Why and How to Conduct a Trade Secrets Audit
Although trade secrets have been the neglected step-child of intellectual property (IP), this is slowly but surely changing for some of the following reasons:
- Legal changes (i.e., Defend Trade Secrets Act in the USA, EU Directive on Trade Secrets, and China’s Anti-Unfair Competition Law).
- Increased trade secret litigation particularly involving the US and other companies.
- Growing interest in trade secrets by the tax authorities (i.e., OECD Base Erosion and Profit Shifting Guidelines and Patent Box Tax Regimes)
- Companies embracing open innovation and sharing trade secrets with one another.
- Pending trade wars which some link to trade secret theft.
An audit is the examination of a specific aspect of an organization, ideally by someone independent of that organization. The purpose of an audit is to provide independent assurance that an organization’s management, governance, and processes are operating effectively and that any associated assets are being properly and professionally managed. For smaller organizations, the audit may be conducted across the entire organization in one process. For larger organizations, it makes sense to divide the trade secret audit into smaller parts rather than trying to audit the entire organization in one go. A smart approach for conducting a trade secret audit is to begin in one area of the organization, conduct the audit there and learn from that exercise before expanding outward to other functions.
A professional trade secret audit would include an audit of the trade secret policies and procedures, audit of the trade secret portfolio, and audit of the associated costs and valuations. A trade secret audit is divided into the following phases:
- Planning phase: A comprehensive plan.
- Communication phase: Details of the project are communicated to those impacted.
- Interviews of key individuals phase: A series of interviews conducted.
- Data gathering phase: Various trade secret related documents are gathered– including those specific to trade secrets (i.e., trade secret policy, process description, protection mechanisms) and connected areas (i.e., employment agreements, human resource policies, information technology policies).
- Data analysis phase: Data gathered from interviews and documents is analyzed.
- Reporting phase: A report on the findings as well as recommendations is prepared.
The purpose of the audit is to check if the corporate trade secret policy, procedures, processes and systems, education and governance are robust and fit for purpose and if not what enhancements need to be made. Another purpose of the audit is to examine the trade secret and the associated metadata, and determine if the trade secret warrants still being maintained as a trade secret, and if so, does it still meet the criteria to be defined as a trade secret. In order to conduct the second part of the audit, having trade secret metadata is key. Trade secret metadata summarizes basic information about the trade secret, which can make finding and working with this unique form of IP much easier.
A trade secret asset management solution enables a trade secret audit to be conducted much more efficiently and effectively as a result. Such a solution is like an online library catalogue system, a register of all bibliographic items (including author’s name, book title, and even approximate location) found in a library. The catalogue is organized and indexed so that can search by a variety of fields/indexes. The library catalogues and its associated metadata make it easier to know what is available, and where. Having such a trade secret asset management solution supports the trade secret audit process by giving structure to the audit process; allows data gathered during the audit to be logged efficiently and effectively; assist in analysis and allows secrecy to be maintained.
Contribution Magdalena A K Muir
References and Sources
Explaining the Defend Trade Secrets Act
Law of the People’s Republic of China Against Unfair Competition