At first blush an audit sounds expensive, distracting and unnecessary. Let’s face it, we live in the age of the long tail. Over the past few years, things people would have previously given only a remote chance of coming to pass seem to be happening on a regular basis. What’s more, the pace of change and disruption in business and in the personal world is so great, it is almost impossible to keep up. It seems that whatever you are doing today will have to be radically altered very soon. With all this change most of us are running just to stay in place — so any distraction from the daily chores of simply keeping up needs a powerful justification. I would argue however, that the frenetic pace of business life is precisely why audits are so important. Just as mindfulness is rightly understood as being key to a centered life, trade secret audits are essential to continued success as a business.
A trade secret is anything that has economic value (e.g., gives you a competitive advantage in the marketplace) because it is kept secret. Understood that way, it should be evident that regular stock-taking of a company’s competitive advantages comprises a necessary component of good business practices. Thoughtful companies will utilize these corporate self-assessments — of which trade secret (and more broadly IP) audits are a necessary component — to understand their true growth drivers, both current and anticipated. With the assessments in hand, companies can take any actions necessary to better protect and cultivate those growth drivers. The assessments allow companies to proactively course-correct their trajectory in a way that maximizes how they utilize their identified competitive advantages.
When it comes to trade secrets, there is often resistance to audits because executives mistakenly think they are just for engineered technology. This is incorrect. Trade secrets can include: customer preferences; marketing and branding plans; sales techniques; negotiated pricing and contracts; training programs; financial data; algorithms; negative knowledge (what a company knows does not work — e.g., failed lab experiments, failed marketing plans); employee reviews and labor market assessments; profit margins and projections; internal development strategies; metrics and analytics; vendor or supplier lists; bills of material; recipes; product road maps; competitor analyses; manufacturing processes; and many, many others.
What is involved in ensuring a successful audit? The first and most crucial step is to establish the audit’s goals. What does management think or hope the audit will accomplish? To even answer that question, an audit must have management buy-in and a key person within the company who is properly authorized to conduct the audit. Not defining realistic expectations and/or providing proper staffing and authorization is a recipe for failure.
The Practice Note I authored with trade secret expert Donal O’Connell for Westlaw provides an excellent introduction to conducting trade secret audits — and what is involved, and how they can benefit you and your clients.
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