Hush, hush! Finnish Trade Secrets Act Now in Force
According to a classic Greek myth, Zeus sent Pandora to earth to marry a man named Epimetheus. Pandora was not sent on her way empty-handed: Zeus gave her a little box to take with her. This was no ordinary parting gift: the box was sealed with a huge lock and Zeus warned her not to ever open it. Perhaps foreseeing the curious nature of Pandora, Zeus gave the key to Epimetheus for safekeeping. Zeus was right – Pandora could not stop pestering Epimetheus about the box and begged him to open it. Her new husband stood firm, but one night, after he fell asleep, Pandora stole the key, opened the box, and then…
The secret was out.
Out poured every kind of trouble: sickness, worry, hate, envy, crime… They spread into the world like plague and could not be sealed into the box ever again.
The morals of the story are manifold, but one thing is certain: some things are best kept secret.
How does this tie in with law? Three words: Trade Secrets Act.
The new Trade Secrets Act (595/2018) entered into force on 15 August 2018 gathering general rules about the protection of trade secrets under one roof. The Act is based on the Trade Secrets Directive (EU) 2016/943 and introduces a definition for a trade secret, establishes lines that may not be crossed, and offers remedies against trade secret misappropriation.
Anatomy of a trade secret
In order for information to enjoy the protection and remedies provided in the Act, it must meet all of the qualifications of a ‘trade secret’:
- It is not generally known or readily accessible to persons that normally deal with that kind of information.
Only a limited number of people should have access to a trade secret. However, more than one company may have the same trade secret – it does not have to be unique.
Trivial information and the experience and skills gained by employees in the normal course of their employment are not considered trade secrets. In case information is detailed, put down in writing or stored electronically, and only known by one to few companies, it is more likely to be categorized as a trade secret rather than mere skill.
- It has economic value because it is secret.
This means that unlawful acquisition, use, or disclosure of the data is likely to cause financial damage to the trade secret holder or to undermine his competitive position, scientific and technical potential, business or financial interests, or strategic position.
Economic value may either be potential or actual: actual making use of the information is not required. Economic value may also be negatively affected by time.
- Reasonable steps have been taken to keep it secret.
This is highly important, as information that could potentially be protected as a trade secret will not be treated as one unless reasonable measures have been taken to keep it confidential.
Protective measures vary by circumstance but in most cases, they should include at least physical and IT security as well as NDAs. However, this does not mean that documents containing trade secrets should be expressly marked confidential.
In practice, trade secrets take many shapes and forms: for example, customer records, production data, test results, business ideas, pricing information, know-how, market reviews and competitor analyses, economic forecasts, corporate administrative information, source code, software architecture, specifications or algorithm, or databases may all be deemed as trade secrets – if the three preconditions are met. Even “negative information”, such as information about a production method being unusable, could be considered a trade secret.
Trade secret misappropriation
Trade secrets are protected against unauthorized acquisition, use, and disclosure. For example, the copying or handling of documents containing trade secrets without permission is prohibited. The same goes for manufacturing, offering for sale, importing, exporting, and storing of infringing products, as long as the infringer was aware or should have been aware of the product’s infringing nature. Some parties are also forbidden from using and disclosing trade secrets by default, such as board members and managing partners.
A product is deemed to infringe a trade secret when its design, specifications, functionality, production process, or marketing enjoys considerable advantage from an unlawfully acquired, used, or disclosed trade secret. For example, if the customer records of company A have been unlawfully used to market the product of company B, the unlawful use of those records contaminates the entire product. The upshot is that information hygiene is highly important.
Despite the Trade Secrets Act, many actions remain permitted, such as independent discovery, lawful reverse engineering, and whistleblowing to report misconduct or illegalities in certain circumstances.
Companies also have room to contractually adapt the extent and depth of protection. However, widening the scope of protection does not affect the legal definition of a trade secret – any information that falls outside the statutory definition will not be eligible for the remedies provided in the Act. This means that any unauthorized disclosure of information that is only agreed to be a trade secret is treated as a breach of contract, not as a violation of the Trade Secrets Act.
Prevention is the best medicine
Back to Pandora. Once the poor newlywed realized what she had done, she immediately regretted opening the box and tried to reverse her mistake. This of course failed, and the world was never the same again. Although repercussions from trade secret misappropriation may not be as disturbing as those following the opening of Pandora’s box, the very definition of trade secret implies that its disclosure or other misappropriation negatively impacts the data owner.
The ideal situation would naturally be the absence of any trade secret violations. Great first lines of defense are:
- identifying trade secrets within the company;
- conducting a risk assessment and establishing a protection strategy;
- introducing clear policies with follow-up procedures and, for example, implementing a data loss prevention program;
- appointing a team or a person to keep tabs on policy execution;
- controlling physical and electronic access;
- reviewing NDAs and confidentiality clauses with employees and business partners; and
- organizing training.
If prevention fails, the second-best scenario is recovering from trade secret misappropriation as fully as possible. The Trade Secrets Act provides a number of civil remedies:
- Damages. As a main rule, anyone who unlawfully acquires, uses, or discloses trade secrets, either intentionally or negligently, must fully compensate the trade secret holder for all damages caused by the misappropriation. When deciding the amount of damages, the court may take various aspects into consideration, such as loss of profit, unjustified advantage, R&D costs related to the trade secret, and the holder’s interest to keep the trade secret confidential. Unauthorized use also merits a further sanction: the infringer must pay a reasonable remuneration for such use, and it is usually based on customary license fees.
- Publication of judgment. The trade secret holder may publish the judgment mentioning that the infringer has violated the Trade Secrets Act, unless certain limitations apply. The infringer may be ordered to compensate costs caused to the trade secret holder due to such publishing.
- Injunctions and corrective measures. A court may impose injunctions and corrective measures, such as withdrawal of infringing products or destruction of files containing trade secrets.
- Compensation for use. Instead of injunctions and corrective measures, a court may order the alleged infringer using the trade secrets to pay compensation for such use. This may be relied upon when (i) the alleged infringer was not aware (and should not have been aware) that the trade secret had been received from a party that had used or disclosed it without authorization, (ii) an injunction or a corrective measure would cause unreasonable harm to the alleged infringer, and (iii) the compensation is deemed reasonable.
District courts have jurisdiction in all civil claims based on the Trade Secrets Act. Market Court has parallel jurisdiction, when a civil claim has been made against a legal person or a natural person conducting business. So far the new Act has not fueled a race to the courts.
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