Michael A. Jones
Michael A. Jones, Associate Professor of Marketing, Auburn University Montgomery, Montgomery, AL 36117, 334-244-3521, Mjones@monk.aum.edu
ABSTRACT. The theft and misappropriation of trade secrets is emerging as a vital management concern. In business to business transactions, employees whose responsibilities include safeguarding company secrets, need to be aware of the need to identify and protect their firm's secrets. Purchasing managers are often involved in the creation and implementation of interfirm agreements which result in the close cooperation of firms and the sharing of information that may be secret. Without knowledge of how to manage for the protection of loss of intellectual property, purchasing managers and their organization's can be at risk. This article/workshop explains the legislation which protect intellectual property and practical procedures for their protection.
INTRODUCTION. That vendors want information they are not supposed to have is nothing new for supply chain managers. Design specifications, names and terms of bids from other vendors, manufacturing processes, sales forecasts, plans and time-lines, long-term strategies and profitability are only a few. However, in the current business environment along with the increased use of strategic supply chain partnerships, supply chain managers are involved not only with the sharing of more information, but the increased risk of loss of information. A number of studies have documented this issue as one of the downsides of the partnering agreement (Hendrick and Ellram 1994). Other issues which are noted to contribute to the dilemma are the increased use of EDI, the lack of loyalty due to employee turnover and downsizing, and the increased use of foreign vendors (Budden, Jones & Budden, 1996).
The theft of trade secrets is nothing new either. It is widely believed that a major factor in the loss of the television manufacturing industry, which the U.S. once dominated, was lost to foreign Asian vendors, which, after stealing enough information on how to make TV's started, started manufacturing the complete product. The rest of the story is history........one wonders if purchasing managers unknowingly provided access to important information? (Jones and Budden 1998).
What is a trade secret? A trade secret is valuable information that is not generally known or legally knowable by others and from which its owner derives an economic benefit. What is a key part of the definition, is that it is not known (Budden, 1996). This makes trade secrets, and their protection through the Uniform Trade Secrets Act, different from Patents and Copyrights, in that the latter are known by at least some others.
Of course any employee can misappropriate intellectual property, and no area of management is exempt from risk. A review of the literature indicate that many areas of management are addressing the problem of trade secret loss. However, it seems that supply chain managers would face as much exposure to risk as any personnel, and arguably more. As the "window" to the supply chain, supply chain managers are involved in direct communication and the sharing of information. As partners, vendors are asked to do more and more, including design and innovation, even at the design and inception stage of new products. (Hendrick and Ellram 1993)
U.S. industry at large appears to be aware of the problem. A survey reported in Business Week showed a 323% increase in industrial espionage from 1992-1997, and cost U.S. firms an estimated $25 Billion in 1995 (Crock and Moore 1997). Enough pressure was put on Congress that in 1996 the Industrial Espionage Act was signed by President Clinton, which made the theft of trade secrets a Federal criminal offense. Business trade literature reflects and increased awareness in the problem. A recent computer literature search (ABI/Inform) of business periodicals generated over 150 articles on the topic in the past three years, many of these citing cases in progress. The computer industry is particular vulnerable, and quite aware of the problem.
The problem's global nature is underscored by the fact that many federal agencies and officials believe that the country's biggest security challenges arise from foreign individuals and organizations intent on stealing U.S. business secrets, rather than military secrets (Jones 1992; Datamation 1993). As an example, it was alleged that agents of the French government infiltrated IBM and Texas Instruments reportedly for the purpose of passing secrets back to the French government for potential use by French firms (Carley 1995).
However, it is uncertain as how informed and aware purchasing managers are to the problem of trade secret loss. Evidence suggests that as a whole, knowledge is this area is limited. Articles published in the supply-chain academic and trade literature are scant. One preliminary investigation of NAPM members, though limited in sample size, reported a limited knowledge of the trade secrets legislation and how to manage for the protection of loss (Jones and Budden, 1998) .
OBJECTIVES. The objectives of the workshop are:
BACKGROUND OF TRADE SECRETS LEGISLATION. Most are familiar with Federal laws which protect intellectual property or identifying information: patent law, trademark law and copyright laws are well known for the protection they offer owners of intellectual properties and/or identifying information. These federal statutes encourage business innovation through the protection of exclusivity offered under their auspices. However, these federal statutes that offer protection for intellectual properties have weaknesses or limitations which make them less than ideal for providing adequate protection of trade secrets (Lake, Budden & Lett, 1991).
For example, the patent procedure as outlined by law, requires the applicant to disclose critical information in the application. The resulting disclosure makes the information available to others, including potential competitors.
Copyright registration also results in public disclosure of the information contained within the materials. Copyright law extends protection to the specific wording of documents or works of art, not to ideas described in documents or works of art. A firm would not desire to register a copyright on its customer list for instance, since to do so would make the information available to the public, and obviously to competing firms. As a result, copyright law does not encompass trade secrets protection nor would one desire to copyright a trade secret. Indeed, copyrighting a trade secret would negate the secrecy of the information, thereby negating the existence of the trade secret and removing any protection trade secrets law may have bestowed on the secret (Budden, 1996).
Still, in most instances involving allegations of trade secrets misappropriation, state trade secrets laws will be the primary vehicle under which firms will seek legal remedy (Ang & Budden, 1998). In every state, trade secrets acts and contractual laws have historically offered firms protection for their trade secrets. A major weakness that exists with these state acts involves the fact that their provisions and scope vary greatly, resulting in inconsistent legal rulings, confusion for trade secrets owners, and inconsistent legal protection.
In an effort to correct this legal shortcoming, the National Conference of Commissioners on Uniform State Laws, an independent commission composed of legal analysts, proposed a model law to the states that offers consistent definition and treatment for trade secrets protection. That model law, the Uniform Trade Secrets Act (UTSA) defines trade secrets and offers uniform legal protection to owners of trade secrets. As of this date, a total of 40 states and the District of Columbia have enacted laws based on the Act (Uniform Laws Annotated, 1996).
The UTSA defines trades secrets, offers legal protection to owners of trade secrets, and offers legal remedy should owners find themselves victims of secrets theft or misappropriation. Firms rely on the UTSA (and other state laws) for remedy because (1) the Industrial Espionage Act requires a minimum value of the secret involved to be $100,000; (2) a criminal prosecution requires a higher burden of proof than civil prosecution; (3) many cases involving trade secrets misappropriation do not involve interstate commerce but rather are intrastate complaints; (4) the fines levied, if any, are payable to the federal government; a civil suit would still be necessary to obtain damages; and (5) the case would have to be deemed serious enough or of such an egregious nature as to warrant federal intervention (Ang & Budden, 1998).
MANAGING FOR THE PROTECTION OF YOUR SECRETS. To begin with , your organization needs to develop and implement a plan of action aimed at protecting your secrets. It is necessary for the firm seeking legal protection to demonstrate that stolen information was in fact secret, and that specific steps were taken to prevent theft. (For a detailed review of the law and the procedures needed for protection, see the 1996 monograph by Michael Budden entitled Protecting Trade Secrets Under The U.S.T.A., Practical Advice For Executives, Quorum Books) Below is a series of steps which are recommended which can help in your planning for the protection of secrets.
Upon understanding the risk that a firm is exposed to from the misappropriation of trade secrets, it is hoped that purchasing managers will become proactive with regard to protection. Courts expect to find that your organization has taken the measures necessary for protection, if legal recourse is sought. With this as a starting point, hopefully, you can keep a trade secret!
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