Trade Secret Protection
The prowess of a company depends on its ability to work smarter than their competitors. This can be achieved through specifically designed operational workflows, specialized technologies or structural control practices that enable a firm to stand out within a particular market or industry. Such intellectual knowledge is typically only available to those within their respective organizations. However, in many cases, the protection of these trade and operational secrets can be difficult to oversee and enforce. The lack of proper protection could invariably affect a company in the most adverse manner if competitive rivals gained access to this intellectual property.
The necessity to protect a company's trade secret is essential, and thus, efforts are made to build a protective wall around the key secrets of the firm. This article will provide an overview of trade secrets and its protection and delve further into the provisions available for companies in the UAE while confronting potential threats that need to be addressed.
Overview of Trade Secret Protection
The subtle truth behind every successful company is the existence of an exceptional trade secret that differentiates it from its competitors. This information is sensitive and is not readily available to any individual outside a particular firm. The economic advantage created for the company is why this information needs to be protected. Some forefront nameworthy runners who protect their trade secrets include Google who protects the algorithm of its search engine or Coca Cola who preserves the secret formula to their product. All these companies are just a mere layer of mist over an ocean of companies trying to protect their operational and trade secrets.
Many jurisdictions treat trade secrets protection in different ways but, the integral purpose of protecting this information is to ensure that a company does not get manipulated or cheated by another competitor in the market. Irrespective of the height of protection provided, a trade secret can be recognized if they fulfill the following three criteria:
- The information that is being protected is not public information.
- The information generates an economic advantage for the firm.
- The information is actively protected by the members of the company.
Trade secrets can be in different forms - such as a pattern, formula, recipe, method, instrument or process - that is not directly apparent to the surrounding population. Considering that these trade secrets were developed or generated through intensive, lengthy and expensive methods, the existence of these documents are considered as classified or top-secret documents of the company. Since these are developed through extremely intensive processes, competitors have all the more motivation to learn these trade secrets through any method possible. One of the many defenses a company takes to protect its trade secrets is by ensuring that the employees who join the firm agree and sign a confidentiality, non-compete or non-disclosure agreement that restricts the sharing of the firm's intellectual property.
The US jurisdiction allows each state to enforce state developed regulations to protect the trade secrets of the company operating within that state. They protect trade secrets that are of all forms and type related to engineering, financial, scientific, business, technical and economic in nature. This would govern the tangible or intangible trade secrets, and the methods and practices used to protect them. Regardless, important information that a company must bear in mind is that if the information is discovered either through independent discovery or through the failure of a trade secret holders to preserve the secret, the protection embalming the trade secret will be retracted.
Irrespective of the features and the rising need to protect a company's trade secrets, it is important for entities to take appropriate measures to tackle the issue at hand and preserve their secrets. With the rapid advances with digital technology, it is becoming more challenging for companies to protect their trade secrets as information can be accessed without proper authorization and transmitted quickly across systems. This would need to be considered by companies when they develop and establish a framework to protect their trade secrets. Companies can also train their employees in risk and quality practices, to maintain due diligence and care when handling trade secrets in order to avoid misappropriation of information.
The level of protection and framework available through regulations and enforceable legislation will vary from one country to another. While one country may offer extensive and stringent protection for trade secrets, other countries may lack the required framework to support and protect companies to this effect. This should be considered by companies, and appropriate precautionary measures must be taken to ensure the care and safety of their trade secrets. This points us to the reason why large corporate giants like Facebook and Uber fight to protect their patents or trademarks, which are essential factors that contribute to the success of these companies.
Unlike patent protection, the laws used to protect trade secrets cover a range of products such as patents, trademarks and other intellectual or tangible property that the company can protect using the trade secrecy laws. Depending on the jurisdiction that the company operates within, the punishment imposed on parties that violate the protection of trade secrets may include penalties or even imprisonment which could go up to USD 5 million and 15 years respectively. However, the company must be able to prove to the respective legal system that they had taken adequate precautionary measures to safeguard their trade secrets while considering the nature of the market and the plausible threats arising against its safety.
There are three kinds of protection that can be provided to safeguard trade secrets. First, store trade secrets in a physical location and restrict the access to that location like Coca Cola does to protect its secret formula by keeping it in a vault. Second, use digital security measures such as strong passwords, firewalls or encrypted flash drives to protect the information on the company's system. Finally, use legal measures and tactics such as marking confidential documents with a stamp stating "Confidential" to alert its users to be careful not to divulge this information with anyone else.
Trade Secret Protection in the UAE
The significance of trade secret protection even in the UAE is deemed highly necessary for the survival and growth of the business and the economy. In order to help the businesses, protect their trade secrets, the legal system within the UAE has created provisions that would always allow a company to stay one step ahead of the threats. The initial step taken by the UAE to introduce and protect trade secrets in the country was in 2006 through the establishment of the Federal Law 31 of 2006.
This framework details the provisions set-up to regulate the activities and possible threats surrounding trade secrets. It states that if a company acquires any specific knowledge which could classify as trade secrets through legal avenues, then the company is allowed to use that information without fearing any repercussions. They also extend protection to instruments of the company which need not be new but is not patented. This is an added benefit as companies in the UAE cannot patent their product if it is not new or unique. This new provision will extend the spread of protection and not only ensure protection for the company's trade secrets but also provide the same for patents and other intellectual property of the firm. In addition, the protection that the trade secrets receive possesses an indefinite useful life.
As misappropriation by employees is one of the largest causes of violation of the protection of trade secrets, Article 905 of the UAE Civil Code provides provisions to challenge that threat which states that it is the responsibility of the employee to ensure that any trade secrets of the company are not divulged through them accidentally or intentionally. This provides a safety net for employers who fear the safety of their secrets and consider it to be in an unpredictable environment. Furthermore, the UAE Labor Law (Article 120) allows for companies to terminate their employees without any prior notice if they were found disclosing confidential information.
Since, the threat to trade secret protection arises not only from external factors but also, from internal factors, companies in the UAE can protect themselves by drafting a confidentiality or non-disclosure agreement with any of its employee or third parties. Also, the company should issue guidance that allows and informs against the disclosure of any sensitive company data. If the information is shared with other parties, they should also be educated that the information is sensitive and must not be communicated with anyone else.
Apart from the initial legal protection established by the UAE, a new Companies Law was introduced in 2015, which included a provision for the "Disclosure of Company Secrets" in the UAE. This allowed for greater protection of trade secrets under the scope of three different laws:
- Civil Transactions Law – imposes an ongoing obligation on employees to preserve a company's trade secrets even after the end of their employment.
- UAE Penal Code – punishes any party who discloses a trade secret without the legal permission to do so.
- UAE Patent Law – protects knowledge gained during the period of employment that could be regarded as a company's trade secrets.
Along with the guidance provided, the UAE's Companies Law details punishments that would result in the event of failure to safeguard the trade secrets of a company. It states that the punishment will be enforced if any employee of the company (including a chairman or board member) intentionally discloses the trade secrets of the company that can cause harm to the firm's operations. Albeit the language of the provision can be interpreted in several ways, the quintessential need to motivate parties associated with the company to protect the company's trade secrets can be said to be achieved through this provision.
If a legal or financial consultant, subscription director, covering sponsor or any other representatives intentionally takes advantage of the company's confidential information for their benefit, they will be held liable and, in effect, be punished for the non-protection of trade secrets. However, there are defenses stating that a legal consultant may not be deemed as a violator if they did not use the company's trade secret for their own benefit. This opens an avenue of subjective assumptions as to whether anyone who claims and proves they did not intentionally divulge the information will be held liable under the law.
Despite the gaps that exist within the legal frameworks governing trade secrets in the UAE, it can still be assumed that adequate efforts are being conducted by the legal system to ensure that proper frameworks are available to deter parties from breaching the safety measures in place. If found guilty, parties who have disclosed the information will be penalized and charged with criminal penalties such as fines of at least AED 20,000 and a minimum of one-year imprisonment.
Challenges surrounding Trade Secret Protection
It is difficult to establish the extent of loss suffered as a result of 'theft' of trade secrets - it is difficult to measure, and the value cannot be accurately ascertained. Uncertainty also exists regarding when such secrets were compromised. Many companies realize that their trade secrets were stolen years after the crime had been committed. In this timeframe, it would be difficult to trace the theft back or ascertain the losses incurred as a result of the misuse of secrets.
As discussed above, employees may transfer the secrets to competitors as they change employment, especially if they stand to profit from the exchange. This would weaken the company's ability to continue protecting the secrets from its competitors in the event of such a breach. With advancing digital capabilities, companies stand the risk of being hacked, with trade secrets being stolen if an outside party gains access to the entity's network and data. So, if the appropriate risk response controls have not been set-up to prevent information hacking, then the ability to duly protect the company's property will be left to question.
Many of the violations usually take place from within the firm either due to negligence or due to intentional embezzlement by its employees. In order to mitigate the risks involved, companies can explicitly make provisions within the drafted employment contracts that bar employees from disclosing the company's trade secrets without facing legal repercussions. They can also conduct ongoing surveillance of employees to ensure that no unusual behavior occurs that would invariably affect the company's well-being. Finally, companies can mandate risk and quality training to their employees to educate and remind them of the company's policies regarding the protection of trade secrets and the penalties associated with its disclosure.
Another challenge that arises in the implementation of the regulations within the UAE is the misinterpretation of the law. Under these provisions, there is no parameter to assess the 'intentions' of a person to actually cause harm to a company. Such phrases can be easily misinterpreted or miscommunicated by the parties in the discussion.
Some say that curiosity kills the cat but imagine allowing the cat to find what it is looking for - which is, in our case, our trade secrets. Sometimes it is not the threat we must fear but, the lack of preparation we take to push the threat away lest we fall into a spiral of doom. Many companies that are performing and growing at an exponential rate in the market are either not wary of the existence of curious cats out in the market, or they disregard the ability of these cats to impact their firm and market presence negatively. Is there a substantial buffer of protection that the company has allotted for or threats that they have foreseen? Are they prepared to fight it?
Conclusively, it can be understood that in today's age and time, one of the most valuable assets possessed by a company is its trade secrets. The adequate amount of protection for a company's trade secrets can give it a reason to fight. The protection that the UAE legal system provides is a growing set of enforceable protective methods. Unlike many jurisdictions, the UAE imposes criminal penalties and punishment in the event of a violation of the protection of a company's trade secrets. Taking into perspective all the threats involved, companies need to promptly prepare a more rigid and unbreakable wall of security; the lack of such a defense system would not only void the expected benefits but might raise concerns on the company's ability to continue as a going concern in the long run.