Reasons Why Trade Secrets are increasingly important in SME’s

By Rutendo VP Mugadza-Mugwagwa

ANYTHING that gives you a competitive advantage that you would not want a competitor to know is a trade secret. For a restaurant/bakery, that might be a recipe. The bottom line is they remain a secret and reasonable efforts should be made to maintain secrecy. A trade secret is basically any information that’s unique and valuable to your business but is not known to people outside your business, this could be formulas, recipes, business customers, suppliers list and algorithms.

The innovative and creative capacity of SMEs is not always fully exploited even though they are often the driving force behind certain innovations which if left unprotected, they may be lost to larger competitors that are in a better position to commercialise the product or service at a more affordable price, leaving the original creator without any financial benefit or reward.

Broadly speaking SMEs face the following main problems with regards to IP protection

•          cost, and lack of resources (very important),

•          perceived insufficiency of benefits and

•          lack of information (awareness).

The value of trade secrets lies in their undisclosed nature, this is what gives them the competitive advantage.  Trade secrets, therefore, differ from IP rights, mainly in their secretive or undisclosed nature: a trade mark will be published on the register of trademarks; in order to obtain a patent over an invention, the invention must be disclosed during the application process. Trade secrets also differ from other areas of IP, such as patents, copyright and designs, insofar as the value of trade secrets lies in their secrecy and the secret is typically intended to remain undisclosed indefinitely – while the value in other IP rights lies in the monopoly which expires after the relevant period of time.

The best way to protect trade secrets

A company may decide to protect its trade secrets mainly because they do not qualify under certain requirements needed for protection for other IP rights such as trademarks and patents. Many SME’s cannot afford the costs involved in registration of IP rights, so securing your trade secrets through signing non-disclosure agreements with a certain number of employees is one way of protecting your trade secrets.

Businesses can employ general means of protection, for example by educating employees on the importance of trade secrets; and including confidentiality clauses in employee contracts to act as a deterrent.  However, it should be noted that electronic data is the fuel of the digital age – the vast majority of information is stored electronically in this day and age. This is something to consider when protecting your trade secrets if they are stored electronically. It might be worthwhile investing in digital protection: through data encryption; requiring the copying of sensitive information to be digitally logged; and by use of employee swipe cards to access sensitive areas on servers.

It is thus important for any entity that supports SME’s to help and support IP awareness training as well as development of IP policies and strategies relevant to the specific sector in which the SME operates from.

Our world is becoming ever more open and inclusive. New ideas are widely shared on public platforms and more research is being published than ever before. In this increasingly complex, highly competitive, hyper-connected world, some things that might ordinarily be protected by traditional intellectual property (IP) rights such as patents, trademarks and design rights.

Some of the world’s most famous trade secrets – including the Coca-Cola recipe and Google’s search algorithm – have immense value. Various intellectual property authorities and educational institutions around the world are reaching out to the business community to improve awareness of the usefulness and value of trade secrets, but there is still a long way to go to raise their profile and strengthen the laws surrounding them.

Rutendo Mugadza-Mugwagwa is a registered legal Practitioner and Intellectual Property and Tech Law Expert