Our Innovation & Patents lawyers at Al Tamimi & Company discuss Trade Secrets, Know-How & Confidentiality: Protection & Enforcement against Violation
Ahmad Saleh Partner, Head of Innovation & Patents
Imad El Ess Associate, Innovation & Patents
Reem Albudoor Legal Researcher, Innovation & Patents
Trade secrets, know-how, and confidential information are highly attractive forms of intellectual property protection, due to the fact that they offer companies a competitive edge in the marketplace and allow companies to protect information without public disclosure. This article will cover some guidelines for trade secret protection in the United Arab Emirates (“UAE”) and the Kingdom of Saudi Arabia (“KSA”), the steps that can be taken by owners of trade secrets to ensure confidentiality, and what measures owners of trade secrets can take when there has been the unauthorized disclosure of a trade secret and breach of confidentiality.
Trade secrets are typically protected through various laws, including but not limited to, intellectual and industrial property laws, labour laws, and companies laws.
A trade secret can be any form and type of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, programs, devices, research data, clinical trials, formulas, designs, prototypes, methods, techniques, processes, procedures, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialised physically, electronically, graphically, photographically, or in writing, with the exemption of protection of any trade secret that violates Sharia Law or public policy.
For information to be considered a trade secret, it must meet the following criteria:
The information must be secret in a 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 or industries that normally deal with the kind of information in question;
The information has commercial value because it is secret; and
The information has been subject to reasonable steps by the person or company lawfully in control of it to be kept a secret.
Threats to the infringement of trade secrets can stem from, not only outside the business but within the company. A preventative step is to establish and enforce through non-disclosure agreements (“NDAs”) or confidentiality agreements against any third parties, or employees, to whom the trade secret is revealed, or to whom access to the trade secret is permitted.
Additionally, companies with trade secrets must take reasonable precautions not to disclose the trade secret more widely than necessary. It is recommended that companies have guidelines in place regarding the disclosure of trade secrets. Before disclosure of a trade secret, a company should assess the third party to whom the information will be revealed, and evaluate whether the disclosure of the trade secret is necessary for the project to be carried out. If the trade secret is disclosed to the third party, the company that owns the trade secret must inform the third party to treat the information as confidential information.
There are a number of practical options a company can take to ensure the protection of their trade secrets and confidential information. A company can implement security guidelines to restrict access to certain documents/information, check-in and check-out procedures for certain documents, and document retention and destruction policies. A company can also hold training sessions for employees to explain why it is necessary to protect proprietary information and what can and cannot be done with such information. A company should also restrict access to confidential information and only grant access to such information on a need-to-know basis.
Additionally, since a substantial amount of unlawful disclosures of trade secrets occur when employees depart from companies, it is beneficial that a company implements departure protocols. Such protocols can include cutting off email access upon an employee’s departure, confirming with a departing employee that they have not retained any confidential information, and ensuring the return of all company devices and documents upon an employee’s departure.
In the UAE and KSA, the following acts are likely to be deemed as unlawful use or disclosure of a trade secret, if they are carried out without the authorization of the lawful owner of the trade secret:
Bribery to acquire the information from employees working at the establishment which owns the trade secret
Incitement of employees to disclose information acquired by virtue of their employment
Disclosure by a party who has entered into a confidentiality agreement to keep the acquired information in question a secret
Acquisition of information, from the place where it is preserved, through illicit means, such as theft or espionage
Acquisition of information through fraudulent means
Use of information acquired by any of the previous means by a third party aware of its being confidential and that it was acquired by one of the above means
There are situations wherein the acquisition and use of undisclosed information may not constitute unlawful use or disclosure of a trade secret. Such situations are outlined below.
Acquisition of information from public sources.
Acquisition of information by exerting personal independent efforts to extract information through examination, testing, and analysis of products in circulation in the market which incorporate undisclosed information.
Acquisition of information as a result of efforts of scientific research, innovation, invention, development, modification, and improvement exerted by persons independently from the owner of the trade secret.
Acquisition and use of known and available information circulated among those involved in the industrial art within the scope of which the information falls.
As per the UAE and KSA Labour Law, an employer can terminate an employee’s contract if the employee has revealed trade secrets of the company he/she is employed under. If an employee has entered into an NDA or confidentiality agreement and has breached such an agreement by unlawfully disclosing a trade secret of the company he/she is employed under, the employer may raise a breach of contract claim against the employee with the relevant courts where the employer is based.
If an employee has not entered into an NDA or confidentiality agreement and has disclosed a trade secret of the company he/she is employed under, the employer may raise a claim against the employee for the unauthorised disclosure of a trade secret with the relevant courts where the employer is based. However, it is important to note that in such a scenario the courts may not classify the information in question as a trade secret, as it may be deemed the employer did not take reasonable steps to keep the information a secret.
In the UAE, if the court rules that a trade secret has been unlawfully disclosed, the penalties include imprisonment and/or a fine. The minimum fines are AED 20,000 under the UAE Penal Code, AED 50,000 under the UAE Companies Law, and AED 100,000 under the UAE Industrial Property Law.
By contrast, the Saudi Laws did not determine a specific penalty amount; however, it gives the courts wide discretion in deciding what types of remedies are available for trade secret violations and the appropriate amounts. They note that under the principle of Islamic jurisprudence, compensation claims can only be entertained if the claimant presents clear evidence to support actual damages or losses sustained and loss of income or profits that the claimant was sure to earn. In other words, unproved damages, potential damages, unsubstantiated damages, or imaginary damages do not qualify for compensation.
The penalties apply to any individual who is entrusted with a trade secret by virtue of his/her profession, trade, position, or art, and who discloses the trade secret unlawfully, uses it for his/her private benefit, or uses it for the benefit of another individual.
Example 1 – An employee works in a wood factory for 5 years and leaves the company to work for a competitor. The company had put in place an innovative process for processing and manufacturing paper from wood to produce high-quality paper. The process has been labelled as confidential by the company and the company limited access to the factory to only a select number of employees. The company makes the employees sign specific confidentiality clauses in their employment agreements. The employee leaves the company for a competitor and implements the same process at the competitor’s company.
Example 2 – A client hires a manufacturing company for manufacturing a consumer product device. The manufacturing company signs a confidentiality agreement agreeing not to use the technical information provided by the client outside the scope of work instructed. The manufacturing company uses the technical information provided by company A to manufacture the same products for company B.
Example 3 – Two parties, a university, and an external laboratory enter into a collaboration agreement with one another for a scientific study. The parties agree that the university will share proprietary information with the laboratory for the execution of the study. The collaboration agreement includes a confidentiality clause that stipulates the laboratory cannot use the proprietary information shared by the university outside the scope permitted in the agreement. The laboratory uses the technical information provided by the university for the execution of another scientific study with an external party.
An individual agrees with a software developer that the developer will develop a source code for a mobile application based on a concept provided by the individual.
Example 4 – An individual agrees with a software developer that the developer will develop a source code for a mobile application based on a concept provided by the individual. The software developer signs a confidentiality non-disclosure agreement agreeing not to use or disclose the source code, or disclose any information provided by the individual, for any reason other than for the execution of the project. The software developer takes the concept provided by the individual to make its own mobile application and launches the application on an App Store.
Example 5 – A large soft drinks company, Company A, has a soft drink recipe that is considered a highly coveted trade secret. The company has strict guidelines in place to ensure the recipe is kept a secret and only a select number of employees have knowledge of the recipe. One of the employees who have access to the recipe writes down the recipe in a notebook so as to not forget it. The employee meets with Company B for a meeting one afternoon and the director of Company B bribes the employee to provide him with the secret recipe. The employee leaves the notebook that contains the recipe on a desk in Company B’s office. A few weeks following the meeting, Company B releases its own soft drink, which tastes and looks identical to Company A’s product.
Example 6 – A group of researchers at a university are conducting research on AI applications pertaining to the early diagnosis of breast cancer. The research is labelled as confidential and the lab has secure access and only lab employees and researchers are granted access. A visitor student induces a lab employee to provide him access to the AI laboratory and databases without authorization of the lab management. The visitor student manages to access the research databases and download some of the research data on an external hard disk and leaves the country with the data.
For further information, please contact Ahmad Saleh.
Published in August 2022
Illustration of Ibn Sina (Avicenna)
