Trade secrets regulation was unified by the Trade Secrets Act, which came into force in 2018. In addition, the protection and secrecy of trade secrets has been regulated by a number of different laws such as special legislation for healthcare professionals and auditors. Trade secrets are also protected criminally as corporate espionage, breach of corporate secrecy and improper use of corporate secrecy are sanctioned in the Criminal Code. Nevertheless, we advise companies to include their own provisions on secrecy and confidentiality into employment contracts or drafting separate non-disclosure agreements with their employees.
In the so-called Liski case (KKO 2022:16), the Supreme Court held that, in addition to non-competition clauses, the parties can in an employment contract agree on the condition of secrecy and on a contractual fine related to it. Furthermore, the application of the secrecy condition was not considered unreasonable. In the case, in addition to breaching the non-competition clauses, the employee could also be adjudged to pay a contractual fine to the employer for violating the trade secrecy. The court held that a contractual fine equivalent to 6 months salary is not unreasonable.
Definition of trade secrets and the field of protection
A company may have several types of trade secrets, such as technical and financial, which may be information of significant economic value. The protection of company’s trade secrets extends to its employees as well. Trade secret means confidential information held by a company that is relevant to its business and which it therefore seeks to keep in secret from others, in particular competitors. Trade secret is defined in the Trade Secret Act. According to the Trade Secrecy Act, trade secret means information which is not generally known among or readily accessible to person who normally deal with the kind of information in question, and which has financial value in the business activities. It is also required that the lawful holder has taken reasonable steps to protect it.
The Trade Secrets Act prohibits that trade secrets may not be unlawfully acquired, used, or disclosed. The acquisition of a trade secret is considered unlawful if carried out by unauthorised appropriation, unauthorised copying files containing a trade secret or other conduct contrary to honest commercial practices.
A trade secret acquired as described above shall not be unlawfully used or disclosed. The use and disclosure of a trade secret may also be unlawful when it has been obtained by acceptable means. This prohibition applies when the information was obtained during the position of trust, or the informed person is bound by an agreement or obligation restricting the right to use or disclose the trade secret.
The Trade Secrets Act also specifies the acceptable methods of acquiring a trade secret, such as independent discovery or creation.
Also, the Employment Contracts Act contains provisions on trade secrets in employment relationships. According to the Employment Contracts Act during the term of employment, the employee may neither utilise unlawfully nor divulge to third parties the employer’s trade secrets. If the employee has obtained such information unlawfully, the prohibition will also continue after termination of the employment relationship. The employee loyalty obligation, regulated by the Employment Contracts Act, also covers the protection of the employer’s trade secrets.
What legal remedies are available for the employer in cases of breach of trade secrets?
The court may order the unlawful user of the trade secret to pay compensation to the holder of the trade secret. However, the compensation cannot be imposed on the court’s own initiative but must always be claimed separately. Damages and criminal sanctions are also possible. In addition to the employee who expressed the information, the person to whom the employee expressed the information may be liable for damages if the latter knew that the employee had acted unlawfully.
The holder of a trade secret may demand the court to order a withdrawal of a product infringing a trade secret from the market and, for example, to order the person who has unlawfully acquired the trade secret to destroy the documents and files containing the trade secret or deliver all or part of them to the holder of the trade secret.
In addition, at the request of the holder of a trade secret, the court may prohibit engaging in an act infringing a trade secret or continuing or repeating an act infringing a trade secret. This prohibition may also be imposed on an act which has not yet actually taken place. It is also noteworthy that the prohibition and other remedial measures can be targeted not only at the trader himself, but also on persons who are not traders, such as its employees.
Confidentiality Agreements and Terms
The above-mentioned compensation, prohibition and damages are available only when the damage has already occurred. At the time when the company’s trade secrets have been disclosed, the game is often already lost and irreplaceable damage caused.
The entry into force of the Trade Secrets Act does not mean that there is still no need for secrecy terms and non-disclosure agreements attached to employment contract. It is still advisable to establish separate confidentiality agreements with employees and entities who know of the company’s trade secrets. It is also important to pay attention to how the secrecy of information is secured by various means.
The above-mentioned Supreme Court’s case deemed acceptable a non-disclosure term in the employment contract that the employee was not permitted to disclose or use any corporate secrets of the employer or its clients or partners to a third party. Business secrecy had been defined in the terms, among other things, as a trade secret. The Supreme Court also ruled that a contractual fine equivalent to a salary of 6 months is not unreasonable.
For example, a confidentiality agreement allows an employer to define information considered as trade secrets, emphasise the importance of their protection, and agree that the protection of trade secrets remains in force even after the end of the employment relationship. It is also possible to add an explicit sanction into a non-disclosure agreement for the breach of secrecy provision. This clarifies the line between legitimate and unlawful use in situations where the Trade Secrets Act does not provide clear protection for the employer.
Confidentiality agreements may clarify trade secret borderline situations under the Trade Secrets Act, such as those enabled by reverse engineering. It is essential to effectively agree on secrecy obligations beforehand.
What should the employer take into account?
When hiring employees, the company should pay attention to the protection of the trade secrets of its own and its partners, and also to the protection of the trade secrets of the employer’s previous employer.
Thus, the company should also take into account the inviolability of another’s trade secrets. Attention should be paid to the protection of trade secrets in employment relations, especially at the beginning and termination of employment.
The protection of trade secrets is secured when hiring an employee by the non-disclosure terms of the employment contract or by a separate non-disclosure agreement which may also be agreed to cover the period after the termination of employment. Especially with new employees, the employer should also take care of informing about trade secrets. Upon termination of employment, it is good to remind the employee of legal and contractual confidentiality obligations.
CHECKLIST OF NECESSARY ACTIONS FOR THE EMPLOYER:
- Define information deemed as trade secrets and ensure that they are appropriately protected.
- Find out if it is necessary to protect any information.
- Ensure adequate security, risk management and assessment and ensure that the processing of information containing trade secrets is sufficiently restricted.
- Draw up in-house guidelines on trade secrets and their handling.
- Inform staff about practices relating to trade secrets and their protection.
- Include clear provisions on the handling and secrecy of trade secrets in new employment contracts.
- Draw up appropriate non-disclosure agreements with senior employees and other entities (subcontractors, consultants, partners, etc.).
- In case of problems, and preferably in advance to prevent problem situations, consult a knowledgeable lawyer.