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02.05.2019

Protection of trade secret in European fashion

In May 2019 issue of iTiesības, an article dealing with trade secret and its protection by Zane Eglīte-Fogele, partner, and Kristīne Sakārne, attorney at law, both from PRIMUS DERLING, was published.

On 1 April 2019, the Trade Secret Protection Law entered into force by means of which Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure was implemented in national law.

Clearer definition of the term

The new Trade Secret Protection Law clarifies the definition of the term “trade secret”, which states that a trade secret is undisclosed information of an economic nature, technological knowledge and scientific or other information.

However, in order to ensure that information obtains the status of trade secret, the business operator also has to ensure that other conditions precedent specified in the Commercial Secret Protection Law are met as well. According to the Law, information will be a trade secret only if:
(a) it is secret,
(b) it has (actual or potential) commercial value, and
(c) the trade secret holder has taken reasonable steps under the circumstances to keep it secret.

The new Law also explicitly states that the trade secret holder may be an individual or a legal entity. Only persons who have lawfully acquired the trade secret and are entitled to manage (control) it, including its use and disclosure, may exercise the trade secret protection options provided by the Law and are recognized as trade secret holders.

The Trade Secret Protection Law does not lay down specific provisions on how the business operator should ensure the secrecy and protection of economically relevant information. These issues should be assessed individually by each business operator, taking into account the number of employees or cooperation partners as well as the sector in which the specific business operator operates.

Trade secret protection system

The Trade Secret Protection Law allows the business operator to protect his information in two ways. First, by means of introduction of an internal system of trade secret protection and, second, the right of the business operator to bring an action against a person that has illegally acquired, used or disclosed a trade secret. However, if the business operator has not implemented the appropriate internal measures for the protection of the trade secret, going to court may also not end with the desired result for the business operator – recovery of damages or application of other legal remedies according to the particular situation.

Preventive measures

In order to make full use of the opportunities provided by the new Trade Secret Protection Law, every business operator should rethink and assess how the work with commercially relevant information is organised and, if necessary, introduce the necessary safeguards.

First of all, it is necessary to define what a trade secret is for the particular business operator. It may depend on the specificity and scale of the business operator’s business, the amount of information in circulation, the number of employees and partners. For small businesses with easily comprehensible amount of information to be used in daily work, business secrets can be practically all s.c. internal information on the commercial activity of the business operator.

As to large-scale merchants, they should carefully assess which information should be recognised a trade secret. This is because there is a risk that, in the event of a dispute concerning the disclosure of a trade secret, it may be established that the information in question is far from being a trade secret as it does not meet the criteria established for a trade secret by law or it will not be possible to prove that appropriate and reasonable measures for the protection of trade secrets were in place. It would therefore be unreasonable to use the broad and general definition of a trade secret applied to a small business operator, as this would mean that safeguards should be introduced for all ‘publicly unavailable undisclosed’ information of the business operator, which may prove to be a mission impossible. Therefore, it is advisable to apply the status of trade secret and to implement purposefully the secrecy and protection measures prescribed by law only in respect of such information that is really significant and economically important for the particular business operator’s activity.

One of the trade secret protection mechanisms provided for in the Trade Secret Protection Law is the obligation of the trade secret holder to inform, when disclosing trade secrets to other persons, in writing that all or some of the information provided is a trade secret.

It is well-known that any system or procedure has to be documented and that such documents need to be made available to persons who are bound by the provisions of these documents. The new procedures for the protection of trade secrets may be included in the existing internal rules in the form of supplements, or a separate procedure may be developed for the obligations of employees and other persons attracted by the business operator to work with a trade secret.

Protection in case of infringement – bring an action

In the event of trade secret infringement, such as unauthorised copying, disclosure, etc., the business operator may address the court and request that certain actions are banned and damages are recovered from the guilty party. Furthermore, it is possible to apply for one of the following statutory remedies: damages, recovery of the amount (license fee) that the trade secret holder could receive for the granting of rights of use, or the recovery of profits unlawfully obtained by the person as a result of an offense (misappropriation, use or disclosure of trade secret). As regards non-pecuniary damage, the amount of its indemnity will be determined by the court at its discretion.

In addition, application of one or more of the remedies listed in the Trade Secret Protection Law may be requested, such as the destruction or transfer of commercially sensitive material or the recall, or removal or even destruction of infringing goods.

The full version of the article in Latvian is available in the May issue of iTiesības.

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