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HIGHER LEVEL OF PROTECTION OF BUSINESS SECRETS

The business and legal worlds have known for a long time the value of certain assets known as "intangibles", which increasingly represent a greater relative percentage of the value of companies. According to some estimates, such values could range from 50% to 80% of the total value of a company's assets. These assets include those traditionally recognized as such, i.e. trademarks, patents and other industrial property rights that could be defined as "classics", which are protected by registration in the relevant public registers.

But in today's business world, another type of intangible asset is becoming increasingly important It is an asset  that is not subject to registration and whose value lies precisely in keeping it secret. Processes, work systems, Data Bases, manufacturing techniques, customer data, scientific advances.... In short, what is known as "business secrets", which the Anglo-Saxons call "proprietary information".

 

Precisely, the protection of these rights is the purpose of Law 1/2019 of 20 February, on Business Secrets (BOE of Thursday 21 February), which implies the transposition into Spanish law of Directive 2016/943 of the European Parliament and of the Council. In this way, Spain places itself pari passu with with other European countries in the task of promoting research and business creativity as a protection against damaging practices such as misappropriation, industrial espionage, illegal copying or breach of due confidentiality.

 

The new regulation defines the concept of trade secret while regulating its patrimonial nature and, above all, creates defence tools against the violation of secrets, making it easier for the company to act effectively against the violations of the same.

What is Business Secret? According to the law, it is "any knowledge or information of a technological, scientific, industrial, financial, organizational or commercial nature that is kept secret, has business value by the very fact of being secret, and has been the object of reasonable measures on the part of its owner to keep it secret".

This last concept (underlined) is vital, because in order to properly defend their rights companies will be obliged to prove that they have protocols (technical and legal) to protect their confidential information. Negligence can be paid dearly.

By their own patrimonial nature, these secrets are susceptible of being transmitted, assigned or licensed for use, sharing similar characteristics of the Industrial Property rights traditionally recognized and which are susceptible of registration, such as patents or trademarks. Certainly, Technology or Know How Transfer Agreements are known travel companions of  both companies and law firms, but the enactment of the new law represents a significant step in the establishment, on the one hand, of mandatory principles applicable to the co-ownership, license and transfer of these rights and, on the other hand, additional principles that will operate only in the absence of agreement between the parties in their respect.

 

The law articulates the defense of trade secrets in different ways. On the one part, it identifies and defines the conducts that constitute the violation of trade secrets and, on the other hand, it establishes the different actions that the holder can exercise in defence of his rights. The law provides for different levels of protective measures according to the type of infringing activity, including

- The cessation or, as the case may be, prohibition of the use or disclosure of business secrets;

- (b) The cessation or, as the case may be, prohibition of producing, offering, marketing or using infringing goods or of importing, exporting or storing infringing goods for such purposes;

 

- (c) The retention and deposit of infringing goods;

- d) The preventive seizure of property, in order to ensure the eventual compensation of damages.

Naturally, there will also be corresponding damages, which will include not only the direct economic damage suffered by the owner but also the loss of profit, moral damages and even possible expenses that the damaged party may have to incur to investigate the harmful event to search for evidence.

Another novelty of the law is the introduction of a new procedure before the commercial courts to pursue this kind of breaches that guarantees the confidentiality of the business information that is disclosed in the case. This is in an attempt to avoid the need for confidentiality itself being the worst enemy of a strategy to defend corporate rights. The rules facilitate different measures for verifying facts and securing evidence, while providing for a broad spectrum of precautionary measures aimed at ensuring the effectiveness of a possible future judgment or conviction.

Anyone intending to bring legal  action for the defence of business secrets may request the Commercial Court to verify (article 18 of the Law) those facts which knowledge is essential to prepare the corresponding lawsuit. These verification procedures shall be governed by the provisions of Chapter II of Title XII of the Patent Act and should allow the plaintiff access to the different sources of evidence provided for in articles 283 bis a) to 283 bis h) and 283 bis k) of the Civil Procedure Law (LEC in Spanish).

Likewise, in accordance with article 297 of the LEC, the Commercial Court called to hear the claim may be asked to adopt all measures appropriate to secure the evidence; in particular the detailed description of the evidence, (with or without the taking of samples), or the effective seizure of the goods and objects in dispute as well as the materials and instruments used in the production or distribution of these goods and the documents related thereto.

The law upholds the general principle that the party requesting a precautionary measure must provide security in order to respond to possible damage that may be caused to third parties, which may act as a deterrent; in particular, in the case of small and medium enterprises where the value of business secrets can be even higher than in large entities.

Of particular importance is the principle that the new Law applies to all kinds of trade secrets, regardless of whether they were generated prior to the entry into force of the Law or not.

With this new framework, companies now have clear and precise rules, both to establish systems to protect their business secrets and to exploit and defend the growing patrimonial value that these intangible assets represent.

We are at the disposal of our clients to analyze their needs and advise them in all these respects.////