Protection of Trade Secrets in Latvia: Problems and Possibilities

(excerpts from the speech of Ms Maria Boicova, presented at AIPPI Baltic Conference 2005)

On one hand the topic of the protection of the trade secrets might seem a very narrow one: trade secrets are mostly either non-protectable at all, or as the best outcome – protectable with very few means provided in the laws. Patents, copyright and trademarks are by virtue of their nature afforded certain protections by law, but trade secrets demand more proactive steps on the part of their owners in order to warrant protection. On the other hand though in order to find out the way, you have have to know where to go, what is the starting point, what are the problems, that lack the possibility of solving at the time being, and various other questions that undoubtedly arise when starting analyzing this complex issue. <…>
The main problem in protection of the trade sescrets, which from others do arise – is that there exist neither global law on trade secrets nor there is any globally accepted definition of such. In fact even in the different laws of one country might and do exist different definition of one and the same legal institute. And not even different definitions, but also different terms to be used in connection with this legal institute. For instance, in Latvian laws basically the same issue is called commercial secret, trade secret, even know-how (which of course is not the same as trade secret). In Latvian laws you may also find the term zinatiba – which if translated grammatically is something like special knowledge. Although as mentioned above, there exist no precise globally accepted definition, almost everyone agrees, that for the information to be considered as being a trade secret it has to be first of all de facto secret. Actually, there is both practical business reason and a concrete legal rationale for putting in motion a plan for safe-guarding trade secrets. On the first hand, for business purposes you need to protect your secret information from disclosure to your competitors for the reason that knowing that information gives you a supremacy over them. On the other hand, for information to be regarded as being a trade secret it obviously has to be actually kept secret. It is important to stress that the prerogative of secrecy, which in fact is included in the legal term “trade secret” is an absolute must for the information to be regarded as a trade secret. When this requirement is satisfied? This question of course is in close connection with the question of misappropriation, though briefly - the requirement of secrecy is satisfied if it would be difficult or costly for others to acquire and exploit the information without resorting to some form of wrongful conduct. <…>
The trade secret is 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. <…>
Of course many intangible assets are more suitable for trade secret than for patent protection. For example, customer lists, manufacturing methods, marketing plans and source code are all undoubtedly highly valuable assets to many companies. Trade secret protection for these types of assets may be the wisest choice, requiring a fundamental understanding of the key issues involved in trade secret protection. Therefore if the information which suits the prerequisites to be considered a trade secret and the situation is one of the aforementioned benefit situations, then the protection offered by the status of the trade secret is much recommended. <…>
For if to come closer to trade secrets’ protection questions in Latvia, it is to be stressed that there exist no special law that regulates this field of IP. Though in the absence of special legislation the protection for this unique type of IP, might be granted under: the Labour law, the Criminal law, the Law on competition, the Civil law, The Freedom of Information law, The Commercial law, as well as under the provisions of TRIPs and those of Paris Convention for the protection of industrial property. <…>
Under the Labour law the employees are required not to disclose the information which is considered to be a trade secret of employer, but there are no sanctions under the Labour law. Going forward. The Criminal law. Article 200 has sanctions for the disclosure or misappropriation of the commercial secret and the inside information and these are - 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. And for the theft of the aforesaid information: - deprivation of liberty for a term not exceeding eight years, or a fine not exceeding one hundred and fifty times the minimum monthly wage. <…>
In comparing with Lithuania, where for the aforesaid is the deprivation of liberty for a term not exceeding two years. one might say that the Criminal law in Latvia is to be considered as being rather tough for infringers. Though there comes another problem – the inconsistency of the terms used in the legislation of Latvia – this article of the Criminal law is applicable to the information containing commercial secrets and to the inside information of the financial instrument market. In fact trade secret is almost the same as commercial secret, but anyway not completely the same. Speaking about know-how – which surely must have been included in the scope of protection by the Criminal law – it is not mentioned either. The law on competition defines the fact of misappropriation of the trade secret as an unfair competition. Though taking into account the possible fine for the unfair competition which might the Competition Board apply, being up to 5% of the net turnover of the last financial year and if comparing to that of Criminal law, the sanctions under the law on competition are not the strict ones. The misappropriation of the trade secrets might cause actual damages, which might be granted under the Civil law – article 1, article 2391, although it important to stress that these articles are only general principles. If you base your statement of claim on these articles only, that most probably won’t be regarded as being sufficient. The Freedom of information law provides us with another term to be used in connection with trade secrets – a restricted access information. Articles concerning the matter are mainly descriptive in their nature, in other words – no sanctions included for the breach of the trade secret or the misappropriation of such. The Commercial law speaks about commercial secrets – without defining precisely what are to be considered as such. Referring to the article 19, which defines commercial secret as inter alia information which is, restructuring the text of an article: recorded or not, has actual or potential value or does not have a financial value – so the definition which defines nothing though makes the issue even more complex. Besides in the aforesaid definition there is an interesting phrase included, namely “which may cause losses to the merchant”. What does the aforesaid signify? As to the commercial law – no precise definition of what is considered a commercial secret, no precise definition of the scope of protection. Article 19, provides that a merchant has exclusive rights, and in particular right to request the protection of commercial secrets, as well as compensation for losses, which have been caused by the illegal disclosure or utilization of the commercial secrets. Therefore at least under this Article an owner of the commercial secret might claim actual damages. Of course once again – a question of the inconsistency of the terms, which by now I think is obvious. But there comes another problem as well – the merchant. According to the Commercial law – the merchant is a natural person (individual merchant) or a commercial company (partnership and Capital Company) registered with the Commercial Register. Does it mean that only a merchant has a right to protect his commercial secret, and trade secret as well? Or does it mean that commercial secret might belong only to merchant? The owner of the trade secret may also refer to TRIPS, and the provisions of the Paris convention for the protection of industrial property, although the first one speaks about undisclosed information – which embraces both know-how and trade secrets and provides as follows – that 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 the manner contrary to honest commercial practises. And concerning the Paris Convention. Of course the examples of unfair competition provided by the Paris Convention do not include trade secrets infringement. Nevertheless, to my point of view and actually to the point of view of many lawyers it could be argued that misappropriation of trade secrets is unfair competition under the Paris Convention terms. Especially this sounds like appropriate if taking into account the Paris Convention Article 1, which inter alia establishes that industrial property shall be understood in its broadest sense. So trade secrets following the aforementioned logic might, and actually are to be also be included in the scope of industrial property protection and therefore all the laws governing the industrial property protection in general might be applicable to them as well. Therefore when deciding cases concerning the trade secrets protection, all possible measures have to be analyzed profoundly. <…>
Referring to possibilities of protection of trade secrets, it it possible to stress the following: first and foremost – agreements with licensees and financial partners, then – warnings or notices on written materials, stating that they are secretOf course physical measures, such as periodic security checks, closed-circuit monitor, restricted access etc. And finally – non-disclosure agreements with employees, that have to be drafted in especially detailed and professional way. <…>
Every agreement relating to trade secrets has to contain clear definition of what is considered a trade secret – of what is entitled to protection;definition of steps, which the employee need to perform in order to protect the trade secret of the employer; promise of the employer that he will actually disclose to the employee the trade secret containing information and what is an absolute must in the non-disclosure agreements is; a return promise of the employee that he will not either use the trade secret of his employer for his own sake or disclose it to any third party The aforesaid of course cannot assure absolute protection, but at least would be something. And of course I am to add, that notwithstanding the problems in legislation of Latvia, mainly the inconsistency of terms, taking into consideration two following principles, the protection of trade secrets is still possible, even in under Latvian laws.
These principles are the following: first is one of the basic principles of legal theory that interpretation of the law cannot be only grammatical, you have to see the purpose of law – therefore use teleological method, and of course see things in general, therefore using systemical method – applying this principle even in Latvian laws, that lack legally defined definition, remedies et c. , lawyers can find the way to protect trade secrets of their clients. And second principle is rather precisely defined by Lord Denning in famous case Seager versus Copydex Ltd. Citing: “The law on this subject does not depend on any implied contract. It depends on the broad principle of equity that he who has received the information in confidence shall not take unfair advantage of it. He must not make use of it to the prejudice of him who gave it without obtaining his consent.” In other words – to trade secret’s protection is applicable the basic legal principle of good faith, provided inter alia in the first article of Civillikums - Civil Law of the Republic of Latvia - “rights should be used and duties should be performed only in good faith”.
Trade secrets therefore, notwithstanding Latvia being a civil law country, are to be treated with due care and due attention to both the doctrine, the case law and the basic legal principles. And taking into account the globalization processes, the accession of Latvia to the European Union and the harmonization of laws inside the Union, the question of defining the common for all the European countries principles of protection of this type of IP is undoubtedly of high importance.