Tuesday, July 8, 2008

Trade Secrets and Refineries

Disclaimer: the facts of this incident are somewhat modified to protect the companies and the trade secrets. They are based on an actual incident.

A chemical company had difficulty meeting the required separation of a solids-liquid mixture when using separation equipment that had been specified and installed in the plant. The problem was a common one in separations of liquids and solids, that is, too much liquid remained in the solids. The solids were a waste product, but the liquid was valuable. If the liquid in the reject solids could be reduced, less would be wasted and more product would be sold. A high-priority project to study the problem and modify the equipment was successful.

Following the equipment modifications, several new engineers were hired. As part of their orientation to the plant, they were given a thorough tour of each operating area and an explanation of each part of the process. The modifications to the separation equipment were described, along with the problem that the modifications solved. However, no one mentioned to the new engineers that this problem was common among all such plants, and that the solution was to be kept a secret. The new engineers were told that this solution increased the plant's profits.

The new engineers went to an industry convention and were drawn into a conversation with engineers from a competitor. The competitor managed to learn what the new engineers knew about the separation equipment, and what parameters were changed to obtain the desired performance.

A few days later, one of the senior engineers learned what one of the new engineers had said. He chastised the new engineers for giving away a competitive advantage.

There were no grounds for a trade secret lawsuit, because the technical information had not been properly protected. No one had told the new engineers this information was secret, nor that it could assist a competitor. The new engineers were right out of university and had no industry experience.

The lessons to be taken from this true incident include:

1) Recognize what could be a competitive advantage,

2) Take the necessary steps to protect the information, either as trade secret or possibly a patent,

3) Communicate with all employees that this information is important, perhaps vital, to your company, and it is not to be disclosed outside the company. This should be done in writing.

Many companies do not believe they have anything that could possibly be a trade secret, or information that could be used to a competitor's advantage. Even in process plants that have been running for decades, like refineries in the U.S., this is just not true. Situations similar to the one described above occur often, and should be protected. Often it is the case that process improvements, especially in process control, may deserve trade secret protection.

When employees change companies and go to work for a competitor, the information they take with them could be used by the competitor to their advantage. Trade secret protection can prevent this.

Mr. Sowell is particularly well-suited to provide legal advice in this area, with his training in trade secret law, background in chemical engineering, and 20 years experience in refineries and other process plants. For more information, please see his website at www.resowell-law.com.

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