The Law on Tarde Secrets (Law No.1/2019) has been finally published by the BOE on February 20. Consequently, the Law will enter into force the 3rd of March.
By its virtue, the European Union Directive 2016/943 on the protection of technical knowledge and non-disclosed trade secrets against its illicit obtaining, use and disclosure, is incorporated into the Spanish legal system. The Law consist of 25 articles distributed in 5 chapters, one transitory provision, and 6 final dispositions.
It was about time to have a specific law in this matter since the protection of trade secrets is one of the essential elements of competition between companies. The proper operating of the markets depends on its correct protection.
Prior to the Law, the Spanish legal system entrusted the protection of trade secrets to the Unfair Competition Act (Act No. 3/1991). The provisions included on the Unfair Competition Act regarding trade secrets could be considered as a police system, in other words, a set of rules whose application only occurs when they are breached.
However, the real scenario surrounding trade secrets is much more complex. This is because trade secrets are one of the most important business assets and, thus, considering them only from the point of view of their breach has been completely insufficient.
The Law on Trade Secrets, consistent with the requirements of the Directive, enshrines on the trade secrets the existence of a property right. Wherewith, it could be asserted that the Law constitutes a new patrimonial right over trade secrets.
Hence, it will be essential for companies to correctly assess and account for trade secrets, as well as to be able to apply the appropriate tax treatment.
Thus, who previously owned a trade secret and had to articulate its commercial exploitation through non-disclosure agreements (NDAs), are now entitled to exploit such trade secrets provided they now have rights, very similar (if not identical) to intellectual property rights. Specifically, they are entitled to transfers, assigns, or even grant, exclusive or non-exclusive, license over the trade secret.
Provided that trade secrets regard business intelligence, it is a new right over intangible assets, and, specifically, over information and/or knowledge. This consideration brings European law closer to the Anglo-Saxon concept of intellectual property, which encompasses the protection of patents, trademarks, designs, copyrights and related rights, the topographies of semiconductor products, and, finally, trade secrets.
In this sense, certain ideas that until now were considered as common heritage of humanity, become part of the owner of the secret’s particular asset. Concretely, the trade secret is defined by the Law as "[...] any information or knowledge, including technological, scientific, industrial, commercial, organizational or financial [...] ". In addition, to enable the protection granted by the Law, the trade secret must meet the following characteristics:
a) Be secret, in the sense that it is not generally known, as a whole or in the precise conformation of its components, by the people belonging to those circles in which such information or knowledge is normally known or exploited, nor is easily accessible to such people;
b) Have a business value, whether real or potential, precisely because it is secret; and
c) Having been subject to reasonable measures by its owner to keep it secret.
The similarities between the legal provisions governing the protection of trade secrets and copyrights, highlight the close relationship between both subjects. Despite these similarities, while copyright protects the expression of ideas (i.e. how ideas are expressed), with the main requirement of dispensing the protection to the originality, the protection of the trade secrets is confided precisely to the ideas themselves, to which the Law refers as the information constitutive of the secret.
It is clear that the trade secret will coexist with other possible forms of protection of intangible assets, given that its form of expression can be protected by copyright, or even that part or parts of the secret may be patentable.
The ways of acquiring trade secrets is another factor that reveals the close relationship of their protection with the protection provided by copyright, since their creation is included among the different ways of acquisition of the information constituting the secret. Other options of acquiring the ownership of a trade secrets are:
- Observation, study, dismantling or testing of a product or object made available to the public, or that is in the lawfully possession of the person who performs these actions;
- The exercise of the right of workers and workers' representatives to be informed and consulted, in accordance with European or Spanish legal system and current practices; and
- Any other action that, according to the circumstances of the case, is in accordance with the loyal commercial practices, including the transfer or assignment and the contractual license of the trade secret.
Likewise, the Law regulates the actions and procedures for the protection and defense of the rights over trade secrets ( the Law dedicates Chapters IV and V to these actions and procedure rules).
Chapter IV contains a list of actions to which owners of trade secrets are entitled to follow in case of infringement, without having to resort to the Unfair Competition Act. Among the different actions, we note the following: (i) action of cessation of the infringement or illicit acts; (ii) action to prohibit the manufacture or commercialization of the infringing goods.
Even though the Law incorporates a list of actions, it seems that we are facing a non-exhaustive list. This would mean that the trade secret owners may also exercise other actions that are not specifically contemplated in the Law, enabling owners and/or rightsholders to initiate measures and/or actions against infringers and third-party acquirers in good faith. These third parties are the ones who did not know, or should not have known, at the time of the use or the disclosure that they had obtained the trade secret directly or indirectly from an infringer.
Regarding the compensation for damages, the Law offers the rightsholders two methods to quantify damages, which, again, is similar to the methods brought by the Spanish Copyright Act. The first one covers the economic damages, including loss of earnings suffered by the owner of the trade secret, and, also, a possible unjust enrichment obtained by the infringer. Also, and with respect to this method, the indirect regulation of a moral right of the owner of the secret can be introduced in the calculation of compensation, when in the unlawful acquisition, the use or disclosure of the secret is inflicted on its non-property damage.
The other quantification method consists of a lump sum that is fixed as the quantity that the infringer might have paid if the owner/rightsholders provide such infringer with a license.
The statute of limitation for undertaking any legal action for the protection of trade secrets is three years.
Chapter V of the Law contains procedural guidelines, such as ascribing the competence over the proceedings to the Mercantile Courts; also, it establishes precautionary measures and preliminary proceedings. It highlights an extensive regulation on the treatment of information that may constitute a trade secret, which includes measures to avoid that, due to the corresponding procedures, the secrets could be infringed. These measures may affect lawyers, attorneys and judicial office officials. Judges may even limit access to hearings in proceedings.
The Law is an encouraging news for the business sector and, especially, for entrepreneurs and new business models based on innovation whose role is on the rise in the last years.