Chapter 5

Trade Secrets
and
Conflict of Interest

Trade Secret
Trade Secret
Information used in the conduct of a
business that isnt commonly known by
others.
A process, method, plan, formula or other
information unique to a manufacturer, which
gives it an advantage over competitors
A trade secret can be defined as (i) information
(ii) that remains secret to others (iii) through
reasonable means to protect its secrecy and
(iv) creates actual or potential economic value

Examples
The ingredients/chemical composition of a
product
The details of a manufacturing process
The design of the machine
Methods of quality control
Results of marketing surveys
Financial projections
List of customers & suppliers
Computer programs etc.

Some Real-Life Examples

of Trade Secrets

Coca-Colas recipe for its Coca-Cola is one of the

most famous trade secrets in the world. Its a
trade secret because only a select few within the
Coca-Cola Corporation know the exact recipe for
the soft drink
Googles algorithm for its search engine is also a
very valuable trade secret. Google uses an
algorithm that ranks websites based on many
factors including inbound links, page rank,
relevant text, anchor tags, etc.
processes that Intel uses to make its integrated
circuits for computers. Intel likely has patents on
many of these processes, but certain aspects of
the processes may very likely not be patented

Trade Secret
Some distinction between confidential
business information & trade secret
Confidential Business Information
Information concerning specific matters
which are kept secret
Not used to manufacture anything or
provide a service
Example
The salary of an employee

 The Mission Statement of IPOPakistan is as follows:

Integrating and upgrading IP
infrastructure for improved service
delivery; increased public
awareness and enhanced
enforcement coordination for
achieving the goal of being an IP
based nation.

LEGISLATION IN
PAKISTAN ACCORDING
TO IPO

The existing legislation on

Intellectual Property i.e. Copyrights,
Patents and Trademarks has been
upgraded and the revised laws have
been promulgated.
Trade mark, patent, industrial
designs,
Integrated circuits, copy rights,
geographical indications, plant
breeders rights etc.

Intellectual property
rights
Patents

A patent is a right of exclusion

granted by a government to the
inventor of an article, device,
substance, process or method which
is new, inventive and useful in return
for its development and disclosure to
the public.
Patents provide the inventor with
the right to exclude others from
exploiting the invention for the life

patents
any new and useful advance can
be patented, for example
mechanical devices, electric
circuits, chemical compounds,
genetically altered life forms and
the application of computer
software and algorithms.
Business methods and
manufacturing process can also
be patented, especially if they
involve computers and

Trade Marks
The Trade Marks Ordinance 2001 defines a
trademark
Any mark capable of being represented
graphically which is capable of distinguishing
goods or services of one undertaking from those
of other undertakings.
A sign can include a letter, word, name including
personal name, signature, figurative element,
numeral, device, brand, heading, label, ticket,
aspect of packing, shape, color, sound or any
combination of these features.
Trademark laws allow businesses to protect the
symbolic information that relates to their goods
and services, by preventing the use of such
features by competitors.
To receive trademark protection, a mark usually
must be distinctive. Distinctiveness generally
applies to any coined or fanciful word or term

Some famous trade marks

Copyright
Copyright is a set of exclusive rights
granted to the owner for a limited time to
protect the particular form, way or
manner in which an idea or information is
expressed.
Examples are
literary & artistic work, music, films,
paintings, sculptures, computer programs
and database etc
Copyright is Moral and economic rights of
authors/ writers, publishers, performers
and producers of sound recordings
(phonograms). Duration of Copyright

How trade secret is

different?

Trade secrets are very different from

patents, copyrights and trademarks.
While patents and copyrights require
you to disclose your information in
the application process (information
that eventually becomes public),
trade secrets require you to actively
keep the information secret.
Trade-secret protection can
potentially last longer than that of
patents (20 years) and copyrights

Relationship between
intellectual property and
trade secret
Trade secrets along with patents,
copyrights and trade marks commonly
regarded as intellectual property as
they belong to owner.
But there is some difference between
these THREE and trade secret.
Patent, copyright & trade marks
Like tangible property.
Owner has a right of exclusive use.
Also has a right to sell, license, or
assign ownership to others as he
desires.

Relationship between
intellectual property and
trade
Trade secret
secret

(includes sales methods, distribution

methods, consumer profiles,
advertising strategies, lists of
suppliers and clients, and
manufacturing processes etc)
remains protected as long as it
remains unknown to others
It is a right to not have the secret
Misused or wrongfully acquired by
others

Misappropriation of a
trade secret
There are also illegal ways to try
and obtain a trade secret
referred to as misappropriation
of a trade secret.
Misappropriation occurs when
another acquires a trade secret
by improper means or discloses
or uses the trade secret without
the consent of the owner of the

REASONS WHY TRADE SECRETS

ARE
INCREASINGLY IMPORTANT
NEW TECHNOLOGY
One reason for the ascendancy of
trade secrets is that technology is
making their misappropriation easier.
Before computers, trade secret
information was usually stored in
physical form.
Hackers throughout the world can
break into networks and access
confidential company information,
including trade secrets.
Du Pont/Gary Min case

One solution to this

problem

The confidential data access should

have been restricted to certain users
by using biometric computer
authentication instead of passwords
for computer authentication
Biometrics
Biometrics uses certain characteristics
of a person such as fingerprints, retinal
pattern, or even speech pattern to
uniquely identify a person, grant
access for an authorized user and
clearly reject unauthorized users

A CHANGING WORK
ENVIRONMENT
No longer do workers think of themselves
as lifers, devoting their careers to a
single employer.
new generation instead value mobility
and entrepreneurism . The result is that
these workers are more likely to move
from job to job than past generations.

INCREASING VALUE OF TRADE

SECRET INFORMATION
Our current information-based economy
represents a shift from the previous
economy, which was based on physical
assets such as natural resources and capital
goods.
Obvious examples the dozens of modern
industries that rely extensively on
intellectual property for their value.
These include the software industry,
entertainment industries such as music and
movies, Internet-based industries, and life
science industries such as genetics.

FLEXIBLE (AND EXPANDING) SCOPE OF

TRADE
SECRETS
Another cause of the increase in trade secret
litigation is the flexible definition of trade
secrets. Because a trade secret is broadly
defined as any information that is secret, derives
economic value from that secrecy, and is the
subject of reasonable measures to maintain its
secrecy.
The definition of a trade secret is potentially so
broad that the meaning of trade secret is often
defined by what it is not.
concept of an employees tool kit, or his
generalized skills, knowledge, training, and
experience, to cabin the scope of trade secret

 One recent example of trade secret theft involving

China is the case of Xiang Dong Mike Yu, a project
engineer for the Ford Motor Company
He smuggled Ford trade secrets to China while on a
job hunt that led to a position with one of Fords
competitors, Fox Conn PCE Industry, Inc
Yu copied 4,000 Ford documents, estimated to be
worth between $50 million and $100 million, onto an
external hard drive and delivered them to a Fox Conn
manager at that managers residence in Shenzhen.
The documents contained trade secret design
specifications for engines and electric power supply
systems.
The United States government launched an
aggressive prosecution under the federal Economic
Espionage Act,
In the words of the U.S. Attorney in Detroit, Barbara
L. McQuade, to protect the intellectual property of
our U.S. automakers, who invest millions of dollars
and decades of time in research and development to
compete in a global economy.
Yu pleaded guilty, and in 2011, a federal judge
sentenced him to nearly six years in prison followed

Arguments for trade secret

protection
First argument views trade secret as a
property and attempts to apply common law
principles of property rights to them.
Second argument is trade secrets are
considered in terms of the right to compete &
principles of fair competition.
Third argument holds that employees who
disclose trade secrets to others or who use
them for their own gain violate an obligation of
confidentiality that is part of the employeremployee relationship.

Some ways to protect a

trade secret
Restrict access to the information (lock it away
in a secure place, such as a bank vault).
Limit the number of people who know the
information.
Have the people who know the trade secret
agree in writing/sign not to disclose the
information (sign non-disclosure agreements).
Mark any written material pertaining to the
trade secret as proprietary.
Non-competition agreements.

Noncompetition
Agreements

Noncompetition Agreements
because of difficulty of imposing legal restraints
on employees after they leave,
many companies require employees to sign a
non competition agreement when hired.
Restrict an employee from working for a
competitor after leaving a company
For a certain period of time
Within a given geographical territory
But these agreements are almost entirely for
the benefit of employer and inflict a burden
on employees (in 12 states of U.S they are
prohibited entirely)

Confidentiality
Agreements
Most employees sign contractual obligation
A confidentiality agreement (also called a
nondisclosure agreement or NDA) is a legally
binding contract in which a person or business
promises to treat specific information (a
secret design, an idea for a new website,
financial information etc) as a trade secret
and promises not to disclose the secret to
others without proper authorization.
limit the right of employees to use their
skills and knowledge regarding
postemployment competition
By relying on an enforceable obligation of
confidentiality
Companies place unnecessary restraints on
employee mobility and career prospects

Confidentiality
Agreements
Most employees sign contractual obligation
A confidentiality agreement (also called a
nondisclosure agreement or NDA) is a legally
binding contract in which a person or business
promises to treat specific information (a
secret design, an idea for a new website,
financial information etc) as a trade secret
and promises not to disclose the secret to
others without proper authorization.
limit the right of employees to use their
skills and knowledge regarding
postemployment competition
By relying on an enforceable obligation of
confidentiality
Companies place unnecessary restraints on
employee mobility and career prospects

Example of NDA of NBP

(Initial part of Form)

CONFIDENTIALITY AND NONDISCLOSURE AGREEMENT (NDA)

EFFECTIVE DATE: ______________
NAME OF PROJECT WITH ITS ID:
________________________________________
VALIDITY OF NDA: FIVE YEARS WITH EFFECT FROM EFFECTIVE
DATE
1.0. Parties involved in this NonDisclosure Agreement
This NonDisclosure Agreement exists between (Insert Name of
your company) (hereinafter referred to as Recipient) and
National Bank of Pakistan.
2.0 Commencement Date of this NonDisclosure Agreement
This NonDisclosure Agreement commences on the date indicated
at the top of this page.
3.0 Purpose of this NonDisclosure Agreement
This NonDisclosure Agreement serves to protect all confidential
information and intellectual property developed for and owned by
NBP for Hiring Consultancy Services for BPR & COSO
Implementation.

Trade Secret Protection

(U.S.A)
Espionage, commonly known as spying, is

the practice of secretly gathering

information about a foreign government or a
competing industry, with the purpose of
placing one's own government or
corporation at some strategic or financial
advantage. Federal law prohibits espionage
when it jeopardizes the national defense or
benefits a foreign nation
Economic Espionage Act of 1996 (EEA)
Made the made the theft of trade
secrets a federal offence
Intended to prevent the theft of trade
secrets for the benefit of foreign
governments

More sophisticated
management regarding
confidentiality

Improving security procedures in

the workplace
Segmenting information
Increased pensions
Post employment consulting
contracts
another incentive for employees
to leave with valuable TS can be
reduced by
greater recognition of employees
for their contributions

Competitor Intelligence
Gathering
The ethical and legal limits on
competitor intelligence gathering are
generally concerned with the method
used to acquire the information

Ethics of competitor intelligence

gathering

Unethical methods for

gathering competitor
intelligence

Unethical methods for gathering

competitor intelligence are:
Theft and Receipt of Unsolicited
Information
Misrepresentation
Improper Influence
Covert Surveillance
Dumpster diving
Dumpster diving is looking for
treasure in someone else's trash. (A
dumpster is a large trash container.)

CONFLICT
OF
INTEREST

Conflict of Interest
Conflict of Interest occurs when
A personal interest comes into conflict
with an obligation to serve the interests
of another
A personal interest interferes with a
persons acting
A conflict of interest is a set of
circumstances that creates a risk that
professional judgment or actions
regarding a primary interest will be
unduly influenced by a secondary
interest.

Conflict of interest
This term is used to describe the
situation in which a public
official or fiduciary(trustee) who,
contrary to the obligation and
absolute duty to act for the
benefit of the public or a
designated individual, exploits
the relationship for personal
benefit, typically pecuniary
(monitory/related to money)

Conflict of Interest
A conflict of interest could impair an individual's
ability to perform his or her duties and
responsibilities objectively
another working definition states:
o A conflict of interest is a situation in which
financial or other personal considerations
have the potential to compromise or bias
professional judgment and objectivity it is a
set of circumstances that creates a risk that
professional judgment or actions regarding a
primary interest will be unduly influenced by a
secondary interest
A conflict of interest involves the abuse -actual, apparent, or potential -- of the trust that
people have in professionals

Conflict of Interest
o The conflict in a conflict of interest exists
whether or not a particular individual is
actually influenced by the secondary
interest.
Conflicts of interest can involve financial or
non-financial interests of the staff
member/employee and the interests of
A business partner or associate,
family member
friend or person in a close personal
relationship with the staff member.

Examples of conflict of
interest
A manager provides paid consulting
services on the weekend to a company
customer or supplier.
A person working as the equipment
purchaser for a company may get a bonus
proportionate to the amount he's under
budget by year end. However, this
becomes an incentive for him to purchase
inexpensive, substandard equipment.
Therefore, this is counter to the interests
of those in his company who must actually

Examples of conflict of
interest
An employee starts a company that provides
similar services to similar clients as those of her
full time employer.
An employee who is a member of a company
employee selection team fails to disclose that he
is related to a job candidate whom the company
team is considering for a position.
A staff member involved in the admission,
supervision, assessment or examination of a
student with whom they have, or have had, a
close personal or financial relationship.

Examples of conflict of
interest
An employee works part time in the evening
for a company that makes a product that
competes with the products of his full time
employer.(An employee takes a second job
working for a competitor)
A member of the company board of directors
accepts fees and provides advice to a company
that is in direct competition with the company
on whose board of directors he sits.
An HR director decides to investigate a charge
of harassment, using internal resources she
controls, against a fellow corporate executive
whom she has known and worked with

Examples of conflict of
interest
The 'Judge' for a custody hearing on a
minor child is related to one of the
parents of the child. This judge would
be considered to have a conflict of
interest because they were related to
one of the parents and may pass
judgment for the parent they are
related to, regardless of the evidence
in the case.
An employee uses the employer's
proprietary information for his or her
own business venture

Actual and Potential

Conflicts of Interest
An actual conflict of interest
occurs when
A personal interest leads you to act
against the interests of
Someone whose interests the you are
obligated to serve (employer/client)

Actual and Potential

Conflicts of Interest
A potential conflict of interest
occurs when there is the
possibility that a person will
Fail to fulfill an obligation to act
in the interests of another
Even though the person has not yet done
so

Policy regarding conflict of

interest (Novartis)

The Policy is based on Section 5 of

the Novartis Code of Conduct:
Nobody, whether an individual, a
commercial entity, or a company
with a relationship to a Novartis
employee, may improperly benefit
from Novartis through his or her
relationship with the employee or as
a result of the employees position in
the company. Furthermore, no
employee may personally benefit in

The Kinds of Conflict of

Interest
There are four kinds of conflicts of
interest:
1.
2.
3.
4.

Exercising biased judgment

Engaging in direct competition
Misusing a position
Violating confidentiality

Managing Conflict of
Interest
Major means that can manage
conflicts of interest
Objectivity, avoidance, or disclosure
Competition
Rules and policies
Independent judgment
Structural Changes