Outsourced Manufacturing and Trade Secrets: Contractual Trade Secret Protection Measures (Part 9)

 Outsourced Manufacturing and Trade Secrets: Contractual Trade Secret Protection Measures (Part 9) by David L. CohenAs we have discussed elsewhere, a trade secret audit or assessment is vital if a company is to protect itself during the outsourced manufacturing process. [See these articles: Trade Secret Audits – Why Bother? ; You’ve Decided to Conduct a Trade Secret Audit. Now What?; You’ve Decided to Conduct a Trade Secret Audit. Now What? Part 2 ]

It is only after completing such an audit that a company can design well-thought-out structural and practical protections tailored to its particular needs during the outsourced manufacturing process. These protections should include specific measures that address:

  • The specific company trade secrets subject to the outsourced manufacturing arrangement.
  • The manufacturer’s obligations concerning its employees and contractors.
  • The manufacturer’s commitment to establish and enforce:
    • physical barriers and electronic firewalls;
    • special information technology protocols; and
    • procedures for the use of confidential information.
  • A narrowly tailored license of the company’s trade secrets and other IP.

In negotiating the outsourced manufacturing agreements, the company’s internal controls play an important role in protecting the company’s interests and continuity of company practices.

While many companies blanch at identifying their trade secrets, the use of metadata will allow such companies to usefully identify their trade secrets without unduly memorializing their crown jewels in too risky a manner. [For an article discussing how the use of metadata in trade secret can be advantageous, click here for Part 1 and here for Part 2.] Thus, to maximize protection, the agreement should describe the information with sufficient detail for the information that the company wants to protect to be identified. Alas, the company needs to be careful not to be over-broad, because the information might be perceived as being defined too generally thus any related obligation might be found unenforceable.

The company should consider reviewing and updating the description periodically or as necessary to ensure that the agreement continues to accurately and completely reflect the information it has shared with the manufacturer. Finally, the agreement should include an acknowledgment by the manufacturer that this information has great value and that this value derives in large part from its secrecy.

Contact me with questions or comments.

Related articles:

Outsourced Manufacturing and Trade Secrets: An Economic Overview

Outsourced Manufacturing and Trade Secrets: Outsourced Manufacturing

Outsourced Manufacturing and Trade Secrets: Risks & Benefits

Outsourced Manufacturing and Trade Secrets: Internal Controls

Outsourced Manufacturing and Trade Secrets: Due Diligence

Outsourced Manufacturing and Trade Secrets: Transaction Structure & Contract

Outsourced Manufacturing and Trade Secrets: Manufacturing Process & Personnel 

Outsourced Manufacturing and Trade Secrets: Controlling the Manufacturing Process

David L. Cohen

David L. Cohen, Esq.

David L. Cohen, P.C. – Kidon IP
123 West 93rd Street
New York, NY 10025
dlc@davidlcohenpc.com 
(914) 357-5196

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