Trade Secret: Best Practice

In today’s world, information of all kinds is of great value. Corporate structures all industries actively use trade secrets to protect their know-how and other information of commercial value, which, in turn, contributes to competitiveness and innovation in various areas. Trade secrets can include technical secrets such as: processes, recipes (e.g., the Coca-Cola formula), prototypes, programs, customer and supplier lists, and cost and pricing information. Given the growing use of the trade secret protection mechanism and its economic importance, many companies raise the question how are trade secrets and know-how protected from a legal perspective.  In Russia, protection of trade secrets and know-how is set out in the Civil Code of the Russian Federation, Part 4, Chapter 75[1].

And how are trade secrets and know-how protected abroad? The largest international agreement on trade secrets between countries is the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement.[2] Under this agreement, 159 member countries agree on a common definition of trade secrets. In addition, The TRIPS Agreement provides for certain basic principles, establishing that individuals and legal entities have the right to ensure that their trade secrets are not illegally disclosed, acquired or used without their consent in a manner contrary to fair commercial practices.

Trade Secrets in the USA

The U.S. is a member of the World Trade Organization (WTO) and a party to the TRIPS. Prior to May 2016, the U.S.  provided some protection for trade secrets through state law. Most states adopted the Uniform Trade Secrets Act[3], which is similar to the TRIPS regulation. The state law allowed the protection of trade secrets by giving courts the power to make the following rulings against the party in breach and related to:

• Royalty payment;
• Damages;
• Expenses of court procedure;
• Reasonable attorneys’ fees;
• Obligation of confidentiality of trade secrets.

However, unlike other types of intellectual property, such as patents, trademarks and copyrights, trade secrets were not protected by U.S. federal law.

On May 12, 2016, the Defense Trade Secrets Act (DTSA) took effect in the U.S.[4]

The DTSA was enacted to strengthen existing U.S. trade secret protections by giving injured parties the opportunity to litigate under both federal and state law.

The law also has the power to order ex parte seizure under special circumstances, as well as to order exemplary damages of up to two times the monetary damages if the court finds evidence of willful and malicious conduct on the part of the defendant.

Trade Secrets in the EU

Theft of trade secrets, also called economic espionage, is being used more and more and is also a problem in the EU. On top of that, faced with increasing global competition, the use of external consultants, offshore manufacturing and wide use of outsourcing, the EU has come to the realization that something needs to be done to protect the trade secrets of EU companies.

The current trade secret protection that exists varies greatly among EU countries and is not interchangeable due to the lack of pan-European legislation and differences in national laws.

Some EU countries have their own trade secret laws. Such countries include Austria, Bulgaria, Czech Republic, Estonia, Germany, Finland, Greece, Hungary, Italy, Latvia, Lithuania, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

For example, in Germany the Trade Secrets Protection Act (Gesetz zum Schutz von Geschäftsgeheimnissen[5]) is responsible for the protection of trade secrets. In accordance with current legislation, a trade secret according to this law is information as follows:

1. Not generally known or readily available, either in whole or in part, in its components, to all persons;
2. Subject to appropriate measures of confidentiality by the legitimate owners in the circumstances;
3. If there is a legitimate interest in maintaining the secrecy of the information.

At the same time, there is a number of European countries that do not rely on judicial interpretation of contractual liability or traditional common law to protect trade secrets. These countries include Belgium, France, Ireland, Luxembourg, Malta, the Netherlands, and the United Kingdom.

In addition, Germany, Finland, Greece, Denmark and Spain do not define what constitutes a trade secret. In addition, trade secrets in Cyprus are protected only by contract, while France allows for criminal penalties against employees specifically for the theft of trade secrets.

These fragmented and sometimes outdated national legal differences create uncertainty and are reflected in the general reluctance of EU enterprises to take legal action for violations of trade secrets.

In China, trade secret protection is mainly based on the current Law Against Unfair Competition of the People’s Republic of China[6], while most actual standards are based on case-law of courts.

The Law Against Unfair Competition of the People’s Republic of China provides definitions and types of trade secrets, and trade secrets protected by law shall mean technical and commercial information that is not known to the public and can bring economic benefits to right holders, have practical applicability, and right holders have taken measures to keep them confidential.

Trade Secrets in the China

In China, trade secrets cover technical information and commercial information, and the acts that violate trade secrets can be roughly divided into four categories:

1. Acts of improperly accessing the trade secrets of others;
2. Acts of improperly disclosing, using, or permitting others to use trade secrets;
3. Breaches of confidentiality obligations to unlawfully disclose or use trade secrets obtained lawfully;
4. Malicious access to, use or disclosure of trade secrets by third parties.

Litigation is the only way to confirm trade secrets in China. In the absence of a court ruling on the existence of trade secret ownership of information, trade secret status remains presumed but not proven. Typically, a trade secret litigation arises after the alleged misappropriation of information. The owner of the trade secret files a lawsuit as a claimer alleging that the defendant violated the claimer’s proprietary rights with respect to the information. In addition to legislative measures, business owners take their own measures to protect trade secrets. Such measures include confidentiality agreements (NDAs).

To summarize the above, on the one hand, in most countries of the world the purpose of protecting trade secrets is much the same, but on the other hand, each country has its own subtleties and nuances in understanding how and on the basis of what principles trade secrets should be protected.