secret status
 restrict access
 impose obligation of confidentiality to anyone
who has access

65. Certain aspects of business/products cannot
be maintained as a trade secret
 information or technology that must be disclosed to the
public in order to market the product
 information or technology which is part of a product sold to
the public and can be reverse-engineered
 mass-marketed technology or products
 where competition is so intense, that very likely to be
independently developed by others within short time
 if great deal of personnel movement between competitors

66. Alternative or additional protection for TS:
 make reverse engineering difficult (compiled code)
 technological protection measures
 patents
 copyright protection
Be careful about signing confidentiality
agreements and non-compete covenants

67. Thank You!
Lien.verbauwhede@wipo.int
www.wipo.int/sme
The Importance of Trade Secrets
for Businesses