Driven by the furious pace of technological advancement, financial services organisations are engaged in an unprecedented race to innovate. In turn, this rapid rate of innovation has caused trade secrets to become an increasingly preferred method of intellectual property protection, pushing the issue of trade secrets into corporate boardrooms.
In a recent survey of over 400 senior executives across five industries, Baker McKenzie and Euromoney Institutional Investor Thought Leadership found that the vast majority of executives place great importance on trade secrets. In fact, almost half (48%) of those executives said their trade secrets were more important than their patents and trademarks.
By industry, 46% of the financial services executives in the survey said they consider trade secrets essential to their corporate strategy – the highest of any sector, followed by industrials and ICT (both 41%).
Despite the growing commercial power of trade secrets, many of those same executives admitted not taking basic steps to preserve them, reflecting a marked disconnect between the importance that corporate executives place on their trade secrets and the measures they are taking to protect them. In fact, only one in three companies maintain an inventory of their trade secrets and has an action plan for responding to trade secret theft.
The survey calls for companies to implement appropriate protective measures — from securing computer networks and monitoring employee electronic use to providing training, developing corporate policies, and requiring anyone who comes into contact with trade secrets to sign non-disclosure agreements.
In South Africa, one of the ways in which employers can protect their trade secrets is via restraint of trade or confidentiality agreements. Because of the restrictive effect a restraint of trade agreement will have on the economic rights of an employee, the courts will critically consider whether the employer has a valid interest worthy of protection through such an agreement. They will look at the employer's business and the employee’s role in the business. Where an employee never had any real exposure to the employer's trade secrets, a restraint of trade agreement may not be appropriate
The Cybercrimes and Cybersecurity Bill (Bill), once enacted, will broaden the common law definition of theft to include the theft of incorporeal property (i.e. trade secrets). In addition, Chapter 9 of the Bill seeks to place obligations on financial institutions, which includes an obligation on reporting the commission of offences (cybercrimes) to the South African Police Service, once becoming aware of the commission of the offence.
Chapter 2 of the Bill will regulate "critical information infrastructure protection". The latter is relevant to financial institutions because critical information infrastructure (CII) is determined by, among other things, major economic loss that can possibly result from any interference with information infrastructure based on its strategic nature. Once declared CII, directives containing minimum standards will be issued, which would have to be complied with by the relevant financial institutions.
Accordingly, financial institutions are now not only responsible for the protection of their own trade secrets, but for information forming part of a CII, where the former is protected for a financial institution’s own benefit and the latter is sought to be protected for the benefit of the Republic.