INTERNATIONAL PROTECTION OF TRADE SECRETS
R. MARK HALLIGAN, ESQ.
COPYRIGHT 1995 R. MARK HALLIGAN, ESQ. Last Revision: 9/14/00
As the world moves rapidly toward an international marketplace, industrial nations around the world are recognizing the importance of protecting trade secrets. American companies must be assured that trade secret rights will be respected under international licensing agreements with the same protections and remedies as are available in the United States. It is often said that "a trade secret once lost is lost forever." The value of a trade secret lies in its secrecy. If a company cannot insure the protection of its trade secrets in a foreign country, it will not do business in that country. Thus, the international marketplace demands the uniform and effective enforcement of trade secret rights.
The following survey of trade secret protection in various countries around the world reveals that there has been a dramatic movement toward increased protection of trade secrets in the 1990s. The trend is certain to continue.
This survey also reveals a surprising uniformity in the treatment of trade secrets around the world. Trade secret theft constitutes a crime in many countries.
There are three essential elements to prove the existence of a trade secret: (1) it must be commercially valuable information, (2) not in the public domain, and (3) the subject of reasonable efforts to maintain its secrecy. Further, liability for trade secret misappropriation, to be effective, must extend not only to the actual misappropriator but also to all other persons who know or should know that they are the recipients of such information obtained by unauthorized acquisition, disclosure or use (third-party liability). Finally, there must be effective remedies including injunctive relief, damages, and ex parte seizure orders to prevent infringement and to preserve evidence.
These essential tenets of trade secret law are recognized by NAFTA, GATT and the laws protecting trade secrets around the world.
The United States, Canada and Mexico entered into the North American Free Trade Agreement (NAFTA) on December 17, 1992. NAFTA follows US trade secret law. NAFTA defines a trade secret as information having commercial value, which is not in the public domain, and for which reasonable steps have been taken to maintain its secrecy. Member countries must protect trade secrets from unauthorized acquisition, disclosure or use. Remedies must include injunctive relief and damages. In response to NAFTA, Mexico has amended its 1991 trade secrets law to permit private litigants to obtain injunctive relief.
On April 15, 1994, the major industrialized nations of the world, including the United States, concluded the Final Act resulting from the Uruguay Round of GATT (General Agreement on Tariffs and Trade). GATT established the World Trade Organization (WTO) and promulgated various trade-related agreements including TRIPS or the Trade-Related Aspects of Intellectual Property Rights.
The World Trade Organization has its headquarters in Geneva, Switzerland. The first director general is Renato Rugiero, a former Italian trade minister. Under the new GATT procedures, a Dispute Settlement Body is to be established to adjudicate trade secret disputes.
The TRIPS Agreement provides protection for "undisclosed information." Such information must be secret, i.e., not generally known or readily accessible to "persons within the circles that normally deal with the kinds of information in question." Also, the information must have commercial value because it is secret and the information must be the subject of reasonable steps by its owners to keep it secret.
Under GATT, "undisclosed information" must be protected against use by others without the consent of the owner if the use is contrary to honest commercial practices. Also, there is third-party liability for misappropriation if third parties knew or were grossly negligent in not knowing that such information had been obtained dishonestly.
The TRIPS Agreement requires member countries to provide effective remedies for trade secret misappropriation including (a) injunctive relief (b) damages and (c) provisional relief to prevent infringement and to preserve evidence.
Thus, GATT provides all the protections for "undisclosed information" that are available under U.S. trade secrets law. There now exists a uniform mechanism for the international protection of trade secrets under GATT.
The United Kingdom provides broad and effective protection for trade secrets. Search-and seizure orders may be issued to protect trade secrets and preserve evidence. There exists the full panoply of remedies for a "breach of confidence" including injunctive relief, damages and third-party liability.
Many aspects of the doctrinal development of the law of trade secrets in the United States came from England.
The law of trade secrets in Canada is based on English common law and is similar, in many respects, to U.S. law. Canadian courts have relied on the same factors set forth in the original Section 757, Restatement of Torts to define the existence of trade secret rights. Causes of action range from breach of contract, breach of fiduciary duty, breach of confidence and unjust enrichment.
Under Mexican law, the Law on Industrial Property provides trade secret protection for "product" information--the nature and characteristics of the product, the methods or processes by which a product or article is produced, and/or the means by which a product is distributed or a service rendered. There are civil remedied and criminal penalties.
In 1996, Brazil revamped its intellectual property laws. Trade secrets are protected under the rubric of "unfair competition." A "trade secret" is defined as any confidential knowledge, information or data usable in industry, commerce or services that the owner clearly intends to keep secret.
Borrowing from U.S. law, a variant of the Section 757 (6-factor) test is used to determine whether a particular piece of information qualifies as a trade secret, Common knowledge, knowledge in the public domain, or knowledge that is apparent to an expert in the field cannot qualify for protection as a trade secrets. The trade secret owner must take positive steps to safeguard the secrecy of the information.
The full panoply of relief is available--compensatory damages, punitive damages and injunctions. There are also criminal sanctions available against anyone who releases, exploits, or uses without authorization a trade secret to which he or she had access by virtue of a contractual or employment relationship.
The French criminal code has had provisions relating to the theft of trade secrets since 1844. Injunctive relief, damages and third-party liability is available to the private litigant. French law recognizes three types of trade secrets; (1) manufacturing trade secrets (secrets de fabrique), know-how (savoir-faire) and confidential business information.
Reunified Germany provides strong protection for trade secrets. Germany's 1909 unfair competition law created criminal penalties. Private litigants can obtain injunctive relief and damages. There is third-party liability. A trade secret includes information that is commercially valuable, not in the public domain, and for which its owner has shown an "objective intent" to keep secret.
Italy provides strong protection for trade secrets. Trade secret theft is a crime. The full panoply of remedies for trade secret misappropriation are available to private litigants. There is third-party liability.
Israel has a criminal statute (Penal Law 1977 Section 496) prohibiting the disclosure of trade secrets by an employee. Employee contracts enjoin employees from using trade secrets and industrial know-how. There is an implied obligation of confidentiality between employers and employees.
The Czech Republic's trade agreement with the United States mandates a law for the protection of trade secrets which was defined between the parties to include "any formula, device, compilation of information, computer program, pattern, technique or process that is used or could be use in the trade secrets owner's business and has actual or potential economic value from not being generally known to competitors or in the relevant industry." See Czechoslovakia-United States: Agreement on Trade Relations, 29 I.L.M. 902, 916 n.1 (1990).
Effective June 15, 1991, Japan enacted a national trade secrets law. Trade secrets include any "technical or business" information that has commercial value, is not in the public domain, and which has been "administered" as a trade secret. Infringement occurs when a person procures a trade secret, by theft, fraud, or extortion or when there is an unauthorized use or disclosure of a lawfully acquired trade secret for unfair competition. An injured party may obtain injunctive relief and damages. The trade secret holder may also request destruction of any articles that have been manufactured as a result of the illegally obtained trade secret. The statute has similarities to the Uniform Trade Secrets Act. For sample, there is a 3-year statute of limitations after discovery of the trade secret violation. There are no criminal penalties in the statute.
The Law of the People's Republic of China (PRC) against Unfair Competition (Unfair Competition Law) was promulgated by the State Council in September 1993 and became effective on December 1, 1993. This is China's first trade secret law. The term "trade secrets" is defined as technical and management information that is unknown to the public, can bring economic benefits, is of practical value, and for which the rightful party has adopted measures to maintain its confidentiality. Article 10 of the The Unfair Competition Law prohibits business operations from engaging in any of the following acts:
1. obtaining the trade secrets of the rightful party by theft, inducement, duress, or other illegal means;
2. disclosing, using or allowing others to use the trade secrets of the rightful party obtained by illegal means; or
3. disclosing, using or allowing others to use trade secrets in breach of an agreement or the confidentiality requirements imposed by the rightful party.
There is third-party liability. Third parties who obtain, use, or disclose business secrets that they knew or should have known to have been infringed by any of the methods in (1)-(3) above will be deemed to have infringed trade secrets.
An injured party may institute proceedings in the people's court to seek compensation for damages (Article 20). If these damages cannot be calculated, the amount of profits obtained by the infringing party together with reasonable fees arising from the investigation will be paid. Injunctive relief is also available.
In the event of an infringement, the offices of the Administration for Industry and Commerce above the county level will order the infringer to cease the infringing act and impose a civil fine of at least RMB10, 000 but less that RMB200, 000 (Article 25). If the infringer does not comply with the cessation order, a fine of more that twice and less that three times the amount of the value of goods sole will be imposed. (Article 28). A decision of the Administration for Industry and Commerce may be appealed to court.
Under the law of confidential information, industrial know-how in documents, design specifications, drawings, or other tangible forms of confidential information are protected. Information with the "necessary quality of confidence" and that is imparted under circumstances imposing an obligation of confidentiality can be protected and an injunction can be obtained to prevent the unauthorized disclosure or use of such information.
The common law protects confidential information and trade secrets. The law is not limited to employees or contractual relationships. Any confidential relationship is protected; a formal agreement is not required. There is also third party liability. The law provides for injunctive relief, damages, accounting for profits and return/destruction of trade secret information.
From 1977 until 1991, approval of foreign investments by the Indian government often required the disclosure of trade secrets. This deterred foreign investment by US companies such as Coca-Cola and IBM. Since 1991, the situation has improved.
Under Indian common law and British precedents, there is protection for trade secrets and confidential information including but not limited to formulae, product specifications, manufacturing techniques, drawings, diagrams, pricing, supplier details, customer lists, pricing, management know-how, strategic business plans. All remedies are available--injunctive relief, damages, accounting of profits, and the return of all property containing the trade secret information. An ex parte seizure order (England--Anton Pillar Order), which is analogous to a search warrant, can be obtained in civil actions to search the defendant's premises in order to obtain the evidence to establish the theft of trade secrets at trial.
Apart from the common law, India has not adopted any civil or criminal statutes or laws relating to trade secrets.
In 1991, Korea also amended its laws to provide statutory protection for trade secrets. This law, effective December 15, 1992, was enacted during US litigation between GE and a Korean firm that had acquired GE trade secrets from a former GE employee. See General Electric Co. v. Sung, 843 F. Supp. 776 (D. Mass. 1994).
The revised Unfair Competition Prevention Act (UCPA) defines trade secrets as:
1. technical or operational information useful for any production and sales methods and other business activities;
Misappropriation ("infringing" acts) are defined as:
Both injunctive relief and damages may be awarded. In addition, the Court may also order appropriate measures to restore the business reputation of the trade secret owner, destruction of the products made by the infringing act, and/or destruction of the equipment used to carry out the infringing act. Criminal sanctions are also available against an officer or employee of an enterprise who disclosed to a third party in order to gain an unfair profit or to injure the enterprise.