Trade Secrets

Some companies go to great lengths to protect their trade secrets, but as Richard Brass points out, sometimes the true value of a secret can be found in just having one.

When it came to trade secrets, Willy Wonka played hardball. Convinced that his employees were handing over his recipes to the competition, the chocolate-factory owner in Roald Dahl’s Charlie and the Chocolate Factory fired the entire workforce and replaced them with the Oompa Loompas, a mysterious race from a far-off land who never left the factory, and who were the only ones he would trust with such crucial secrets as the recipe for the Everlasting Gobstopper. It was a drastic step, but not as extreme as some of the methods that have been used in the past to keep trade secrets out of the hands of the competition.

In ancient China, revealing the secrets of silk production or smuggling silkworms out of the country was punishable by death, an effective sanction which delayed the first manufacture of silk in the West by a good 2,000 years. The same disincentive was applied to Venetian glassmakers who, even if they had no intention of spilling the beans, were still all locked up on the island of Murano, turning out millefiori and the like without risk of competition.

To the chagrin of some IP specialists, doling out the death penalty is not an option for most of today’s corporations, so they need to be a little more creative in protecting their secrets. Coca-Cola leads the way. It keeps the recipe for its world-conquering drink locked away in a bank vault in Atlanta, Georgia, accessible to only two people who are never permitted to travel together, in case they are both killed in an accident, or kidnapped by Pepsi and the formula that taught the world to sing is lost forever.

Colonel Harland Sanders cooked up the first batch of KFC’s unique blend of 11 herbs and spices on the floor of his backyard porch, but today the list of ingredients is kept in another bank vault, this time in Louisville, Kentucky. The blend itself is mixed in two different batches at separate locations and combined at a third, keeping rival chicken-fryers guessing. And just in case any employee at either of these banks is tempted to slip down to the vault with a digital camera during their coffee break, the Economic Espionage Act is in place to do what the Chinese and Venetians preferred to do more full-bloodedly.

But in most sectors the real value of a secret lies in saying you’ve got one. For marketing purposes, being able to put ‘secret’ on the packaging is far more important than actually having one.

The US National Counterintelligence Agency estimates that US business loses around US$50 billion a year through economic espionage. In recent years big companies whose employees have been prosecuted for stealing trade secrets have included Gillette, Deloitte & Touche, Bristol-Myers, Harvard Medical School and Boeing. The growth area is the high-tech sector; it is so broad-based and fast-moving that getting hold of somebody else’s innovation can bring substantial reward before anyone notices it’s gone. Lawsuits alleging theft of trade secrets have recently been brought by Apple against a former contractor, Jose Lopez, by British mobile phone maker Sendo against Microsoft, and by dozens of pay TV broadcasters in Europe and the US against NDS, which is News Corporation’s British-based maker of the smart cards that decode encrypted pay TV signals.

But in most sectors the real value of a secret lies in saying you’ve got one. For marketing purposes, being able to put ‘secret’ on the packaging is far more important than actually having one. And if a dogged spy did somehow get hold of that top-secret formula for Coca-Cola and start churning out a copy, it would still only be a copy. Likewise, the KFC recipe could be salt, pepper and tomato sauce for all the difference it would make when an imitator came up against a deeply entrenched global brand with a vast marketing budget and all the lawyers it could poke a drumstick at.

As for Willy Wonka, he could have found a more effective way to protect his secrets. Employing a staff of illegal immigrants, imprisoning them in the factory, and making them work in conditions that wouldn’t stand up to the slightest legal challenge is one route, of course, but hiring a decent IP lawyer and taking out a few patents would have been a whole lot simpler.

This article first appeared in IP Review, issue 9

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