Page 40 - AVN October 2017

BUSINESS NEWS
HIDDEN TREASURE
The trade secret—a key element of intellectual property
THE POINT IS
THAT PATENTS, COPYRIGHTS AND
TRADEMARKS
CAN’T PROTECT
EVERYTHING.
LEGALESE | By Clyde DeWitt
THERE ARE ESSENTIALLY four kinds of “intellectual
property”: copyrights, patents, trademarks and trade
secrets. The last is the least talked about, but often
the most important. Trade secrets can be a really big
deal.
The formula for Coca-Cola has been a secret
since its invention in 1891. Had its inventor, John
Pemberton, opted to obtain a patent on it instead,
it would have been public domain after about 20
years. Nobody could have used the trademark “Coca-
Cola”—but everyone could have made an identical
product.
The most common circumstance under which
trade secrets become an issue is that of the defecting
sales executive. That is because the paradigm of a
trade secret is the identity of customers, vendors and
pricing. Other trade secrets can be pretty important,
too. For example, if you are Ford, wouldn’t you like
to see the designs that the other carmakers have on
the drawing board for three years hence? And don’t
you think Apple would like to see what Samsung
has on the drawing board for its next generation of
smart phones, and vice versa? And how about the
anticipated pricing, not only of the phones but what
is being paid for chips and other outsourced parts?
The point is that patents, copyrights and
trademarks can’t protect everything. Patents protect
inventions for about 20 years. Copyrights protect
works of art practically forever. Trademarks protect
names and logos pretty much so long as they are in
use. The function of a trade secret is different than
any of those.
Decades ago, when Lee Iacocca was running
then-beleaguered Chrysler, he was sitting by his
swimming pool one sunny afternoon when he had
an epiphany: All Chrysler vehicles should come
with five-year warranties. At the time, the industry
standard had been three. Now, you can’t get a patent
or a copyright or a trademark on a five-year/50,000
mile warranty. But you can keep it a secret until it
launches, which is what Chrysler did. You can bet
that Ford and General Motors would have loved to
have known about what Chrysler was up to before
its new-model advertising blitz with the five-year
warranty. And Ford couldn’t just change its warranty
in the fly to five years. After all, it needed to be
figured into the pricing of the vehicle; it needed to
be incorporated into the new-model advertising
campaign, on which millions had been spent prior
to any knowledge of Chrysler’s five-year warranty
surprise.
The way all of the above protected themselves from
the competitors was by keeping secrets—trade secrets.
Often, a company will be required to make a tough
choice between a patent and a trade secret. A patent,
you see, allows the inventor exclusive use of the
invention (or the ability to require people to pay to
use it) for about 20 years. A trade secret is forever
until someone finds out the secret. Recall that a
patent is a tradeoff. You disclose to the world in your
patent application exactly how the invention works; in
return, you have exclusivity for about 20 years. That is
why when a patent on a drug expires, the price drops
through the floor—anyone can manufacture it.
Your company probably has quite a few things that
you would not like your competitors to know about.
This article covers what you can do to protect those
secrets.
The first thing about a trade secret is that it needs
to be a secret. That may sound stupidly obvious, but
it is pivotal. Crucial is that your employees need to
be required to sign and understand your company’s
confidentiality policy. Your lawyer can write such things.
Also crucial is that departing employees need to be
grilled about your company’s trade secrets. They need
to be made to understand that they can’t take your trade
secrets with them to their new job with the competitor.
That is particularly important because often the precise
(Continued on page 42)
40 | AVN.com | 10.17