Diving into the Trade Secrets Debate: The Listing Predicament

By David Pardue

To list or not to list. That is the question.

At least it was the question during a trade secrets summit earlier this year in Boston, where I found myself in the middle of a captivating debate.

As essentially the only lawyer there who primarily defends trade secrets lawsuits, here’s the stand I took: The defense will attack your company’s sufficiency of establishing a trade secret no matter what, so you’re better off having a list of your trade secrets than not.

On the other side of this debate, counsel for some large technology companies argued that creating a list leaves the chance of inadvertently missing something.

This group’s position was that failure to properly list the trade secrets could lead to a loss at trial — so why take the risk of a list? Plus, this group argued, the list will never be complete or current because trade secrets are complex and constantly evolving.

Something we can all agree on

Even with these fundamental differences, both sides agreed that trade secrets need to be actively managed to be protected and to maximize the intellectual property of the business. Trade secrets often are what distinguishes one company from its competitors. Think of a trade secret like a company’s secret sauce.

The last thing a company wants is for an employee to leave for a competitor and walk out the door with the sauce recipe. Yet, few companies are doing a good job of managing their trade secret portfolio. So, when an employee does leave and an alleged trade secret or proprietary information goes with them, it is my experience that companies are often caught flat-footed.

At the core of the debate are some big-time consequences.

Secrets in the Sky

Look no further than a recent jury verdict in a years-long court case involving the manufacturers of airplane wing parts. One aircraft parts manufacturer accused the other of allegedly stealing its information after its employees left for the other company.

The plaintiff claimed over $87 million in losses at trial because it lost its biggest customer to the defendant. But at the end of the case, the jury decided that the plaintiff didn’t even own the allegedly stolen trade secret information.

The plaintiff got nothing, after eight years and countless millions in fees on the case. That’s a disaster any way you look at it.

The verdict was a stark warning for companies to better identify and manage their trade secrets. If not properly managed, companies can find themselves in court and see business losses pile up to tens of millions of dollars.

But what does a well-managed trade secret program look like? Back to our debate.

Best practices

It’s helpful to think about the benefit of creating a list in terms of loss mitigation. A company that can create a list demonstrates that it has a grasp on what brings it value.

Trade secrets are never the same day to day. Cell phones, for example, go through regular updates. A list, then, should be viewed by companies as a snapshot in time.

The creation of a list is an ongoing process. It does not have to be all-consuming. Companies can easily include language in their trade secret portfolio to explain to others that the list is not and cannot be a true representation of all its trade secrets. It is not, in other words, exhaustive or final.

Yet another reason to list trade secrets is for insurance purposes. Trade secrets are insurable, but it will be nearly impossible to insure them unless they are clearly identified.

If anything, the debate about listing serves as a good reminder for company leaders to sit down and think about a core question: What are the company’s trade secrets, what are they worth, and what would happen if the competition got possession of them?

This story originally appeared in Today’s General Counsel.

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David Pardue is a partner in the Atlanta office of law firm Parker Poe where he assists clients with their intellectual property needs. [email protected]