Huawei vs US: why trade secrets need to be carefully managed

Trade secrets don't enjoy the same legal protection as patents, warns Withers & Rogers patent attorney John-Paul Rooney. So how should they be protected?

Intellectual property protection has moved centre stage in the US-China trade war, as US criminal investigators consider bringing charges against Huawei for the alleged theft of trade secrets owned by smartphone maker, T-Mobile.

As intergovernmental tensions increase, can tech-led businesses in the UK and Europe also learn lessons from what is happening?

The criminal case against Huawei is thought to have links to various civil suits previously brought by T-Mobile, which led to the Chinese electronics company being found liable for damages of $4.8 million in 2017.

The US federal court found Huawei guilty of "abusing its relationship as a phone handset supplier for T-Mobile" to gain access to robotic technology used to test smartphones. Huawei employees were found to have copied specifications and stolen parts, software and other trade secrets, despite the existence of non-disclosure agreements.

The decision by the US Justice Department to carry out an investigation, with a view to bringing criminal charges against Huawei, is unusual. It reflects the growing tension in US-China trade relations.

In Europe, such criminal action would not be possible and, if trade secrets are breached, companies generally seek redress for any commercial damages via the civil courts, which have the power to block the sale of infringing goods.

While commonly used in fast-moving fields of research and development, the existence and use of trade secrets often falls under the radar. In Europe and the US, trade secrets are defined as a form of knowledge, which is kept secret and used to bring commercial benefit, without its owner having any rights of exclusivity. They are typically used to protect critical processes or know-how, which deliver a competitive advantage and may not be easy, or suitable, to protect with a patent.

If used properly, trade secrets can be incredibly valuable and help businesses to build and strengthen their market position when bringing innovative products to market. However, careful management is essential because the protection they provide can be undermined.

Without the rights of exclusivity that come with patent protection, if a trade secret is accidentally leaked, then there is not much the owner can do about this. If it is misappropriated on the other hand, the owner must be able to prove that it existed and belonged to the company, and that reasonable steps were taken to keep it secret.

This is usually achieved by keeping a document setting out the know-how or process in detail, labelling it as confidential, and making it available to individuals on a need-to-know basis. The trade secret should be disclosed to partners only under terms of confidence. It is also important to ensure security and IT systems are sufficiently robust to restrict access to the trade secret and prevent it from being viewed or shared inadvertently with a third party.

Owners of trade secrets are usually acutely aware of their commercial value and invest in measures to prevent them from being misappropriated. They may not realise, however, that the existence of non-disclosure and other confidentiality agreements may not be enough to prevent third parties from misappropriating their trade secrets, and companies would be wise to choose their partners carefully.

Like other intellectual property assets, trade secrets should also be kept under review. For example, if it is becoming more difficult to keep a key piece of knowledge a secret, or a rival is on the verge of discovering it for themselves, it may be wise to seek advice about patent protection.

While the circumstances surrounding the case against Huawei have yet to be clarified, innovative companies should take note of what happens next. The case certainly underlines the inherent value of trade secrets, but it also highlights that they can be susceptible to misappropriation and careful management is required.

John-Paul Rooney is a partner and patent attorney at intellectual property firm, Withers & Rogers. He specialises in advising consumer electronics companies on their international IP strategies