Harder to protect trade secrets in commercial relations

An amendment to the Polish Unfair Competition Act extends the legal protection given to trade secrets. But information known to or easily attainable for people in a particular sector or familiar with a particular subject will not constitute trade secrets even if the information is not disclosed to the general public. Labelling it “confidential” might not be sufficient.

In commercial relations, trade secrets are continuously and inevitably disclosed. Price terms, margins, market share, suppliers, and customers, i.e. information traditionally considered trade secrets, are disclosed as an inextricable element of business negotiations. Information is also disclosed prior to signing contracts, when the parties negotiate the general contractual terms, as well as subsequently during the commercial relationship, for example when product prices or positioning is under negotiation.

The main provision protecting trade secrets, including in business relations, is Art. 11 of the Unfair Competition Act. This provision currently prohibits the passing on, disclosure, or use of trade secrets if this endangers or breaches a business’s interests. A trade secret is defined as a business’s technical, technological, or organisational information, or other information of commercial value, that has not been made public and that the business has taken necessary steps to keep confidential.

Easily accessible information will not constitute a secret

This provision will soon change significantly, and thus the scope of legal protection of trade secrets will change as well. This includes secrets disclosed in commercial relations. This is due to implementation of the Trade Secrets Directive (2016/943). The bill implementing the directive provides for a new definition of a trade secret that differs from the current definition in three basic ways:

  • Availability of information classified as confidential
  • Confidentiality obligations of a holder of information
  • The scope of actions penalised by law.

At the moment, any information not made public is considered a trade secret. This means, at least in principle (and this prerequisite is interpreted in various ways in the case law), that any information not released to the general public, for example in the press or online, but which any person can access with relative ease, may constitute a trade secret.

Following the changes, the scope of protected information will be narrower. Only information that as a whole, or presented in particular form and as a collection of elements, is not commonly known or easily accessible to people who deal with this kind of information, will constitute a secret. This means that information known or easily accessible to people in a particular sector or familiar with a particular subject will not constitute a trade secret even if the information has not been released to the general public. This could apply to a set of information about in-store prices in various retail stores that is not available online (for example in a promotional catalogue or a store internet site). A special set of information of that kind prepared by sales personnel can be considered a trade secret at the moment. Once the amendments are enacted it will be difficult to treat this information as confidential. It will be easy for sales personnel of a different business to draw up a set of information of that kind. They only have to make an effort to obtain that information in the store.

A weak password or labelling information as “confidential” will not be sufficient

The proposed amendment increases the requirements for a holder of secrets, for example a business disclosing confidential information to a counterparty. At the moment, for the information to be protected, the holder should employ “necessary” safeguards to keep the information confidential. This entails minimum action on the part of the business; it only requires basic legal steps or steps of some other kind that manifest the will to protect certain information. A variety of safeguards can be employed, such as a nondisclosure agreement, a nondisclosure clause, an e-mail marked “confidential”, or other equivalent form. This can also be any kind of technical measure which when seen in context suggests an intention to protect the information provided (such as a password for a document, codes, and the like).

Once the changes come into force, a higher standard of conduct will be expected of a business. It will be required not only to take “necessary” measures, but to “exercise due diligence”. “Due diligence” will probably not include actions which are not a clear indication of the business’s intent to protect certain information. A disloyal counterparty wishing to exploit information for its own ends or pass it on to a third party will be able to argue that the holder did not demonstrate that due diligence was applied for example because a code was known to a large number of people or a note was insufficiently legible, and the counterparty had no reason to assume that the information was protected.

Unlawful acquisition, disclosure and use of secrets penalised

Another major change regarding protection of trade secrets in commercial relations is a change to the scope and grounds for penalised actions. At the moment, passing on, disclosing, or using trade secrets is a tortious act of unfair competition. In line with the directive, the bill penalises unlawful acquisition, disclosure, and use of secrets. It will now be prohibited to acquire trade secrets through unauthorised access, misappropriation, or copying of confidential material. If a dishonest counterparty misappropriates or copies trade secrets unlawfully and without consent, this will lead to tort liability.

There will also be new restrictions on material obtained lawfully. This is especially important in commercial relations where trade secrets are exchanged lawfully with the knowledge and consent of both parties. When the changes take effect, the use or disclosure of trade secrets will constitute an act of unfair competition, in particular where disclosure or use is prohibited under a different provision in the act (other than Art. 11 of the Unfair Competition Act), an agreement, or a “different act”. An injured business that has provided trade secrets voluntarily will therefore be required to cite the law, agreement, or “different” act under which disclosure or use by the counterparty is restricted. Like the requirement to exercise due diligence, the term “different act” can be interpreted in various ways and in effect means that it is easier for dishonest partners to avoid liability.

A nondisclosure agreement is better

To summarise, following the changes, merely labelling a document or data carrier “confidential” or the like might not be sufficient to obtain protection, and neither will introducing technical safeguards. Even in situations of extreme use of trade secrets by a dishonest counterparty, the injured business cannot be sure that it is protected if it did not take care to protect its secrets beforehand. In light of this risk, the optimal solution is to conclude a nondisclosure agreement or obtain an express declaration from the counterparty saying that it will not use or disclose trade secrets.

The risks arising in connection with the envisaged changes can be mitigated to some extent by the current Art. 721 of the Civil Code. This provides protection for information disclosed in the course of commercial negotiations if a business has stipulated that the information is confidential. This provision is a relatively weak means of protection of an injured business’s interests. It lists a limited range of claims, such as damages or surrender of profits, which are often difficult to demonstrate in court proceedings. It does not list other kinds of claims mentioned in the Unfair Competition Act, in particular to cease and desist unlawful activity or publish an appropriate statement.

Sabina Famirska, legal adviser, Competition practice, Wardyński & Partners