As a special feature of our blog—guest postings by experts, clients, and other professionals—please enjoy this blog entry from Donal O’Connell, Managing Director of Chawton Innovation Services Ltd.

Managing trade secrets belonging to Third Parties:

At first glance, you may be somewhat perplexed by the title. When and why should a company be concerned about managing trade secrets belonging to some 3rd party? It is tough enough for most companies to properly and professionally manage their own trade secrets, not to mind worrying about the trade secrets belonging to others. However, more and more, companies are indeed facing the challenge of having to manage trade secrets belonging to others. Allow me to explain.

No company is an island:

When English poet John Donne wrote his famous line “No man is an island,” almost 400 years ago, in many ways he was forecasting the future of business as it operates today. No company is an island. It may interact with universities, cooperate closely with key suppliers and vendors, collaborate with application developers, content providers, technology house and design houses, plus work with various communities including ‘open’ communities, innovation networks, Standardization Setting Bodies as well as customers and end-users. It may also involve working with start-ups and venture capital funded entities. No company is an island.

In most if not all of these business relationships listed above, the companies involved will pass trade secrets back and forth.

A legal framework:

A legal framework of some sort is usually put in place between the parties, with the first step usually being the signing of a Non-Disclosure Agreement (NDA). This is a relatively simple legal agreement between a company and a counter-party of that company to exchange information, for the purpose of a project, marketing campaign, R&D or sourcing, etc. Examples of information which can be protected by a NDA are business proposals, financial data, new ideas, etc. Under an NDA, the signer promises the recipient that he will not disclose certain information to any third parties, except under circumstances described within that contract.

Although NDAs are specifically mentioned here, this legal framework may include a Memorandum of Understanding, a Development Agreement, a Commercial Agreement and more.

The problem:

Ideally, whatever legal framework is put in place should contain details of the standard by which the parties involved will handle the disclosed trade secrets provided to them by the other party.

However this is an aspect that is often overlooked by many companies.

Basically Party A divulges trade secrets to Party B which Party B then is expected to look after, care for and protect. However, Party A often fails to ask Party B to explain their overall process for managing trade secrets and specifically how Party B will actually care for the trade secrets entrusted to them by Party A.

Good practice:

One simple question Party A should ask of Party B is for details on how Party B look after its own trade secrets. Perhaps it should delve a little deeper and ask a series of questions…

  • Does Party B have a trade secret policy and associated procedures?
  • Does Party B provide education for its employees about the handling of trade secrets?
  • How does Party B handle access and access control procedures to limit the number of people having access to trade secrets?
  • What are the various protection mechanisms Party B has in place to protect trade secrets? Do these protection mechanisms include administrative, technical and legal measures?
  • Does party B conduct any regular audits of its process to handle trade secrets and if so how are these actually conducted?
  • Does Party B have a system or tool in use to underpin its process for handling trade secrets?

Of course Party B if it is providing trade secrets to Party A should ask these exact same questions of Party A.

Respecting the trade secrets of others:

In today’s competitive market, companies need to be as innovative as possible to prosper in the business environment and to keep pace with progress. No company can achieve this in isolation. Instead the company must cooperate and collaborate with others.

To this end, the development and acquisition of useful information, some of it qualifying as trade secrets, is crucial to create and provide new and improved goods and services. Information about technology that makes a company’s product unique, prototypes, or a list of key clients or customers are just a few examples of such trade secrets. As many of these trade secrets can be of great commercial value and be of significant importance to the company concerned, its uncontrolled disclosure may potentially lead to serious consequences.


Given some of these trade secrets will be shared with others, it is therefore imperative that these others fully respect this information, and strive to keep this valuable information confidential. If such trade secrets are not properly respected, it may cause damage to the reputation of the company, adversely impact key business relationships and even cause the company to end up being sued in court.