Why Every Business Needs to Know About Trade Secrets
John Pryor is a management consultant and founder of Exalt IP and intellectual property firm.
In this episode, John shares his insights on trade secrets, including why it is so important to distinguish trade secrets from general know how in an organisation. Classifying an important recipe as a trade secrets gives you more powerful rights in the event of any breach of them.
He walks us through trade secrets policies and the importance of educating employees about intellectual property and trade secrets. This episode covers:
- Guiltless Gourmet's buy out talks with Frito Lay - an example of what not to do with your trade secrets.
- Steps an organization needs to take internally to protect trade secrets
- How to classify trade secrets possibly using red, amber and green classification
- Threats to leakage and theft of trade secrets.
- Examples of brands protecting their competitive advantage through trade secrets
- Why reputation is the single most important issue for brands to focus on.
John Pryor: As you know, we've been working a lot on trade secrets recently and I think it's a very important intellectual property if nobody knows about IP, the next to nobody. Nobody's will ever have heard of trade secrets, but I think they're one of the most valuable intellectual property rights for, for businesses today all businesses today.
Shireen Smith: Hello and welcome to the Brand Tuned podcast hosted by me, Shireen Smith, IP lawyer, marketer, and author of Brand Tuned the podcast focuses on how to design brands, avoiding commoditization, and intersecting with intellectual property during the creation process.
So John Pryor is a management consultant and founder of Exalt IP and intellectual property firm. John, welcome to the Brand Tuned podcast, please tell us a bit more about what Exalt IP does and how you came to the decision to set it up.
John Pryor: Sure, the underlying premise Shireen is that I don't think enough people know enough about intellectual property. So the shocking stats are that you could go to the leading business schools, stroke, any business school in the US and in the UK, for example, and complete your MBA without having learnt the first Iota about intellectual property. In some business schools, there are courses, but you don't have to take them. They're not compulsory. And that, to me is utterly shocking, because intellectual property and intangible assets are taking over the world are everywhere in every business and the main the main value of most businesses and not to learn all about them how to manage them, just seems to me that it's a major fault in the IP education process. So my passion really is not necessarily IP education, but it's to help businesses understand how they can get the most out of their, intangible assets to manage, capture, develop, protect, monetize, get value from their intellectual property.
Shireen Smith: Yeah, so I noticed you did an MBA. And what did you study there? Did you study brand, anything to do with what you're doing now?
John Pryor: Yeah, I focused on marketing with the most excellent Professor Peter Doyle, one of those professors who you see once in a lifetime, you can basically it was a, it was an incredible, credible marketeer, but it was able to lead the whole class and in some of the classes, there might be 100 people down an avenue of belief and belief, and then just pull the rug from under your feet, and bring you all the way back down to the left and worked it out. While the actual solution was and is, it was an engaging lecturer, but of course, the subject matter was absolutely fascinating as well. So yes, I loved I love the marketing side, I did some human resources. And also did because I wasn't sort of equipped with finances to define inside as well because I was really important.
Shireen Smith: So brands was a subset of marketing, was it in that course or?
John Pryor: Yes, and absolutely. And I started I, I'm a scientist, so I bet I joined Procter and Gamble, when I joined money started to work straight from university and they are a brand company, you know, and I think, I think what I like about p&g, and you can't say this, about many companies is I believe it's been around for 175 years. Yeah, and there you can probably count on one hand or two hands, you know, the number of companies that have been around for so long, and therefore they must be doing something right. And they are, as you know, they invest a lot of resource time money people into developing brands and launching brands. And so I learned a lot through P&G. Actually, whilst I was there, but a lot since funnily enough, yeah, I left P&G to go to the MBA and it keeps coming back to me even today. I'm learning more about what I learned at Procter and Gamble.
Shireen Smith: Yeah, I mean, they invented brand management, I think. So what was your you were there six years went to well, what sort of job were you doing there? Were you in anything to do with running one of their brand?
John Pryor: No, primarily more business development. They bought a pharmaceutical business and our job really was to launch it in the United Kingdom and to launch a new product. So I mean, there was a logic to it because they had, they had technology, they get had the time. Hundreds of PhDs researching catwa the impacts of calcium, because of their soap powder, franchise and expertise, and out of that came a bone, bone product, product for bone disease. So it's it all had a logic. So yes, mainly sales, regional monies, they invested so much, they invest so much in the selection of the people, and then so much in the training and development of the people. It's unbelievable. I've never seen anything like it since I was there six years, and I've been in the business world, since I've never seen anything like it. And of course, what that means is that they tend to have they don't always promote from within, but they tend to have an incredibly strong resource within the business to grow to grow the business from and it seems to work. They had hiccups, as you know, if you look back over the history, they go up, they go down, but generally, they've been around for 175 years, it's probably enough cetera.
Shireen Smith: Yeah, I think IP when I was back in the day, when I was at university, it was a tiny little module within property law. And it was called shows in act. But I think that was a print society, really, rather than the Internet Society that we're increasingly living in. So I find that most of society hasn't caught up yet. They're still sort of operating as if IP is, you know, just esoteric subject, but doesn't really apply to them.
So what made you actually decide to set up an IP business? I'm curious to know,
John Pryor: Oh, well, I've been in the intellectual property business itself as a service provider for 20 odd years. I started in 2001, a business called CPA global. And the reason I joined the business as philosophical reason I joined the businesses, whilst I'd been a scientist, I just observed a lot of intellectual property creation, they kind of withered on the vine. And I was sort of convinced that there was the ideas have value. Knowledge has value negative know-how and positive know-how has value. And there was an opportunity to develop an IP trading business at CPA global, which took me about 10 years to do and then I moved on to a larger actually a patent, a patent and intellectual property brokerage and 2010 - 2014.
Shireen Smith: What does an IP work which do?
John Pryor: Well, it was mainly patents. It was mainly patents there, but we also did music and copyright and so on and so forth, as well and a little bit of brand and a little bit domain. But it was mainly patents. And that was largely fueled to even by the litigation environments in the United States at the time. It was a crazy time, you know, Google's patents sold for $3 billion. Nortel's patents sold $3 billion. It was utterly ludicrous. In terms of what was going on at the time, it's changed, changed a little bit since.
Shireen Smith: So you, you were involved in the IP world? And what does Exalt IP actually do for people? I mean, do you register trademarks and patents? How do you operate?
John Pryor: Yes, it's a good question. So generally, what I will do, depending on the size of the business, I'll put like, I like to talk about an IP business plan because I think IP or any intellectual property advice has to be completely inculcated into the business, the business objectives, the 135 year plan. So work with the business to put some do some form of audit and put some form of IP business plan together and out of that usually flows a series of actions, some will be some of that will be IP right patent and trademark registration, for example, might be a trade secrets policy. There might be, as you said, online brand development, assistance, etc, etc. So yeah, so a range of different services that they can be supplied. I, as you know, we've been working a lot on trade secrets recently. And I think it's a very important intellectual property if nobody knows about IP, the next to nobody. Nobody will ever heard of trade secrets, but I think they're one of the most valuable intellectual property rights for, for businesses today. All businesses today.
Shireen Smith: I must say that in a lot of the entrepreneurial world, you know, there's a lot of comments around. Ideas are cheap, you shouldn't be worried about revealing your ideas. And while I agree to some extent, I think it's really important for people to understand the commercial value of information. You can't just say ideas don't count and go around telling everyone whatever it is, you know. Yeah, I mean, trade secret is a prime example of that. There are other intangibles that give business and competitive advantage, you know, they are trade secrets. And perhaps the most famous example of a brand using trade secrecy, rather than patents is Coca Cola who created a big story around the secret formula? You know, I don't know if it's still secret, but you know that they really exploited trade secrets as a way of protecting their business. Can you give us an idea as to the steps and organization would need to take internally to protect trade secrets?
John Pryor: Yeah, it's a really good question, actually. Because many businesses you speak to Shireen will say, yes, we've got trade secrets. Okay. You've got trade secrets. Have you got a trade secrets policy? Are all your contracts? Are there your flex that that treaty because policy? have you trained? All your employees that will touch these trade secrets to understand exactly what the way they are? Do you have a classification of trade secrets? And when you start to probe most people don't have they know they've got confidential information. And there's a difference between know-how and confidential information in the eyes of the law and trade secrets. And that's the really important point to get across. Because if you go before we have the trade secrets disputes, I walked off with your, your, you know, the formula for your, for your Kentucky Fried Chicken. So sort of heavy hitters and started to compete with you. The judge okay, well, did you is or can you point to the Trade Secrets program that John prior understood? Why does it say in his contracts that he wasn't able to take your trade secrets? Can you show that this particular secret sauce was classified as a trade secret, and it was over the classification that mentioned couldn't be leaked. And if you've got that kind of thing in place, the judge is going to find in your favour, but too many times the judge says, well, it looks like there was some form of secrets there. But I can't, it can't be classed as trade secrets there. Because these factors were not adhere to the underlying first and foremost thing is education, is to get the key people together to take them through first and foremost, of course, sharing his intellectual property, and then trade secrets. And then to work with a business to put a programming policy in place to make sure their contracts reflect it. And then to start to capture the trade secrets. Now, of course, I don't want to be party to those secrets, but I can be party to the metadata, the descriptions, the you know, the title, description of what it is that the date, it was discovered, who was responsible, who found all those kinds of things, and I can help collate that into a register. But the actual description, the actual document of the trade secret that needs to be done internally, because I don't want to know what that is.
Shireen Smith: Okay, well say you're in a kitchen and you've got a recipe like the Kentucky Fried Chicken and all your team have access to it, the cook, etc. So what would you be doing in practice to classify it as a trade?
John Pryor: So you know, I would classify that as a, you know, the UK has, the UK government now just has three forms of classification. And the top one is top secret. And so this will be top secret, you know, the secret sauce is Kentucky Fried Chicken secret sauce will be top secret. And therefore, the five employees in the room who are working the recipe and the cookery aspect that we're talking about, they would all have to be signatories to the sage trade secret program, their contracts would have to reflect that they cannot take these with them when they leave or share them with any other people. And they wouldn't, they wouldn't most need to know that this particular secret sauce was a classified not to be shared trade secret under any, any terms, any measures. So it might well be as you said, the Coca Cola recipe is in a safe in Atlanta somewhere that's probably apocryphal, and it's probably part of their branding, and that sort of, they're built around their brand more than anything. But, you know, nowadays in the days of, of hacking, that's coming back to be more important because everybody's getting everybody's we're all gonna be hacked. Let's face it. We're not I mean, nobody's immune. And if you've got you and this is, this is what led to the whole change of the trade secret legislation. If you've got your trade secrets online, somewhere, the bad guys are gonna get them whether you know, they've taken them or not. So I think 10 or 15 years ago, the GC Rolls Royce was our biggest intellectual property threat to the business is state sponsored hacking event secrets are blueprints to our next, our next Rolls Royce engine. You know, it's their honour systems, and if it's hacked and stolen, and misappropriated, we probably don't know that's happened, but a lot of competitive advantage has been leaked as a result of that process. So that's what's led in the last seven years to all the governments all the Western governments developing and redeveloping their trade secrets law and legislation to try and protect against that sort of leakage.
Shireen Smith: Well, yeah, I mean, I've heard that in Coca Cola, only three people at any one time have access to the secret formula. I'm just wondering really if you're running a kitchen and you need to get people in temporary staffing to help you because of staff absences, what do you do?
John Pryor: Yeah, well, you probably just provide them with a finished spice wouldn't you this the source the spice and here it is now use that in your career, this process and you and you can't take it with you and you can't seem to reverse engineer it and so on and so forth. But you wouldn't give them the exact ingredients on the query methodology connects.
Shireen Smith: You have to really think through how you run everything in the business don't do that.
John Pryor: It's absolutely no the biggest threats to just being like Cartier, Tiffany, trade secrets case in the state. So yeah, I can't ta employee was poached across by Tiffany. And the day of her interview, she sent a load of sensitive information to a private email account, pricing information, market launchers, you know, product placements, relationships, and client details and so on. And so they're suing them she's now got the job, she told him, she was going to be working with competitors. And she went to a direct competitor. And she took all that information with it. And so Cartier is suing Tiffany, over trade secrets, and it happens all the time in the pharmaceutical space. And in electronics, particularly in the United States. Because it's a more I guess, it's a more developed legislation over there, but it's coming. It's coming all over the world. We've seen cases in the UK, we've seen We've even seen trade. The ITC, which can stop importation of it was going to be electric EVs actually batteries, car batteries from some from Korea, that over trade secrets dispute in Korea, you know, the ITC rule, they could no longer come into the states whilst ever there was a trade secret dispute. And so he was quickly settled, because it's increasingly powerful, increasingly powerful legislation across a range of business.
Shireen Smith: Well, so I'd like to explore what other brands apart from Coca Cola have used trade secrecy as a way to protect their competitive advantage. Can you give us any examples?
John Pryor: Well, that the case has just recently in the press GSK, these the I don't want to really harp on about the Chinese and theft. But it just so happened in this case that a Chinese employee working in America was found to be emailing a whole host of research data to her husband, sister and brother in law who had set up a pharmaceutical company in China, on the back of all this, this information. And this was unpatented information from GSK research labs, which they were then pursuing. They were then proceeding to try and patent in China. So that was a trade. That was a trade secrets case. I just talked to you about Cartier and Tiffany, the dispute that's going on. And actually, Samsung declared recently that their source code had their cell source code for the Samsung Galaxy had been hacked, you know, go back to the electronic side of things. And then if you the Google algorithm, that's that search algorithm that everybody uses, you know, 10 times a day, apparently, that's held as a trade secret, actually, you know, so guy brain and, you know, he's closest, closest, understand it and know how it works, but nobody else has ever had access to. So source code can be protected. In that way. Bass can have a whole range of other things. It is just inventions, you can be priceless. It can be confidential, know-how in negative know how it can be algorithms, and it can be launched, you know, if you're going to launch a new brand Shireen you know, the details of that launch. You don't want it out there in the marketplace until the right time, because not in the least because people will try and second guess, you know, and start to register trademarks and domain names and social media etc. To blackmail you over for example. Yeah, keeping all that stuff secret is really important. And there was a trade secret.
Shireen Smith: Yeah, when I was researching my book, Brand Tuned, I found that Steve Jobs really operated Apple, you know, with military sort of precision in terms of who had access to the design room and he guarded everything and often he was the only one who knew what was actually going on so only knew what they needed to know to do their jobs. But he and that's what you have to learn.
John Pryor: It says and Dyson understanding I don't know if this is an apocryphal story possibly but Dyson everybody in a Dyson has blacked logbooks. So they work on incomplete. And can they can be never reviewed, removed from the building, you know, possibly even locked up after the day's work. But that's the way things are. That's the way the research is done. And quite rightly.
Shireen Smith: Yeah.
John Pryor: Quite rightly.
Shireen Smith: I imagine the pandemic will have had quite would have been quite challenging in terms of trade secrets, because suddenly people had to work at home where they weren't.
John Pryor: Oh, yes.
Shireen Smith: We'll probably see cases emerging down the line.
John Pryor: Without any doubt whatsoever, because not in the least, IT security is not going to be anywhere near what it was like in the office. Is it because he's, let's be honest, who's got a password on the Home Hub? Next to nobody's changed the password. And so they're easy to guess if somebody wants to hack into and see what you're up to, for example, but yeah, and using sort of private Gmail and private and personal computers, there have been for used for a whole host of things, and by the children, for example, as well. Going on to whatever now, whatever websites, there's tremendous, IT hack risks there. But the majority of trade secrets are, shall we say, misappropriated by the people. And a lot of those are inadvertent, a lot of those are not really knowing what we can and can't share. And sending that stuff to my home email, because I want to work on it over the weekend, or actually talking to somebody in the Parvo somebody on the plane who was asking me questions. You know, funnily enough, when I was a P&G, we were paranoid. And it was, these things happened all the time, if you left your briefcase in an airport, chances are these with a way before the security risk day, the chances are Unilever guys did steal it, you know, and all that kind of stuff. But that's the same concept with regards to know-how in trade secrets these days, it's all about making sure you are protecting, and a lot of it leaks in partnership. And then you've got the you know, when you've formed a relationship with another company, and you developing a new product, and then it falls apart for whatever reason just runs its course. And then the guys who were on it suddenly go, Oh, that was really useful stuff. Why don't we try that and do this without thinking? You know, actually, that wasn't ours, that's theirs, and then we're not allowed to use it. And that's how a lot of I trade secret and IP leaks. I think the consultancies, the big management consultancies will start to face a lot of challenges here, because I used to be a management consultant. And what happens there is you work on one company and learn a lot about how they work. And then you go six months later at somebody else's business, probably in a similar field. And without, of course, deliveries, taking secrets from one to the other. You're taking methodologies, and there's a no air, and unless you've actually decided that you can't, yeah,
Shireen Smith: yeah.
John Pryor: Now what is expertise? And what is no and was trade secrets, these are really important questions. And if you don't define them, there will be leakage. And there will be there will be trade secret cases. And in fact, yeah.
Shireen Smith: So can you just talk me through what a policy a trade secret policy would have? I mean, in terms of clauses, what would actually cover would it say, this is what you hear in this context? I don't know. Would everything need to be actually marked as classified for people to know that this is actually confidential? How would it work?
John Pryor: Yeah, so I think that's a crucial part of the trade secrets policy. And it's a lot of what I've just said, it's about education of employees, but then having what do we might call classification, you know, a red, amber, green light bulb, the association with seekers, red is top secret cannot be shared outside of the organization, might be kept on dun terminals in a safe, so, you know, and then the amber well, we might share that under certain conditions. And those conditions are defined as, you know, strict NDAs you know, blah, blah, blah, blah, blah. And then the, the green might be something that we can share publicly, under certain conditions and no variations within that. But having something straightforward and simple, that everybody can understand does make sense red, amber green. And then and then just having the policy places that are crucial policies showings, is actually when you and I form a partnership without other business, and we go sign away. Yes, NDA, non disclosure and trade secrets will be respected and they won't be infringed after the event. A crucial question to ask at that point, as part of our policy to that third party visitor coming in partnership with is can you explain to us your trade secrets, policy and the training of your employees about trade secrets? Chances are they don't know. And if they don't know, then how can they sign up to a treaty histogram because the chances are they haven't been trained, they don't have a trading policy in house. And therefore their employees won't realize or recognize when they're leaking stuff, they shouldn't be leaking. So it can go on forever. And you're probably saying you probably think I'm getting far too geeky about this. But I think it's really important. Because know how, and, you know, those that, that research information for that next new innovation, you don't want it to be out there on the street, and you don't want it to be with your competitors, more than more than anything?
Shireen Smith: Yeah, certainly, when I worked at Reuters, everyone was paranoid about tolerate getting access to things. And, you know, you wouldn't receive information or when you received it, it was on a need to know basis was. But I wonder how much a small business can manage that, you know, having procedures like us in place to protect?
John Pryor: Yeah, well, I, I think is really important. And I do a lot of work. So it was why because before you pass into that invention, you keep it secret, right? And you need to have some programs and posts in place to keep it secret. And increasingly, if we look at what's going on in the marketplace, and this is quite nascent, to be honest, to be fair, Shireen is that there is now you can actually get IP back lending. Now, it's generally for larger companies, but the quality of your intellectual property is being judged. And people are saying we can lend money against the quality of that intellectual property, the brand, the trademarks, you know, the presence, the reputation, etc, the digital presence, but also their patents and also their trade secrets. And if if that's the case, then having a trade secrets program policy in place, is going to serve you in good stead should you reach that juncture in the future? Because, you know, as well as I do from a legal and administrative perspective to try and do this after the event, or try and do this two years hence. It's so difficult, you know, what was the what we did in that experiment on the fourth of June 19 2019? And, and what were the results? Are there in this document here? Or what? How does that. So doing it, doing it as ongoing rather than trying to do it after the event is so?
Shireen Smith: Good. Well, just to wrap up a couple of questions, what do you think is the single most important thing a company needs to focus on? As far as its brand is concerned?
John Pryor: Yeah, I took a really good question. And I very esoteric answer is reputation. You can't it's a proper intangible assets, assets, isn't it? You know, what is my reputation? What is the reputation of my brand? And more than anything? What are the risks to that reputation? And how am I managing those risks? Because, you know, that reputation can be damaged in a heartbeat. We just seen Molly Mae, I don't really know what Molly Mae does on Instagram, or WhatsApp or what? Not on Instagram. But her reputation drops like a stone overnight from one throwaway comment, which I'm sure she regretted and was partially misunderstood. And then in you know, we've then we've got companies that sort of let them eat cake moments, you know, statements, you know, I'm a, open water river swimmer. And so Wessex water says, Well, yes, we do have sewage in the rivers, but you know, when you go swimming, just close your mouth. You know, yes, we do. We are having a fuel and energy crisis. And well just wrap up a few more jumpers and you know, hug your pet. And these sort of throwaway comments and fake damaging to brands into reputation. That's just what's been in the press in the last couple of weeks, I think not enough, is not integrated enough in the business. So you know, is it legal? Is it marketing? Is it sales? Is it? Is it? Is it senior management? Is IT from a domain and social media side of things? Is it PR? Is it the external agency? Who's responsible? And the chatter the reality is, is you know, it's there's many different people responsible and whenever that's the case, you're going to get little missteps and, and damage to reputation. I think reputation for a brand is everything I mean, you can write into that the sort of emotional connection that we might have with Apple, for example, but it's intrinsically connected to how they serve me and how they, how I perceive them and how good I feel about using their products and, and what my peers think about me using that product and so on so a difficult wants to pin down but I think so important. I don't think enough people focus on it either.
Shireen Smith: Yeah, yeah, that reminds me of Ratner's calling his jewels
John Pryor: That was the end of his business. Yeah, yeah, rebranding is hard, rebranding is so hard.
Shireen Smith: Yeah, I know, you effectively vanish overnight. Really? If you have to change your I think there now Samuel and something. But you know, who would? Who would remember that? Are there any particular brands you admire? And if so, why? As a last question.
John Pryor: Well, I gotta go back to my sort of longevity thing. I'm impressed by businesses that survive that NGO. And PNG is one of those. But another one, which I'm really interested in. Just not that I possess this participate is Lego. I mean, it's been around for, I think it was 4990 49. It means play or, you know, playing with bricks or something like that. And, of course, we as children all played with Lego bricks, but it's evolved, it evolved, it went into Star Wars and sort of animation and digitalization and it's had a rejuvenation recently, it's incredible adult collector's items. You know, it used to be used to be trainers that were the big, you know, buy them for 100 pounds and sell them, you know, three weeks later for 250. Lego sets, and now and now they're items. So they're collector's items, it's a great for LEGO to navigate those ups and downs, who would have thought it a break this off patent, that everybody seems to want a copy that's so easy to copy. And they've managed to stay one step ahead with a head with copyright and trademark management. And then, you know, evolution of the innovation of the product. And of course, they went into Lego, Lego world sort of experience centers at one stage as well. But I just like the way they seem to keep innovating and keeping staying ahead. So I think that's a great brand. Very powerful brand.
Shireen Smith: Yeah, great example.
John Pryor: The Chinese registered 09371 stage. Of course, if you turn that upside down, it reads Lego. So they had a lot of trouble with copy counterfeits and infringement.
Shireen Smith: The Chinese are very hot on IP even teaching, you know, in primary schools, why is that? Do you think that there's sort of so far ahead, in terms of under
John Pryor: Yeah, they've had a 25 year vision, the government and the President has seen this many, many years ago. 2008 I think the Premier said the World Future World Trade is intellectual property. And they put everything in place to put themselves in the best position. So they realized they didn't have that intellectual property. Back in the day, they've now done everything they can to build that IP. So it was interesting to me Shireen that, although Huawei isn't everybody's favourite network provider in the back. But systems for telecoms provider, they generated $1.3 billion of licensing revenue last year, which means that they built up an incredible patent portfolio in the last 20 years such that now, major players have to pay them a healthy, healthy sum of money to use them. And I suppose that really starts to illustrate that the that was IBM 20 years ago, it's now Huawei, 20 years later that things have changed, things have changed.
Shireen Smith: Well, on that note, I'll say thank you very much, John, that was excellent.
John Pryor: Always a pleasure. Thank you very much. Very lovely to speak to you.
Shireen Smith: If you enjoyed this episode, please subscribe on your favourite platform. It really helps to spread the word about it. If you want to appear on the podcast, get in touch directly with me, proposing a topic that you think is relevant to the focus of the podcast.