(c) Maria Boicova, 2005
SUMMARY OF THE SPEACH BY MARIA BOICOVA, IP LAW FIRM LATISS, AT THE AIPPI BALTIC CONFERENCE HELD ON APRIL 06-07, 2005 IN RIGA, LATVIA.
1. What is a trade secret? Definition.
- There is no globally accepted definition
- Oxford’s “Law” dictionary:
“some process or product belonging to a business, disclosure of which would harm the business’s interests”;
- The Freedom of Information Law of the Republic of Latvia:
“information shall qualify as a trade secret, if by disclosing it, an institution may adversely affect the ability to compete of the person who has submitted this information”;
- The Commercial Law of the Republic of Latvia:
“comprises such things of an economic, technical or scientific nature associated with the undertaking of a merchant, and information which is recorded in writing or by other means, or is not recorded, which have an actual or potential financial or non-financial value, and which, by their coming into the disposition of another person, may cause losses to the merchant, and in relation to which a merchant has taken reasonable measures to preserve secrecy”; et c.
2. What might be regarded as being a trade secret
- any formula, pattern, device or compilation information which is used in one’s business and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.
- negative information, such as research options that have been explored and found worthless
3. Necessary prerequisites for the information to be considered as being a trade secret
- Basic prerequisites:
1) is or may be used in business
2) is not generally known in that trade or business - the de facto secrecy
3) shares a commercial value derived from its secret nature
4) is the subject of the owner’s continued efforts that are reasonable under the
circumstances to maintain its secrecy
- Factors, which are to be analyzed to determine whether the information is a trade secret:
1) the extent to which the information is known outside the owner’s business
2) the extent to which the information is known by employees and others involved in the
owner’s business
3) the extent of measures taken by the owner to guard the secrecy of information
4) the value of information to the owner and to its competitors
5) the amount of effort or money, contributed by the owner to develop the information
6) the ease or difficulty with which the information could be properly acquired or
duplicated by others
4. When the trade secret is a benefit?
A trade secret is definitely a benefit:
1) when the information, which is considered to be a trade secret is not protectable by
any other IPR
2) when the likelihood is high that the information can be kept secret for a considerable
period of time
3) when the trade secret is not considered to be of such great value to be deemed worth a
patent
4) when the new information does not need to be put on the market at the time of its
exploitation, e.g. when the secret relates to a manufacturing process rather than to a product, as produced are more likely to be reverse engineered
Pluses of trade secret protection in comparison with patent afforded protection:
- non-public; the description of an invention is not publicly available;
- no exact period of protection; protection lasts as long as the information is maintained
as a trade secret;
- is applicable to the sort of information which is not protectable by other IPR
protection types: e.g. customer lists, manufacturing methods, marketing plans, source codes, which however might be considered rather valuable by the owner.
Minuses of trade secret protection in comparison with patent afforded protection:
- trade secrets cannot deter others from competing; patents deter others from competing
in an area of technology, while trade secrets do not.
- can only stop someone from actively misappropriating a trade secret, while can only be purposeful; a patent excludes others from practicing an invention even if such practice as innocent infringement.
5. Examples of successful trade secrets:
1) In ancient China revealing the secrets of silk production or smuggling silkworms out of the country was punishable by death, an effective sanction which delayed the first manufacture of silk in the West by a good 2000 years.
2) The same disincentive was applied to Venetian glassmakers who, even if they had no intention of spilling the beans, were still all locked up on the island of Murano, turning out millefiori and the like without risk of competition.
3) Coca-Cola keeps the recipe for its world-conquering drink locked away in a bank vault in Atlanta, Georgia, accessible to only two people who are never permitted to travel together, in case they are both killed in an accident, or kidnapped by Pepsi and the formula that taught the world to sing is lost forever.
4) Famous Olivie salad is a great example of trade secret protection. Although there were and there most definitely are plenty of hints, nobody in the world knows how to make the Olivie salad, for the reason that Mr.Olivie has never disclosed neither all the ingredients, nor the proportions.
6. Misappropriation of the trade secrets:
- Misappropriation:
1) wrongful borrowing
2) the fraudulent appropriation of funds or property entrusted to your care but actually owned by someone else
(Internet dictionary at http://www.hyperdictionary.com/)
- in the area of trade secret law, any wrongful taking of a trade secret is called misappropriation of the trade secret.
- When the disclosure or using of the trade secrets is not considered a misappropriation:
1) confidential disclosure to employees or others bound to secrecy does not destroy status of the trade secret
2) if the subject matter of an alleged trade secret is created through an initiative of the employee, the employee may then have an interest in the subject matter at least equal to that of his employer or in any event, such knowledge is part of employee’s skill and experience, consequently it cannot be regarded as a misappropriation.
3) an inevitable misappropriation; if the former employee’s new job is so similar to the former job, that the former employee cannot prevent his knowledge of his former employer’s confidential methods from showing up in his work.
- the remedies which might be available for misappropriation of a trade secret include (e.g. in USA, UK):
1) injunctions
2) actual damages
3) attorneys fees
4) punitive damages
5) possible criminal prosecution
- a cause of action for misappropriation of trade secret may lie in:
1) contract and tort law in common law jurisdictions and civil law in civil law countries
2) unfair competition law
3) criminal law
4) the laws governing employer’s and employee’s relations
5) the laws governing fiduciary obligations
- in the claim you have to prove:
1) that the trade secret actually existed
2) that it was acquired through a breach of confidentiality relationship or discovered bu
improper means
3) that the trade secret was used or disclosed without authorization from its owner
7. Legislation of Latvia about trade secrets:
- the protection of trade secrets for the absence of special legislation might be granted under:
1) the Labour law
2) the Criminal law
3) the Law on competition
4) the Civil law
5) The Freedom of Information law
6) The Commercial law
+ 7) the provisions of TRIPS and
8) the provisions of Paris Convention for the protection of industrial property
1) The Labour Law
Article 11, part 3:
(3) Employee representatives have the duty not to disclose information brought to their attention that is a commercial secret of the employer. The employer has the duty to indicate in writing what information is to be regarded as a commercial secret.
Article 83:
Duty of Non-disclosure
(1) An employee has a duty not to disclose any information brought to his or her knowledge which is a commercial secret of the employer. The employer has a duty to indicate in writing what information is to be regarded as a commercial secret.
(2) An employee has a duty ensure that the information referred to in Paragraph one of this Section relating to the performance of his or her work is not directly or indirectly available to third parties.
2) The Criminal Law
Article 200:
Unauthorized Acquisition and Disclosure of Information Containing Commercial
Secrets, as well as Unauthorized Disclosure of Inside Information of the Financial Instrument Market
(1) For a person who commits unauthorized acquisition of economic, scientific technical, or other information in which there are commercial secrets, for use or disclosure by himself or herself or another person, or commits unauthorized disclosure of such information to another person for the same purpose, as well as commits unauthorized disclosure of inside information of the financial instrument market,
the applicable sentence is deprivation of liberty for a term not exceeding five years, or custodial arrest, or community service, or a fine not exceeding one hundred times the minimum monthly wage.
(2) For a person who commits theft of the information indicated in Paragraph one of this Article,
the applicable sentence is deprivation of liberty for a term not exceeding eight years, or a fine not exceeding one hundred and fifty times the minimum monthly wage.
[18 December 2003]
3) The Law on competition
- the breach of trade secret, its misappropriation or disclosure or anything else of that ilk is undoubtedly considered as being an unfair competition.
Article 18, part 3, point 4
- the unauthorized gaining, using and distributing of an information which is a trade secret is considered to be a obstacle to the competition, and therefore, an unfair competition
Article 18, part 1
- the unfair competition is prohibited.
Article 19
- the Competition Board might apply a fine for the abovementioned actions up to 5% of the net turnover of the last financial year, although not less than 250 lats.
2) The Civil law
Article 1
- “rights should be used and duties should be performed only in good faith”
- the misappropriation of the trade secret, the unauthorized disclosure of that etc. are undoubtedly contrary the first article of the CL.
Article 2391
- “No one has the right to unjustly enrich himself or herself, harming and at the expense of another person. If a person has suffered losses therefrom he or she may demand the return of that which and the amount the other person has been enriched by”.
3) The Freedom of information law
Article 5, part (2)
- “(a)s restricted access information shall be deemed information: <…>
3) which concerns trade secrets;
Article 5, part (3)
- the author of information or the manager of an institution has the right to grant, by his or her order, the status of restricted access information, indicating the basis therefore provided by this Law or by other laws.
Article 5, part (4)
- information, which is accessible to the public without restrictions provided by law, or which has already been published, shall not be deemed to be restricted access information.
Article 7, part (1)
- information shall qualify as a trade secret, if by disclosing it, an institution may adversely affect the ability to compete of the person who has submitted this information.
Article 7, part (2)
- protection of the trade secrets of natural and legal persons may not restrict the rights of other natural and legal persons to obtain information which is accessible in accordance with other provisions of law.
4) The Commercial law
Article 19, part (1)
- a commercial secret comprises such things of an economic, technical or scientific nature associated with the undertaking of a merchant, and information which is recorded in writing or by other means, or is not recorded, which have an actual or potential financial or non-financial value, and which, by their coming into the disposition of another person, may cause losses to the merchant, and in relation to which a merchant has taken reasonable measures to preserve secrecy.
Article 19, part (2)
- a merchant has exclusive rights to commercial secrets.
Article 19, part (3)
- a merchant has the right to request the protection of commercial secrets, as well as
compensation for losses, which have been caused by the illegal disclosure, or utilisation of the commercial secrets.
7) TRIPS
Article 39
1. In the course of ensuring effective protection against unfair competition as provided in Article 10bis of the Paris Convention (1967), Members shall protect undisclosed information in accordance with paragraph 2 and data submitted to governments or governmental agencies in accordance with paragraph 3.
2. Natural and legal persons shall have the possibility of preventing information lawfully within their control from being disclosed to, acquired by, or used by others without their consent in a manner contrary to honest commercial practices (10) so long as such information:
(a) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
(b) has commercial value because it is secret; and
(c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.
3. Members, when requiring, as a condition of approving the marketing of pharmaceutical or of agricultural chemical products which utilize new chemical entities, the submission of undisclosed test or other data, the origination of which involves a considerable effort, shall protect such data against unfair commercial use. In addition, Members shall protect such data against disclosure, except where necessary to protect the public, or unless steps are taken to ensure that the data are protected against unfair commercial use.
8) Paris Convention for the protection of industrial property
Article 1, part (3)
Industrial property shall be understood in the broadest sense and shall apply not only to industry and commerce proper, but likewise to agricultural and extractive industries and to all manufactured or natural products, for example, wines, grain, tobacco leaf, fruit, cattle, minerals, mineral waters, beer, flowers, and flour.
8. Summary of the basic problems of trade secrets` protection in Latvia
1) no exact definition;
2) absolute inconsistency of terms: know-how, special technical information, commercial secrets, trade secrets, special professional knowledge etc;
3) no law governing all the various aspects of protection of that type of IPR
4) in the absence of law - no defined principles of protection
5) remedies available for the misappropriation of the trade secrets not defined
9. Non- legislative measures of protection of the trade secrets
Non-legislative measures of protection of the trade secrets:
1. agreements with licensees and financial partners
2. non-disclosure agreements with employees
3. warnings or notices on written materials, stating that they are secret
4. physical security measures, such as for example, periodic security checks, closed-circuit monitors, restricted access, classified areas etc.
Concerning the non-disclosure or confidentiality agreements, it is important to stress that it must consist of:
1) promise of the employer, that he will disclose trade secrets to the employee
2) return promise of the employee not to use the disclosed trade secrets for his own sake or further disclose them to the third party
3) clear definition of what is considered to be a trade secret, therefore what is entitled to protection
4) definition of steps, which the employee need to follow in order to protect the trade secrets of the employer
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