Use of blockchain in
protecting and enforcing trade secrets

 

The rising importance of trade secrets

As opposed to most other intellectual property types, trades secrets are loosely described as any kind of confidential business information and therefore come into an extensive variety of forms.

Trade secrets recognized by courts include source code, methods, prototypes, pre-release pricing, financials, budgets, contract terms, business plans, market insights, employee salaries, supplier and customer lists, chemical formulas, experiments, positive and negative experimental results, engineering specifications, laboratory notebooks, and recipes.

While trade secrets can be found in virtually every company, they have long been overlooked in the IP strategy of corporations and SMEs alike, largely due to their intangible and ubiquitous aspect and their ambiguous legal enforceability.

Today, however, several factors contribute to innovators' new-found focus shift on trade secrets:

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Rising employee mobility, in the context of spiking employee dissatisfaction and strategic employee poaching by competitors, means more valuable knowledge leaves the company in the form of know-how and experience.

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Digitalization also means that transferring confidential knowledge from a company to another potentially becomes as easy as copy-pasting, downloading or emailing valuable data in seconds.

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The accelerating pace of innovation, as well as globalization, also mean the patent system, long considered the ultimate choice to secure IP, is beginning to prove less relevant, in particular when considering timeliness (e.g. 24 to 30 months in Germany), territorial fragmentation, rising costs in an increasingly complex environment and mounting doubts about effectiveness (studies found the fraction of unused patents to vary between 40 to 90%).

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Lawmakers around the globe are updating the legislation in favor of trade secret holders by harmonizing the legal definition and formal requirement across states. An increased reliance on secrecy is also incentivized through more straightforward ways to claim substantial damages in case of infringement.

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Formal requirements of a trade secret

1. It is secret - meaning that it is not generally known among the circles that normally deal with the kind of information in question;

2. It has commercial value because it is secret; and

3. It has been subject to reasonable steps to keep it secret.

Identity of alleged misappropriators of trade secrets

Trade secrets and blockchain

Blockchains, and particularly public blockchains, are immutable global registries and, as such, innovators can leverage them to prove the existence and ownership of a trade secret at a certain time.

Confidentiality is not compromised: when registering information on a blockchain, the only piece of information publicly available are the hash and the timestamp indicating when the blockchain transaction occurred.

Blockchains can potentially assist at various stages of the life cycle of a trade secret, notably when it comes to the “reasonable measure of protection” and enforcement of a trade secret, ie, being able to prove that the information has been kept secret in the event of a misappropriation. Blockchains may also be used when it comes to securely sharing information with third parties by the use of confidentiality and non-disclosure agreements and evidencing their transfer.

— “How blockchain can protect trade secrets” by Birgit Clark and Sylvia Polydor, Intellectual Property Magazine, May 2018

How does Bernstein fit in?

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Bernstein is a simple web app that conveniently registers IP assets on the Bitcoin blockchain. Bernstein certificates are legally recognized worldwide and independently verifiable by any third party.

By using Bernstein, innovative companies can quickly establish a private trade secret inventory, a measure that is considered a “reasonable step” to maintain confidentiality and will therefore fulfill this requirement under the EU Trade Secrets Directive and equivalent laws.

Thanks to its unique zero-knowledge architecture, trade secrets will be notarized on the blockchain while keeping them completely private. Even to Bernstein itself.

Bernstein complements blockchain certificates with digital timestamps issued by several government authorities (EU, China, …).

Benefits of Bernstein for TRADE SECRETS

  • a “reasonable measure” for secrecy

  • a deterrent for disloyal employees and partners

  • a strong defense against patent trolls

  • a convenient and effective tool to enforce rights

 

The new regulations

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Trade secrets and blockchain

Blockchain-based solutions like Bernstein are an effective way for securing and managing trade secrets.

Online resources

Notable experts

  • Birgit Clark TW LI

  • Christophe Saam TW LI

  • Toni Nijm TW LI

  • Christoph von Praun LI

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#tradesecrets on Twitter

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