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Tag Archives: Trade secrets

Trade secrets, an intangible asset on the rise

Los secretos empresariales, un activo intangible al alza

A year on from the publication of the Spanish Trade Secrets Act (Act No. 1/2019), we can say that it is having a significant impact on Spanish business.

 

Los secretos empresariales, un activo intangible al alza

 

Some companies had already sought to manage this intellectual asset, but with the Act’s entry into force, there has been a considerable increase in its use by companies of all sizes from a range of different sectors, since it gives value to certain information which was not previously protected and not regarded as an asset to be taken into consideration.

There are also many companies that are seeking to transition from operating as service providers to selling technological goods, which entails establishing an IP strategy and implementing a robust model for protection of these assets. Under such a strategy and protection model, trade secrets are audited and valued, and they play an increasingly important role, particularly in the data economy we are moving towards.

The application of the Act must be considered from two standpoints. On the one hand, the Act affords a right of protection for a company’s secrets against infringing access, use and disclosure, and it places trade secrets on the same level as other intellectual property rights, making them an object of property with a similar system to patents, providing for assignment or licensing, for example. On the other hand, the Act requires companies to exercise greater diligence when transmitting, receiving or storing trade secrets or confidential information of third parties, in order to avoid potential legal claims.

In this last regard, it is important to keep in mind that, from the criminal law standpoint, trade secrets are protected under articles 278 (corporate espionage) and 279 (trade secret violations) of the Spanish Criminal Code. Article 278 of the Criminal Code applies to any person who uses data, written or electronic documents, computer media or other objects in order to discover a trade secret, and Article 279 applies to persons who, while subject to a legal or contractual obligation to observe confidentiality, carry out the unauthorised dissemination, disclosure or communication of trade secrets.

The aforementioned articles of the Criminal Code are blank criminal law provisions, in which concepts are not defined, and it is likely that the criteria of civil law regulations (Act No. 1/19) will be applicable to criminal proceedings. Moreover, companies or institutions that suffer violations of their trade secrets are likely to resort to criminal proceedings. Therefore, companies, organisations and institutions must include compliance with obligations concerning third-party trade secrets in their compliance policies.

In any case, there is expected to be an increase in litigation concerning secrets as companies become aware of the importance of this intangible asset and implement the necessary measures for their protection and to ensure that the relevant requirements are met.

In preparation for the above, in December 2019 the Competition Law Division of the Barcelona Mercantile Court published a “Protocol for Protection of Trade Secrets in the Mercantile Courts”.

The Protocol was established to address the need to define in detail the procedural security mechanisms for secret or confidential information referred to in Article 15 of Act No. 1/2019 (“Handling of information that may constitute a trade secret”).

The scope of application of this Protocol is broad, given that it is not only intended to cover proceedings involving possible violations of trade secrets, but it also applies to proceedings in which certain information is declared to be a trade secret or confidential information. For example, it can serve as a useful guide for the handling of confidential information in public procurement procedures, in which situations increasingly arise where certain information of a party participating in the tender must be kept confidential from other participants that are competitors of the former.

The Protocol establishes that it is possible to apply specific measures for protection of trade secrets at the different stages of the proceedings: from the beginning of proceedings (for example, by petitioning the measures in the complaint itself or by means of an application for interim relief measures) or, once the proceedings are under way (for example, in the response to the complaint or when submitting evidence). Measures of protection of confidential secret information may be adopted ex officio or at the request of a party to the proceedings, always leaving open the possibility of a challenge or hearing in this regard.

The Protocol sets out what an ex parte request for measures to maintain secrets or confidentiality must contain, including that it must show that the requested measures are specific and comply with the principles of necessity, appropriateness, proportionality, due consideration of the interests of third parties and applying the least onerous measure, and it must indicate the persons making up the “circle of confidentiality”.

Furthermore, the Protocol analyses the different measures that can be applied for the preservation of and access to physical and digital documentation, access to hearings and recordings of hearings and access to confidential and non-confidential versions of court documents.

The court’s decision regarding the measures to be applied to secret or confidential information must be specific with respect to the applicable measures (and to serve the desired purpose, said measures must be appropriate and proportionate), stating the grounds with regard to the confidential nature of the information and with specific reference to the confidential or secret information.

In short, a year on from the enactment of the Act, we can see that trade secrets are becoming an increasingly important intangible asset and that their importance will continue to grow. There is likely to be an increase in litigation in this area, with increasingly sophisticated cases. Perhaps we will not reach the levels in the United States, but there will undoubtedly be a larger number of litigation cases, for which it would be wise to prepare.

Authors: Javier Fernández-Lasquetty and Cristina Espín

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Corporate espionage as an instrument of trade and technological warfare

ciberespionaje

This February marked the first anniversary of the publication of the Spanish Trade Secrets Act, Act No. 1/2019 of 20 February 2019. In its preamble it is stated that organisations use confidentiality as a tool for managing business competitiveness, transfer of public/private knowledge and research innovation, with the aim of protecting information encompassing not only technical or scientific knowledge but also commercial information on customers and suppliers, business plans, and market research and strategies. However, innovative businesses are increasingly exposed to dishonest practices aimed at misappropriating trade secrets, such as theft, unauthorised copying, economic espionage or the breach of confidentiality requirements. Globalisation, increased outsourcing, longer supply chains, and increased use of information and communication technology, contribute to increasing the risk posed by such practices.

 

Corporate espionage as an instrument of trade and technological warfare

 

Criminal law doctrine has consistently been in agreement with regard to also establishing protection under criminal law against the most serious violations of industrial or trade secrets, in line with the approach of other countries. Currently, corporate espionage is criminalised under Art. 278 of the Spanish Criminal Code.

The wave of technological innovation has emboldened certain perpetrators, who are capable of removing large quantities of data from a company in seconds, exposing businesses to an increased risk of being hacked by their competitors, foreign governments and ‘hacktivist’ groups. State-sponsored corporate espionage is a real and growing threat in a globalised cyber economy.

However, many companies will not appreciate the true value of their confidential information until it is stolen, which can have devastating consequences. Even the intelligence services of EU Member States acknowledge that they are “groping in the dark” when it comes to cases of economic espionage. One key reason for the lack of data on cyber theft of trade secrets is that many intrusions are not detected.

 

Cyber theft of trade secrets affects SMEs more than large companies

 

According to ECIPE (February 2018), the negative impact in the EU of cyber theft of trade secrets amounts to around 60 billion euros of lost economic growth, leading to a fall in competitiveness and employment and a reduction in R&D investments. In particular, it was estimated that 289,000 jobs could have been at risk in 2018, with this number increasing to a million jobs by 2025. Cyber theft of trade secrets affects SMEs more than large companies, due to their smaller budgets, lack of awareness of being a potential target for espionage, and lack of qualified IT professionals.

We see a surprising 64% increase in security incidents attributed to competitors, some of which may have government backing. When carrying out attacks, competitors often combine sophisticated high-tech techniques with other methods, such as hiring employees from the target company, bribery, extorsion, and the promise of a new job. In addition to the increase in cases of cyber crime attributed to national governments and competitors, there has been an increase in the number of cases of theft of intellectual property and other sensitive information.

One of the most prominent current global conflicts in the field of technology and security is the case of Huawei, a company which the USA has accused of industrial espionage, among other crimes. This problem has many different aspects, from industrial espionage due to use of foreign equipment, to the arrival of new technology, such as 5G, and the trade war between China and the USA.

 

Reticence to entrust projects to Chinese companies, for fear of industrial espionage, is also evident in Europe

 

Chinese ‘talent programs’, which recruit experts from companies and universities across the world offering multiple incentives to work in China, have been a target of the FBI since 2015 due to the threat they pose to U.S. companies and universities.

This reticence to entrust projects to Chinese companies, for fear of industrial espionage, is also evident in Europe. The EU is the primary destination for Chinese companies. In 2017 alone, more than 35 billion euros were invested in Europe, with almost 60% of this capital being destined for infrastructure and communications, which has led some countries to become particularly concerned by the inflow of Chinese public capital into strategic companies and to fears that such acquisitions will lead to a transfer of technology towards Beijing.

That cyber espionage is becoming normal practice for certain governments has been acknowledged by the National Cryptology Centre and, likewise, by the 2019 National Cybersecurity Strategy.

The higher a country’s level of technology, the greater the risk of its companies suffering attacks of this kind

These attacks are generally aimed at industrial sectors and at critical and strategic infrastructure throughout the world, with the aim of securing geopolitical advantages, state and/or trade secrets, intellectual or industrial property, as well as data or information from strategic sectors.

The volume of trade secrets stored electronically, together with the increase in cyber intrusions, has created the perfect storm for economic espionage. The higher a country’s level of technology, the greater the risk of its companies suffering attacks of this kind. Consequently, companies will become embroiled in trade wars and technological wars involving not only other companies but also countries. It is therefore extremely important to have an efficient and swift criminal law response to corporate espionage.

Author: Juan José Caselles

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The new Spanish Trade Secret Act is here! (II)

Trade secrets are considered an object of property, allowing for their transfer and licensing, under a similar regime to that of patents, which already provides for the transfer of know-how. Likewise, it establishes the regime for cases of co-ownership of trade secrets; that agreed between the parties would prevail in these cases, should this fail the corresponding provision of the Act would apply or, otherwise, the provisions regarding common property of the Civil Code. Once again, the legal regime is similar to that for patents.

Finally, this section of the Act would make the party transferring secrets it does not own liable for the damages caused to the acquiring party, provided that the former acted in bad faith.

With regard to the actions in defence of trade secrets, this right is placed on an equal foot with the rest of intellectual property rights, once again in line with the catalogue of actions allowed for patents, such as cessation, removal and compensation. The diminished liability of the bona fide third party, referred to above, becomes a reality here as the substitution of these actions for the payment of a monetary compensation is allowed in some cases. In addition, the Act provides for the exercise of precautionary measures and measures of enquiry to supplement the defence actions, following the procedures set out both in the Patent Act and the Civil Procedure Act.

One of the most significant developments included is the demand for confidentiality regarding trade secrets in legal proceedings, therefore avoiding placing this valuable information at risk by establishing preservation measures and penalties for their infringement.

The new Act is an opportunity for all companies, opening up the possibility to protect as trade secrets information that previously lacked clear protection. It is precisely for this reason that it becomes necessary to implement a trade secret protection plan to achieve the protection afforded by the Act. Otherwise, trade secret owners would not be in a position to bring all the actions this new Act makes available to them. Similarly, companies must be particularly diligent with the information they receive and use whenever this is considered secret since, as stated above, they could be liable for infringements, even when acting as third parties in good faith.

  The first part of this article is available here

Authors: Javier Fernández-Lasquetty , Cristina Espín and Martín Bello

Visit our website: http://www.elzaburu.es/en

The new Spanish Trade Secret Act is here! (I)

The new Trade Secret Act 1/2019 has been published today. This new legislation opens a new protection opportunity for companies which most of their valuable information will now enjoy legal recognition equivalent to that of other intellectual property rights. As a result, we shall now analyse some of the most relevant developments included in this regulation.

First of all, this Act sets out a definition of trade secrets in a very broad manner, allowing for this concept to cover all types of information. The subject matter of protection includes any information or know-how that fulfils three requirements:

(i) it is secret;

(ii) it has business value; and

(iii) reasonable measures have been taken to maintain its secrecy.

Thus, practically any kind of know-how generated by a company may be considered a trade secret.

Secondly, the act specifies the types of activities considered to be lawful or unlawful, taking into account the activities trade secret management entails: acquisition, use and disclosure. In this way, said actions may be lawful or unlawful depending on the circumstances described in the Act.

On the one hand, acquisition, and therefore use and disclosure, shall be deemed lawful when resulting from

(i) independent discovery;

(ii) reverse engineering;

(iii) the exercise of workers’ rights; and

(iv) any other action conforming to fair commercial practices.

On the other hand, these same actions (acquisition, use and disclosure of trade secrets) may also be considered unlawful.

This would arise in the event that the trade secret was acquired without the authorisation of the owner, that is, in the case of unlawful acquisition. This manner of acquiring information will affect other conducts since, if its acquisition was unlawful, so will its use and disclosure be.

Furthermore, if the know-how is obtained in a lawful manner, but it is used or disclosed in breach of any contractual or similar obligation, these acts will be considered infringements of trade secrets.

One important development in this new Act is liability for infringement, given that it establishes  objective liability for third parties who have not committed the aforementioned unlawful activities. Thus, the party liable for an infringement will be a party which acquires, uses or discloses the trade secret while being aware, or which should reasonably have been aware, that it was acquired from a party that uses or discloses it unlawfully. This objective liability also extends to those producing, offering or marketing goods that incorporate trade secrets used unlawfully.

The Act goes even further, also establishing a liability regime which could be qualified as being “ultra-objective”, according to which even a bona fide third party is considered liable, although liability is diminished when compared with the cases described above.

Therefore, the Act calls for the utmost diligence from companies when receiving or passing on trade secrets, ensuring that no information acquired unlawfully is handled so as to avoid incurring any penalty.

  The second part of this article is available here  

Authors: Javier Fernández-Lasquetty , Cristina Espín and Martín Bello

Visit our website: http://www.elzaburu.es/en

It is essential, now more than ever, to have a plan for management of trade secrets

The imminent Spanish Trade Secret Act, driven by Directive 2016/943 on the protection of undisclosed technical know-how and business information, will represent a major step forward in Spain regarding  the protection of trade secrets (in the same way as the respective national laws in Europe), placing it at the same level as intellectual and industrial property rights (patents, trademarks, designs and copyrights) by affording similar protection.

However, even a minimum standard of diligence concerning this issue calls for a plan for management of trade secrets for their protection and defence, for the reasons we shall explain.

It is important to note that not all confidential information is considered a trade secret. It is essential that it meets the requirements established by the Act (secret information, of real or potential business value and subject to reasonable measures to maintain its secrecy) in order for the information to be considered a trade secret since, whenever an attempt is made to assert this vis-a-vis a third party, the latter will argue that it is not a trade secret, obliging the owner to furnish evidence to the contrary.

Not only will those liable for prior acts of unlawful acquisition, use and disclosure be considered infringers but the Act also establishes objective liability for those who were aware or, under such circumstances, should have been aware about the unlawful origin. Even an “ultra-objective” liability is established since bona fide intermediaries (manufacturers, importers or sellers) are also liable when performing their activities and the product or service infringes the trade secret of a third party. All this places emphasis on the need to carry out business due diligence processes and to sign agreements passing on to suppliers the liabilities deriving from the infringement of trade secrets.

In the above context, it can be stated that this Act protects the owners of trade secrets, providing sufficient legal certainty for their activities in the marketplace. Therefore, by complying with the new Act, companies managing trade secrets correctly will have various legal mechanisms to prevent third parties from infringing their trade secrets.

Finally, we must stress the fact that correct trade secret management reduces the risk of trade secrets leaking through employees and third parties, providing added value to the sales or licencing processes.

Authors: Javier Fernández-Lasquetty y Cristina Espín

Visit our website: http://www.elzaburu.es/en

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