Content

Best practices to avoid trade secret theft

by Peter Lavelle

For companies taking a long-term view of protecting their intellectual property rights, trade secrets may offer an appealing alternative to a patent-based approach. Each option comes with its own tradeoffs. A patent provides its owner with an enforceable monopoly on the patented innovation, but only for a limited time, after which the owner will lose any special right to the invention or method disclosed in the patent. This is often the best option, especially for innovations which could soon become obsolete, or which are likely to be discovered by other parties. On the other hand, trade secrets have no expiry date, and the owner retains an exclusive right as long as the innovation can be kept secret from other parties. There is also no need to register trade secrets with the authorities in order to gain protection, whereas patents are only awarded after an application process that is often lengthy, complicated, and expensive. But trade secrets have their downsides as well, most notably that another party which independently arrives at the same discovery has every right to make use of it.

Although trade secrets might be a more suitable long-term strategy than patents for many companies, they are often overlooked or poorly understood, and many companies which rely on trade secrets may not be taking adequate steps to protect them. In some cases the lack of sufficient protective steps may even mean that the innovation in question will not meet the legal definition of a trade secret, and will not be protected as one under the law. This can be seen by looking at the way trade secrets are defined under Taiwanese law.

An innovation must meet the following three criteria to be considered a trade secret under Taiwan’s Trade Secrets Act:

(1)   It must not be known to persons generally involved in the field.

(2)   It must have economic value, actual or potential, due to its secretive nature.

(3)   Its owner must have taken reasonable measures to maintain its secrecy.

The first two requirements may seem obvious. It is the third requirement that can create problems for a company trying to protect its trade secrets. Due to the requirement imposed by the third part of the definition, a company which has not taken “reasonable measures” to maintain secrecy does not have a trade secret at all, and its innovation will not be protected by the Trade Secrets Act. So what would constitute a “reasonable measure” in this context?

Many companies may not have considered whether their protective measures would be considered reasonable under the Trade Secrets Act, and these same companies may unfortunately fall short when putting protective measures in place. In many cases the only step taken to protect a trade secret will be the use of a non-disclosure agreement (NDA). While an NDA is certainly a good idea, there are additional, relatively easy steps that can be taken to increase protection. This is where best practices come into play. These could include any or all of the following:

  • Ensuring that the trade secret is protected using adequate, demonstrable security measures.
  • Using password protection on computers and electronic files containing information pertaining to the trade secret.
  • Protecting access to the premises with measures such as card-based entry, a front desk with receptionists controlling access to the office, etc.
  • Having a clear, written internal policy for trade secret protection, including regular training sessions or workshops to ensure that all employees are aware of proper procedures.
  • Taking measures to prevent employees from compromising security by downloading unauthorized software, bringing sensitive documents home with them, or using personal USB drives and other storage devices, etc.

This list is by no means exhaustive, and in fact there is no list of requirements for meeting the definition of “reasonable measures”.[1] That said, failure to implement any measures of this kind could be used as evidence to show that the protected information was never a trade secret to begin with, having failed to meet the third requirement under the law that there must be “reasonable measures to maintain its secrecy.” Clearly an NDA is not always going to be enough.

There is another major benefit to implementing best practices: aside from just meeting the legal standard of having “reasonable measures” in place, such best practices could also prove to be indispensable tools for proving that theft of trade secrets has indeed occurred when an alleged breach being considered by a court. For example, password protection for electronic files also brings the possibility of tracking exactly who had access to the relevant information and when. Records of this kind could make all the difference when trying to prove that a specific individual engaged in trade secrets theft. And simply allowing all employees to have unmonitored, unfettered access to trade secrets could make it virtually impossible to prove who might have leaked the information.

One important exception to all of the foregoing which should be mentioned: for foreign nationals doing business in Taiwan with trade secrets in play, there is a further issue that the Trade Secrets Act relies on reciprocity when it comes to protection of a foreign party’s trade secrets. In particular, consider the following at Article 15:

A foreign national’s trade secret(s) will not receive protection in the R.O.C., if the foreign national’s home country has not signed a bilateral trade secrets protection treaty or agreement with the R.O.C., or does not provide protection to trade secrets owned by R.O.C. nationals according to the laws and regulations of the foreign national’s home country.

In other words: if you are a foreign national, all of your attempts at best practices may be in vain if your home jurisdiction does not have a bilateral trade secrets agreement with Taiwan, or does not protect the trade secrets of Taiwanese nationals. In such a situation, your trade secrets will not be protected in Taiwan, even if you take all the proper precautions outlined above.[2] For this reason, it is recommended that foreign nationals in particular seek out legal advice when using trade secrets in Taiwan. There may be other options to consider in this situation, but they would need to be determined on a case-by-case basis with the advice of a lawyer.

Clearly, trade secrets protection can present difficult problems. But by taking simple precautions, and by hiring legal specialists to formulate an appropriate regime of trade secrets protection for your company, major disasters can be avoided. And when it comes to issues involving trade secrets protection, preventing bad outcomes before they arise is inevitably safer, less stressful, and above all cheaper than dealing with a trade secrets breach after the fact.

For more information about trade secrets protection and other intellectual property matters in Taiwan, please contact Christine Chen at cchen@winklerpartners.com.

Legal intern Wolf Cho contributed to this article.


[1] For an example of this, see 104年度智訴字第14號, in which the court held that reasonable protective measures had been implemented, including the use of confidentiality agreements, the use of document shredders, and a system of graded levels of confidentiality for internal documents, with corresponding restrictions to access.

[2] See, for example, 96年度抗字第1641號 (Interlocutory Appeal), in which the Taiwan High Court stated that the appellant’s status as a British Virgin Islands company combined with the absence of any reciprocal arrangement for trade secrets protection between Taiwan and the British Virgin Islands meant that the appellant’s trade secrets would not be afforded protection in Taiwan.

 

Archives