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.

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

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

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

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

SME’s role in maintaining Malaysia’s competitive edge in IP US Trademarks Granted to OIC Based Countries  Trademarks 2000-2004 Turkey 168 Saudi Arabia 21 Malaysia 107 Egypt 12 Indonesia 96 Guyana 11 Nigeria 44 Kuwait 10 UAE 33 Syria 10 Mauritius 32 Iran 30 Pakistan 30 Lebanon 28 Jordan 21 Source: www.uspto.gov 7 & 8 Sept 2006 WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

Where are we in the Muslim world? US Patents Granted to OIC Based Inventions Patents 1977-2004   Malaysia 547 Nigeria 29 Saudi Arabia 212 Pakistan 26 Indonesia 162 Jordan 20 Turkey 144 Kazakhstan 16 Kuwait 78 Syria 14 UAE 42 Lebanon 42 Source: www.uspto.gov. Iran 32 Morocco 30 Nigeria 29 7 & 8 Sept 2006 WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

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

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

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

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

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

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

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

Choosing between patents and trade secrets 7 & 8 Sept 2006 WIPO National Seminar on Enhancing Awareness and Building Capacity of SMEs

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

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

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

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

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

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

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

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

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

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

(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

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

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

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

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

Ahmad Ibrahim Kulliyyah of Laws, IIUM Contractual Remedies

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

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

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

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

Ahmad Ibrahim Kulliyyah of Laws, IIUM Equitable remedies

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

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

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

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

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

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

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

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

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

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

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

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

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

Should we criminalise corporate espionage?

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

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

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

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