Today’s firms are built on intangible capital, with assets in the form of software algorithms, brand, customer data, business plans, engineering specifications, product formulas and organizational capital. The Economist Intelligence Unit Survey Report about trade secrets explores the extent to which firms identify intangible assets as trade secrets and implement protective measures to safeguard them accordingly.

The critical first step is determining what information needs to be protected—that is, what’s really a trade secret. “Each industry is unique,” says Robert M. Tils, an attorney with the Garden City, N.Y., law firm Moritt Hock Hamroff & Horowitz, and businesses in each industry “have to examine what gives them a competitive advantage.”

Tils suggests that identifying the most important trade secrets needn’t be an exhausting exercise. “It doesn’t cost a lot of money for a couple of key executives to sit down over lunch and talk about how the business really works,” he says. “What’s important to us? Why are we better than our competitors? The more specific you can be, the stronger your argument that it’s really a trade secret.” (Michael Barrier: Protecting trade secrets)

Trade secrets are intellectual property (IP) rights on confidential information which may be sold or licensed. (Source: WIPO)

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Technological change has made it much easier to steal trade secrets thanks to the way data can be compressed and transmitted. The owner of a trade secret must take adequate precautions to protect his confidential information, but it is not enough to stamp documents as confidential and store them in a safe. The employees knowledge cannot be locked in this way. In terms of trade secret theft, the people who are stealing it are the ones inside the company, or the ones who departed to work for a competitor.

The job of protecting trade secrets is likely to devolve more and more from traditional security departments onto human resources. HR professionals are key line of defense when it comes to protecting confidential information that provides a competitive advantage, but a significant proportion of HR professionals may not be ready for that shift, suggests a March survey from the Society for Human Resource Management. Of the 247 HR professionals who responded to the poll, 47 percent said their HR department did not play a key role in protecting trade secrets, and 30 percent said their organization had not taken any measures to protect its trade secrets.

Many organizations take the measure to keep secrets safe through a non-disclosure agreement between employer and employee. All employees who have access to trade secrets should execute well crafted confidentiality agreements when hired, where they promise to abide by the company’s confidentiality policy both during and after their period of employment. There is, however, an inherent problem with nondisclosure agreements. It’s summed up by Wilbur A. Glahn III, an attorney with the Manchester, N.H., law firm McLane, Graf, Raulerson & Middleton: “You can have all the nondisclosure provisions in the world, but if your key person goes to work for one of your competitors and has access to information and knowledge that would be very damaging to the company and is going to be working in a field that is directly competitive with the company, I don’t think you can trust the other side or the employee when they say, ‘We have a nondisclosure agreement and we’ll abide by it.’” (Michael Barrier: Protecting trade secrets)

It is already a fact, that many organizations have realized that safeguarding trade secrets goes beyond legal measures. Instead, “It’s starting to be recognized as a classic HR problem,” said Mike Garelick, head of the compensation and human resources practice at consulting firm Towers Perrin in Chicago. He believes that HR managers can play a significant role in the protection of intellectual property. The issue of safeguarding trade secrets is, at heart, a personnel issue. Once the HR department is aware what the trade secrets are, then security measures and HR procedures can be established.

During the time of the employment, employees should receive regular training about the reasons for the confidentiality policy and the importance of observing it.

Employees who are uninformed, who don’t know what a trade secret is and how to handle it, because they’ve never been told, could be the sources of the problem. Due to the fact that a lot of trade secret theft is done though ignorance, then the education of employees can reduce the risk of trade-secret theft by a significant factor. The company should also impress upon employees what their responsibilities are and will be, even beyond the departure to a new employer. (Tommy Jacks : How to protect trade secrets from loss through departing employees)

IP training for HR personnel can be set up with the IPBA® Learning Management System, developed by experts of the IP Business Academy.