Protection of Trade Secrets
On the 27/11/2020, the Protection of Undisclosed Know-How and Business Information (Trade Secrets) against their Unlawful Acquisition, Use and Disclosure Law was published in the Official Gazette of the Republic and its object is to lay down rules on the protection against the unlawful acquisition, use and disclosure of trade secrets.
With this legislation, Cyprus has incorporated the provisions of European Directive 2016/943, which aims at harmonising national legislation concerning the measures procedures and legal remedies in order to prevent, or obtain redress for, the unlawful acquisition, use or disclosure of their trade secret as well as the smooth-functioning of the internal market for research and innovation, throughout the European Union, but without jeopardising or undermining fundamental rights and freedoms or the public interest, such as public safety, consumer protection, public health and environmental protection, and should be without prejudice to the mobility of workers.
Definitions και invocation
Under the law, a trade secret means information which –
(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,
(c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.
The first 2 requirements cover business information in general which has a financial value and without restriction. Indicatively, trade secrets may be such as information on the customers and the suppliers of a business, manuals and plans, know how, market research on products, design rights, copyright, financial data, technical information (for example a construction or software) and commercial / business knowledge and secrets (for instance a recipe of well-known products (e.g. Coca Cola) or algorithms of successful programs), which provide a competitive advantage to the business-holder, as long as they remain secret and do not become public use, they secure. It is important to note that in order for a trade secret holder to invoke and apply the abovementioned law, the trade secret holder (who is any natural or legal person lawfully controlling a trade secret) is able to prove that he is primarily in a position that he meets the third requirement by taking « reasonable efforts», in other words he has taken a number of reasonable measures (legal, technical, organizational) to ensure the confidentiality of trade secrets.
Judgments of European Courts of Justice refer to the need to take measures as a condition for the protection of confidentiality. In the Spanish case no. 441/2016, the district court of Madrid, suggested that measures to avoid disclosure should be "sufficient and reasonable" and should be taken both externally and internally. External measures should prevent third parties from accessing information and internal measures should restrict access to "employees and associates" who are aware of or handle the information. In the Austrian case no. 4 Ob 165/16, the Supreme Court of Austria ruled that, under national law, the trade secret holder had sufficiently demonstrated his intention to keep the information confidential. His efforts included maintaining a logging system with a username and password and ensuring that only a limited number of identified individuals had knowledge the information. The court referred to the Directive and concluded that its interpretation was in line with the third requirement of the new definition. This case demonstrates that the Directive does not require the trade secret holder to successfully maintain the confidentiality of confidential information, but rather states that he must be able to prove that he has taken reasonable steps to maintain confidentiality.
Indicative measures that the trade secret holder can take to protect the confidentiality of the trade secret are the following:
• Non-disclosure agreements (NDAs)
• Non-disclosure and non-competition clauses incorporated into any agreement or Memorandum of Understanding
• Monitoring employee activity
• Marking of documents
• Employee training
• Non-attraction clauses and agreements
• Application of data protection rules
• Restricting access to certain documents and/or areas within a business/company
The protection of the holder of a trade secret under this law against both non-contracting third parties/infringers (who are any natural or legal person who unlawfully acquired, used or disclosed a trade secret) from unlawful acquisition or use as well as against to its "recipient" if such behaviour is demonstrated to be in breach of contract. It even applies to counterparty licensors who exhibit behaviour which is unlawful or in breach of contract.
When is the acquisition, use and disclosure of trade secrets considered lawful?
The unlawful acquisition, use or disclosure of their trade secret jeopardizes its rightful owner's ability to reap the benefits of the pioneer or to exploit trade secrets by leveraging the results of its innovative efforts and gaining benefits from the value of its trade secrets over its competitors.
On the basis of section 4 of the Law, the acquisition of a trade secret shall be considered lawful when the trade secret is obtained by any of the following means:
(a) independent discovery or creation;
(b) observation, study, disassembly or testing of a product or object that has been made available to the public or that is lawfully in the possession of the acquirer of the information who is free from any legally valid duty to limit the acquisition of the trade secret;
(c) exercise of the right of workers or workers' representatives to information and consultation in accordance with Union law and national laws and practices;
(d) any other practice which, under the circumstances, is in conformity with honest commercial practices.
(e) such acquisition, use or disclosure is required or allowed by Union or national law.
Judicial Protection Measures
Section 5 of the Law, equips the trade secret holder with significant protection capabilities so that the trade secret holder has the right to request the measures, procedures and means of legal protection in order to prevent the illegal acquisition, use or disclosure of trade secrets and to ensure legal protection against infringers who obtained the trade secret without his consent and pursuant to section 10, the Court may order a series of temporary and precautionary measures against the offender to safeguard the rights of the holder.
In the event of a possible legal dispute, it is also useful to have proof of creation / ownership of that trade secret which can be achieved by:
• Certification by a certifying officer (to prove the time of creation)
• Certification by a Public Authority
• By letter that can be sent to the holder’s address
• By any other means that can prove creation / ownership
Upon the request of the injured party, the Court may order on basis of section 16, an infringer who knew or ought to have known that he, she or it was engaging in unlawful acquisition, use or disclosure of a trade secret, to pay the trade secret holder damages appropriate to the actual prejudice suffered as a result of the unlawful acquisition, use or disclosure of the trade secret.
When setting the damages, the Court shall take into account all appropriate factors, such as the negative economic consequences, including lost profits, which the injured party has suffered, any unfair profits made by the infringer and, in appropriate cases, elements other than economic factors, such as the moral prejudice caused to the trade secret holder by the unlawful acquisition, use or disclosure of the trade secret. Alternatively, the Court may, in appropriate cases, set the damages as a lump sum on the basis of elements such as, at a minimum, the amount of royalties or fees which would have been due had the infringer requested authorisation to use the trade secret in question.
Publication of judicial decisions
It is possible to have an order issued at the expense of the infringer, in order to take appropriate measures to disseminate information about the decision, including its full or partial publication.
The Law provides for dissuasive penalties (section 18) for any person involved in legal proceedings concerning the unlawful acquisition, use or disclosure of trade secrets such as a party, lawyer, court clerk, witness, expert or other person who has access to documents which form part of these court proceedings as well as to any alleged infringer of trade secrets or to anyone who refuses to comply with or breaches the order foreseen by section 10 of the Law.
Importance of the legislation
Directive 2016/943, aims to expand the protection of intellectual property rights by introducing the concept of trade secret covering a wide range of know-how and business information, either in addition to or alternatively to intellectual property rights and its adoption by all countries European Union in order to harmonize the legal protection of trade secrets across the EU by ensuring a single institutional framework, ensuring an adequate and coherent level of civil litigation in cases of unlawful acquisition, use or disclosure of trade secrets.
The enactment of the new legislation fills a large gap in Cypriot law and will be catalytic in the protection of trade secrets against practices which are against good morals aimed at embezzling trade secrets (theft, unauthorized copying, financial espionage or fraud), resulting in the promotion of economic growth and employment and encouraging innovation and creativity and increasing investments by facilitating the smooth operation of the market by creating a favourable environment for companies that have invested capital and man-hours to develop their own know-how and information but also for their trade secrets in general, which often include great commercial and economic value and intangible investment capital.
by our Managing Partner Panikos Symeou