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Rashid Meo72Trade Secret
Introduction
Trade Secret gives a complex set of problems about the rights and obligations of
companies possessing valuable information as well as the rights and obligations
of employees and competitors.
Definition:
Trade Secret is an information used in the conduct of a business and is not
commonly known by others.
Another Definition:
A Trade secret may consist of any formula, pattern, device or compilation of
information which is used in one's business, and which gives him an opportunity
to obtain an advantage over competitors who do not know or use it.
Examples:
Examples of trade secrets include the ingredients or chemical composition of a
product (like Coca Cola), the design of a machine, the details of a manufacturing
process, methods of quality control, results of marketing surveys, financial
projections, and lists of customers and suppliers.
Difference between Trade Secret and the confidential information:
There is a difference between Trade Secret and the confidential business
information. The later is information regarding specific matters such as Salary of
an employee, which is kept secret but is not used to manufacture something or to
provide services, so it is not trade secret. The amount of a specific bid is also not
a trade secret, but the procedure of a company for calculating bids might be.
Six Factors which help us to determine that what information is a trade
secret
1. The extent to which the information is known outside the business.
2. The extent to which the information is known to the employees and others
involved in the business.
3. The extent of measures, one takes to protect the secrecy of the
information.
4. The value of the information to him and his competitors.
5. The effort and money spent to develop the information.
6. The ease or difficulty level, with which others could acquire or duplicate
such information.
Three major arguments for trade secret protection:
1. Trade secret is a property:
- Patentable ideas, trade secrets, and the like are a form of property.
- Just as the products made on an assembly line belong to the
company and not to the workers who make them, so too do
inventions made by people who are hired to invent belong to the
company.
- A lone inventor who, after years of hard work develops an improved
process of manufacturing a product, uses this process in his
factory. So a worker of his factory must not disclose this process to
a competitor, especially when he is sworn to keep the secrecy,
even when the process is not patentable.
- Trade secrets, along with patents, copyrights and trade marks, are
commonly regarded in the law as intellectual property, which
belongs to the owner.
- Ownership of a trade secret, by contrast, does not confer a right of
exclusive use but only a right not to have the secret
misappropriated or wrongfully acquired by others.
2. Fair Competition:
- The argument of Fair competition for trade secret holds that
companies are put at an unfair competitive disadvantage when
information they have expended resources in developing or
gathering can be used without cost be their competitors.
- Even when such information is not classified as property and there
is no contract of barring the disclosure or use of the information, it
may still be protected on grounds of fairness in trade.
- Some times companies require employees to sign a
noncompetitive agreement when they are hired. These agreements
typically restrict an employee from working for a competitor for a
certain period of time or within a geographical territory.
3. Confidentiality:
- This argument holds that employees who disclose trade secrets to
others or use them themselves are guilty of violating an obligation
of confidentiality.
- It holds that employees agree as a condition of employment to
become agents of an employer and be bound by the duty that
agents have to preserve the confidentiality of certain information.
- The obligation of Confidentiality does not end with the employment
relation but continues to exist even after an employee leaves one
job for another, especially when the employee is in a
noncompetitive agreement, as discussed above.
- As one of the shortcomings of this argument is that the obligation of
confidentiality is also limited by the right of employees to use their
skill and knowledge in the pursuit of a trade or occupation.
Competitor Intelligence Gathering:
- Not all use of a company's trade secrets and other confidential
business information is unethical or illegal. The systematic
collection and analysis of competitor intelligence has become an
accepted practice in the corporate world.
Much of the information used for intelligence purposes is publicly
available from news sources, trade publications, court records,
regulatory filings, and presentations at industry meetings and some
is obtained by employee's own contacts with customers, suppliers,
and even competitors themselves.
- The Ethical and legal limits should be followed in gathering
information about the competitors. One should avoid the Usage of
improper influence by giving bribe to the competitor's employee,
Usage of illegal surveillance, Usage of Misrepresentative and
deceptive techniques, Theft of information.
The Ethics of Insider Trading
Definition:
It is trading in a stock of publicly held corporations on the basis of material,
nonpublic information.
The key points are that a person who trades on material, non public
information is engaging in insider trading when:
1) The trader has violated some legal duty to a corporation and its
shareholders.
2) The source of the information has such a legal duty and the trader knows
that the source is violating that duty. E.g: Stock Analyst has no relation to
the corporations in question and so has no duty to refrain from using the
information that he has acquired from his analysis.
Regarding Insider Trading the important rule for outsiders is:
“Do not trade on information that is revealed in violation of a trust.”
Insider Trading is Unethical and Illegal. Different laws exist against the insider
trading.
The arguments against Insider Trading:
1) Inside Information as property:
- It holds that those who trade on material, nonpublic information are
essentially stealing property that belongs to the corporation.
- On the property rights or “misappropriation” theory, only corporate
insiders or outsiders who bribe, steal, or otherwise wrongfully acquire
corporate secrets can be guilty of insider trading.
- On the basis of this argument the insider trading is unethical. Whereas
the laws against Insider trading makes it illegal as well.
- What is morally objectionable about insider trading, according to its
critics, though is not the misappropriation of a company’s information
but the harm done to the investing public.
2) The Fairness:
- Fairness argument holds that traders who use inside information have
unfair advantage over other investors and that as a result, the stock
market is not a level playing field.
- Fairness argument is broader and applies to anyone who trades on
material, nonpublic information no matter how it is acquired.
- Fairness does not require that all the traders in the stock market
should have same information. Indeed trading will take place if different
traders have different informations. It is only fair, moreover that a
shrewd investor who as spent great time and money studying the
prospects of a company should be able to exploit the advantage.
- What is objectionable about using inside information is that other
traders are barred from obtaining it, no matter how diligent they may
be. The information is unavailable not for lack of effort but for lack
of access.
- On the basis of this argument the insider trading is unethical. Whereas
the laws against Insider trading makes it illegal as well.
