Trade secrets are perhaps the most foreign type of intellectual property for those steeped in the academic culture. As discussed in the first installment of this series on copyright, the typical goal in academic circles is developing new ideas and getting credit for them by publishing and sharing them with everyone. Businesses, by contrast, are less concerned with the credit for novel ideas than owning and profiting from them. The concept of a “trade secret” covers a very broad range of information with potential economic value and often serves as the default type of intellectual property. This primer will give you a basic understanding of what trades secrets are and why they are important. To be clear, my aim is to provide helpful information, not legal advice, so go get a competent IP attorney before you bet the farm on your new startup or flip to your company’s competitor.
Trade Secrets
Trade secrets are probably the first form of intellectual property and go back well before any formal legal systems. As soon as people started to practice crafts, some were inevitably better than others and probably had a few “trick of the trade” they kept to themselves. Competition made keeping business secrets a necessity once trade was established. For example, the process of making silk was kept secret in China for thousands of years. No one would have traveled the long Silk Road from Europe, or paid high prices for Chinese silk, if they could have figured out how to make it at home. Business today is no different. Here are few famous examples of contemporary trade secrets: Google’s search algorithm, the recipe for Coca-Cola, the formula for WD-40, and the criteria and methods used to determine the New York Times Bestseller List for books.
In modern companies, everything that is not either deliberately released to the public, or explicitly categorized as another form of intellectual property, is usually a trade secret. It is a typical practice for companies to put a notice like “Privileged and Confidential” in the header or footer of templates for all their documents. Those words are your clue that you are looking at material considered trade secret. To work for or with a company, you are usually required to sign a non-disclosure agreement (frequently referred to as an “NDA”) that requires you to keep the company’s trade secrets. Failure to keep those secrets can result in a law suit brought by the company seeking compensation for damages or even criminal prosecution. Here is a sample of what’s considered trade secret under some of the NDAs I have used or signed for others: formulas, patterns, compilations, programs, devices, methods, techniques, processes, business plans, marketing plans, financial data, employee, client, customer, and vendor information, technical drawings, schematics, inventions (whether or not patentable), research plans, sales processes, etc. Legalese and lists aside, basically any and all information that a company can derive economic value from, is not generally known, and they make an effort to keep confidential, can be considered trade secrets.
Why They Matter
The broad scope of trade secrets implies that essentially everything you do at work is company property. Your employer-provided computer and everything on it, including your email? Company property. Your lab notebook? Company property. This is one of several reasons that maintaining a strict “digital divide,” work data on employer devices and personal data on personal devices, is a good idea. I never thought about this sort of thing in graduate school and, like so many others, took a lot of my data and notes with me when I left for my first job so I could continue working on those papers that weren’t quite done yet. Walking away from your job at a private company with your notes and a hard drive full of data is likely to get you sued, as we’ll see in the real-world examples below.
At this point, you may wonder how you will ever get another job or strike out on your own one day if everything you do at your job is locked down as a trade secret. The crucial point here is that while the company owes the specific ideas and works you create on the job, it has no claim on the skills, knowledge, and experience you acquire by creating them. The trick when job hunting is demonstrating you have those skill, knowledge, and experience to prospective new employers without divulging the secrets of your current one. Alternatively, when starting your own business maintaining a sufficient separation from your previous employer’s secrets in your new venture is vital. Here are few ways you can do that:
- Have Side Projects – The next best thing to showing a prospective employer work from your current job is showing them high-caliber work from a personal project. I once interviewed an electronics expert who could not talk about his work at his current employer. Instead, he told us all about a single board electronic game project he built from scratch and passed around sample units. It was very compelling since he took on his side project with professional level rigor.
- Maintain That Digital Divide – Using only your personal resources (computing, time, financial, etc.) on your side projects greatly reduces the risk that your employer can make a successful claim on what you create. This is especially important when you plan to leave your job and start a new company in the same market.
- Walk Away Clean – It’s relatively hard to accuse someone of trade secret theft if they take no records or data with them when they leave a company. Consequently, it’s a best practice to leave everything work related behind when you walk out the door. Even a clean break my not be sufficient if you move on to a direct competitor and work on exactly the same technology, however. So, think carefully before tempting your ex-employer to sue you. Facing a lawsuit won’t win you friends at your new job, and even if you do prevail it’s often a Pyrrhic victory.
Real World Examples
Here are a few examples of how trade secret issues play out in the real world:
Design Trouble
I talked to a senior engineer once about an interview for a design engineer candidate, someone who would do a lot of computer aided design (CAD) work. The candidate brought in some sample drawings of mechanical assemblies he had done to impress the interview team and his work was very good. Unfortunately, the drawings were from his current job and marked “privileged and confidential” by the company that employs him. When that was mentioned, the candidate tried to play it off as no big deal and sealed his fate. There was zero chance that the senior engineer would hire the candidate after that. Clearly, it is unwise to trust someone to keep your secrets when they do a poor job guarding those of others.
Crystal Power
During the 1950’s and 1960’s Harshaw Chemical Co., a division of Kewanee Oil Co., developed processes for the growth of synthetic crystals and purification of raw materials. In particular, Harshaw spent 17 years and $1 million creating a secret process to grow 17-inch long crystals useful for detecting ionizing radiation. In 1969 some of Harshaw’s employees left the company to form Bicron Corporation, a competitor, and in under a year Bicron had grown its own 17-inch crystal.
Kewanee Oil Co. filed a case in the Ohio district court against Bicron for violation of trade secret laws. Kewanee won the case. The district court held for the plaintiff, granted injunction against disclosure or use of 20 of the 40 trade secrets involved in the case until such trade secrets were released to the public, and awarded damages for misappropriation of the trade secrets.
The Court of Appeals later reversed the ruling on the grounds that Ohio’s trade secret law conflicted with the federal patent laws and the issue eventually escalated all the way to the US Supreme Court in KEWANEE OIL CO. v. BICRON CORP. The court found no conflict between state and federal law and ordered the district court judgement reinstated. The ruling also clarified that, unlike a patentable invention, a trade secret need only be minimally novel and that the law does not protect against “fair and honest” discovery of the secret:
“A trade secret law, however, does not offer protection against discovery by fair and honest means, such as by independent invention, accidental disclosure, or by so-called reverse engineering, that is by starting with the known product and working backward to divine the process which aided in its development or manufacture.”
Reckless Driving
Anthony Levandowski is an engineer who initially joined Google in 2007 to work on Google Street View and later started working on their self-driving car project. Eventually, Levandowski decided to strike out on his own and left Google in 2016 to found Otto, a company that makes self-driving kits to retrofit big rig trucks. Otto launched in May 2016 and Uber acquired it in late July 2016 for $680M. Levandowski assumed leadership of Uber’s driverless car operation as part of the acquisition deal.
In the meantime, Google created a new subsidiary company called Waymo to pursue its self-driving car project. In December 2016, a supplier called Gorilla Circuits mistakenly copied Waymo on an email intended for Uber engineers that contained a drawing of a circuit board used in an Uber project called Fuji. The board design looked suspiciously like Waymo’s own which lead to further investigation. In February 2017, Waymo sued Uber and its subsidiary self-driving trucking company Otto for allegedly stealing Waymo’s trade secrets and infringing upon its patents. The company claimed that three ex-Google employees including Anthony Levandowski stole trade secrets and joined Uber. Waymo claims that Levandowski downloaded 14,000 files (totaling 9.7 GB) of highly confidential information and trade secrets, including blueprints, testing documentation, and proprietary LIDAR circuit board designs prior to leaving the company. The company has also found evidence of Otto and Uber using elements of its self-driving technology related to Waymo’s custom, in-house LIDAR sensors.
In May 2017, Judge William Alsup ordered Levandowski to refrain from working on Otto’s LIDAR technology and required Uber to disclose its discussions on the technology. Levandowski was fired from Uber for refusing to produce the documents he allegedly holds relevant to the case. Originally set for trial in December 2017, the trial was delayed and remains pending.
Bottom Line
Companies really don’t like it when valuable trade secrets are stolen. However, there is nothing they can do if those same secrets are revealed through parallel research, independent invention, or even deliberate reverse engineering. Basic awareness and respect for trade secrets, as well as a few simple steps to keep company work and your other efforts separate, is usually enough to keep most people out of trouble.