3D Printing: A Gateway to Trade Secrets Theft?

I read a very interesting and important article recently on PwC’s emerging technology blog about the intersection of 3D printing and trade secrets. I meant to write about it sooner, but one of the occupational hazards of practicing trade-secrets law is that you can get very busy very quickly.

This article focuses on manufacturing. It starts by talking about how a manufacturing company’s trade secrets often reside in multiple locations throughout the company, including product-specification documents, CAD drawings, and equipment configurations. “To gain access to a company’s secret sauce, thieves must patiently collect trade secrets from a variety of sources as well as try to reverse engineer products through trial and error.”

But now, 3D printing is exploding in the manufacturing sector:

According to a PwC survey of US manufacturers, two of three companies are already adopting 3D printing in some way. In our survey, we estimated that the global 3D printer market will soar to $6 billion by 2017, from $2.2 billion in 2012. From the printing of jet engine parts to soccer cleats, the technology is being hailed by some as a revolution in how more and more products will be developed, produced, and even sold.

And while 3D printing offers manufacturing efficiencies and technological advantages, it brings serious risks as well:

To realize the transformational benefits of 3D printing, you must encode the 3D printer with explicit instructions on how to design the product, including what materials to use, and when and how to use them. Today, intricate trade secret knowledge that took many years and millions of dollars to develop is typically scattered across the organization. As 3D printing is adopted, that information will be housed and concentrated in digital files that, like any other digital document, can be hacked.

All companies using 3D printing that involves proprietary information need to focus very closely on protecting this information. The article finishes with some very good advice to this end:

Like it or not, 3D printing provides the perfect portal for cyberthieves and exposes manufacturers to a level of risk that most are simply not prepared to deal with right now. The projected boom in 3D printing is a great reason for manufacturers to get serious about protecting their trade secrets today.

This echoes a theme repeated often on this blog: all companies need to take inventory of their trade secrets and the ways they are (and are not) protecting them. And this must be an ongoing process — as new technologies like 3D printing emerge, trade secret protections can become outdated and inadequate very quickly. Now is the time to start this process by speaking with an attorney who can work with you to craft protections appropriate for your company.

Guest Post: Bankruptcy Court Rules That Debtor Did Not Sell Its Trade Secrets

By Solomon Genet

As a semi-regular guest-author on this blog, I try to stick with bankruptcy-related trade-secret issues.  The bankruptcy court’s January 2015 decision in In re NMFC, LLC is worthy of note. There, the court determined whether the debtor still owned its trade secrets. A copy of the opinion is linked below.

The South Carolina bankruptcy court had to decide whether certain trade secrets were either: (1) sold by the chapter 7 bankruptcy debtor pre-petition as part of a lender-imposed UCC sale to a buyer; or (2) outside of the assets sold, and therefore property of the debtor’s bankruptcy estate.  The bankruptcy court examined the language of the Bill of Sale, which included the following items being sold: intellectual property used by the debtor “in the manufacture, sale or other commercialization of performance fibers.” In other words, the court had to decide whether this definition include the debtor’s trade secrets. The trade secrets at issue related to the development of battery technology.

The bankruptcy court focused on the term “commercialization.” It ruled that since, when the sale occurred, the pre-petition debtor (1) was only having preliminary discussions about applications for its trade secrets; (2) had not yet established how a product would be created or what properties, in terms of weight, size or otherwise, it would have; and (3) had not yet set up a trial schedule for the product or drafted a patent; the trade secrets were not yet at the stage of “commercialization.”  Therefore, these trade secrets were not sold to the third party and they instead belonged to the debtor’s estate.

This appears to be a harsh result against the buyer, but is a good lesson for the purchasers of trade secrets in the marketplace: make sure the purchase contract explicitly defines the trade secrets being conveyed.

In re NMFC, LLC

Solomon Genet is a partner at Meland Russin & Budwick, P.A. in Miami, FL. He specializes in complex commercial litigation, business insolvency, and financial-fraud-related matters in the State and Federal courts.

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