Main topics on Trade Secrets in Latvia

(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

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.