Trade secrets in a factory environment

The formal definition of the word “Innovative” as taken from the Collins English Dictionary is to invent or begin to apply new methods or ideas, to renew or make new.  Also, it is worthwhile taking a look at some other words of similar meaning. “Creative” means having the ability to create, characterized by originality of thought, having or showing imagination, designed to or tending to stimulate the imagination, showing by sophisticated bending of the rules or conventions.  “Inventive” means to be skilled or quick at contriving, ingenious, resourceful, characterized by inventive skill and related to an invention.  Although there are some similarities between these words, they are not identical.

Innovation can take many forms.  It can be disruptive, transformative, radical, breakthrough, incremental or step improvement in nature.  It is most important to recognise and appreciate all these different forms as often the simple step or incremental form has a tendency to get overlooked.

Innovation inside a Factory

A factory or manufacturing plant is an industrial site, usually consisting of buildings and machinery, or more commonly a complex having several buildings, where workers manufacture goods or operate machines processing one product into another. Most modern factories have large warehouses or warehouse-like facilities that contain heavy equipment used for assembly line production. Factories may either make discrete products or some type of material continuously produced such as chemicals, pulp and paper, or refined oil products.

Innovation and creativity is not the sole preserve of the R&D function within an organization. The ability to mass produce products within a factory environment takes tremendous skills, competence, knowledge and experience.

The ability of one factory in China to mass produce half a million iPhones per day takes some innovation and creativity. Over 60 million cars passenger cars were produced last year by all of the car companies, some achievement given the complexity of the modern car. Over 225 million TVs were mass produced by various companies last year at a time when there is great turmoil in that industry sector with technology changing rapidly.

Although I have spent most of my career inside R&D or IP functions, I was most fortunate to spend time working inside factories in Brazil, China and Texas. I must admit that I was in awe of the skills and competencies of the great people I met there, and I learned much from my experiences there.


Know-how is defined as practical knowledge or skill or expertise. Know-how is a term for practical knowledge on how to accomplish something. Know-how is also an intangible asset and a form of intellectual property.

Some examples of the know-how that exists within a factory environment include:

  • Chemical processes
  • Thermodynamic processes
  • Physical processes
  • Control diagrams
  • Manufacturing systems
  • Internal components of manufacturing systems
  • Mean time between failure analysis
  • Problem resolution procedures
  • Quality assurance information
  • Special product machinery
  • Test plans
  • Test records

I should stress that this list above is not exhaustive by any means.

Protecting know-how

Some factory Manager’s however fail to consider how best to protect these valuable intangible assets. Having a security guard at the gates of the factory or an IT person with a firewall around the IT network in use across the factory will simply not suffice.

Legal and IP protection mechanisms should also be seriously considered.

However, registered forms of IP like patents are oftentimes not suitable. The subject matter may not qualify for patenting. Even if patenting is an option, detection of infringement by 3rd parties may be extremely difficult.

The inherent proprietary value of know-how lies embedded in the legal protection afforded to trade secrets in law. As know-how qualifies as a trade secret in many cases, I strongly suggest that trade secrets, trade secret protection and trade secret asset management should be of the agenda of the Factory Manager.

Trade Secrets

A trade secret is defined as any information that is:

  • Not generally known to the relevant business circles or to the public. The information should also not be readily accessible.
  • Confers some sort of economic benefit on its owner. This benefit must derive specifically from the fact that it is not generally known, and not just from the value of the information itself. It must have commercial value because it is a secret. Commercial value encompasses potential as well as actual value.
  • It must have been subject to reasonable steps by the rightful holder of the information to keep it secret. What is reasonable can vary depending on the specific circumstances.

Broadly speaking, any confidential business information which provides an enterprise a competitive edge may be considered a trade secret.

The Defend Trade Secrets Act passed earlier in 2016 greatly enhances US federal protections to curb trade secret theft and secure the value of trade secrets. The EU also recently pass the Directive on Trade Secrets to harmonize the existing diverging national laws on the protection against the misappropriation of trade secrets.

What should a Factory Manager do?

I recommend that the following steps be taken:

  • A trade secret policy should be created
  • A top level trade secret process should be defined – identification; analysis; review; protection; and on-going monitoring.
  • A trade secret asset management system should be taken into use as technology can greatly help underpin the process
  • A section on trade secrets should be added to the existing training for all employees within the factory
  • A governance structure should be put in place

An exercise should be conducted to attempt to gather information on the various trade secrets existing within the factory. A phased approach should be adopted:

  • identifying trade secrets within the factory and owned by the company itself
  • identifying any trade secrets belonging to others but entrusted to the factory (e.g. belonging to key suppliers or partners)

The goal of the Factory Manager should be to

  • Install a confidentiality culture across the entire factory with respect the trade secrets it possesses
  • Ensure key functions within the factory work together to manage these assets going forward
  • Have comprehensive metadata available on the trade secrets within the factory

All factory managers like having data at their finger-tips. Good quality data enables a Factory Manager to run an efficient and effective factory, and to make informed decisions if and when needed. Such data may include  – cycle time; time to make change-overs; throughput; yields; pass fail rates at different test stages in the production process; utilisation of staff within the factory; overall equipment effectiveness; incoming supplier quality; inventory; etc. etc.

Proper trade secret asset management provides the Factory Manager with data about the know-how within his/her factory.

Of course, the Factory Manager and his/her management team will need help and support from Legal & IP professionals (either in-house or external) in order to achieve all of the above.

Final thoughts

Trade secret asset management is an area I believe has been somewhat neglected in the past by many Factory Managers. However, it is an area which cannot be ignored going forward. Trade secrets are a very important form of IP, and most likely will increase in importance going forward given the legislative changes taking place in key jurisdictions. Most factories are awash with know-how and trade secrets.

Donal O’Connell

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