Protecting Your Trade Secrets with Art Schick, Founder and Principal of Alpha Sierra Global

Interview with Art Schick, founder and principal of Alpha Sierra Global, discussing the importance and value of identifying, codifying and protecting your valuable trade secrets in businesses of all sizes.

In this episode of Interlinks we talk to Art Schick, founder of Alpha Sierra Global, a consultancy practice based in Massachusetts in the US.

At Alpha Sierra Global, Art specializes in strategy and operational consulting to firms to focus on consumer products, flavor compounding, and ingredients, including startups.

Art is a former vice president of purchasing with PepsiCo, and in this interview, Art and I discuss the topic of trade secrets, what they are, why companies often overlook their value, and how to identify and protect them. 

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Patrick Daly:

Hello, this is Patrick Daly, and welcome to Interlinks. Interlinks is a program about connections, international business, supply chains, and globalization, and the effects these developments have had on our life, our work, and our travel over recent times. Today, we will be talking to Art Schick, founder of Alpha Sierra Global, a consultancy practice based in Massachusetts in the US, specializing in strategy and operational consulting to firms to focus on consumer products, flavor compounding, and ingredients, including startups. Art is a former vice president of purchasing with PepsiCo, and in this interview, Art and I will be discussing the topic of trade secrets, what they are, why companies often overlook their value, and how to identify and protect them. So, Art, delighted to have you with us here today. You’re very welcome.

Art Schick:

Patrick, it’s a pleasure to spend some time with you.

Patrick Daly:

Likewise. So, Art, to kick off, could you tell me an overview a little bit about your background and your career to date?

Art Schick:

Sure thing. Well, I was educated as a chemical engineer and then later completed an MBA in finance, and interesting, the reason for the finance degree is I was always interested in leveraging technology more to build the business than just for technology’s sake, but my entire career was in consumer products. I started with Procter & Gamble Company in research and development and specifically product and process development, and spent a handful of years there, and then moved over to PepsiCo in some very similar roles. I worked for PepsiCo for about 35 years. As I mentioned, I started in R and D, and also had an opportunity to do some financial planning and analysis work for them, but spent the better part of my 35 years with them in positions of increasing responsibility in procurement, manufacturing, and supply chain, and I spent nearly the last 20 years of my career working in their global beverage division and managing all of their proprietary flavor ingredients and proprietary flavor formulations for beverages, and this taught me a great deal about intellectual property, trade secrets, and most importantly, how to protect those trade secrets operationally.

Patrick Daly:

And at Alpha Sierra Global, your consultancy practice, what are the services that you provide, and typically who are your clients, and how are they better off after having worked with you?

Art Schick:

Yeah, Patrick, when I retired in mid-2020, I wanted to form my own consulting company and to keep active, but also, quite honestly, to give back to small and medium size companies who could leverage my knowledge and expertise. My first project was developing a US based warehousing facility for an international food ingredient supplier who previously had no physical presence in the United States. It was a very interesting project because it taught something that you well know, warehouse space across the globe is quite limited. This particular company was looking in the greater New York area so it was quite a challenge, but after several attempts, we did find a very solid third-party warehouse which the supplier is now successfully using.

Art Schick:

I’ve also provided advice to a few product startup based companies, specifically in the area of product development, formulation, and commercialization, and more recently, I’ve been focusing more in the area of intellectual property protection, and specifically how to protect trade secrets operationally within a company. I’m currently working with a technology product company, and I found that many years of my experience at PepsiCo in beverages and how to protect those trade secrets are definitely translatable to their technology products.

Patrick Daly:

And what is it that is or what is it that constitutes intellectual property?

Art Schick:

Good question, Patrick. Look, many corporations have all sorts of type of information. There is public information, and then there’s kind of private and confidential information of which intellectual property is part. I think most people understand public information is information that the corporation actually public or freely shares with society, and confidential information could be things like employee records, could be organizational charts, financial results, or any information that’s, let’s say, not ready to be made public. That also includes intellectual property, and there’s really four main types of intellectual property. There’s trademarks, there’s copyrights, there’s patents, then of course, there’s trade secrets.

Patrick Daly:

What are the key features of and distinctions between trademark, copyrights, patents, and trade secrets, those four types that you mentioned, and in particular, what constitutes a trade secret?

Art Schick:

Well, I have to tell you, Patrick, it’s a big area. I mean, we could spend hours on those four topics alone, but I’ll try to simplify as best I can. Look, trademarks and copyrights are used to market your product or service. Trademarks are registered with the nation in which you plan to use that trademark, and they’re really used to describe the product or service. So, think about the brand name Pepsi, would be a trademark brand name, and in the United States, you would know that something is trademarked because there’d be a circle R or a capital TM symbol next to the brand name on printed material. Copyrights are exclusive rights to express your idea, whether they be written words like a book, visual pictures, or symbols, or even music, like an advertising jingle. I oftentimes think of the AT&T commercials where they just have a few sound beeps which identify it as an AT&T commercial, and these of course can also be registered in the country of use.

Art Schick:

Now, patents, I think most people know patents, and these deal with novel, unique inventions that are pretty much fully disclosed in the patent documents, and these patents are legally registered with the specific countries across the globe, and they generally provide the patent owner 20 years of exclusive use of that technology in the registered country, and the patent owner can certainly prevent a competitor from using that technology in that registered country. So, it’s really a very powerful legal protection of your competitive advantage and your technology.

Art Schick:

However, patents do have some downsides. They can certainly be expensive to maintain on a global basis because you have to register them in all these different countries. They are limited in life. Now, most people would think 20 years is a long time, but I think most companies would like to leverage their technical and competitive advantage for much longer than 20 years, and also in the patents, their novel technology and invention is mostly described. So, if there are nations out there that don’t follow international patent rules and regulations, you could have a rogue supplier or competitor in that particular country and they could leverage that technology freely.

Art Schick:

Trade secrets on the other hand is really anything that drives value and a competitive advantage for a company, and can include things like processes or methods of assembly, design systems, algorithms, formulas, et cetera. They could be novel, but they don’t need to be novel, and I think that’s an important distinction versus patents. Patents must be novel and unique, and so long as the trade secret holder can keep those trade secrets secret, they last forever. So, you can have that competitive advantage forever which is definitely very, very powerful. Now, there are some disadvantages with trade secrets, and the key disadvantage is you have to keep them secret. So, they can be very, very fragile.

Patrick Daly:

And so, why do some companies actually overlook their trade secrets or not have the awareness that they possess IP that could constitute a trade secret, and what are the undesirable consequences of that lack of awareness or that having overlooked the trade secrets or the value of it?

Art Schick:

Well, the consequences can be substantial, and let me explain. So, I think every company wants to market a product or service, and so clearly their marketing organizations are quite familiar with trademarks and copyrights, as would be their law department in registering those marks in various countries across the globe, and most people have heard of patents, and companies can hire lawyers to write them and register them across the globe. I feel trade secrets sometimes are just less obvious to most people. As I mentioned, they can be, but don’t need to be novel. As an example, it’s common for a manufacturing company to go through lots of pain getting a manufacturing process to work efficiently with a high level of product quality or a low cost and through months or sometimes years of work to get the process right to develop all sorts of special ways to achieve those objectives, and they never really sit back and think about, “Hmm, all these things that I’ve developed, are they special or not? Do they drive significant value? Are these things that a competitor would love to know? These are truly trade secrets.”

Art Schick:

So, unless there is conscious work to identify these trade secrets, the company could actually end up losing those trade secrets to a competitor and therefore losing their competitive advantage. Let me give you a couple of examples. So, social media can be the bane of trade secrets. I always used the example of let’s say a young engineer who solves a significant bottleneck issue in a manufacturing process, and then he rapidly goes out and posts his solution on social media to brag and share with his friends. Bang, instantaneously, a trade secret can be lost or worse, he’s now sharing prior art which would invalidate future patent application. Another great example is your marketing team wants to demonstrate to an enormous potential customer the manufacturing prowess of the company, and they make a promotional video of your manufacturing technology, and before you know it, trade secrets are lost or exposed in this marketing material that gets sent out. So, those two examples, I think, give a great example of the fragility of these trade secrets and what you have to avoid.

Patrick Daly:

Yes, it’s almost naivety and vanity and just a lack of awareness really, isn’t it?

Art Schick:

It is absolutely, Patrick, absolutely.

Patrick Daly:

How do you advise companies now to go about identifying, codifying, and protecting their trade secrets?

Art Schick:

Well, look, like most things in life, it really needs to be a deliberate process that’s taken across the organization. You know, when you think about technology or trade secrets, most people think about the R and D and the manufacturing functions, but in reality, it’s all functions across the organization. It could include information technology, procurement, quality control, finance, marketing, and you really need to work within the company to identify what are the key value drivers that are creating the competitive advantage. So, I always say that if someone can take your product and bring it over to their lab bench and reverse engineer it, anything that they can see and reverse engineer is probably technology that’s best protected by a patent. However, if you have unique technology that’s behind the scenes that a competitor can’t see in reverse engineering the product on their lab bench, that’s definitely trade secret information and the material that you want to treat as a trade secret.

Art Schick:

Now, I have found a consultant like myself can be very helpful in this area, and Patrick, the reason why is because most companies have been doing things their way for a long time period, and they don’t necessarily think that maybe this process or method of assembly, system, formula, algorithm is particularly unique because they’ve been doing it for such a long time period, and I personally believe that every company has trade secrets. They just may not realize it. Okay. So, specifically, what would someone like myself do? I’ve generally found that where to get started is to interview various functional staff within the organization. Certainly, that can include manufacturing, and R and D, and reviewing their facilities, but also procurement, QC, and information technology, and I found also after those interviews that sometimes you can then have a cross-functional brainstorming session, and you can pretty quickly begin to identify what are the core value drivers within the organization, and therefore, what are some of the key trade secrets.

Patrick Daly:

And what are some of the best practices then that some of the better companies adopt to protect their secrets?

Art Schick:

Well, the way to protect trade secrets legally is to make sure that you have in place what’s called reasonable measures to protect them. Now, remember, we said that in order to maintain a trade secret, you have to keep it secret, and trade secret laws require that durable, reasonable measures be in place. The big challenge here, of course, is that in most laws, these reasonable measures are not truly codified. However, these reasonable measures do need to be proportional to the overall value of a trade secret. So, if there’s a trade secret of relatively low value, maybe it’s on hard copy or an information system, maybe that gets locked into a file cabinet and there’s limited employee access. But let’s say if you have a trade secret of exceptionally high value. In that case, you may only want two or three employees in the organization to really have access to that full information and the ability to leverage that full information. So, these durable measures really reduce the fragility of the trade secret.

Art Schick:

And so, as I mentioned, if someone were to have stolen a trade secret, the owner of the trade secret would have to demonstrate in a court that they consider this to be a trade secret, and they did have durable measures in place, and if an employee, let’s say, stole it, they used some sort of extraordinary methods of, let’s say, stealing that trade secret, otherwise they would lose in a court of law. So, let’s talk a little more about best practices. So, the best practices are really driven out of this entire concept of reasonable measures. So, really, the most important place to start is really dealing with the culture of the organization. There has to be a culture formed early in the organization that trade secrets are important, and there’s certain correct ways of managing those trade secrets.

Art Schick:

Apple, I think is a great example of a company that has a tremendous trade secret culture. I mean, think about it. Any time anyone hears that there’s a new technology that’s being developed in Apple or a potential product that’s going to be launched, every magazine and newspaper in the world is trying to get the first picture or the first information of what that product is going to do or what it’s going to look like, and that generally doesn’t happen until Apple is fully ready to disclose that invention, and this is because they live and breathe secrecy, and they have extensive reasonable measures in place to prevent early disclosure of inventions and products, and they do that by making sure that their employees are really well trained on how to protect trade secrets.

Art Schick:

And so, really, best from a best practice perspective, culture and training is really the first place to start within an organization, and when we talk about training, we could also spend a large amount of time on that, Patrick, but as I go through some of the other best practices, I think you’ll see these are also some of the elements that your employees need to be trained on. So, it’s an unfortunate fact that 90% of trade secrets are lost or stolen by employees. So, I mentioned about the unintentional loss through the social media disclosure earlier, but really, most other employee theft is really intentional, and yes, industrial espionage is real, but it’s factually much smaller portion of trade secret theft.

Speaker 3:

93.9, Dublin South FM.

Art Schick:

Now to get started, any company must have strong employment agreements that need to be signed when they’re hiring on people within the organization, and these agreements should contain confidentiality provisions, should explain to the employee that they are dealing with or may see confidential information or trade secret information during their employment, and they also have to have strong invention assignment clauses to the company. I think the one aspect that’s also very, very important related to these employment agreements that I think a lot of companies skip is when an employee is leaving your organization, it’s absolutely essential to remind them of those confidentiality provisions and their requirement to keep any of the corporate trade secrets secret.

Art Schick:

Then there’s some simple things. Site security, do you have a fence around your facilities? Do you have maybe a welcoming receptionist to make sure that there’s not people just walking willy-nilly through your offices? Do your employees have badge access to get into the facility, and certainly for a super-duper, really sensitive manufacturing areas and research and development areas, do you have specific badge entry access for employees and only for employees that have a real need to know to get into those specific areas? I mean, that’s really one excellent practice that a company can have.

Art Schick:

Now, interestingly trade secret information, you now know of it, but it also has to be marked as such. So, think about it, whether it’s a hard copy document or electronic document, it’s probably best to have a big red stamp, restricted and confidential on it so that the employees know this is restricted information and should only shared on a need-to-know basis. Now, many times in corporations, they may need to share some portion of a trade secret with a third party. I think sometimes a great example if you’re trying to improve, let’s say the performance of a particular part in your product, but you know that there’s third-party supplier out there that may have technology which can help you. What you definitely want to make sure you do is you have in place a legally reviewed nondisclosure agreement with that third-party supplier, and importantly, have that agreement signed and in place before any trade secret information is shared or any part samples et cetera are shared with that organization.

Art Schick:

Another area is information technology. As you know, IT systems nowadays hold a tremendous amount of corporate information, whether it’s designs, assembly procedures, formulas, algorithms, et cetera, and we all know that cybersecurity is a high area in many companies and that’s going to continue to be the case for many, many years. I would recommend that if you really have important trade secrets that they should be maintained in highly secure IT systems, and those trade secrets should really not stored in your general ERP system, particularly an ERP system that has wide company access because that certainly already breaks the reasonable measure where you only want people to have access to information on a need-to-know basis.

Art Schick:

And then lastly, on the IT system area because I’m far from an IT expert, but any IT system should also go through annual penetration testing with a reputable external firm that specializes in that area, and of course, you want to make sure as an organization that you’re implementing any of the recommendations that they come up with. Now, in some-

Patrick Daly:

[crosstalk 00:18:43].

Art Schick:

Sorry, Patrick.

Patrick Daly:

No, go ahead, go ahead.

Art Schick:

I was also going to say that in some cases, some trade secret information needs to be on hard documents, sometimes shared in meetings and such, and certainly, anytime you have hard copy trade secret information, it should be stored in locked file cabinets or file safes, and again, you want to make sure that people that have access to that information is highly limited and also only to people that have a specific need to know.

Patrick Daly:

Yeah, it’s a fascinating and kind of complex area when you get into it, and I think one that’s relevant to many, many companies, but to many companies who don’t actually realize yet that it’s relevant to them, and given the world we live in with social media and with cyber threats, it really is an area I think ripe for development. Would you agree?

Art Schick:

Oh, I would agree a hundred percent, and as we’ve been a discussing, it’s truly an area where companies have to make conscious efforts to improve and support within their organization, or they’re at risk in losing a significant competitive advantage.

Art Schick:

And then finally, Patrick, I think the other critically important best practice is you want the corporation to develop what I call an intellectual property committee within the organization, and what would this be. This would be a cross-functional team made up of a select group of employees who either develop or have to leverage IP in their daily use, but this committee would be relatively small compared to the overall organization. I mean, I’m thinking like 5% of your employee base or less, and this committee would also be run by, let’s say, three to five senior executives within the corporation, and when I’m speaking about senior executives, I’m talking about possibly even the CEO, but probably more commonly, senior executives reporting into the CEO, and this gets back to the whole culture piece. If this is not important area for the senior management team, it’s not going to happen, and it really takes senior management leadership to make sure that the right policies, procedures, and reasonable measures are put in place to be successful in this area.

Art Schick:

Okay. So, you form this committee. What is this committee going to do? Well, it can do several things. So, as an example, as new technologies are being developed within the organization, this committee can actually help to make a decision. Is this the technology I want to patent because someone reverse engineering my product could see it, or is this something that I want to maintain as a trade secret? If it is going to be maintained as a trade secret, who has a need to know, and how are we going to protect that trade secret? Are there risks coming down against our trade secrets or against our patents? Do we have gaps in our trade secret protection particularly if, let’s say, the IT infrastructure changes over time? What programs are we going to put in place to further strengthen the protection of our trade secrets? So, this committee is exceptionally important. I think for not only the program and protecting of the trade secrets, but also legally because it’s a way for these companies to demonstrate they have ongoing programs in place and durable, reasonable measures in place to legally protect their trade secrets.

Patrick Daly:

Okay. We might just change tack now, Art. There’s a question that I like to ask everybody who comes on the show, and you’re a great person, I think, to ask this question because you have worked with one of those multinational corporations that really are a manifestation of the globalization that we’ve all lived through basically since 1970 and particularly since 1990, after the Berlin Wall came down and the Soviet Union collapsed. But it seems that in recent years with COVID and with Brexit and now with the war in Europe as if globalization maybe is stalling or even going backwards. So, what’s your own view on where we are with this whole process of economic globalization at this juncture in 2022?

Art Schick:

Patrick, you’re being kind because as someone who’s been involved in supply chain for a long time period, I’ve got a lot of scars on my back. But as you point out, the world is very, very quickly changing, and like yourself, I hear a lot about reshoring and local sourcing, and I believe some of that is occurring and some of that will occur in the world. However, economically, I think full reshoring is just not advantageous and may not be economically possible for all organizations. I truly believe the real answer is developing a supply chain strategy based upon the concept of resiliency.

Art Schick:

Now, I know resiliency is many things and this is a topic that has been talked about by a lot of different people, but let me share with you a couple of my examples of what I mean by resiliency. So, first of all, you really need to understand your supply chain for all of your raw materials, and I mean going back into the third tier or earlier in your supply chain. You really want to be sure that you understand how diversified your supply chain is, and is it coming from multiple geographies, multiple countries, multiple manufacturing sites because the more locations you have, in some cases, you’re better protected than otherwise.

Art Schick:

Now, where multiple sources of supply cannot be achieved, then you really need to start to look at what are the supply risks that I’m absorbing. Are they geopolitical? Certainly, at PepsiCo, I work with a lot of agriculture products, and so you’re really dealing with weather patterns and crop yields, and you need to really think about where I have, let’s say, limited sources of supply, what’s an appropriate inventory strategy for that particular key raw material.

Art Schick:

I think another area of resiliency is really what’s the level of manufacturing redundancy that you have and do you have that across different geographies in different countries, and so if one operation would fail and couldn’t produce, you have capacity somewhere else to make up for that shortfall. Another area is standardizing parts across your products as best you can. This way, if there were shortage of parts in general, you could at least move the parts that you do have to your higher margin products. Patrick, you’re well aware that part standardization has been part of the automobile industry for quite some time, and certainly, the recent semiconductor shortage has just brought this to fore, and the automobile manufacturers are doing all they can to create more redundancy in their semiconductor world. So, resiliency will cost more, but I don’t think it’s going to be as much as it would be to completely reshore or have local sourcing, and I do feel that, over time, we’ll be developing more technology and capability in this area.

Patrick Daly:

Mm-hmm (affirmative). Now, there’s certainly lots of changes underway at the moment. So, yeah, we’re seeing these concepts of redundancy. We’re seeing a lot of automation to bring manufacturing back perhaps to countries where the labor is more expensive, and I think we’re going to see quite a lot of change over coming to 3, 4, 5 years.

Art Schick:

I would agree with you.

Patrick Daly:

Yeah. So, just as we come into the last couple of minutes, Art, we maybe change tack slightly again, and maybe that’s a key to what you’re going to answer, changing tack. So, what do you like to do in your spare time?

Art Schick:

I appreciate you asking. Well, I’ve always enjoyed the ocean, and I’ve always loved boating, and I’m becoming more of an active fisherman, and of course, retiring in Massachusetts in a beach community has helped with those passions. I’m also trying to reintroduce myself to golf which as most people know can be quite a challenge in many ways, quite frustrating.

Patrick Daly:

Well, you know Ireland is a golfer’s paradise. Have you played here?

Art Schick:

I have many times. I’m sure there’s a few broken windows.

Patrick Daly:

Are you reading anything at the moment or listening to anything, podcast or ebook, that you would recommend that particularly inspires you?

Art Schick:

Yeah, Patrick, my interests really are pretty wide, and of course, having some free time in retirement, it gives me the opportunity to, let’s say, go outside of my traditional supply chain background. Obviously, with my hobbies, I do read a fair amount of boating and fishing magazines, and I’ve recently completed two books on how to improve my golf game. Now, I only wish that physically making those changes would be as easy as reading the books about them.

Patrick Daly:

Not that [crosstalk 00:27:00].

Art Schick:

Yeah. I have completed two books recently on global warming, and I have found those topics to be quite interesting, and actually, they were somewhat encouraging because they did demonstrate that there could be some solutions, but unfortunately, they’re likely decades away. The one book I liked the most was titled Enlightenment Now by Steven Pinker, and it talked about how society indeed has improved all over the centuries, and it was a bit of an uplifting book. And then more recently, I just finished a book on how the VC world works, and that was quite interesting and fascinating because it’s something I wasn’t very familiar with at all.

Patrick Daly:

Yeah. Yeah, Pinker’s good because he tends to be quite optimistic about the world and where we are, and he bases it on data rather than on feeling. So, I think he’s quite uplifting sometimes.

Art Schick:

Well, and I would say his book was as someone who’s been educated as an engineer, he does present a lot of facts and data, and I found that quite refreshing.

Patrick Daly:

Exactly, exactly. So, to finish then, Art, where can people find out more about you, your current work and how can they contact you?

Art Schick:

Well, that’s very simple, Pat. I mean, they can certainly reach me through my LinkedIn profile. It’s Art Schick, or certainly, Pat, through yourself and would love to help anybody with their trade secret requirements.

Patrick Daly:

Excellent. It’s been an absolute pleasure, Art, talking to you today. Wish you the very best for the future, both personally and professionally.

Art Schick:

Patrick, thank you for this opportunity.

Patrick Daly:

Very welcome, Art. Thanks also to our listeners for tuning in. Any comments and questions, just drop me a line on P-D-A-L-Y, that’s pdaly@albalogistics.com. Keep well and stay safe until next time.

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Patrick Daly Interlinks Podcast

Interlinks is a programme about the connections, relationships and supply chains, that underpin the globalisation of our modern world.

In each programme, we interview people from around the world including entrepreneurs, executives, academics, diplomats and politicians to get their unique perspective on globalisation as it has affected them both personally and professionally.

There is a little bit of history, a dash of economics, a sprinkling of business and an overlay of personal experience both from me and from my interviewees from around the world.

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