Vera De Gyarfas Isabel Victoria Márquez Olga Nass de Massiani May 30 2002 Violation of Industrial Secrets Does not Necessarily Damage Competition Travieso Evans Arria Rengel & Paz | Competition & Antitrust - Venezuela Vera De Gyarfas, Isabel Victoria Márquez, Olga Nass de Massiani Competition & Antitrust FactsJudgmentCommentThe First Court of Contentious Administrative Matters recently ratified a decision of the Venezuelan Pro-competition Superintendency concerning the protection of industrial secrets and the avoidance of unfair competition practices.FactsIn July 1999 a US company, Wellhead Inc, filed a denunciation against the Venezuelan companies Sincrudos de Oriente (Sincor) and Wood Group Pressure Control for their violation of Article 17(3) of the Law for the Promotion and Protection of Free Competition.Wellhead alleged that Sincor gave Wood Group certain confidential information which Wellhead had previously supplied to Sincor. In turn, Wood Group had used the information to obtain an unfair advantage over other participants in a tender bid opened by Sincor.JudgmentSuperintendency's decisionThe Superintendency used the criteria of Decision 344 of the Andean Community with respect to the protection of industrial secrets against unauthorized use by third parties.The decision, which was in effect at the time, contained the Common Regulations on Industrial and Intellectual Property, according to which an industrial secret exists if: it is not generally known or easily accessible to those who usually handle such information; its secrecy is of actual or potential commercial value; and in the circumstances, the holder of the information has adopted 'reasonable' measures to keep the information confidential.The superintendency acknowledged that Wellhead's information was novel, secret when considered as a whole, and that it had commercial value. Wellhead alleged that its supply agreement with Sincor implied a contractual confidentiality. The superintendency disagreed, ruling that the requirement relating to 'reasonable measures' was not fulfilled because no confidentiality agreement or clause was used in Wellhead's commercial relations with Sincor. The superintendency added that although every confidentiality agreement can be deemed to include an authorization of use, the reverse is not true. The other measure adopted by Wellhead to protect its industrial secret was a request for patents of invention and industrial design, which the superintendency did not consider to constitute sufficient protection because Wellhead presented them to the relevant authorities after the tender bid date.Thus, the superintendency ruled that Sincor and Wood Group Pressure Control had not violated Wellhead's industrial secrets, nor had they breached Article 17(3) of the Law for the Promotion and Protection of Free Competition.AppealIn April 2000 Wellhead appealed the superintendency's decision on the grounds that: it had misinterpreted Article 72 of Decision 344 of the Andean Community by indicating that 'reasonable' measures to keep the secret information confidential are equivalent to so-called 'commercial customs', which contradicts Article 9 of the Venezuelan Commercial Code. Wellhead alleged that the decision was null because the superintendency had no competence to evaluate 'commercial customs' to resolve the case; it had not considered all the evidence produced; its decision involved a false legal assumption in attempting to apply the norms of both patent and industrial secret protection; and it wrongfully interpreted Article 72 (Letter C) of Decision 344, by considering that the only 'reasonable' measure to protect industrial secrets was the use of confidentiality agreements.The First Court of Contentious Administrative Matters dismissed Wellhead's appeal as follows: The superintendency had not used commercial customs as a source of law from which a certain right or obligation arises, but as a means to reach a more precise notion of an undetermined juridical concept. The superintendency used Decision 344 only to assist in its interpretation of Article 17(3) concerning the violation of industrial secrets. Wellhead's proprietor warning note (which it unilaterally included in plans, drawings, instructions and an installation procedure furnished to Sincor) could not be deemed equivalent to a contractual clause, which is the result of negotiations and agreement between two or more parties. The superintendency is not bound by law to make statements in its decision about each piece of evidence produced in the proceedings. It is sufficient for it to express the grounds of its decision and the evidence that was taken into account to support its conclusion. The violation of an industrial secret legitimately held by Wellhead had occurred in Sincor's tender bid through the latter's disclosure of the secret after Wellhead had warned it of the confidential nature of the information. The purpose of competition norms is to protect free competition. If the conduct does not impede, restrict, falsify or limit free competition in the market it will not qualify as a violation of the competition norms. Aside from the considerations made in its ruling, the decision of the superintendency had complied with competition norms.CommentThe court's ruling establishes a precedent in unfair competition cases to the effect that although the violation of an industrial secret may affect individual rights, it does not automatically imply specific damage to competition in the relevant market. On the contrary, the fact that the industrial secret was disclosed to several companies through a tender bid enabled them (and all other competitors in the market) to develop a technology similar to Wellhead's without favouring any competitor in particular and, therefore, without falsifying effective competition in the market. The judgment could lead to an interpretation that the rights of those who legitimately hold an industrial secret could be better defended through an action under industrial or IP norms (or a lawsuit before the mercantile courts for breach of contract); the superintendency's analysis of the violation of the competition norms takes into account potential or actual effects on the market rather than the interests of the industrial secret holder. Parties that are involved in negotiations which include the disclosure of an industrial or commercial secret are advised to (i) adopt all 'reasonable' measures to protect the secret from unauthorized disclosure, and (ii) execute a confidentiality agreement. For further information on this topic please contact Olga Nass de Massiani, Isabel Victoria Márquez or Vera De Brito de Gyarfas at Travieso Evans Arria Rengel & Paz by telephone (+58 212 277 3333) or by fax (+58 212 277 3334) or by email ([email protected] or [email protected] or [email protected]).