TRADE SECRETS

LEARNING OBJECTIVES
1. You understand the nature of trade secrets, the reasons for protecting them and the
practical challenges in identifying and protecting them.
2. You know how to develop an effective trade secret management program.
3. You understand what is meant by misappropriation of a trade secret and how to prevent
such misappropriation.
4. You know how to take various types of suitable actions to prevent violation of trade
secrets.
5. You understand why and how to conduct a trade secret audit.

OUTLINE
LEARNING POINT 1: Basics of trade secrets
1. Definition of a trade secret
2. The development and scope of trade secrets and confidential information
3. The international framework for trade secrets protection
4. Criteria to qualify as a trade secret
5. Type of information that could be a trade secret
6. What kind of protection does a trade secret offer?
7. Why protect trade secrets when it is a ‘secret’?
- Economics and Trade Secret Law Incentives
8. Protection and legal framework
- How are trade secrets protected?

- What are the rights conferred by trade secrets?

- Is it possible to sell and license trade secrets?

- How to establish a trade secret (ts) claim

- How are trade secrets protected in the absence of definite legislation?

PATENT/TRADE SECRETS PROTECTION
Advantages and disadvantages of trade secrets compared to patenting?
JUDICIAL AUTHORITIES
TRADE SECRETS IN THE CYBER WORLD ERA

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LEARNING POINT 2: Trade secret management program
1. How can organizations minimize the risk of IP theft?
2. Steps to build up a trade secret management program

LEARNING POINT 3: Misappropriation of trade secrets

1. Definition: What does Misappropriation of Trade Secrets mean?
2. How trade secret gets stolen: Most common IP theft scenarios
3. Who is responsible for IP theft?
4. Protection of trade secrets: what do companies do to protect against IP theft?

LEARNING POINT 4: Violation of trade secrets

1. How to establish violation of trade secrets
2. Remedies
3. Defences To A Misappropriation Claim

LEARNING POINT 5: A trade secret audit

1. How to conduct a trade secret audit

LEARNING POINT 6: Trade Secrets in Nigeria

QUIZ

INTRODUCTION
From McDonald’s Big Mac “special sauce” to Coca-Cola’s 130 years old secret recipe,
corporations and businesses have actively continued to protect their Trade secrets in order to
monopolize the information for their benefit. Trade secret encompasses commercially valuable,
sensitive and confidential information.1

1
Oyetola Muyiwa Atoyebi, SAN (2022) ‘The Protection Of Trade Secrets And Confidential Information In
Nigeria’, https://thenigerialawyer.com/the-protection-of-trade-secrets-and-confidential-information-in-nigeria/
Accessed 15 September, 2023.
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Not all “inventions” can be protected as patents. As a result of this, scientific theories, food
recipes, mathematical methods and commercial methods cannot be patented. However, certain
inventions which are valuable can still be protected as trade secrets.

LEARNING POINT 1: Basics of trade secrets

A. WHAT IS A TRADE SECRET?

Think about Coca-Cola’s recipe for their signature drink, Kentucky Fried Chicken’s (KFC) secret
blend of 11 herbs and spices, and Google’s search algorithm.

Trade secrets are intellectual property (IP) rights on confidential information which may be sold
or licensed. One of the best working definitions of trade secrets is found in the Uniform Trade
Secrets Act (UTSA) adopted by most States of the United States of America. UTSA defines a
trade secret as:

“… information, including a formula, pattern, compilation, program, device, method,

technique, or process, that:

1. Derives independent economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means, other persons who can
obtain economic value from its disclosure or use, and

2. Is the subject of efforts that are reasonable under the circumstances to maintain its
secrecy. ”2
It is ‘any formula, pattern, process, device, or compilation of information which a business
owner keeps confidential and which gives [one] an opportunity to obtain an advantage over
competitors who do not know or use it.’

They are a distinctive intellectual property protection in that it is the only form of protection that
relies on a lack of action from the secret “holder.” As a result, trade secret are the most fragile in

2
S. 1(4), 14 U.L.A, 372 (Supp.1989).

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nature. Customer lists, designs, business plans, instructional methods, specific manufacturing
processes and product formulas, marketing strategies, prices, costs, document-tracking processes,
novel software. A trade secret is most often used in software development.

The trade secret owner may protect information if it is not generally known in the industry or
readily ascertainable through independent investigation. One does not have to file an application
with the government to secure legal protection of the trade secret. However, he must maintain it
with reasonable confidentiality to conserve its status as a trade secret. When publication of a
trade secret on the Internet is “limited so that it does not become generally known to the relevant
people,” such as “potential competitors or other persons to whom the information would have
some economic value,” there has been no dissemination of the trade secret. The guiding concern
in determining the effect of Internet publication is whether “the information has retained its value
to the creator despite the publication.” 3 Unlike other forms of intellectual property, “trade secrets
are protected without registration” or any procedural formalities” and thus “can be protected for
an unlimited period of time”4 provided it is not disclosed to the public.

B. THE DEVELOPMENT, DEFINITION AND SCOPE OF TRADE SECRETS AND

CONFIDENTIAL INFORMATION
The concept of trade secrets and confidential information started to gain significance during the
emergence of industrial capitalism in the mid-19th century. However, it remained relatively
dormant until the late 1940s when it became evident that this area of law held immense value
and utility. One of the earliest landmark case laws contributing to the development of trade
secrets and confidential information laws was the case of Prince Albert v Strange.5 In this case,
Queen Victoria and Prince Albert created etchings for their personal amusement, originally
intended solely for their private enjoyment. However, they occasionally produced prints to share
with friends. The defendant had illicitly reproduced these etchings with the intention of publicly
displaying them. As a result, an injunction was granted to restrain him from such actions.

C. THE INTERNATIONAL FRAMEWORK FOR TRADE SECRETS PROTECTION

According to Article 10bis of the Convention for the Protection of Industrial Property (Paris
Convention), member States have to provide effective protection against unfair competition.

3
M. Sableman, ‘Trade Secrets Law in the Internet Age’ (July 1, 2016)
<https://www.thompsoncoburn.com/insights/blogs/internet-law-twists-turns/post/2016-07-01/trade-secrets-law-in-
the-internet-age> accessed 15th July, 2021.
4
WIPO, “How are Trade Secrets Protected?”
<https://www.wipo.int/tradesecrets/en/tradesecrets_faqs.html#:~:text=Contrary%20to%20patents%2C%20trade
%20secrets,and%20disclosed%20to%20the%20public.> accessed 15th July, 2021.
5
[5] (1849) 1 Mac & G 25

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However, the Paris Convention does not mention or define trade secrets beyond the general
protection against any act contrary to honest commercial practices.

The TRIPS Agreement was the first international agreement to protect trade secrets expressly.
The approach laid out in the TRIPS Agreement is based on the notion that protection against
unfair competition should include protection for undisclosed information. In presenting this
approach, the TRIPS Agreement makes reference to the prior-existing protection against unfair
competition as presented in the Paris Convention for the Protection of Industrial Property (Paris
Convention) (Box 3.2.), a convention that is administered by the World Intellectual Property
Organization.

This agreement entered into force on 1 January 1995 and established an international standard
requiring WTO Members to protect undisclosed information including agricultural and
pharmaceutical test data.

Furthermore, trade secrets are protected by regional treaties (e.g., the European Union Trade
Secrets Directive of 2016) and national legislation (e.g., the United States' Defend Trade
Secrets Act of 2016). Sadly, Nigeria does not have a Trade Secret Law.

The TRIPS Agreement requires that WTO members put in place national systems to protect trade
secrets against acts of unfair competition (Sandeen, 2011). WTO members comply with this
obligation in a variety of ways. The fact that TRIPS Article 39 does not set forth a detailed
regime for protection is associated with substantial variation between countries in the means
employed to provide the TRIPS - mandated protection. In some instances, countries have
implemented express legislation. In others, the obligation is met by laws that include
misappropriation via such means as breach of contract, inducement of others to breach contracts
and acquisition by third parties of information known to be disclosed dishonestly (or where it
was negligent not to know). This variation can affect the ways businesses and workers conduct
their affairs and thus there are reasons to believe that the legal protection of trade secrets may
have important economic effects.6

Paris Convention for the Protection of Industrial Property, Articles 1 and 10bis, 1967

6
ibid
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In protecting Trade Secrets, the TRIPS Agreement references the protection provided in the Paris
Convention against unfair competition. Article 10bis of the Paris Convention highlights the
nature of protection against unfair competition. Article 1 of the Paris Convention is included here
to provide context concerning what is meant by “union” (see article 1.1). Article 1 also defines
the scope of industrial property originally covered, which the TRIPS Agreement extends by
explicitly providing for protection of undisclosed information.

D. CRITERIA TO QUALIFY AS A TRADE SECRET

The criteria and standards for the protection of trade secrets (or protection of undisclosed
information) are prescribed under Article 39 of the TRIPS Agreement. Specifically, under
Article 39(2):

“1. In the course of ensuring effective protection against unfair competition as provided in
Article 10bis of the Paris Convention (1967), Members shall protect undisclosed
information in accordance with paragraph 2 and data submitted to governments or
governmental agencies in accordance with paragraph 3.

2. ‘Natural and legal persons shall have the possibility of preventing information lawfully
within their control from being disclosed to, acquired by, or used by others without their
consent in a manner contrary to honest commercial practices…so long as such
information:

(a) is secret in the sense that it is not, as a body or in the precise configuration and
assembly of its components, generally known among or readily accessible to persons
within the circles that normally deal with the kind of information in question;
(b) has commercial value because it is secret; and
(c) has been subject to reasonable steps under the circumstances, by the person lawfully in
control of the information, to keep it secret, including the use of confidentiality
agreements for business partners and employees.7

In National Mutual v. Mortensen,8 this last condition under TRIPS which is also
contained in the United States Trade Secret Act of 2016 (UTSA) was held by the United States
7
WIPO, ‘Trade Secrets’ <https://www.wipo.int/tradesecrets/en/> accessed 15th July, 2021.
8
606 F.3d 22 (2d Cir. 2010) decided on 11.05.2010.
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Court of Appeals, Second Circuit to be a germane condition. There, it was decided that the fact
that the Agency Office Automation (AOA) information existed in a different, better-protected
format than the physical folders did not elevate it to TS status. Rather, it is the protection
afforded the information that matters and not the medium of storage.9

In summary, to qualify as a trade secret, the information must be:

a. A Secret, known only to a limited group of persons: Absolute secrecy is not

required. For example, trade secrets can be kept by several parties, as long as it is
not known to other persons working in the field;

b. It must have actual or potential commercial value to its owner, because it is secret.
This benefit must derive specifically from the fact that it is not generally known,
and not just from the value of the information itself; and

c. Be subject to reasonable steps taken by the rightful holder of the information

to keep it secret, including the use of confidentiality agreements for business
partners and employees. While the “reasonable” steps may depend on the
circumstances of each case, marking confidential documents, placing physical
and electronic restrictions to access trade secret information, introducing a
systematic monitoring system and raising awareness of employees are the
measures taken to safeguard trade secrets. Thus, the law does not require one who
claims a trade secret to be entirely successful at protecting it. However, the law does
require the owner to make some efforts to maintain secrecy. In national laws, the
necessary effort is often broadly described as “reasonable,” in keeping with Article 39
of TRIPS. However, some countries impose more specific, additional obligations,
which might be characterised as a particular implementation of the broad
reasonableness requirement. For example, some common law countries require that
the defendant have a contractual or implied obligation to keep the information secret.
Other countries require written agreements with recipients and confidentiality notices.\

Anything that is easily and completely disclosed by the mere inspection of a product put on the
market cannot be a trade secret.
9
G. Omoniyi, ‘Protections: A Commentary on Trade Secrets in Nigeria’, https://w
ww.lexology.com/library/detail.aspx?g=38343fb5-4282-4446-b217-e895c176eeed> accessed 15 July
2021.
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Example

A company develops a process for the manufacturing of its products that allows it to produce its
goods in a more cost-effective manner. Such a process provides the enterprise a competitive edge
over its competitors. The enterprise in question may therefore value its know-how as a trade
secret and would not want competitors to learn about it. It makes sure that only a limited number
of people know the secret, and those who know it are made well aware that it is confidential.
When dealing with third parties or licensing its know-how, the enterprise signs confidentiality
agreements to ensure that all parties know that the secret information must not be disclosed. The
company should also take reasonable measures to keep the know-how secret, such as putting
access control and security measures in place and establishing internal procedures for systematic
controlling and monitoring of trade secret information. In such circumstances, the
misappropriation of the information by a competitor or by any third party would be considered a
violation of the enterprise's trade secrets. However, such measures will only be effective if the
products could not easily be “reverse engineered” by competitors.

The unauthorized acquisition, use or disclosure of such secret information in a manner contrary
to honest commercial practices by others is regarded as an unfair practice and a violation of the
trade secret protection.

Although trade secrets are confidential, they are also commercial. For a trade secret to have any
practical value, the owner usually must share it in order to collaborate with a limited group of
employees and business partners. Laws thus expect and account for a certain amount of protected
disclosure, within a constrained circle. Nevertheless, even if trade secrets are not “secret” in the
strictest sense of the term, they must in fact remain non-public and known only to a limited
number of people. The definition of trade secrets thus is broadly similar among countries,
addressing their dual nature as confidential but commercial.10

10
Chapter3-KBC2-IP.pdf (oecd.org) https://www.oecd.org/sti/ieconomy/Chapter3-KBC2-IP.pdf
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E. TYPE OF INFORMATION THAT COULD BE A TRADE SECRET
What kind of information is protected by trade secrets?

In general, any type of confidential business information which provides an enterprise a

competitive edge and is unknown to others may be qualify and protected as a trade secret.

(1) A trade secret may consist of information relating to a formula, pattern, device or other
compilation of information that is used for a considerable period of time in a business.

(2) Often, a trade secret is technical information used in the manufacturing process for
production of goods.

(3) A trade secret may relate to marketing, export or sales strategies, or a method of
bookkeeping or other business management routines or procedures, including software
used for various business purposes.

(4) Experimental research data, software algorithms and commercial information such as
distribution methods, list of suppliers and clients, and advertising strategies can be trade
secrets.

(5) A trade secret may be also made up of a combination of elements, each of which by
itself is in the public domain, but where the combination, which is kept secret, provides
a competitive advantage.

(6) Other examples of potential trade secrets may include technical, scientific or financial
information, such as business plans, business processes, list of key customers, list of
reliable or special suppliers, product specifications, product characteristics, purchase
prices of key raw materials, test data, technical drawing or sketches, engineering
specifications, proprietary recipes, formulas, content of laboratory note books, salary
structure of a company, product pricing and advertising rates, source code, object code,
databases and electronic data compilations, agreements containing details of marketing
tie‐ups, promotional or marketing material under development.

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F. WHAT KIND OF PROTECTION DOES A TRADE SECRET OFFER?
Depending on the legal system, the legal protection of trade secrets forms part of the general
concept of protection against unfair competition or is based on specific provisions or case law on
the protection of confidential information.

While a final determination of whether trade secret protection is violated or not depends on the
circumstances of each individual case, in general, unfair practices in respect of secret
information include breach of contract breach of confidence and industrial or commercial
espionage.

A trade secret owner, however, cannot stop others from using the same technical or commercial
information, if they acquired or developed such information independently by themselves
through their own R&D, reverse engineering or marketing analysis, etc. Since trade secrets are
not made public, unlike patents, they do not provide “defensive” protection, as being prior art.
For example, if a specific process of producing Compound X has been protected by a trade
secret, someone else can obtain a patent or a utility model on the same invention, if the inventor
arrived at that invention independently.

G. WHY PROTECT TRADE SECRETS WHEN IT IS A ‘SECRET’?

One of the questions that have dominated the TS regime is - why protect TS when it is a
‘secret’? According to the World Intellectual Property Organisation (WIPO), protecting TS will
help to:
1. Maintain and promote standards of commercial ethics and fair dealing;

2. Provide an incentive for businesses to innovate by safeguarding the substantial time and
capital invested to develop competitively advantageous innovations, both technical and
commercial, and especially those that are not patentable or do not merit the cost of patenting
and;
3. Prevent competitors from using these innovations without having to shoulder the burden of
costs or risks faced in developing the innovations.11
11
F. Dessemontet, ‘Protection of Trade Secrets and Confidential Information’, (undated), p.3:
<https://www.unil.ch/files/live/sites/cedidac/files/Articles/Protection%20Trade%20Secrets.pdf;Protection> accessed
14 March 2021.
10 | P a g e
4. Apart from the foregoing, TS can be used as collateral in the event of loan
financing.12 However, a preliminary agreement between the persons involved to keep the TS
secret must first be carried out. According to the Organization for Economic Cooperation and
Development's Base Erosion and Profit Shifting (BEPS) Guidelines Action 8, another reason
to safeguard TS is that it might be a source of money for an organization.

Economics and Trade Secret Law Incentives

In countries with market economy systems, both in the developing and developed world, fair
competition between enterprises is considered as the essential means for satisfying the supply
and demand of the economy, and serving the interests of the consumers and the society as a
whole. Further, competition is one of the main driving forces of innovation. The law of unfair
competition, including trade secret law, is considered necessary to ensure the fair functioning of
the market and to promote innovation by suppressing anti-competitive business behaviors.

Trade secrets are safeguarded on a national, regional, and international level because they are
critical to a country's economic and national security. Businesses protect trade secrets because
revealing them to a third party (e.g., an individual, a group, a company, or a foreign government)
without permission can be financially damaging. Thus, for generations, corporations and
businesses have continued to protect their trade secrets, in order to enhance prospects of their
long-term sustainability, profitability and market relevance.

Nigeria sadly has no national legislation regulating trade secrets.

Why is trade secret protection necessary?

The economic literature describes the economic justification for trade secret law in terms of the
incentives it provides. It describes three types of incentives. First, it provides incentives to invent
and to invest in the development of valuable business information. Second, it relieves businesses
of the need to invest in some costly measures to prevent breach of security. Third, it encourages
businesses to engage in wider (albeit limited) dissemination of information than they otherwise
would, thus increasing the likelihood of knowledge spillovers. Given the importance of trade

12
D. P. Saredau, et al, ‘The Legal Regime for Protection of Trade Secrets in Nigeria: Breach of Confidence Claim
as Gap-Filler’, (2020) Vol. 7 No. 1, NAUJCPL p.3:
<https://journals.unizik.edu.ng/index.php/jcpl/article/view/355/330> accessed 14 May, 2021.
11 | P a g e
secrets in many economies, the potential impacts of such incentives would appear to be
significant.

A number of studies indicate that protection of trade secrets can encourage the development of
inventions and valuable information by helping to secure the return on the investment in creating
such innovations. Kitch (1980) characterises the incentive in terms of risk reduction: trade
secrets are particularly at risk from theft because they have a low rate of depreciation. Friedman
et al. (1991) similarly view the incentive effect as increasing the return to research and
development by lowering the cost of protection. Others see the incentive function as similar to
patents, where trade secrets essentially serve as a substitute for patents where the latter are
unavailable or too expensive. Maskus (2000) and Friedman et al. (1991) argue that that trade
secrets can substitute for patents and provide incentives to innovate, where: 1) an invention is
unpatentable, but hard to imitate, such that there is value in keeping the information confidential
(e.g. a customer list), 2) a firm may prefer to avoid the public disclosure required by a patent, and
3) where a firm may wish to avoid the cost of obtaining a patent. Still others see the incentive-to-
invest arising from competitive effects. Lemley (2011) observes that protection of trade secrets
can help innovators to maintain a competitive advantage such as might be obtained via a unique
process of production or product; this can contribute to profitability and thereby provides
incentives for further investment in innovation.

Other studies point to a second justification for trade secrets, noting that the provision of
adequate legal protection reduces the need to invest in inefficient and costly protection for trade
secrets beyond the requirements of the law. As Friedman et al. (1991) observe, the availability of
trade secret protection discourages use of less efficient alternative approaches to protection (e.g.
hiring only family members or paying wage premia to prevent employee movement) and also
inefficient activity by competitors to discover trade secrets (e.g. bribery or espionage). As Risch
(2007) points out, both trade secret owners and competitors are channelled into more efficient
behaviour. The owner optimises, rather than maximises, security. The competitor spends less
money in attempting to appropriate the secret.

A third justification for trade secrets found in the literature relates, somewhat ironically, to their
effects in encouraging knowledge dissemination, at least as compared to absolute secrecy. As
Lemley (2011) argues, trade secret protection enlarges the circle of people to whom it is safe to

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reveal information. Thus employees who may eventually depart are more likely to have the
opportunity to learn from the trade secret. Even if they do not misappropriate the original secret,
they may benefit from their enhanced stock of knowledge, as may future employers. Risch
(2007) also contends that the incentives to rely on legal rather than physical means to guard
secrets encourage owners to employ lesser levels of protection, thus increasing the likelihood of
“leakage,” and subsequently knowledge dissemination. In a further study, Png (2012a) found that
some US states enacting increased trade secret protection may have experienced relatively
modest declines in the mobility of postgraduate engineers and scientists (e.g. due to enforcement
of contractual requirements concerning non-competition); this in turn might slow the pace
spillover effects. However, this effect might be mitigated depending on presumptions states
make related to possible disclosures (e.g. depending on whether they apply a doctrine of
“inevitable disclosure”). Moreover, the possible costs to innovation due to any reduction in
spillovers from reduced mobility of these most-qualified personnel may be off-set to some extent
by the benefits to innovation from increased incentives to invest in R&D.

Protecting TS does not imply accepting that they are in the public domain and hence vulnerable
to piracy through analysis or other means. Rather, it means safeguarding the inventiveness of a
secret that has genuine economic worth for a company.

CASE STUDY: The formula of Coca‐Cola

Perhaps the "best‐kept trade secrets in the world".
At the turn of the 19th Century, Coca Cola was faced with an interesting choice: Patent the
recipe for its popular soft drink, which would mean disclosing its ingredients, OR brand it a trade
secret and keep things under wraps. They chose the latter.13

The procedures for protecting the formula for Coca‐Cola (a.k.a. "Merchandise 7X"), according to
an affidavit given by a senior vice‐president and general counsel for Coca ‐Cola in a court case,
are as follows:
“The written version of the secret formula is kept in a security vault at the Trust
Company Bank in Atlanta, and that vault can only be opened by a resolution from the
Company's Board of Directors. It is the Company's policy that only two persons in the

13
‘Coca-Cola’s secret formula: A trade secret kept for more than a Century’< https://bdjls.org/coca-colas-secret-
formula-trade-secret-kept-century/ > Accessed 18 April, 2022.

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 Company shall know the formula at any one time, and that only those persons may
oversee the actual preparation of Merchandise 7X.

The Company refuses to allow the identity of those persons to be disclosed or to allow
those persons to fly on the same airplane at the same time. The same precautions are
taken regarding the secret formulae of the company's other cola drinks‐ diet Coke,
caffeine‐free diet Coke, TAB, caffeine‐free TAB and caffeine‐free Coca ‐Cola.”

It is rumoured that the individuals who know the secret formula have signed non-disclosure
agreements. In the past, one could not buy Coca Cola in India because Indian law then, required
the disclosure of trade secret information. In 1991, India changed its laws regarding trademarks,
and Coca-Cola can now be sold in that country.14

H. PROTECTION AND LEGAL FRAMEWORK

How are trade secrets protected?
- Contrary to patents, trade secrets are protected without registration, that is, trade secrets
require no procedural formalities for their protection.
- A trade secret can be protected for an unlimited period of time, unless it is discovered or
legally acquired by others and disclosed to the public. For these reasons, the protection of
trade secrets may appear to be particularly attractive for certain companies. There are,
however, some conditions for the information to be considered a trade secret. Compliance
with such conditions may turn out to be more difficult and costly than it would appear at a
first glance.

14
Kylie Obermeier, ‘When India kicked out Coca-Cola, local sodas thrived
< https://www.google.com/amp/s/www.atlasobsura.com/articles/what-is-thums-up.amp > Accessed 18 April, 2022.
14 | P a g e
Thus, Trade Secrets (TS) are different from Patent (which is the closest to TS amongst the other
IP rights) in that it does not require registration 15 and a timeline of 20 years,16 no territorial
limitation,17 and periodic renewals.18

Generally, most countries do not have a specific law for trade secrets. The owner of trade secrets
has to rely on relevant provisions of the national law against unfair competition and/or by court
action under the law of torts and by appropriate clauses or provisions in employment agreements
and other types of business agreements in accordance with the contract law of the country:

(1) Unfair competition law / Principles of tort When misappropriation is done by

competitors who have no contractual relationship or indulge in an act of theft, espionage,
or of subversion by employees. The law of tort is judge ‐made law in 'common law'
countries.
(2) Contract law When the agreement between the parties seeks to protect the trade secret
by using a non‐disclosure clause or confidentiality clause, through an anti ‐reverse
engineering clause, or where an implied confidential relationship exists, such as between
an attorney and his client, or an employer and his employee, etc.
(3) Criminal law When an employee steals trade secrets from a company or someone does
espionage or in involved in acts that may be considered as invasion of privacy, etc., or
circumvention of technical protection measures of IT / non‐IT systems

What are the rights conferred by trade secrets?

In general, trade secret protection confers owners the right to prevent the information lawfully
within their control from being disclosed, acquired or used by others without their consent in a
manner contrary to honest commercial practice.

15
An invention must be registered under section 3 Patents and Designs Act Cap P2, LFN 2004 (PDA) to enjoy the
privilege of a patentable invention under section 6 PDA.
16
s. 7, Nigerian Patent and Design Act (PDA) provides that a patent shall expire at the end of the twentieth year
from the date of the filing of such application.
17
Enforcement of patent registered outside Nigeria becomes applicable in Nigeria provided; (i) there is an order in
the Federal Gazette declaring a treaty, convention or other international arrangement or agreement to which Nigeria
is a party (Section 27 PDA); and (ii) an application for an applicant to avail himself of a foreign priority in respect of
an earlier application made in a country outside Nigeria. Section 3(4) PDA.
18
In Nigeria, the PDA provides for the payment of annual dues as a condition for the continual validity of the patent
for twenty years. Section 17 and 18 Patents Rules (made pursuant to Section 30 PDA).
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While the determination of such practices depends ultimately on the circumstances of each
individual case, in general, unfair practices in respect of secret information include industrial or
commercial espionage, breach of contract, breach of confidence and inducement to breach. It
further includes the use or disclosure of a trade secret by a third party who knew, or was grossly
negligent in failing to know, that such practices were involved in the acquisition of the
confidential information.
In consequence, the use of a trade secret by a person who acquired that information in a
legitimate business transaction without negligence is not deemed illegal. For example, a
competitor may purchase a product, examine the construction or composition of the product and
extract the secret knowledge embedded in the product (so-called reverse engineering). Such act
is not violation of trade secret protection.

Is it possible to sell and license trade secrets?

Trade secrets are property rights and can be assigned or licensed to other persons. The holder of
trade secret has the right to authorize a third party to access and use the trade secret information.
However, due to the secret nature of trade secret information, it is not always easy for others to
determine whether the information concerned meets the conditions for trade secret protection.
Therefore, compared with a patent, it is more difficult to transfer and license confidential
information and to resolve disputes which may arise. Since a potential licensee needs to access
the trade secret information in order to assess its value or utility, a non-disclosure or
confidentiality agreement needs to be signed between the potential licensor and licensee. Further,
in order to maintain the secrecy of trade secret information, a trade secret licensor should require
a licensee to take reasonable steps to keep that information secret.

How To establish a Trade Secret (TS) claim

To establish a TS claim, the plaintiff must show that:

(a) the plaintiff’s information qualifies for TS protection;
(b) the conduct of the acquirer of the TS is wrongful (thus amounting to
misappropriation); and
(c) the plaintiff’s conduct in protecting the TS has been reasonable under the
circumstances.

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How are trade secrets protected in the absence of definite legislation?

Trade secrets, which is another name for confidential information in some jurisdictions, are lost
once the secret becomes public knowledge. Once lost, the protection is gone forever.

How then do you ensure Protection especially for countries like Nigeria where there is no Trade
Secret law?

In the absence of any definite legislation protecting or regulating trade secrets in Nigeria, the
originator of such trade secrets has to put in extra effort to protect such from being disclosed to a
third party or the entire world:19

1. Keep the secret save in your head. This was the method adopted by Colonel Sanders: the
founder of KFC, who kept the secret ingredient of the original recipe in the safest place in the
world – his head. He eventually wrote the recipe down, and the original handwritten copy is
in a safe in Kentucky.20

2. Use confidentiality/non-disclosure and non-compete agreements. The employer/licensor of

the trade secret executes a Confidentiality/Non-disclosure Agreement (CNDA) with every
employee and contractor of the business, most especially those exposed to or who come in
contact with and may have knowledge of such trade secret.21 Alternately, a properly worded
non-compete clause could be included in the employment, service or other contracts (as the
case may be), to protect the interest of the originator of the trade secret, in the event of
disengagement by resignation or dismissal from service. This was the case
in Andreas Koumolis v Levantis Motors Limited,22 where the Supreme Court held that it
could reasonably be inferred from the surrounding circumstances, that the appellant (a former
employee of the respondent) had utilized the trade secrets of his ex-employer upon his
assuming duties with a competitor company, located in the proximity of the respondent’s
address. The apex Court further held that the restrictive clause which read that the former
employee will not for “a period of one year undertake to carry on either alone or in
partnership nor be employed or interested directly or indirectly in any capacity
whatever in the business of Merchants Engineers or any other business carried on by
the Company within a radius of fifty miles from any Trading Station in West
Africa” was reasonably necessary for the protection of the business interest of the
respondents (former employer) and therefore valid and enforceable in law.

19
Gabriel Omoniyi, ‘Protections: A commentary on Trade Secrets in Nigeria’
< https://www.mondaq.com/nigeria/trademark/1041406/protections-a-commentary-on-trade-secrets-in-nigeria? >
Accessed 17 April, 2022.
20
By the Associated Press, ‘KFC moves Colonel Sanders’ secret fried chicken recipe to new, safer vault’
< https://www.nydailynews.com/life-style/eats/kfc-moves-colonel-sanders-secret-fried-chicken-recipe-new-safer-
vault-article-1.389489 > Accessed 18 April, 2022.
21
“Factory owners and other innovative businesses came to use physical security around their
facilities, nondisclosure agreements, and other techniques to secure protection for the broader range of technological
advances and strategic information driving their competitive advantage.” Peter S. Menell, ‘Tailoring a public policy
exception to trade secret protection’, California Law Review, 2017 vol. 105 No. 1, p.8.
22
(1973) LPELR-1710(SC).
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I. PATENT/TRADE SECRETS PROTECTION
There is an extensive body of literature on the trade-offs between patents and trade secrets at
both the institutional and firm level. Pooley (1997, 2012 update, pp. 32-40), for example, offers
advice to firms wishing to protect their intellectual assets in which he highlights differences in
protection between patents and trade secrets. He notes that often the nature of the asset provides
a clear indication of the appropriate protection. Patents generally offer protection for specific
technological inventions that are useful, novel and non-obvious. The patent process can be time
consuming and expensive, requiring public disclosure of the idea. But, within the bounds of
strictly defined claims, once a patent is issued, it offers the prospect of market exclusivity for a
specific period. Trade secret protection is generally available for a broad range of commercial
information that is useful and not widely known, but need not be novel. The broad scope covers
subject matter that may not be patentable such as know-how. Provided appropriate efforts are
made to ensure secrecy, trade secrets offer the possibility of protection without a limitation on
duration, though not against independent discovery by a competitor or inadvertent disclosure by
the owner. Nonetheless, in many instances the innovators seeking protection for an idea face a
choice in the type of protection they will seek.

The choice of protection can have social welfare implications. On the one hand, as Friedman et
al. (1991) point out, patents offer the social welfare advantage of encouraging disclosure with all
the positive spillover effects that may result. On the other hand, Cugno and Ottoz (2006) offer a
model where trade secrecy is more socially optimal, because of the independent invention
defence, which exists at all times with respect to a trade secret, but is either limited or non-
existent in patent law.23 As a result, trade secret owners may have fewer opportunities to charge
supra-competitive prices.

The empirical literature shows that firms tend to rely heavily on trade secrets. Arundel (2001)
found that European firms tended to prefer trade secrets to patents, with the preference more
pronounced among smaller firms. Cohen et al. (2000) found similar results in a survey of US
firms. An econometric study by Png (2012b) exploited variation among the laws of the US states
and included construction of a simple index of trade secret protection. He found that between
1976 and 2006 US states that enacted trade secrets laws tended to experience increases in

23
The United States recently incorporated a prior user rights defence into its patent law with the passage of the
America Invents Act in 35 U.S.C. § 273, which may provide protection to independent inventors in certain, limited
circumstances. However, independent invention after the date that a patent is filed never constitutes a defence
18 | P a g e
research and development expenditure (R&D) by high-tech and large manufacturing firms. At
the same time, there was a tendency among such firms to reduce their reliance on patenting.
Maskus (2012, p. 237) points out that trade secrets, in principle, can play an important role in
developing countries where they offer a readily available form of protection for incremental
innovation for which patents may not be available, financially viable or profit maximizing.

So, what are the advantages and disadvantages of trade secrets compared to patenting?

There are essentially two kinds of trade secrets. On the one hand, trade secrets may concern
valuable information that do not meet the patentability criteria, and therefore can only be
protected as trade secrets. This would be the case for commercial information or manufacturing
processes that are not sufficiently inventive to obtain a patent (though the latter may qualify
utility model protection).

On the other hand, trade secrets may concern inventions that would fulfill the patentability
criteria, and therefore, could be protected by patents. In that case, the company will face a
choice: to patent the invention or to keep it as a trade secret.

Some advantages of trade secrets include:

a. Trade secret protection is not limited in time (patents last in general for up to 20 years). It
may continue indefinitely as long as the secret is not revealed to the public;
b. Trade secret protection does not require disclosure or registration.
c. Trade secrets involve no registration costs (though keeping the information confidential
may entail high costs in certain cases);
d. Trade secrets have immediate effect; and
e. Trade secret protection does not require compliance with formalities or public disclosure.

Some disadvantages of trade secrets include:

There are, however, some concrete disadvantages of protecting confidential business
information as a trade secret, especially when the information meets the criteria for
patentability:

19 | P a g e
 a. If the secret is embodied in an innovative product, others may be able to inspect it, dissect
it and analyze it (i.e. “reverse engineer” it) and discover the secret and be thereafter
entitled to use it. Trade secret protection does not provide the exclusive right to exclude
third parties from making commercial use of it. Only patents and utility models can
provide this type of protection.

b. A trade secret may be patented by someone else who developed the relevant information
by legitimate means, for example, inventions developed independently by others. Thus,
trade secret protection only protects you against improper acquisition, use or disclosure
of the confidential information.

c. Once the secret is made public, anyone may have access to it and use it at will. The more
people know about the trade secret, the more difficult it will be to keep it secret. Trade
secret protection is effective only against illicit acquisition, use or disclosure of the
confidential information.

d. A trade secret is more difficult to enforce than a patent. Often, it is quite difficult to prove
the violation of trade secrets. The level of protection granted to trade secrets varies
significantly from country to country, but is generally considered weak, particularly when
compared with the protection granted by a patent.

e. Due to their secret nature, selling or licensing trade secrets is more difficult than patents.

In which cases will trade secret protection be beneficial?

While a decision will have to be taken on a case-by-case basis, in the following circumstances, it
would be advisable to consider trade secret protection:

a. When the subject matter which has been kept secret is not patentable.

b. When the likelihood is high that the information can be kept secret for a considerable
period of time. If the secret information consists of a patentable invention, trade secret
protection could be attractive if the secret can be kept confidential for over 20 years

20 | P a g e
 (duration of patent protection) and if others are not likely to come up with the same
invention in a legitimate way.

c. When the trade secret is not considered to be of such great value to be deemed worth a
patent (though a utility model may be a good alternative in countries where utility model
protection exists).

d. When the secret relates to a manufacturing process rather than to a product, as products
would be more likely to be reverse engineered.

e. Before filing a patent and during the patent prosecution process until the patent
application is published by the patent office (generally after 18 months from the filing
date or the priority date).

It is important to bear in mind, however, that trade secret protection may be more
difficult to enforce in most countries, that the conditions for, and scope of, its protection may
vary significantly from country to country and that significant and possibly costly efforts to
preserve secrecy may be required. Further, it has to be kept in mind that, once the secret is made
public, the protection ends.

While patents and trade secrets may be perceived as alternative means of protecting
inventions, they are often complementary to each other. Often trade secret law complements
patent law in earlier stages of the innovation process by allowing inventors to work on their ideas
until they become a patentable invention. Moreover, valuable know-how on how to exploit a
patented invention in the most commercially successful manner is often kept as a trade secret.

Which precautionary measures should be taken by business?

Trade secrets are widely used by business. In fact, many companies rely heavily on trade
secrets for the protection of their intellectual property (although in many cases, they may not
even be aware that trade secrets are legally protected). Known examples are the Coca Cola
formula and sources codes for software. It is important, therefore, to make sure that enterprises
take all necessary measures to protect their trade secrets effectively. This includes:

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- Firstly, considering whether the secret is patentable and, if so, whether it would not be better
protected by a patent.

- Secondly, making sure that a limited number of persons know the secret and that all those
who do are well aware that it is confidential information. For example, such steps can
include restricting access to buildings, marking confidential documents and establishing IT
security.

- Thirdly, including confidentiality agreements within employees’ contracts. Under the law of
many countries, however, employees owe confidentiality to their employer even without
such agreements. The duty to maintain confidentiality on the employer’s secrets generally
remains, at least for a certain period of time, even after the employee has left the
employment.

- Fourthly, signing confidentiality agreements with business partners whenever disclosing

confidential information.

What protection is provided against the use of secret information by employees or former
employees?
The business that holds the trade secret is responsible for making every effort it can to
keep it confidential. Employees can be required to sign agreements that protect trade secrets. In
particular, when contractors or employees leave, it is important to make sure that they will not
compete with the business after they leave, in addition to signing a confidentiality agreement.
Those agreements are known as confidentiality, non-disclosure and non-compete contracts. If
those agreements are violated, an employee might face penalties, along with damages to the
company. However, it has to be kept in mind that those contracts should not restrict the
contractor's or employees’ rights to earn a living.

Can more than one person have trade secret rights to the same information?
It is possible that more than one person or entities can claim rights to the same trade
secret on the same technology or commercial information if both independently developed that
technology and both take reasonable steps to keep it a secret, as long as the technology is not
“generally known”.

22 | P a g e
J. JUDICIAL AUTHORITIES
As explained above, Trade secrets law is occasionally used by businesses and other
organizations to prevent important, sensitive, or detrimental information from being published in
the traditional and non-traditional media. In Apple v. DePlume,24 days before MacWorld 2005,
DePlume's blog, ‘Think Secret’, issued a report regarding a new $500 monitor-less iMac, new
iWork software, and the price and features of the Mac Mini. In January 2005, Apple filed a
lawsuit against DePlume and his company for misappropriation of trade secrets, seeking an
injunction to prevent the release of its proprietary information, monetary penalties, and the
identification of DePlume's sources. Because DePlume was not an Apple employee and was not
bound by any confidentiality agreement, Apple's allegation was unique. They argued that
DePlume should be held accountable, because he facilitated the leak of confidential information
using an anonymous email system and a voice-mail tip line. DePlume filed a request to dismiss
the complaint on March 4, 2005, citing California's anti-SLAPP Act. 25 The motion remained
pending for years; the court did not issue a decision on it. In December 2007, the parties agreed
to discontinue operations under the conditions of the agreement, which was kept confidential.
DePlume never revealed his sources, and Apple voluntarily dropped its lawsuit against the other
sites after a California court upheld the website operators right to protect the identity of their
sources under the California Shield Law. Thus for the most part, trade secrets law is directed
against industrial espionage and ex-employees sharing their former employers' proprietary
information with new employers.

K. TRADE SECRETS IN THE CYBER WORLD ERA

Trade-secret law only protects confidential information; conversely, the Internet makes
information available to the general public.26 These contradictory functions, of course, create the
setting for conflict. In cyberspace, where software and digital information are involved, trade
secrets can be misappropriated or unjustly taken and exploited without being detected. (cyber-
theft). For example, in minutes, an online user can access and distribute trade secrets without
being detected. Users can anonymously post trade secrets on the internet via online discussion
boards. It is possible to steal a trade secret without being detected if the thief hides their identity.

24
Cal. Code Civ. Proc. § 425.16); No. 1-05-CV-033341 (Cal. Super. Ct. Jan. 04, 2005). See also Apple v. Does, 1-
04-CV-032178
25
Cal. Code Civ. Proc. § 425.16
26
See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1002 (1984) ("Information that is public knowledge or that is
generally known in an industry cannot be a trade secret."); Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 475
(1974) ("The subject of a trade secret must be secret, and must not be of public knowledge or of a general
knowledge in the trade or business.").
23 | P a g e
The Google Search Algorithm is an example of an online trade secret. As the world's most
popular search engine, Google has virtually become synonymous with the internet. Google's
algorithm looks for web pages that contain the keywords that were typed into the search box. It
then gives each page a ranking based on a number of parameters. The Google search engine's
algorithm is still one of the most valuable trade secrets in the world.27

In the past, trade secret theft was used to gain a competitive advantage over competitors.
Recent cases, such as Ford Motor Company v. Lane, show that this is no longer the case.28 This
case illustrates that trade secrets are vulnerable to dissatisfied employees who distribute trade
secrets only to harm an employer. In Ford Motor Company v. Lane, Ford sued a website
operator called Robert Lane for releasing sensitive information and images on his site. Lane had
received secret documents from current and former Ford employees, in violation of their
confidentiality agreements with the auto giant. The court determined that Lane had likely
violated the Michigan Trade Secrets Act, but that the court could not force Lane to remove the
images and documents from the Internet because of the First Amendment. 29 Former employees
of ‘Jawbone’, a now-defunct firm that produced wearable fitness trackers, were indicted in 2018
for possessing trade secrets (which were kept in "Jawbone's secured internal computer systems
and cloud storage") after accepting jobs or starting work at Fitbit, a competitor. 30 On a side note,
hackers may even steal and distribute trade secrets simply to show off their technical skills. 31

Offline (economic espionage) or online (Internet and Internet-enabled technologies) trade

secret theft (a form of economically-motivated cyber espionage) is possible. The theft of a trade
secret, whether done offline or online, is done to acquire an unfair competitive advantage. 32 The
unauthorized disclosure of trade secrets to a foreign government, foreign agent (defined as a
"foreign government officer, employee, proxy, servant, delegate, or representative") 33 or foreign
instrumentality (i.e., "any agency, bureau, ministry, component, institution, association, or any
27
D. Oturu , ‘Nigeria: Understanding Trade Secrets And How It Differs From Trademarks And Patents In
Nigeria’, 17 April 2018 <https://www.mondaq.com/nigeria/trademark/692412/understanding-trade-secrets-
and-how-it-differs-from-trademarks-and-patents-in-nigeria> Accessed 15th July, 2021.
28
67 F. Supp. 2d 745 (E.D. Mich. 1999
29
Digital Media Law Project, Trade Secrets (n 203)
30
(US Department of Justice, 2018) Accessed 15 July, 2021.
31
Law Offices of Salar Atrizadeh, ‘Protecting Trade Secrets in Cyberspace, October 1, 2013,
<https://www.internetlawyer-blog.com/protecting-trade-secrets-in-cyberspace/> Accessed 14 July, 2021
32
UNODC, ‘Types of intellectual property’, E4J University Module Series: Cybercrime,
https://www.unodc.org/e4j/en/cybercrime/module-11/key-issues/types-of-intellectual-property.html Accessed
15th July, 2021.
33
18 U.S.C. § 1839(2
24 | P a g e
legal, commercial, or business organization, corporation, firm, or entity) that is substantially
owned, controlled, sponsored, commanded, managed, or dominated by a foreign government;” 34
can also harm national economic security.35

When a trade secret appears on the internet, the owner often loses the ability to continue
to claim it as a trade secret and to prevent others from using it. 36 Accordingly, trade-secret
owners bear the burden of being vigilant and acting quickly if there is to be any chance of
preserving the trade-secret status of the information. Given that secrecy is vital to preserving
trade-secret status, time is of the essence to trade-secret owners, and each hour that a trade secret
is available on the Internet is an hour too long. The current requirement in the U. S of a court
order for a takedown of a trade secret is not only costly but is also too slow for trade-secret
owners because of the speed with which users distribute information over the Internet. Obtaining
a temporary order from a court would likely take no fewer than several days. 37 The threat of trade
secrets appearing on the Internet occurs with sufficient frequency especially in the U.S 38 and
potentially poses grave threats to trade-secret owners and the functioning of the economy. The
case of DVD v. Bunner,39 is one case where one can appreciate the threat of the internet on trade

34
18 U.S.C. § 1839(1))
35
UNODC, ‘Types of intellectual property’, E4J University Module Series: Cybercrime,
<https://www.unodc.org/e4j/en/cybercrime/module-11/key-issues/types-of-intellectual-property.html>
accessed 15th July, 2021.
36
E. A. Rowe, ‘Saving Trade Secret Disclosures on the Internet Through Sequential Preservation’, 42 Wake Forest
L. Rev. 1, 46 (2007) (explaining that, generally, when a trade secret appears on the Internet and becomes public, the
owner loses the ability to claim it as a trade secret and prevent others from using it).
37
Plaintiffs seeking injunctive relief in trade-secret cases face a delicate struggle between moving quickly to stem
further dissemination of the secret and proceeding with deliberation after careful investigation of the facts and
preparation of the pleadings. Otherwise, plaintiffs not only may fail to obtain relief but also may expose themselves
to possible sanctions or counterclaims. See generally James Pooley, Trade Secrets § 10.06[1l] (1997).
38
See, e.g., United States v. Lange, 312 F.3d 263, 265 (7th Cir. 2002) (involving an employee who solicited
potential buyers of his employer's trade secrets over the Internet); United States v. Martin, 228 F.3d 1, 19 (1st Cir.
2000) (e-mailing trade secrets outside the company without authorization); O'Grady v. Superior Court, 44 Cal. Rptr.
3d 72, 76 (Cal. Ct. App. 2006) (seeking identity of sources who disclosed Apple's trade secrets); Religious Tech.
Ctr. v. Netcom On-Line Commc'ns Servs., Inc., 907 F. Supp. 1361, 1365-66 (N.D. Cal. 1995) (involving the posting
of the Church of Scientology's secret documents); NewSouth Commc'ns Corp. v. Universal Tel. Co., No. CIV.A. 02-
2722, 2002 WL 31246558, at *1, *9 (E.D. La. Oct. 4, 2002) (e-mailing trade secrets outside the company without
authorization); Edelman v. N2H2, Inc., 263 F. Supp. 2d 137, 138 (D. Mass. 2003) (involving a computer researcher
seeking declaratory judgment allowing him to post potentially trade-secret information on the Internet); Chrysler
Corp. v. Sheridan, No. 227757, 2003 Mich. App. LEXIS 312, at *10 (Mich. Ct. App. Feb. 11, 2003) (mentioning
employee's disclosure of Chrysler's confidential information to others, including an online publication); Ford Motor
Co. v. Lane, 67 F. Supp. 2d 745, 753 (E.D. Mich. 1999) (involving the posting of Ford's secret documents); United
States v. Genovese, 409 F. Supp. 2d 253, 254 (S.D.N.Y. 2005) (involving the posting of Microsoft source code on
the Internet); Religious Tech. Ctr. v. Lerma, 908 F. Supp. 1362, 1368 (E.D. Va. 1995) (involving the posting of the
Church of Scientology's secret documents); DVD Copy Control Ass'n, Inc. v. Bunner, 75 P.3d 1, 1 (Cal. 2003)
(posting a secret program regarding encryption of DVDs); Immunomedics, Inc. v. Doe, 775 A.2d 773, 774 (N.J.
Super. Ct. App. Div. 2001) (seeking identity of individual who posted trade secret on Internet).
39
See M. McKee, "Friends" in High Places: In a Sign of What's at Stake, California Justices Deluged with 42
Amicus Briefs in Trade Secrets Dispute, Miami Daily Bus. REv., Aug. 30, 2002, at A1O in E. A. Rowe,
25 | P a g e
secrets. The case is a significant trade-secret-disclosure case where no less than forty-two amicus
briefs supporting the trade-secret owner were filed. This is one salient indication of this issue's
importance to industry.

LEARNING POINT 2: TRADE SECRET MANAGEMENT PROGRAM

HOW CAN ORGANIZATIONS MINIMIZE THE RISK OF IP THEFT?

Steps to build up a trade secret management Program

To better protect against intellectual property theft, ensuring the protection of sensitive data
within the corporate IT environment and physical spaces (securely storing printed and signed
contracts, for example) is key. In the digital space, however, the story is a bit more difficult.
Consequently, the following best practices are recommended to prevent IP loss:

a. Put in place a system for identifying trade secrets: (Identify Identifying and categorizing
the trade secrets is a prerequisite for starting a trade secret protection program. Knowing
exactly what IP you have and where it’s located. Knowing exactly what sensitive/valuable
data you have and who has access to is the initial step in building strong security posture.
Using an automated data classification solution will help you dealing with the loads of data
being created or modified daily.40 The steps taken to protect your trade secrets should be
dictated by the nature of the secrets themselves.

Make sure all employees clearly understand what data is the company’s intellectual property
and why they need to handle it carefully. To do that, ensure communication between
executives and all departments (HR, marketing, sales, R&D, etc.) so everyone is aware of the
importance of IP and can adequately identify and protect it. Identifying your IP is crucial
because otherwise you can’t secure it by applying relevant policies and procedures. When
identifying the locations of IP, pay attention to the following assets: Cloud applications and
file sharing services Corporate networks, servers, and storage drives Employees’ personal
devices Third-party systems and applications.41

a. The basic questions to ask

- What information would hurt my business if my competitors get it?

‘Introducing a take-down for trade secrets on the internet, (2007), Wis. L. Rev. 1041
http://scholarship.law.ufl.edu/facultypub/63; also at https://core.ac.uk/download/pdf/216974724.pdf> accessed
15.July 2021.
40
Ilia Sotnikov, (2019) Intellectual Property Theft: What It Is and How to Defend Against It’,
<https://blog.netwrix.com/2019/07/23/intellectual-property-theft-what-it-is-and-how-to-defend-against-it/ >
41
https://www.ekransystem.com/en/blog/best-practices-to-prevent-intellectual-property-theft © Ekran System
26 | P a g e
 - And how much will it hurt?

b. A related question to ask

- Do you have staff specifically assigned to record keeping, data security, or for
preservation of trade secrets?

Make a written list of the information to be protected and organize it into the different
types of information, depending on its value to the business and the type of protection
measures that would be needed to protect it.

b. Find cybersecurity gaps and weak spots: Apart from reviewing user access rights, it’s
highly recommended to regularly check your cybersecurity for gaps. The idea is to think like
attackers, identifying what they will target in the first place and securing those places. A
proven tactic to find weak spots in your cybersecurity is to conduct a cybersecurity risk
assessment. This evaluation will help you determine information assets that could be
compromised by a cyber attacker and identify various risks to those assets. Apart from
intellectual property, you should also assess how secure your hardware, networks, corporate
devices, and customer and employee data are. Once you identify cybersecurity gaps and
weak spots, fix them and take measures to avoid potential flaws in the future. For instance,
make sure to keep all your operating systems and software up to date and enable automatic
software updates where possible.42

c. Establish a data security policy. It is important to have a written information security or

trade secret protection policy. The information security policy encompasses systems and
procedures designed to protect the information assets from disclosure to any person or entity
not authorized to have access to that information, especially information that is considered
sensitive, proprietary, confidential, or classified as in national defense).

A security policy defines how security threats are addressed, specifies which controls are
needed to mitigate IT security vulnerabilities, sets up rules to be followed and defines a
recovery plan should a network intrusion occur.

a. It is important to have a written information security or trade secret protection policy.

A written policy provides clarity on all aspects that need to be addressed.

- It should also explain the why and how of doing so.

- It should prescribe how to reveal or share such information in‐house or with outsiders.

- It should articulate and demonstrate the commitment of the business to protect its trade
secrets as this would eventually play an important role in any unavoidable litigation.

42
Origin: https://www.ekransystem.com/en/blog/best-practices-to-prevent-intellectual-property-theft © Ekran
System
27 | P a g e
 b. Information security can be implemented at various levels such as the following: -
Physical controls - Administrative controls - Technical controls.

To make sure your data security policy is comprehensive and efficient, consider
including the following information: Password management rules, including restrictions
for reusing passwords across platforms Clear rules on privacy settings for mobile
applications and online accounts Information related to the bring your own device policy
Information about employees’ accountability for the use of sensitive data Security rules
for working with corporate systems, networks, and other accounts Rules related to
downloading and installing software.43

Your security policy must be verified by your legal department and signed by your CEO.
The document should contain what actions will be taken and what penalties will be
applied if these policies are violated and your investigation identifies the culprit.

d. Monitor employee activity. Even if you trust those who have access to your sensitive data,
they are still are the biggest threat, because even people without bad intentions can make
critical mistakes. That’s why it is important to establish user behavior monitoring. Pay
particular attention to abnormal spikes in activity, which are a sign that something could be
wrong.

Continuous employee monitoring helps businesses make sure all users work securely within
the corporate network. Knowing that their actions are being watched, employees tend to stick
to recommended cybersecurity practices and don’t risk visiting shady websites that can lead to
malware downloads and data breaches. Also, in case of IP theft, user activity monitoring
records can help speed up the investigation process, determining the impact of an attack.
Ekran System offers a wide range of monitoring capabilities for different types of users,
including: Employee monitoring Privileged user monitoring Third-party vendor monitoring
By keeping an eye on all parties that potentially may leak your IP data — inadvertently or on
purpose — you can significantly minimize the risk of data theft. Ekran System provides user-
friendly incident response opportunities, allowing you to set predefined and custom alerts for
visiting certain websites, launching particular applications, etc. With these alerts, you can
instantly identify a potential danger and investigate it in real time.44

e. Review user access to IP: A periodic review of user access to sensitive data is a great
practice that helps you reduce the risk of privilege abuse and security breaches. A user access
review aims to limit users’ access to critical data and resources to information they need for
their work routines. It re-evaluates user roles, access rights and privileges, and user
credentials.45

Say an employee changes departments within your organization and doesn’t work with IP-
related data anymore. If their access permissions aren’t restricted after the switch, that
employee may still access sensitive information, which is an insider threat risk. To mitigate
such insider threat risks and strengthen your access management, you can use privileged
43
ibid
44
ibid
45
ibid
28 | P a g e
 access management (PAM) solutions. Ekran System is a universal insider risk management
platform with robust PAM capabilities that allow you to granularly manage access rights of
all privileged and regular users in your IT infrastructure.46

f. Involve HR. It’s a good idea to coordinate with HR and be notified whenever an employee is
leaving so you can watch for suspicious activity, such as bulk file copying, before they leave
and disable their accounts promptly when they are gone.

g. Prevent potential incidents by leverage advanced technologies to help you detect an

prevent potential threats: Apart from monitoring users, you should also leverage advanced
technologies that can help you immediately prevent potential threats. Consider deploying
user and entity behavior analytics (UEBA). UEBA is based on artificial intelligence
algorithms that establish a baseline of user behavior and then automatically alert security
officers in case a user is acting suspiciously. This can be a sign of a user’s malicious intent or
a sign that the user’s account was hacked. UEBA capabilities of Ekran System allow you to
instantly notice abnormal user behavior and check it before IP theft actually happens. For
example, Ekran System’s UEBA module automatically detects if employees log into your
systems outside of working hours.47

h. Educate all employees on issues related to information security (Provide training to

employees): Poor cybersecurity awareness of employees increases the risk of IP loss. I
recommend establishing training programs for employees based on their roles and the level
of access they have in your network. Explain what a potential attack (such as phishing) looks
like, how it works and what the consequences are. Remind everyone about your password
policies and encourage employees to report security incidents. Work to avoid
misunderstandings; your IT department should be open to questions and concerns from
regular users regarding your security program.

i. Since employees can threaten your intellectual property and other sensitive data, it’s
extremely important to educate them about cybersecurity. By doing so, you have a better
chance of preventing accidental data leaks. Cybersecurity awareness among employees
became even more relevant with the shift to remote work and hybrid office environments. As
a result, the people-centric approach to security became a trend again, prompting businesses
to make people their defense. This approach states that it’s better to put efforts into providing
employees with relevant cybersecurity education and showing workers that an organization
trusts them rather than emphasizing restrictive security controls.48

Consequently:

i. Educate and train employees on information security policy.

ii. Transform every employee into a potential security officer.

46
ibid
47
ibid
48
ibid
29 | P a g e
iii. Every employee must contribute to create a secure environment. D

iv. Prevent inadvertent disclosure that may take place due to ignorance.

v. The employees should be trained to recognize and properly protect trade secrets.

vi. Always hire an employee on the basis of his competence knowledge and skills and not
because of his access to trade secrets of a former employer.

vii. All employees should acknowledge that they have understood the policy and that they
agree to abide by it. Periodically, reiterate the policy.

viii. Avoid hiring a person bound by a non‐compete agreement. If unavoidable then do so

only after taking advice from an independent and competent lawyer.

ix. Indemnifying a new employee, who is bound by a non ‐compete agreement to a previous
employer, should be avoided, as doing so raises suspicion of wrong doing and may result
in a financial obligation if wrong doing is proved in a court case.

x. Remind your employees not to disclose trade secrets to unauthorized individuals or

entities and to follow the security procedures; do so by way of notices, memos, network
e‐mails, newsletters, etc.

xi. Hiring away more than one employee from a competitor would raise suspicion of wrong
doing, and, therefore, it should be avoided as far as possible.

xii. Make departing employees aware of their obligations towards former employer. Do
so by conducting exit interviews that should also focus on issues related to
confidentiality, trade secrets, etc. If necessary or desired, they should be made to sign a
new or updated confidentiality agreement. You may write a letter to new employer
informing him about the relevant aspects of your trade secret concerns so that the
departing employee is not put by the new employer on projects or activities where
inevitable disclosure of your trade secrets would occur or is most likely to happen.

xiii. Include reasonable restrictions in writing, in all contracts

Signing a good confidentiality or non‐disclosure agreements with employees,

suppliers, contractors, business associates is of immense value in keeping information
away from competitors.

a. Non‐analysis clauses Include non‐analysis clauses in agreements for licensing trade

secrets so that the other party agrees not to analyze or have analyzed any material or
sample supplied under the agreement to determine its composition, qualities,

30 | P a g e
 characteristics, or specifications, unless authorized in writing by a duly authorized
representative of your business.

b. No‐raiding, non‐recruitment or non‐solicitation clause A no‐raiding, non‐

recruitment or non‐solicitation clause in an employment agreement prohibits a
departing employee from soliciting co‐workers to leave with him to join another
business or set up a new rival business.

xiv. Restrict access to paper records

To prevent unauthorized access to records classified as confidential, sensitive, or secret,

limit access to only those employees who are duly approved, or cleared, to see them on a
need to know basis. This may be done more easily by proper labeling of records (e.g.,
with a stamp such as confidential or secret) or using special colored folders (e.g., red or
orange), and by keeping such marked records physically isolated or segregated in a
secure area or in locked filing cabinets. Depending on the size and nature of the trade
secret, the location of the separated information can vary from a locked file cabinet, to a
security patrolled warehouse or storage facility. There has to be proper access control
through appropriate authorization and accountability and tracking system for employees
provided access to classified information.

xv. Mark documents

xvi. There are various types of useful ways for marking confidential or trade secret
information. Look at the following examples:

- MAKE NO COPIES

- THIRD PARTY CONFIDENTIAL

- DISTRIBUTION LIMITED TO ____

- COVERED BY A NON‐ANALYSIS AGREEMENT The CRITICAL,

MAXIMUM, MEDIUM, and MINIMUM labels are examples of information
classifications In general, the labels should provide brief but clear direction to
the user on how to handle the information

xvii. Office management and keeping confidentiality

- Mobile or cellular phones discussing sensitive topics over a cellular phone is a

dangerous practice. Confidential information may be “lost” if there is unrestricted
use of mobile or cellular telephones.

31 | P a g e
 - Fax machines Often, the fax machine is located in a common area with
unrestricted access and it is typically unattended. The second problem with fax
transmissions is that they utilize phone lines, which can be tapped quite easily.

- Photocopying It is not unusual for an employee to make copies of a secret or

confidential document, pick up the copies and walk away, leaving the original in
the copier for the next user to find. Extra care should be taken to remember to
retrieve those original secret or confidential records when the copying is finished.

- Shredding A better method for disposition of all paper records, of course, is

shredding them. Shredding is a major element in most information security
programs. With a wide variety of machines on the market, businesses may
implement shredding in several ways.

- Telephones Callers posing as researchers, industry analysts, consultants, or

students ask for information about the organization and its employees–and many
times get it.

- Internal literature Newsletters, magazines, and other in ‐house publications often

contain information useful to snoops, including new product announcements,
results of market testing, and names of employees in sensitive areas (who are
potential contacts).

- Waste bins: It is not safe to put them into a nearby office waste paper or trash
bin, as anyone with access to the trash might make use of those records for
gathering competitive intelligence. h. The compulsive talker and loose talk
Employees are deluding themselves if they think their lunchtime or coffee break
conversations and any discussion of company business on the metro, subway, bus
stop, train station, or a restaurant is wholly private. It is not at all unusual for
people nearby to hear clearly these conversations.

xviii. Maintain computer secrecy

For most computer systems at least two security measures are built into them:

a. Use of passwords for a user to access the system

b. Automated audit trails to enable system security personnel to trace any additions or
changes back to whoever initiated them, and to indicate where and when the change was
carried out.

Access Control and Security Labels

32 | P a g e
 Access control is a means of enforcing authorizations. There are a variety of access
control methods that are based on different types of policies and rely on different security
mechanisms. a. Rule based access control is based on policies that can be algorithmically
expressed.

b. Identity based access control is based on a policy which applies explicitly to an

individual person or host entity, or to a defined group of such entities. Once identity has
been authenticated, if the identity is verified to be on the access list, then access is
granted.

xix. Guarding secrets that are shared in partnerships

a. While employees can be the single biggest threat to secrecy, it is also important to
guard secrets in joint ventures, with consultants and even with customers.

b. For many software companies, the most dangerous exposure is the sale of a system
because the software is then susceptible to reverse engineering. In software and many
other high‐tech industries, licensing of your company's product is a secure way to
guard against loss.49

*****************************************************************************

49
전체합본(최종지_출력실).hwp (wipo.int)
33 | P a g e
Intellectual property helps drive a company’s competitiveness and growth, so trademark, patent,
trade secret ansd copyright protection should be an integral part of every security strategy.
Building a strong line of defense requires a company-wide involvement, from regular users to
top executives. Knowing that risks are rising, companies should ensure they have proper security
policies around sensitive data protection and continue working with their employees to minimize
risks coming from insiders.50

LEARNING POINT 3: THE MISAPPROPRIATION OF TRADE SECRETS

A. What does Misappropriation of Trade Secrets mean?

1. Definition: The wrongful/unfair acquisition of confidential information, which forms the

core of a trade secret, without the appropriate authorization or through unlawful methods
(i.e by theft, fraud, coercion, or other unlawful or dishonest acts), constitutes the tort of
misappropriation.51 Misappropriation of trade secrets generally occurs when there is a
violation of a duty or obligation to maintain the secrecy of the information in question. It
can manifest in various forms, including theft, bribery, electronic espionage, and
corporate espionage.

50
ibid
51
SPA Ajibade, ‘A Review of Contemporary Legal Trends in Nigerian Law: Intellectual property law and litigation
in Nigerian Courts’, p 91-92.
34 | P a g e
 2. Acquiring a trade secret with knowledge of its prior unlawful acquisition, or acquiring
such trade secret without actual knowledge of its unfair acquisition but being grossly
negligent in failing to know of the earlier unfair acquisition and, in either case, using or
disclosing a trade secret so acquired.

3. Although innocently acquiring a trade secret, using it or disclosing it after learning of its
earlier unfair acquisition by another person.

4. Using or disclosing the trade secret in breach of a contractual obligation to maintain the
trade secret.

a. Acquiring a trade secret that was disclosed in the circumstances set forth in (4) above,
either knowingly or with gross negligence in failing to know of the breach of the
contractual obligation, and using or disclosing such trade secret

b. Subsequent to the innocent acquisition of a trade secret that had been disclosed under
the circumstance set forth in (4) above, using or disclosing it after learning of the
earlier breach of contractual obligation or being grossly negligent in failing to learn of
such earlier breach.

5. On the one hand, an action for misappropriation can be maintained by the licensor based
on assumed contractual obligations; This legal action can be pursued in two primary
ways. Firstly, it can be initiated by the licensor based on implied contractual obligations.
Secondly, it can be pursued as a tort action, but in this case, it typically relies on an
ongoing confidential relationship between the parties involved.

B. How trade secret gets stolen: What are the most common IP theft scenarios?
a. Human errors: 56% of cybersecurity incidents involve a negligent employee or contractor,
according to the 2022 Cost of Insider Threats Global Report by the Ponemon Institute and 51% of
survey respondents named human errors as a common method for intellectual property
rights infringement. This happens when employees lose devices, accidentally send files
containing trade secrets outside the company network, or fail to uphold their responsibility
to not share confidential data with unauthorized parties. For example, in October 2017, an
Apple engineer brought his daughter to work — where she filmed the unreleased iPhone X
for her vlog. The footage included an iPhone X with special employee-only QR codes and a
notes app with the code names of unreleased Apple products. After her video went viral on
YouTube, her dad was dismissed from Apple.52

52
Ilia Sotnikov, (2019) Intellectual Property Theft: What It Is and How to Defend Against It’,
<https://blog.netwrix.com/2019/07/23/intellectual-property-theft-what-it-is-and-how-to-defend-against-it/ >
35 | P a g e
 Employees often make mistakes due to carelessness, lack of cybersecurity awareness, or
fatigue. Once a data breach happens, it may expose various types of confidential
information, including IP. Employees can expose sensitive information by: Accidentally
sending an email with IP data to the wrong person Clicking on phishing emails that lead to
malware injection Forwarding data to personal email accounts Taking sensitive data from
the office (on a USB drive or laptop) to finish work at home Sharing IP documentation data
using unsecure services and messengers Setting wide access rights for cloud-based
documents with sensitive data Neglecting an organization’s cybersecurity policies when
setting passwords, accessing corporate networks, etc. Dealing with stolen IP is a long,
expensive, and exhausting process. Organizations need to prove the fact of IP theft and put
lots of effort and money into lawsuits. Even if they win, the legal wrangling may take years.
Therefore, it’s best to keep your patents, trade secrets, copyrights, and trademarks as secure
as possible.53

b. Malware infiltrations. 48% of survey respondents have suffered malware infiltrations.

Malicious software enables criminals to steal an enormous amount of IP. For example, from
around 2006 to 2018, a hacking group called Advanced Persistent Threat 10 (APT 10)
targeted the networks of more than 45 technology companies and U.S. government agencies
in order to steal information and data concerning a number of technologies. In addition, the
hackers attacked the computers of managed service providers (MSPs) and accessed the
networks of their clients. By using spear phishing techniques to introduce malware onto
computers, they were able to steal of hundreds of gigabytes of intellectual property and
other confidential business and technological information.54

c. Privilege abuse. The third most common root cause of IP theft, according to the Netwrix
research, was privilege abuse, which was named by 34% of respondents. Employees and
subcontractors exploit their access to an organization’s sensitive data and intellectual property to
steal it with an intent to sell it to competitors or use it to start their own businesses. The higher the
level of user access rights, the higher the risks of IP theft. So you always need to keep an eye on
privileged users and third parties. Another possible scenario is data theft by former employees. Ex-

53
Best practices to prevent intellectuaL property theft
<https://www.ekransystem.com/en/blog/best-practices-to-prevent-intellectual-property-theft> © Ekran System
54
ibid
36 | P a g e
 employees might still have access to corporate networks. They cloud have also created backdoor
accounts or managed to steal data before quitting.55

d. By exploiting their access to sensitive files, employees commit economic espionage and
steal trade secrets. An unfortunate tale which happened at biotechnology company
GlaxoSmithKline (GSK) serves as a good illustration. A group of conspirators, including a
former GSK research scientist, stole trade secrets to benefit a Chinese pharmaceutical
company. According to the U.S. Attorney in the case, the GSK scientist emailed
confidential files and transferred portable electronic storage devices containing trade secrets
to his China-based associates. In 2018, two of the defendants pleaded guilty to intellectual
property theft, but the exact amount of financial damage has yet to be calculated.56

C. Who is responsible for IP theft?

a. External Sources: Industrial espionage Intense competition in domestic and export markets has
also lead to an alarming increase in theft by outsiders, known as industrial espionage. Such activities
are on the rise due to increasing global competition, shorter product cycles, thinning profit margins,
and declining employee loyalty.

b. Internal theft by Current Staff/Employees: Internal theft by disgruntled workers is also

intentional. Some of these people allow themselves to be exploited by competitive intelligence
operatives, either for money or merely for spite. Even if an attack is initiated from the
outside, it is often an employee who disregards privacy policy and clicks on a malicious
link that lets the attacker into the network. Thus a strong defense against IP theft must
55
ibid
56
ibid
37 | P a g e
 involve measures against not just outside attackers, but insiders as well. Insiders also copy
sensitive data from their work computers to USB drives and then lose them, putting
the data in the hands of outsiders. Unfortunately, the report shows that 29% of companies
are still sure that hackers are the most dangerous threat actors when it comes to IP theft,
while over 60% of the incidents they experienced were actually caused by regular business
users. IT staff, who are perceived as the least dangerous threat actor, were responsible for
30% of reported incidents.

c. Departing or terminated (former) employees also require attention. Take a look at these
figures: Only 25% of companies think that these employees are an important risk factor, but
39% named them as the threat actors responsible for actual security incidents.

Example A fired or retrenched employee might go directly to a competitor and offer, for seeking
revenge or for a fee, to disclose your trade secrets, marketing strategies, or new product plans ‐‐often
despite signed nondisclosure or confidentiality agreements. Sometimes, competitive intelligence
operatives may tap phone lines, or regularly sift through a company's garbage, break into computer
systems. They may include seemingly innocent persons such as research analysts, business analysts,
information specialists, and potential employees or customers, who gain employees' trust for
obtaining proprietary information by inducements, gifts or blackmail.

d. External threats External threats include corporate spying with professional criminals targeting
specific technology, initiating network attacks (hacks), laptop computer thefts: - accessing source
code, product designs, marketing plans, customer lists - approaching employees to reveal company
information etc. Businesses strive to protect their trade secrets by enacting corporate security
measures and confidentiality clauses in employment, technology licensing, distributorship and joint
venture agreement.

D. Protection of trade secrets:

What Do Companies Do To Protect Against IP Theft?

Certain surveys have revealed that organizations are not doing enough to protect themselves
against IP theft. It’s not only that they underestimate the risks coming from their own
employees; they also fail to implement security basics. 36% of organizations conduct asset
inventory once a year or less frequently, 20% almost never get rid of stale and unnecessary
data, and 17% have never performed IT risk assessment.

38 | P a g e
 Moreover, the survey results show that 44% of companies still don’t know or are unsure
about what their employees are doing with sensitive data. With this lack of visibility, it’s
almost impossible to detect cases of intellectual piracy in a timely manner.

Only 19% of companies classify data once a quarter. Moreover, even though data access
rights should be updated every 6 months to help prevent inappropriate access, 51% of
organizations perform such checks less than once a year.

LEARNING POINT 4: VIOLATION OF TRADE SECRETS

1. How to establish violation of trade secrets
Main issues are:
(a.) Was the information indeed secret?
(b.) Were reasonable steps taken to maintain the secrecy?

To establish violation of trade secret rights, the owner of a trade secret must be able to show the
following:
(a.) Infringement by or competitive advantage gained by the person/company which has
misappropriated the trade secret.
(b.) The owner had taken all reasonable steps to maintain it as a secret.
(c.) There is misuse as the information obtained has been used or disclosed in violation of the
honest commercial practices.

2. The remedies

Most countries provide for remedies in criminal, administrative, commercial and/or civil law,
in particular, tort law, contractual law and specific legislation on unfair competition. What
are the remedies provided to the holder of secret information?
(a.) Injunctions: The trade secret laws of some countries might also permit the use of injunctions,
(court order) restraining the person from further benefiting from or misusing the trade secret. An
injunction requires the cessation of the use of any products that have been created through the
use of trade secret information contrary to honest commercial practices. This is applied where
there is a prima facie case, insufficiency of damages to remedy the wrong done, the balance of
convenience tilts in favour of the applicant and undertaking as to damages by the Applicant. 57

(b.) A court order for monetary compensation in the form of damages, based on the actual loss
caused as a result of the misuse of trade secret. (For example, lost profits or unjust enrichment).

57
See Obeya Memorial Hospital v. A-G Federation [1985] 3 NWLR (pt. 60), 325 SC.
39 | P a g e
 (c.) Seizure order by the court, based on a civil action, which may include a search of the
defendant’s premises in order to obtain evidence to establish the theft of trade secrets at trial.

(d.) Precautionary impoundment of articles that include misused trade secrets, or the products
resulting from its use or misuse.

(e.) A court may order the destruction of the products made by the infringing act, and/or destruction
of the equipment used to carry out the infringing act.

(f.) Some countries permit the imposition of punitive damages for willful encouragement of trade
secret theft.

(g.) In some countries, for particular cases of trade secret violation, criminal penalties are available.

3. Defences To A Misappropriation Claim

A claim for trade secret misappropriation may be rebutted by establishing that the
information was obtained via proper means and/or independent effort, availability of the
information in the public domain, reverse engineering, or through published literature.58

LEARNING POINT 5: A TRADE SECRET AUDIT

1. How to conduct a trade secret audit Basic steps for conducting a trade secret audit are as follows.

a. Identify significant trade secrets Consult with research and development, manufacturing, MIS,
sales and marketing and human resources; compare your company's advantages vis ‐à ‐vis
manufacturing processes, raw material ingredients, information management, contacts with
customers, etc., as compared to competitors.
b. Verify the company's title to trade secrets Contact legal and human resources to determine if
assignments from employees, consultants or other predecessors in interest are complete.
c. Verify that confidentiality procedures are followed Contact security, human resources and
departments that maintain the trade secrets.
d. Verify that employees, consultants, vendors, customers and other third parties do not disclose
trade secrets of third party Contact human resources to determine if new employees and
consultants agree in writing not to disclosure confidential information from former employers;
contact legal, purchasing, sales and marketing, research and development, MIS and
manufacturing regarding other third party agreements
58
[17] S.1 UTSA 1995 Amendments.
40 | P a g e
LEARNING POINT 6: TRADE SECRETS IN NIGERIA
In Nigeria, there is currently no specific legislation that provides protection or regulation
for Trade Secrets (TS). As a result, individuals and businesses holding TS must take proactive
steps to safeguard their confidential information from being revealed to competitors. One
common approach is to establish confidentiality or non-disclosure agreements (CNDAs) with
employees and contractors, especially those who have access to and knowledge of these TS.
Alternatively, non-compete clauses can be included in employment or service contracts to
safeguard the interests of the TS owner, should an employee leave or be terminated from their
position. This was the situation in Koumoulis v. Leventis Motors Ltd59 where the Appellant who
was in the employment of the Respondent and in the know of the Respondent’s TS, resigned and
started working with the Respondent’s competitor, Nigerian Technical Company Limited. After
the Appellant left the Respondent, the Respondent found out that the business plan which
constitutes their TS that was being discussed within the Respondent’s company had now been
divulged and explored by the Appellant’s new employer, thereby leading to loss of business
opportunities.
The undertaking in the Appellant’s agreement with the Respondent that he will not for “a
period of one year undertake to carry on either alone or in partnership nor be employed or
interested directly or indirectly in any capacity whatever in the business of Merchants Engineers
or any other business carried on by the Company within a radius of fifty miles from any Trading
Station in West Africa” was held to be valid. Accordingly, the Appellant was liable to the
damages imposed by the lower court.
Another remedy that could be in favour of the owner/valid licensee of the TS is the
equitable remedy of injunction - applied where there is a prima facie case, insufficiency of
damages to remedy the wrong done, the balance of convenience tilts in favour of the applicant
and undertaking as to damages by the Applicant.60

Some Nigerian Legislations That Border On Trade Secrets

59
9 (1973) LPELR-1710 (SC)
60
See Obeya Memorial Hospital v. A- G Federation [1985] 3 NWLR (Pt. 60), 325 SC. In Celgard, LLC v. Shenzhen
Senior Technology Material Co Ltd [2020] EWHC 2072 (Ch.) the Chancery Division, England considered similar
grounds in granting injunction against the Defendant. In this case, Celgrad was held to have adduced sufficient
evidence to establish that the Defendant was producing battery separators using Celgrad’s confidential information
and TS obtained from two of Celgrad’s former employees.
41 | P a g e
The most significant reassuring provision for the protection of trade secrets in Nigeria can be
found in section 15(1)(a) Freedom of Information Act 2011 (FOIA) 61. It mandates public
institutions to deny applications for information that contains “trade secrets and commercial or
financial information obtained from a person or business where such trade secrets or
information are proprietary, privileged or confidential, or where disclosure of such trade
secrets or information may cause harm to the interests of the third party.” Section 15(1)
(a) is thus, a welcome curtailment of the section 1 right of an applicant to request information in
the custody of any public official, agency or institution.62

There are other legislations that affect the protection of trade secrets. For instance, the Revised
Guidelines for Registration and Monitoring of Technology Transfer Agreements in Nigeria
(Guidelines) made pursuant to the National Office for Technology Acquisition and
Promotion Act[19] (NOTAPA) mandates the submission of relevant technology transfer
(service) agreements (which could implicate disclosure of trade secrets), as part of
documentation requirements for NOTAPA‘s registration of such agreement. However, there is
no corresponding provision for protection in both the Revised Guidelines and the NOTAPA.

Recommendations
The National Assembly should enact subject-specific legislation like the UTSA, which provides
for injunctive reliefs against propagation or dissemination of trade secrets, protective measures 63
in trials, and for materials seized and remedies in case of actual or attempted prejudicial
disclosure like injunction and damages, and award of cost of attorney’s fees where an injunction
was obtained unduly.

Benefits of Protecting IPR for businesses

61
No. 4 of 2011.
62
Oyetola Muyiwa Atoyebi, SAN (2022) Ibid (n. 1)
63
Section 36(1) and (3) of the 1999 Constitution of the Federal Republic of Nigeria (as amended) must be first
amended to grant the Heads of Courts the allowance for ‘secret trials’ in civil proceedings that involves trade
secrets.
42 | P a g e
 1. Increase business valuation.
2. Secure revenue streams
3. Protect market share
4. Prevent competitors from copying ideas
5. Reduce future risks and liabilities
6. Acquire a legal monopoly

If unauthorized parties or malicious employees gain access to IP-related data, they can steal ideas
and introduce original products to the market faster and cheaper than the legal owner of the IP.

The impact of intellectual property theft on businesses includes loss of a competitive edge,
reputational damage, a slowdown in business growth, and loss of customer trust. Theft of
intellectual property may result in significant losses for organizations and can add up to
substantial sums at a country-wide level. The Commission on the Theft of American Intellectual
Property estimates that annual costs from IP losses in the US may range from $225 billion to
$600 billion. Also, if a cybersecurity breach allows malicious actors to steal data, an organization
can face compliance and legal issues. The breach may affect other sensitive data of customers,
employees, and partners. Thus, organizations dealing with cybersecurity breaches will put most
of their efforts and resources into lawsuits rather than further business growth.

In our digital world, IP thieves may include current and former employees, competitors, and
hackers. IP theft can be a primary motive or an opportunistic exploit, as IP can be stolen in bulk
when illegally retrieving corporate data. By stealing intellectual property or purchasing already
stolen ideas and creations, dishonest individuals and organizations can create products faster and
cheaper than creating them from scratch. Because of IP theft, organizations that invested in
original creations may find themselves competing with copies of their own ideas that are selling
at half the price.

Origin: https://www.ekransystem.com/en/blog/best-practices-to-prevent-intellectual-property-
theft
© Ekran System

QUIZ

43 | P a g e
Q 1. Identify the incorrect statement:
1) A trade secret generally referred to as "know-how" is any information, design, process,
composition or technical formula that is not known generally and that affords its owners a
competitive advantage.
2) Trade secret owners should take the reasonable precaution to keep the information
confidential to acquire and maintain trade secret rights.
3) A trade secret does not need the government registration process and has the possibility
of perpetual protection if kept secret.
4) Trade secrets may be legally safeguarded against accidental leakage.

Answer: 4) Trade secrets may be legally safeguarded against misappropriation but not
against wrongfulness or accidental leakage. Any third party who gains accidental
knowledge of the secret information are under no obligation to the trade secret owner. No
liability may arise in the absence of an obligation.

Q 2. Identify the incorrect statement about a trade secret:

1) Unlike other IP rights, trade secret owners may seek liability only when the
appropriator acquires, reveals or uses the secret in a wrongful manner.
2) Companies need to conduct a trade secret audit to realize how much of their
confidential business information may qualify as a protectable trade secret, and then
should establish a trade secret program.
3) A commonly used way of protecting trade secrets is through non-disclosure and non-
solicitation clauses in employment and other contracts.
4) Trade secrets relate mostly to aspects of business operations such as pricing and
marketing techniques or list of customers.

Answer : 4) Trade secrets relate not only to business and financial aspects but also to
technological aspects of a business, especially those which cannot be protected by
patents, or are chose not be patented even though they are patentable, or are
associated with one or more patents, as everything known and useful in relation to a
patented technology is not required to be revealed in the relevant patent document.
Only that is much required to be revealed in a patent document as would suffice for
the grant of a patent. Technical know-how may be protectable as a trade secret.

44 | P a g e
Q 3. Identify the incorrect statement about a trade secret:

1) Both trade secrets and patents are forms of intellectual property that can be used to
protect innovations.
2) One of the differences between patent protection and trade secret protection is that patent
protection requires the protected information become available to the public (through
publication of the patent application and/or patent), whereas trade secret protection
requires the protected information be kept secret. Therefore, if you file a patent
application, you lose all of your trade secret rights in the invention.
3) If a product has a short life cycle, trade secret protection may be preferable to patent
protection. 4) Patents and copyright grant exclusive rights. In contrast, there is no
guaranteed monopoly for trade secrets.

Answer: 2) If you file a patent application, the information disclosed in your patent
application will be made public at the time of the publication of the patent application/patent.
However, that does not necessarily result in the loss of all of your trade secret rights related
to a particular invention. Certain information with respect to the invention may still be kept
as a trade secret. In your patent application, the description of your invention must be
sufficiently complete so that someone skilled in the relevant technology area could make and
use the invention based on the written description. However, subsequent to filing,
improvements to the invention may be developed when the invention is actually constructed
and tested. Also, engineering difficulties may be encountered and solved during the process
of converting the invention into a commercially viable product. Such technological know-
how developed after filing the patent application does not have to be disclosed in the patent.
It may be kept as trade secret.

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