Although the protection of trade secrets is defined in the Trade Secrets Act, the company itself must take active steps to protect trade secrets. The legal sanctions of reparation, injunction and damages are only available once the damage has already been done. By the time a company's trade secrets come to light, the game is often already lost and irreparable damage has been done. Separate confidentiality agreements are still recommended with employees and others who become privy to trade secrets of the company or its customers. It is also important to pay attention to the various means of ensuring confidentiality.
The Trade Secrets Act has harmonised the rules on the protection of trade secrets. In addition, the protection of trade secrets and confidentiality is regulated by a number of different laws, including specific legislation on, for example, health professionals and auditors. Trade secrets are also protected under criminal law, which provides for sanctions for corporate espionage, breach of a trade secret and misuse of a trade secret. Nevertheless, we recommend that companies include specific provisions on confidentiality in employment contracts or draw up separate confidentiality agreements with employees.
In a case (KKO 2022:16), the Supreme Court has held that, in addition to the non-competition clause, the employment contract could have validly agreed on a confidentiality clause and a related penalty. The application of the confidentiality clause was also not considered unreasonable. In this case, the employee could be ordered to pay the employer a contractual penalty not only for the breach of the non-competition clause but also for the breach of the confidentiality clause. The court held that a contractual penalty of 6 months' salary was not excessive.
Definition of business confidentiality
A company may have several types of trade secrets, such as technical and financial information of significant economic value. The protection of a company's trade secrets also extends to its employees.
A trade secret is confidential information held by a company which is relevant to its business and which it therefore seeks to keep secret from others, in particular from competitors. Trade secrets are defined in the Trade Secrets Act. According to the Trade Secrets Act, a trade secret is information which is not available to persons who normally deal with the subject matter of the information. generally known or easily discoverable, and which, because of such a characteristic, has economic value in business. It is also required that such the holder has taken reasonable steps to keep the information confidential.
Area of protection of business secrecy
The Trade Secrets Act prohibits the unlawful acquisition, use or disclosure of trade secrets. The acquisition of a trade secret is considered to be unlawful if it is done, for example, by stealing or copying documents of the trade secret holder which contain a trade secret or by any other act contrary to good business practice.
A trade secret acquired in the manner described above may not be used or disclosed without right. The use and disclosure of a trade secret may be unlawful even if it has been obtained by lawful means. This prohibition applies where the information was acquired in the course of performing a task of trust or where the person who acquired the information is bound by a contract restricting its use and disclosure.
The Trade Secrets Act also defines the permitted ways of acquiring a trade secret, such as developing and inventing a trade secret independently.
The Employment Contracts Act also contains provisions on business secrets in employment relationships. According to the Employment Contracts Act, an employee may not, during the employment relationship, unlawfully exploit or disclose to others the employer's business secrets. If the employee has obtained the information illegally, the above prohibition continues even after the termination of the employment relationship. The employee's duty of loyalty under the Employment Contracts Act also covers the protection of the employer's business secrets.
What remedies are available to employers in the event of a breach of a trade secret?
A court may order an unauthorised user of a trade secret to pay royalties to the trade secret holder. However, the payment of royalties cannot be ordered on the court's own initiative, but must always be specifically requested. Damages and criminal sanctions are also possible. In addition to the employee who disclosed the information himself, the person to whom the employee disclosed the information may be liable to the employer for damages if the latter knew that the employee had acted unlawfully.
The trade secret holder can ask the court to order the withdrawal of the infringing product from the market and, for example, to order the unlawful acquirer of the trade secret to destroy the documents and files containing the trade secret or to hand them over to the legitimate trade secret holder.
In addition, the court may, at the request of the trade secret holder, prohibit the commission, continuation or repetition of an act that infringes a trade secret. This prohibition may also be imposed on an act which has not yet actually been carried out. It is also noteworthy that the prohibition and other remedial measures may be directed not only at the trader himself but also at persons who are not traders, such as his employees.
Confidentiality agreements and conditions
The aforementioned compensation, injunctive relief and damages are only available once the damage has already occurred. By the time a company's trade secrets come to light, the game is often already lost and irreparable damage has been done.
The entry into force of the Trade Secrets Act does not mean that there is no longer a need for separate confidentiality clauses and agreements to be attached to the employment contract. It is still advisable to draw up separate confidentiality agreements with employees and other parties who become aware of the company's business secrets. It is also important to pay attention to the various means of ensuring confidentiality.
In the above-mentioned decision of the KKO, a clause on confidentiality in the employment contract was deemed acceptable, according to which the employee was not allowed to disclose, reveal or exploit any business secrets of the employer or its customers or partners to a third party. Among other things, trade secrets were defined as trade secrets. The employee was bound by the confidentiality obligation even after the termination of the employment contract. The Korean court also found that a contractual penalty of 6 months' salary was not excessive.
For example, a confidentiality agreement allows an employer to define what information is considered a trade secret, to emphasise the importance of protecting it and to agree that the protection of trade secrets will continue after the employment relationship ends. It is also possible to include an explicit sanction for breach of confidentiality in the confidentiality agreement. This will clarify the distinction between, inter alia, legitimate and illegitimate use and disclosure in situations where trade secret law does not provide clear protection for the employer.
Confidentiality agreements can clarify the trade secret boundary situations under the Trade Secrets Act, such as those enabled by reverse modelling. It is therefore essential that the scope of confidentiality obligations is effectively agreed in advance.
What should employers take into account?
Already when hiring employees, a company must pay attention to the protection of its own and its partners' trade secrets, as well as the protection of the trade secrets of the employee's previous employer. Thus, the company must also take into account the inviolability of the trade secrets of others. The protection of trade secrets in employment relationships must be given particular attention at the beginning and end of the employment relationship.
The protection of business secrets is ensured by a confidentiality clause in the employment contract or a separate confidentiality agreement, which can be agreed to cover the period after the end of the employment relationship. Especially with new employees, the employer should also ensure that business secrets are disclosed. At the end of the employment relationship, the employer should remind the employee of the legal and contractual confidentiality obligations.
A MEMO TO THE EMPLOYER ON THE ACTION TO BE TAKEN:
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- Identify and define the information that should be considered trade secrets and ensure that it is properly protected where necessary.
- Find out if data protection is necessary.
- Ensure adequate data security, risk management and assessment, and ensure that the handling of information containing business secrets is adequately restricted.
- Draw up internal guidelines on trade secrets and how to handle them
- Inform staff about the practices relating to trade secrets and their protection.
- Include clear provisions in new employment contracts on the treatment of trade secrets and confidentiality.
- Draw up appropriate non-disclosure agreements with old employees and other parties (subcontractors, consultants, partners, etc.).
- If problems arise, and preferably in advance, you should consult a competent lawyer to prevent them.
Jari Sotka
Lawyer, MBA
Tel. 040 544 0610
[email protected]
Amos Attorneys at Law Oy
www.amoslaki.fi
The author has worked as a lawyer and advocate for more than 25 years, focusing throughout his career on preventing and solving legal problems for small and medium-sized enterprises.