“Forget patents, trademarks and copyrights… trade secrets could be your company’s most important and valuable assets.”
James Pooley, former Deputy Director-General World, Intellectual Property Organisation (WIPO)
From Campari to Coca-Cola to Google’s PageRank, businesses and corporations have continued to keep their trade secrets (TS), to enhance prospects of their long term, sustainable future through market relevance and profitable business operations. Some of these TS have spanned decades, generations and centuries, therefore the need for adequate protection against prejudicial disclosures, cannot be overemphasised. Whilst Nigeria - through lack of subject-specific legislation - can be said to be partly indifferent about TS, other countries like Uganda (through her Trade Secrets Protection Act 2009), the United States of America (through their Uniform Trade Secrets Act 1985 (UTSA) and the Defend Trade Secrets Act 2016 (DTSA)) and the World Trade Organisation (WTO, through Article 39 Trade Related Aspect of Intellectual Property Rights 1995 (“TRIPS”)), have sought to protect TS.
Unlike patents that can be documented, the concept of TS lies in the fact that it is a ‘secret’; hence a bit ‘difficult’ to regulate and protect. Where protection of TS is lax, the effect could be drastic and damning for businesses. TS - as a subset of intellectual property - is a critical asset that must not be misused, essentially through unfair competition.
TS, is essentially a formula, process, device, or other business information kept confidential to maintain an advantage over competitors; information - including a formula, pattern, compilation, program device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Whilst the concepts and facets of TS continue to attract classification debates and the level of protection it should be offered, the reality is that our 21st century reality demand that countries must guarantee and protect TS. Unsurprisingly, the robustness of extant national TS protection framework could be a factor in investment competitiveness, an issue of interest, especially to emerging economies.
This article offers a perspective of TS through an analytical exploration of the applicable Nigerian legal framework, the relationship with other IP rights, a comparative analysis with other jurisdictions and concludes with suggestions for more efficacious TS protection in Nigeria, pursuant to identified gaps.
Conceptual Issues: ‘Trade Secrets’
The concept of TS began to develop with the rise of industrial capitalism in the early 19th century. While Patent had helped to restrain third parties from reaping the fruit of others’ research and development efforts; it nevertheless was too costly, unwieldy, and limited to protect the full range of technological and business innovations and know-how. TS on the other hand, does not have to be innovations or inventions but valuable information (on processes, finance, technical know-how, and management decisions, etc.) that are not generally available. TS encompasses commercially valuable, sensitive and confidential, but competitiveness impacting, information or know-how.
Article 39 TRIPS has classified TS as undisclosed information that needs to be protected so long as “such information:
- is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
- has commercial value because it is secret; and
- has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.”
In National Mutual v. Mortensen, this last condition under TRIPS which is also contained in UTSA was been held by the United States Court of Appeals, Second Circuit to be a germane condition. There, it was decided that the fact that the Agency Office Automation (AOA) information existed in a different, better-protected format than the physical folders did not elevate it to TS status. Rather, it is the protection afforded the information that matters and not the medium of storage.
Thus, TS is different from Patent (which is the closest to TS amongst the other IP rights) in that there is no need for registration and a timeline of 20 years, no territorial limitation, and periodic renewals. To establish a TS claim, the plaintiff must be able to establish that: (a) the plaintiff’s information qualifies for TS protection; (b), the conduct of the acquirer of the TS is wrongful (thus amounting to misappropriation); and (c) the plaintiff’s conduct in protecting the TS has been reasonable under the circumstances.
Trade Secrets: A Class of Intellectual Property Rights?
Globally, there has been a wide gulf in the course of the classification of TS; there has been the classification by subject-specific laws as a class on its own, some have subsumed TS under the law of contract or tort which attracts civil remedies like damages and injunctions while another has had it classified under the law of unfair competition. Another element of the controversy is whether to classify TS as an IP.
Whilst some have argued that TS does not confer exclusive rights against the world because an independent discovery of the secret by a third party would not necessitate an action, others have argued that it is only a form of property rights. TS can therefore be tagged as usufructuary rights, which confer rights to use a resource and to be free from interference with the use, but which do not confer the right to exclude those who derive benefits from the resource by their independent efforts.
A close look at the other IP rights will reveal that TS is in a class of its own, notwithstanding its resemblance to any of the IP rights. Whilst: Copyright protects original expression which may be expressed in writing, songs, artistic works, etc.; Trademarks seek to protect the consumer’s association with words, images, etc.; and Patent seeks to protect innovations and inventions which are expressed in different processes, formulations, processes and inventions; TS sui generis only protects that which is undisclosed so far it has some economic value.
Rationale: Why Protect Trade Secrets?
One of the questions that have dominated the TS regime is - why protect TS when it is a ‘secret’? Protecting TS does not mean acknowledging that they are in the public domain, ripe for piracy by analysis or otherwise. Rather, it entails preserving the ingenuity of such a secret that has real economic value for such a business. According to the World Intellectual Property Organisation (WIPO), protecting TS will help to:
- maintain and promote standards of commercial ethics and fair dealing;
- provide an incentive for businesses to innovate by safeguarding the substantial time and capital invested to develop competitively advantageous innovations, both technical and commercial, and especially those that are not patentable or do not merit the cost of patenting; and
- prevent competitors from using these innovations without having to shoulder the burden of costs or risks faced in developing the innovations.
Aside the above, TS being property, can also be used as collateral in the event of debt financing. However, preliminary execution of agreement amongst the parties concerned to keep the TS secret must first be executed. Another reason for protecting is because TS, a form of an intangible asset according to the Organisation for Economic Cooperation and Development Base Erosion and Profit Shifting (BEPS) Guidelines Action 8 may be a source of revenue for an organisation.
Management and Protection of Trade Secrets in Nigeria
Despite the increasing number of Small and Medium-scaled Enterprises (SMEs) and technology-driven start-ups in Nigeria, the regulation of IP is still limited to Patents, Designs, Copyright, and Trademark. This no doubt imposes a challenge on the protection of TS in Nigeria and further raises the concern of possible remedies where such secrets are being breached. In the absence of any definite legislation protecting or regulating TS in Nigeria, the originator of such TS has to put in extra effort to protect such from being disclosed to a third party or the entire world.
Confidentiality/Non-Disclosure and Non-Compete Agreements
One such option is to execute a confidentiality/non-disclosure agreement (CNDA) with every employee and contractor of the business, most especially those exposed to or who come in contact with and may have knowledge of such TS. Alternatively, an appropriately worded non-compete clause could be inserted into employment, service or other contracts (as the case may be) to protect the interest of the originator of the TS, in the event of disengagement by resignation or dismissal from service.
This was the situation in Koumoulis v. Leventis Motors Ltd where the Appellant who was in the employment of the Respondent and in the know of the Respondent’s TS, resigned and started working with the Respondent’s competitor, Nigerian Technical Company Limited. After the Appellant left the Respondent, the Respondent found out that the business plan which constitutes their TS that was being discussed within the Respondent’s company had now being divulged and explored by, the Appellant’s new employer, thereby leading to loss of business opportunities.
The undertaking in the Appellant’s agreement with the Respondent that he will not for “a period of one year undertake to carry on either alone or in partnership nor be employed or interested directly or indirectly in any capacity whatever in the business of Merchants Engineers or any other business carried on by the Company within a radius of fifty miles from any Trading Station in West Africa” was held to be valid. Accordingly, the Appellant was liable to the damages imposed by the lower court.
Drafting the non-compete clause is critical to ensure that the provisions do not run the risk of being declared null and void by the court for being too restrictive. In 7th Heaven Bistro Limited v. Desphande, the National Industrial Court (NIC) found that one of the terms of the Executive Employment Contract (Expatriate) viz, that the employee is not to accept employment with any other employer in Nigeria or the same line of business as the company and/or its shareholders outside of Nigeria for a period of three (3) years from the date of termination or resignation, was too restrictive. Consequently, the NIC declared the provision null and void.
Similarly, the NIC in Samson Systems and Investment Limited v. Chmchoum and Infinity Tyres Limited v. Kumar & Ors had held the non-compete clauses that prevented the employees from working for five (5) years and from working in any other company in Nigeria respectively were too restrictive, hence null and void.
Filling the Gaps: Injunctive Remedy and Other Judicial Approaches to TS Enforcement
Another remedy that could be in favour of the owner/valid licensee of the TS is the equitable remedy of injunction - applied where there is a prima facie case, insufficiency of damages to remedy the wrong done, the balance of convenience tilts in favour of the applicant and undertaking as to damages by the Applicant. The courts, always mindful of the foundational legal principle of ubi jus, ibi remedium (where there is a wrong, there must be a remedy) will intervene in order for justice to come to the aid of the injured or likely to be injured party.
However, in the absence of specific legislation, the Court has leaned on the side of the employer to protect information that can be classified as TS. In Aero Contractors Co. of Nig Ltd v. Akingbehin, the disclosure of the Defendant to his Counsel who in return threatened to publish confidential information with the intent to blackmail the Plaintiff was held to be a breach of the confidentiality imposed on the Defendant.
Similarly, the National Industrial Court in Akinsanya v. Coca-Cola held that the Plaintiff’s disclosure of official confidential information - the records of a sensitive internal report pursuant to a whistleblower’s complaint - to her spouse, was a breach of the company’s Code of Business Conduct. The Court however failed to grant any damages against her, because of her wrongful dismissal by the Defendant.
A clog in the wheel of confidential proceedings on TS in Nigeria is the provision for public proceedings of civil matters under section 36(1) and (3) 1999 Constitution of the Federal Republic of Nigeria (as amended) (1999 Constitution). While the use of Alternative Dispute Resolution (ADR) can help stem the disclosure in adjudicating disputes, the enforcement procedures of the award through the judicial system may undermine the secrecy initially enjoyed during the ADR proceedings.
Concerns: Statutory Confidentiality Protections
One issue of concern is potential exposure of TS subject to mandatory disclosure as a result of regulatory applications or other regulatory interactions, to (inimical) third party access. Given the absence of subject-specific TS legislation, review of disparate provisions is required to see whether they indirectly define or protect TS, notwithstanding that the challenge with these legislations is that they are limited when compared to TS focused provisions.
For example, the Revised Guidelines for Registration and Monitoring of Technology Transfer Agreements in Nigeria (Guidelines) made pursuant to the National Office for Technology Acquisition and Promotion Act (NOTAPA) mandates the submission of relevant technology transfer (service) agreements (which could implicate disclosure of TS), as part of documentation requirements for NOTAP’s registration of such agreement. However, there is no corresponding provision for protection in both the Revised Guidelines and the NOTAPA. Even if practice the risk of unauthorised disclosure is remote, it is however not non-existent.
Similarly, the Federal Ministry of Interior through Paragraph 4 Immigration Regulations 2017 and the Handbook on Expatriate Quota Administration (Revised 2020) made pursuant to the Immigration Act requires that Nigerian companies with foreign participation obtain a Business Permit before commencing operations. A checklist of documents amongst others includes a Feasibility Report/Business Plan which could involve the disclosure of the business model and trade secrets.
Whilst arguably, corporate documents submitted to regulatory agencies accordingly become public documents, Rule 030416 and 030417 Public Service Rules 2008 only imposes an obligation of “due care and diligence to prevent the knowledge of any such article, note, document or information being communicated to any person against the interest of the Government” but prohibits disclosures without compliance with official routine, special permission of Government or with the special permission of the Permanent Secretary/Head of Extra-Ministerial Office of such body. Again it is unlikely that disclosure to third parties without legitimate right to receive such can enjoy the validity cloak of the exceptions.
By sections 54 and 55 Finance Act (No.2) 2020 which amended sections 39 and 50 Federal Inland Revenue Service (Establishment) Act, there is now a stricter penalty for breach of the imposed obligation for confidentiality of tax payers’ information and criminal liability for conviction for a fine of
N1 million or three (3) years imprisonment or both. Disclosure must only be on the basis of the stipulated exceptions (such as in pursuance of any mutual assistance or double taxation agreements). These provisions as laudable as they may be, failed to provide for compensation or accounts for profits and undertaking to pay requisite damages to the taxpayer(s) where there is a breach of the obligation of secrecy, howsoever arising.
Similarly, section 1 Official Secrets Act makes it an offence to transmit, obtain, reproduce or retain classified matter without requisite authorisation on behalf of the government. The limitation of this provision to TS is the restriction of classified matter to information that would be prejudicial to the security of Nigeria. Although this does not directly protect any TS submitted as part of regulatory application, presumably the sanctions provide the necessary incentive for compliance, and thereby obviate the risks and consequences of breach.
Probably the most significant “reassuring” provision from a regulatory interface TS protection perspective is section 15(1)(a) Freedom of Information Act 2011 (FOIA). It mandates public institutions to deny applications for information that contains “trade secrets and commercial or financial information obtained from a person or business where such trade secrets or information are proprietary, privileged or confidential, or where disclosure of such trade secrets or information may cause harm to the interests of the third party.” Section 15(1)(a) is thus a welcome curtailment of the section 1 right of an applicant to request information in the custody of any public official, agency or institution.
Since disclosure otherwise than in valid performance of official duties is either expressly forbidden or would be generally as presumed unlawful at common law, whilst the FOIA excludes TS from disclosure, arguably the cumulative effect of the Nigerian regulatory regime is that there is some, albeit insufficient protection of TS.
Monopoly and Anti-Trust Concerns
The question may be asked: will the protection of TS by private individuals and corporations not lead to a dominant position or monopoly thereby leading to market abuse? This writer does not think so.
By section 70(2) Federal Competition and Consumer Protection Act 2019 (FCCPA), an undertaking is said to be in a dominant position where it “enjoys a position of economic strength enabling it to prevent effective competition being maintained on the relevant market and having the power to behave to an appreciable extent independently of its competitors, customers and ultimately consumers.” Monopoly on the other hand deals with the commercial terms of manufacture, sale and supply of goods and services so far it affects competition in Nigeria.
The above when compared to TS reveals that there is no confluence. Whilst TS is restricted to secrets that have economic implications, dominant position and monopoly are concerned about competition through price fixing, free trading and supply of goods and services.
Comparative Scan: Trade Secrets in Other Jurisdictions
United Kingdom (UK): The UK had overtime relied on the common law (especially contractual principles) in granting remedies for infringement of TS until the EU Trade Secrets Directive 2016/943 and the Trade Secrets (Enforcement, etc.) Regulations 2018 (Regulations) were issued. The Regulations introduced confidentiality document disclosures by way of application or knowledge in the course of proceedings, which applies even after the proceedings have ended. Also, the grounds for grants of interim injunction and final award of remedies are spelt out to guide the Court such as the value and other specific features of the trade secret, the measures taken to protect the trade secret, etc.
Peoples’ Republic of China: China in also protecting TS has enacted the Anti-Unfair Competition Law 2019. Specifically, Article 9 provides that a business is not allowed to: (a) acquire TS through theft, bribery, fraud, coercion, electronic intrusion, or any other illicit means; (b) disclose or allow another person to use a TS acquired from the right holder, or in breach of confidentiality obligations; and (c) abet any form of infringement of the TS. Breach triggers remedies such as damages to the tune of up to 500% of the amount of damages caused (or a maximum of five million yuan (¥5,000,000) where the actual loss cannot be determined), injunction and confiscation of the income and imposition of financial penalties.
There is a further provision for confidentiality during investigation and punishment under the law where an employee of the Government Authority engages in acts that foster the infringement of TS that the employee becomes aware of in the course of an investigation. In an action for infringement, all the owner/obligee of the TS has to establish is: (a) preliminary evidence that he (the owner/obligee) has taken steps to ensure confidentiality; (b) the TS has been infringed; and (c) any of these: (i) evidence of access of the infringer to the TS and that the information used is identical to his; or (ii) that the information has been disclosed or risks being disclosed by the infringer; or (iii) any other evidence of infringement by the infringer.
United Stated of America (USA): In the USA, Section 2(2) DTSA provides for ex parte application for the propagation or dissemination of the TS. The Court is also expected to grant protection from publicity by the Respondent, the content of the injunctive order and the materials seized pursuant to the injunction. Where there is a case of misappropriation of TS, the court may grant an award of damages, injunction or two-times amount of damages where such misappropriation was wilful and malicious. Furthermore, where the case of misappropriation is made in bad faith, the law allows an award of reasonable attorney’s fees to the other party.
The need to protect TS in Nigeria is gaining traction daily, most especially with the adoption of remote working and the entrepreneurial underpinnings of business impacting technological innovations and other non-technical ideas that are being developed. While the Court has at some point helped to preserve the ingenuity of these TS, the lack of subject-specific laws and mandatory confidentiality requirements is still a huge hindrance to its maximum protection. For instance, the use of the Court to protect TS or through enforcement of awards pursuant to an ADR process can be counterproductive considering the fact there could be eventual disclosure to third parties or the entire world in the courtroom and through case law reporting.
As it stands in Nigeria, apart from the few remedies already stated, there is no other law or mechanism set up that protects TS. The National Assembly or the State Houses of Assembly should enact subject-specific legislation like the DTSA and the Regulations which provide for injunctive relief against propagation or dissemination of TS, protective measures in trials and for materials seized and remedies in case of actual or attempted prejudicial disclosure like injunction and damages, and award of cost of attorney’s fees where an injunction was obtained unduly.