Trade Secrets

17 December 2018

Blog written by Guy Breitenstein, Senior IP Attorney – Contracting, Trade Secrets and Data

One of the biggest challenges for companies in the medical devices industry is to protect their innovative work. These innovations relate to all aspects of medical devices, all the way from the chemistry to the device design to the software. Innovations are often the result of years of research and development and represent a significant investment. They fuel the growth of your business and provide you with a competitive advantage. Innovations certainly deserve solid protection measures.

Traditionally this protection is achieved through the filing of patents. However, patents are expensive to obtain and even more expensive to maintain. Besides, some inventions cannot be patented for technical reasons. If your business is unable or unwilling to file for a patent to prevent others from using its latest invention, why not simply keep the invention secret? If competitors are unaware of the invention, they cannot copy or retro engineer it. How can your business achieve this protection by secrecy?

Trade secrets defined

This is where the European legislator came to the rescue by creating a baseline minimum level of protection which every EU member state must institute. The EU Directive on the protection of undisclosed know-how and business information (trade secrets) sets out a uniform definition: a piece of information is a trade secret, if it is not generally known among persons in the medical devices industry – or readily accessible to them. Thanks to the broad definition of the Trade Secrets Directive, a lot of information could benefit from the trade secrets protection. The typical examples are manufacturing processes or techniques, product formulas, ingredients and recipes, assays, names of vendors and suppliers, and unique combinations of generally known concepts. More specifically in the medical devices industry, trade secrets may relate to patient data, proprietary laser cutting techniques for stents, catheters, implants, other devices, hospital customer lists, physician information, and software for healthcare wearables.

Reasonable protection measures

Under the Trade Secrets Directive, the simple fact that a piece of information is secret is not enough to benefit from the trade secrets protection. Your business must also put in place, reasonable measures to keep the information secret. What constitutes a reasonable protection measure? This depends on the relevant circumstances, for instance: the size of your business, the resources available and the impact of security measures on the activities of your business. These are circumstances to consider, when determining whether your protection measures are reasonable.

Another aspect to be taken into consideration when deciding on your protection measures is: Who are the threat actors? Who is likely to misappropriate your trade secrets? The first example that comes to mind is competitors. However, a recent evaluation of current trade secret misappropriation cases estimated that in at least 90% of cases, at least one of the accused individuals was known to the owner of the trade secret and that in as many as 40% of those cases, the accused included a business partner. The medical devices industry relies on dense interconnections of commercial partnerships, collaborations, joint ventures, and outsourcing agreements. Your trade secrets protection measures should take this into account when setting up and operating these agreements with commercial partners.

The other threat actors may be your own employees. There is a clear upward trend in the number of litigation (and damages awards) where employees misappropriated the trade secrets of their employer. These days it is very easy for an employee to copy confidential information on a flash drive and take it to the competition.

Protecting trade secrets in practice

The very first step in putting in place protection measures is to perform an audit of your trade secrets portfolio: What are they? Where are they kept? What is their value (how much time and expense did you incur in developing them)? What competitive advantage do they procure to your business? These are some of the questions to be raised with your R&D, IP, finance and sales departments. And do not forget to talk to your regulatory professionals: They are often ideally placed to help your scientists in the identification of your trade secrets.

Once your trade secrets are identified, the next step should be for your management to put in place appropriate policies and procedures to protect them.

By way of example:

Stamp documents and drawings CONFIDENTIAL or PROPRIETARY or SECRET.
Enter into confidentiality agreements with all employees and any third parties who may receive trade secrets, including partners, vendors and suppliers.
Train your employees on the importance of maintaining trade secrets confidentiality.
Institute sensible security precautions, both physical (physical barriers, alarmed doors, employee access cards, visitor control systems) and electronic (data encryption, authentication and access code).
Maintain access to trade secrets on a need-to-know basis only.
Enforce a clean desk policy to ensure that confidential documents are not left unattended.
Control copying and reproduction of sensitive documents.
Conduct an exit interview with departing employees.

The benefits of trade secrets

Whereas patents involve a lengthy (and costly) application process, trade secrets arise automatically. They have an immediate effect. There is no requirement to register them. The cost of maintaining trade secrets is also significantly lower than for patents.

There are no formalities to be observed for trade secrets and, most importantly, no public disclosure. By keeping your trade secrets close to your chest, your competitors are forced to solve problems without having access to your proprietary methods.

Also, as indicated above, some inventions are not patentable. Trade secrets are then the only protection available. For example, a medical devices company’s trade secrets can include detailed manufacturing steps that are not individually patentable. Even if the information is only of small value in isolation, if in combination with other secrets, it could create a significant improvement in your manufacturing process and be worthy of protection. A good strategy may also be to combine patent protection for some elements of your manufacturing process and trade secrets protection for elements that are not patentable (or for elements of such a small value that they are not worth the cost of a patent application).

Finally, patent protection is limited in time. When the patent expires, it falls into the public domain and since you disclosed it, your competitors will get a free ride to piggy back on your hard-earned innovations. Trade secrets protection is not limited in time. They may be protected forever and help you keeping ahead of competition. The typical example is the Coca-Cola formula invented in the late 19th century!

We want to thank Guy Breitenstein for sharing his knowledge regarding trade secrets with us. If you want to know more regarding this go to www.calysta.eu. If you have any comments or want to share your own story, please contact us via info@medicaldevicescommunity.com or +31(23)7548660