How many and different goods and services the modern business environment offers - starting from, for example, the production and sale of paper sheets, up to especially complex specific aircraft parts created with the help of 3D printers! Any such process may also involve a trade secret. How to protect it from employee dishonesty? Let's look at several examples of world court practice.
As innovations develop, more and more attention is paid to the protection of trade secrets, thus giving commercial value to such information. The Senate also obtained such knowledge in the judgment of May 17, 2010 in the case SKA-168/2010, concluding that the merchant has a very important protection of trade secrets, because the value of the company and its development possibilities depend on it. Unauthorized access to a trade secret by a competitor gives it economic advantages and is contrary to fair business practices. The merchant himself must make reasonable efforts to protect the value at his disposal, that is, he must determine which matters of an economic, technical or scientific nature or information related to the company he will keep secret, as well as ensure measures to preserve trade secrets.
EMPLOYEES AT RISK
The easiest way to get the desired competitor information is to recruit an employee who has access to confidential information. On April 22, 2021, the Eastern District Court of the State of Tennessee, United States of America, convicted a former Coca-Cola employee of stealing a trade secret - Coca-Cola's know-how on how to ensure the hardness of a plastic bottle without using BPA (bisphenol A).
The employee worked as a principal engineer for global research at Coca-Cola, where he did not have access to trade secrets as part of his direct job duties, but prior to his termination, he opened BPA-related trade secret files on his computer using his workplace and photographed them to circumvent “ Coca-Cola's security measures. The employee sold the obtained information to the Chinese government for several millions.
During the trial, it was established that "Coca-Cola" has implemented high-level protection measures for the protection of trade secrets, but it was established that the employees' knowledge of actions, how to react, if a suspicious sign in the behavior of another employee is noticed, is not sufficient.
SMALL BUSINESSES NOT CAREFUL ENOUGH
It is often the case that small and medium-sized companies are not aware of the mechanisms to be implemented for the protection of trade secrets, thus exposing themselves to the risk of misappropriation of trade secrets, which manifests as theft or industrial espionage.
For example, the Federal Supreme Court of Germany in the judgment of December 13, 2007 in the case ZR 71/05 examined the situation in which the company filed a lawsuit against a former employee for the use of technical documents and design drawings of an ultrasonic welding module generator. After the termination of the legal relationship with the employer, the employee established his own company and offered the former employer to buy the generators of the ultrasonic welding module made by him (the employee) at a lower price (lower than the former employer is selling). The company believed that the employee had violated restrictions on the use of trade secrets.
The claim was rejected by the decision of the appellate court, stating that the plaintiff (company) had not proved which trade secret of the company the defendant (former employee) had violated. The fact that the generators of the ultrasonic welding module developed (offered for sale) by the employee have a 20% similarity does not mean that the right to protect trade secrets has been violated.
The Federal Supreme Court of Germany, while examining the cassation complaint, decided to cancel the decision of the court of appeal, stating that it made an error in application, as it assumed that the defendant (employee) was prohibited from using only a specially defined/restricted trade secret. The Supreme Court stated in its verdict: the appellate court set too high requirements for the company to prove the content of the trade secret. The circumstance that the infringer (employee) has made clarifications in the initial technical documents obtained during employment legal relations should be considered a proven infringement of a trade secret. The case was referred to the court of first instance for re-examination.
There is no definition of "trade secret" or "know-how" in German law. According to the jurisprudence of the German Federal Supreme Court, a trade secret is any fact related to commercial activity that is not obvious, but is known only to a limited circle of persons, which the owner of the company keeps secret based on economic interests. Consequently, production processes, research, development, customer lists, business strategy, construction drawings, contracts, etc. commercial knowledge that has a significant economic impact qualifies as a trade secret under German law.
FEAR OF CRIMINAL LIABILITY
Depending on the specific legal system of the country, the protection of trade secrets is based on special provisions on the protection of confidential information or unfair competition, even criminal liability is provided for their violation. This practice is observed in Luxembourg.
On October 27, 2016, the Luxembourg District Court, in its judgment in case 2788/2017, decided to apply criminal liability to the employee for the illegal use of the company's trade secret. In this case, it was proven that the employee had misappropriated the employer's information which contained service rates for various clients. The employee, after the termination of the legal relationship, used the information obtained in another company with the aim of luring customers by offering a lower service price than the previous employer.
Article 309, paragraph 1 of the Luxembourg Criminal Code provides for criminal liability for anyone who is or has been employed and who uses or discloses information obtained during employment for the purpose of competition (with the intention of harming his employer) or for obtaining an illegal benefit.
THE PUNISHMENT DEPENDS ON THE UNFAIR PROFITS
Although there are long traditions of protection of trade secrets in the legal acts of the countries of the European Union, not all countries have specially developed one special legal norm that would regulate and determine the exact mechanisms for the protection of trade secrets. Therefore, many businessmen refrain from initiating legal proceedings to protect their violated rights, because they do not have a clear idea of how to prove that the company's trade secret information has been used illegally, and how to assess the extent of the damage.
Noting that it is not possible to precisely identify a trade secret in all legal proceedings, courts often evaluate the following set of factors to determine whether information is, in fact, a trade secret:
- the extent to which the information is known outside the company;
- how much information is known to employees, etc. to third parties;
- measures taken to protect the confidentiality of information;
- the value of the information to the company and its competitors;
- the effort or financial investment made by the company in developing the information;
- the ease or difficulty by which methods the information can be obtained by others.
Directive 2016/943 on the protection of undisclosed know-how and business information (trade secrets) against illegal acquisition, use and disclosure also approved the following process for identifying a trade secret, as well as provided an explanation of the criteria by which compensable loss should be determined. For example, the loss of income incurred by the holder of a trade secret, the unfairly gained profit or compensation amount of the infringer is determined by calculating how much would have to be paid if the infringer had requested permission to use the relevant trade secret.
According to similar principles, on October 28, 2014, in the judgment in case 3295/2014, the Supreme Court of Romania decided to collect compensation of 244,726.87 lei (approximately 52,457 euros) from the employee in favor of the former employer.
From the moment the employee was hired by the plaintiff (employer), she took steps to consolidate the customer base of the plaintiff (employer) and direct it to her company (the employee opened her company during the employment relationship with the employer). Also, the employee postponed the conclusion of many employer contracts with the aim of concluding them with her own company, offering more favorable conditions, because she had at her disposal (given her position) confidential information about the employer's offers to these clients. Thus, the employee managed to direct some of the employer's clients to her company.
The court also concluded that the amount of compensation should be determined from the profits of the employee's company made from transactions with former clients of the employer.
HOW TO PREVENT VIOLATIONS?
At the moment, when intangible values dominate the business world, special attention should be paid to the protection of trade secrets in the company in order to prevent unfair competition. Unfair competition goes hand in hand with business ethics, which is not only an outward-looking activity.
Looking at the insights provided in the court judgments, it can be concluded that it is important that all employees in the company (from the lowest level to the management) feel motivated, appropriately evaluated and at the same time sufficiently informed about the rights, obligations and consequences if the conditions set by the company are not respected, especially with regard to trade secrets disclosure.
GLOBAL BUSINESS OPTIMISM DECREASED TO 64%
In the world, the optimism of entrepreneurs decreased by six percentage points - from 70% to 64%, concluded the latest international business report of the global financial consulting network "Grant Thornton".
The companies surveyed cite economic uncertainty (63%), rising energy (62%) and labor costs (57%) as the main constraint to growth. The market review, now in its 10th year, shows that historically high inflation and economic recession are expected in many countries, causing companies around the world to rapidly reassess their expansion plans and operating markets.
Despite the global situation and challenges, export expectations for companies are still close to a record high level - almost half (44%) of respondents expect growth in export markets in the next 12 months, increasing both export volumes and the countries to which exports are made.
Although some governments have decided to introduce support programs to deal with rising energy costs and help ease economic uncertainty, 83% of companies surveyed recognize the need to increase wages in the next 12 months. However, due to limited financial options, only one in five companies indicate that they plan to offer wage increases above inflation.
Despite the global and local economic challenges caused by the Covid-19 pandemic for entrepreneurs in Latvia, as well as the geopolitical processes in 2022, a large number of entrepreneurs evaluate this year's business results positively or at least neutrally.
The international report surveyed more than 5,000 medium-sized companies in 28 countries around the world.
Source: Grant Thornton International Business Report 2022.
The loss of income incurred by the holder of a trade secret, the unfairly obtained profit or compensation amount of the infringer is determined by calculating how much would have to be paid if the infringer had requested permission to use the relevant trade secret.
Source: iTiesibas