1. KEEPING CONFIDENCE: PUTTING IN PLACE A TRADE SECRET PROTECTION PROGRAM
Ahmad Ibrahim Kulliyyah of Laws, IIUM
KEEPING CONFIDENCE: PUTTING IN PLACE A TRADE SECRET PROTECTION PROGRAM
PROF. DR. IDA MADIEHA BT. ABD. GHANI AZMI
PRIVATE LAW DEPARTMENT
IIUM.

2. Outline of presentation
Economic importance of SMEs in Malaysia
Role of trade secrets
Law of trade secrets in Malaysia
Breach of confidential information
Essential features
Sample of decided cases
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

3. SMEs and the economic value of trade secrets
Ahmad Ibrahim Kulliyyah of Laws, IIUM
SMEs and the economic value of trade secrets

4. Economic importance of SMEs
Integral component to Malaysian economy
Challenges
Increased liberalisation
New entrants to the market
Technological development
THUS, need to remain competitive
Def:sme_definitions_english.pdf
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

5. Economic importance
As at 2003, there were 523,132 establishments in the manufacturing, services and agriculture sectors,
518,996 (99.2%) comprised SMEs
A no. of SMEs in the electrical and electronics (E&E) industry, as well as precision plastics components, stamping, tooling and machining activities, have evolved to become global suppliers to MNCs.
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

6. SME’s role in maintaining Malaysia’s competitive edge in IP
US Trademarks Granted to OIC Based Countries
 Trademarks
Turkey Saudi Arabia
Malaysia Egypt
Indonesia Guyana
Nigeria Kuwait
UAE Syria
Mauritius
Iran 30
Pakistan 30
Lebanon 28
Jordan
Source:
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

7. Where are we in the Muslim world?
US Patents Granted to OIC Based Inventions
Patents
Malaysia Nigeria
Saudi Arabia Pakistan
Indonesia Jordan
Turkey Kazakhstan 16
Kuwait Syria
UAE
Lebanon Source:
Iran
Morocco
Nigeria
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

8. Challenges to SMEs (a) limited involvement in R & D Activities
Only 59.4% -process improvement
44% - new product development
21.9% - innovation and technology
Only 19% registered their trade marks and 3% patents
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

9. Constraints
(b) lack of technical, professional and management expertise and entrepreneurial skills
Inability to attract and retain suitable talents
Need for proper human capital management
Best business practices in terms of maintaining co’s competitive advantage
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

10. Importance of trade secrets in competitive environment
Like gold nuggets – almost all business has it!
Maintaining ‘lead’and ‘competitive edge’ in business but also crucial to your existence
Stop others from undercutting business
Leakage of info
Pinching customers
Unfair competition from ex employees or business partner
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

11. Importance of trade secrets
Applicable for start ups – higher up the value chain! Even for small scale bus. or home bus.! Small-scale Food Processing Enterprises In Malaysia.htm
Estimated loss of $50 billion annual loss to Fortune 1000 companies to trade secret theft
Product development, product localization
Franchise, licensing and technology transfer
Manufacture of goods under contract
R & D
Customer’s list, sales list, etc.
Business plans, formula, ingredient, bid etc.
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

12. Trade secrets in the cycle of innovation process
Ahmad Ibrahim Kulliyyah of Laws, IIUM
Trade secrets in the cycle of innovation process

13. Interface between the various IPRs
Copyright
Industrial design
Integrated Circuits
Patents
Confidential Information
Trade Marks
Technical report or specification  x
Engineering drawing on paper
Engineering drawing on screen
Electrical Device
Mechanical Device
Computer program
Manufacturing method
Test method
Name of product
Pictorial design or logo
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

14. Table 1.4 The life of an invention
Stage in the life of an invention Form of intellectual property right
The bare idea, in the inventor’s mind only
Discussion with friends and colleagues
Idea expressed in tangible form, e.g. in writing, on drawings, in a computer memory
Preliminary negotiations with potential manufacturers
Patent application (assumed successful)
 Further negotiations with potential manufacturers
Put invention into production and sell articles made to it
Establish a reputation associated with the product
Confidence
***
 Maintain air of confidence
Only in respect of things not disclosed in the patent application
Copyright
  ***
Protected for author’s life plus 50 years
Patent
 ***
From priority date
Up to a maximum of 20 years
Trade marks
  ***
If applied for
For as long as renewed
Passing off
For as long as reputation associated with article
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

15. Choosing between patents and trade secrets
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WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

16. PATENT v TRADE SECRET 7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

17. PATENT v TRADE SECRETS 7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

18. Law of confidential information in Malaysia
Ahmad Ibrahim Kulliyyah of Laws, IIUM
Law of confidential information in Malaysia

19. Law of confidential information in Malaysia: brief
Basic elements
Duty of confidentiality
‘fiduciary’
Business relationship
Mode of securing confidentiality
Physical steps (keys and locks)
Contract
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

20. overview Law not codified Law very fluid, case law based
Breach either on contract or equity or both
Courts have been very adverse towards any business info theft (at least in Malaysia)
Civil remedies not criminal
industrial espionage Silicon Valley Man Sentenced to Economic Espionage Act Violation Relating to Intel Trade Secrets (December 11, 2001).htm
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

21. Confidential information: defined
Electro Cad Australia Pty Ltd & 2 Ors v Mejati RCS Sdn Bhd & Ors [1998] 3 AMR 2555
Confidential information is generally information which is the object of an obligation of confidence and is used to cover all information of a confidential character. This includes:
(i) trade secrets
(ii) literary and artistic secrets
(iii) Personal secrets
(iv) public and government secrets.
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

22. Types of information
Classes of information classified as ‘confidential information’ is endless
business, information
Sales information, marketing techniques
Photograph, equipment
Technology, technical secrets, know-how (know who!), formula, recipe
Government secrets
Personal information
Marital relationship (or extra marital!)
Private collection
Private life of celebrities
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

23. Classes of information
Common knowledge
Available easily
Public source
Confidential information
Not known to the public
Limited access
valuable
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

24. Criteria: value of information
2 levels: acquiring and developing info and maintaining info.
To what extent is known to others
Value of the information
The time, labour and expenditure spent to develop a certain information
Ease or difficulty of which to attain in the information
Extent of measures taken to maintain its secrecy
How readily the information could be properly acquired, duplicated or reverse engineered by others
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

25. Relevant Factors
The Law of Intellectual Property: Staniforth Ricketson:
(1) the extent to which the information is known outside his (the owner’s) business;
(2) the extent to which it is known by employees and other involved in his business;
(3) The extent of measures taken by him to guard the secrecy of the information;
(4) the value of the information to him and his competitors;
(5) the value of effort or money expended by him in developing the information;
(6) the ease or difficulty with which the information could be properly acquired or duplicated by others (i.e. by their independent endeavours).
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WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

26. (a) that the information was of a confidential nature,
Essential requirements: Coco v AN Clark (Engineering) Ltd [1969] RPC 41
(a) that the information was of a confidential nature,
(b) that it was communicated in circumstances imparting an obligation of confidence, and
(c) that there was an unauthorised use of information
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

27. Duty of confidentiality
Includes information imparted in the course of business
Eg technical specifications and design, operation of a product and source of manufacturing materials, equipment and parts
Yeohata Industries Sdn Bhd v Coil Master Sdn Bhd [2001] 6 CLJ 418
Mosquito coil making machine, info acquired under licence agreement
Marketing strategy of the P
Customers list and portfolio
Cost of production and marketing
Pricing strategy
Supply of materials, equipment and parts
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

28. Security measures: keeping confidential info under wraps
Ahmad Ibrahim Kulliyyah of Laws, IIUM
Security measures: keeping confidential info under wraps

29. Security measures Keep in secured place ‘NO ENTRANCE LIMITED ACCESS
Security check
Key! ‘CONFIDENTIAL’
Cost!
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

30. Security measures 7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

31. Ahmad Ibrahim Kulliyyah of Laws, IIUM
Contractual Remedies

32. Contract: keeping confidential information under wraps
Maintaining ‘confidentiality’
Especially for workers, raw materials supplier, distributor and all involved
Cost of maintenance!
‘biar pecah diperut jangan pecah dimulut!’
Sample:Sample Contracts - Manufacturing Agreement - Handspring Inc_ and Flextronics (Malaysia) SDN_BHD - Competitive Intelligence for Investors.htm
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

33. Contract : Non Disclosure Agreements
Clear terms
Binds action, time and place
All key figures must be identified
Eg employees, business partners
Any third parties
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

34. Sample clauses
at no time shall the meetings, discussions, advice and/or amendments to be made known or in any way disclosed to any other individual or company and shall be treated as strictly confidential.
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

35. Contractual remedies Breach of contract Civil suit and not criminal
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

36. Ahmad Ibrahim Kulliyyah of Laws, IIUM
Equitable remedies

37. Fiduciary relationship
Always internal leakage
Fiduciary relationship
Rights arising from equity
Examples of fiduciary relationship
Lawyer
Banker
Accountant
Doctor
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

38. Fiduciary relationship
The higher you are in the company, the more stringent the duty is
Does not end with the termination of contract of employment, or employee leaving the company
Even in the absence of contract!
e.g ex director and consultant in Electro Cad Australia Pty Ltd – anti car theft device
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WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

39. Mejati RCS Sdn. Bhd
A was the director of ABC Company. ABC has been offered to manufacture a new anti car theft product, ‘Stopcard’ Auto Theft Device. B, one of the director of ABC soon resigned and set up a different company DEF. DEF, later developed and offered to the public an anti-car theft product known as “Stop Car”. DEF claimed that the Stopcar product was derived from their own technology
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

40. Mejati RCS
Held : by virtue of his position as a director, B owed certain fiduciary duties to ABC. The duties of a director are those fiduciary duties owed by senior officials of the company and as such are higher than those owed by employees and managers.
Obtaining information is akin to that of obtaining an advantage. A director will be precluded from using any advantage obtained by virtue of his position as a director, especially with regard to confidential information obtained, after he resigns, more so when his resignation is seen to have been motivated by a desire for himself the advantage actually sought by the company.
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

41. Human Capital Management
Ahmad Ibrahim Kulliyyah of Laws, IIUM
Human Capital Management

42. Strategies Develop confidentiality policies
Educate personnel about the importance of trade secrets
Warn them of the consequences of breach
Implement creative barrier eg break a job into parts so that no single employee, division or supplier knows all the parts of a trade secret
Teach employees to look for signs of corporate espionage
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

43. Human Capital Management
Legally monitor business related channels of communication
Conduct checks to ensure compliance with corporate policies
Hold exit interviews, secure the return of all electronic equipment and remind them of the confidentiality of trade secrets
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

44. Employee relationship: Non competing clause
Binds employees from working or dealing with rival company or divulging business secrets to competitor or set up competing co
Duty of fidelity and good faith!
Schmidt Scientific Sdn Bhd v Ong Han Suan [1998] 1 CLJ 685
Co deals with specialised imported equipment and instrument and sold them to various hospitals, research centers universities and industries
Employee left the co and set up a distributing co
Info pertaining to cost prices, quoted prices, specific needs and requirements of the customers and suppliers, status of all ongoing negotiations with customers and price list
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

45. Chinese walls
Par. for big companies with large no. of depts and employees
Chinese walls – set barricades to access of info - Prince Jefri Bolkiah v KPMG [1999] 2 AC 222.
P former chairman of an investment agency established to hold and manage the general reserve fund and external assets to the Govt. of Brunei
D, a firm of chartered accountants which has rendered accounting service to the P.
D appointed as agency to conduct investigation into the activities of the agency
Different team working on the case
Risk of inadvertent disclosure, files moving within the co
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

46. Relationship with business partners and relevant third parties
Ahmad Ibrahim Kulliyyah of Laws, IIUM
Relationship with business partners and relevant third parties

47. Business dealing Careful disclosure of information
cakap biar bertempat!’
Non disclosure agreement
Don’t disclose everything
Emphasize on the confidentiality
of the information
Importance of maintaining
competitive lead in
business
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

48. Strategies Record every meeting Careful with documents
Follow up by correspondence
Monitor business partner’s business dealing
Your business partner can be your worst enemy!
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

49. In summary Adopt the proper strategy
Business secrets are valuable and vulnerable!
Identify your trade secrets and take measures to protect them! (trade secret audit)
Maintain and enhance competitiveness
Capitalise on business opportunties
Crucial for all business enterprise from all sectors – from start ups to MNCs
Par for bus driven by technology and innovation
Need to adopt best business practices in retaining valuable information
Human capital management
Prudent relationship with 3rd parties
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

50. Should we criminalise corporate espionage?

51. US – Economic Espionage Act 1996
The term ‘trade secret’ means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorized physically, electronically, graphically, photographically, or in writing if
(a) the owner thereof has taken reasonable measures to keep such information secret; and
(b) the information derives independent economic value, actual or potential, from not being general known to, and not being readily ascertainable through proper means by the public
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WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

52. Economic Espionage
Whoever, intending or knowing that the offense will benefit any foreign government, foreign instrumentality, or foreign agent, knowingly
(1) steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains a trade secret;
(2) without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys a trade secret,
(3) receives, buys, or possesses a trade secret, knowing the same to have been stolen or appropriated, obtained or converted without authorization,
(4) attempts to commit any offense described in any of the above paragraphs.
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

53. Theft of trade secrets
(a) whoever, with intent to convert a trade secret, that is related to or included in a product that is produced for or placed in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof. And intending or knowing that the offense will injure any owner of that trade secret, knowingly-
(1) steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains such information
(2) without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys such information
(3) receives, buys, or possesses such information, knowing the same to have been stolen or appropriated, obtained, or converted without authorization;
Attempts to commit any offense described in para (1) to (3) above
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

54. Points to ponder
Should we criminalize theft of trade secrets as in USA?
Thank you
7 & 8 Sept 2006
WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs