Commercial secret

I. Definition

Current legislation defines a trade secret as a regime of confidentiality of information that allows its owner, under existing or possible circumstances, to increase income, avoid unjustified expenses, maintain a position in the market for goods, works, services or obtain other commercial benefit[1].

The legislative acts do not contain a separate definition of the concept of confidential information. From the general interpretation it can be concluded that confidential information is a more general concept, which under certain conditions can be transformed into commercial, state or other secret protected by law.

Thus, trade secret is a special term in relation to the general concept of “confidential information”.

II. Establishment of trade secret regime and practice of its application

1. Procedure for establishing a trade secret regime

The Federal Law “On Commercial Secrets” establishes rather strict requirements for actions necessary to establish a commercial secret regime [2]:

1) drawing up a clear list of information that its owner considers to be a trade secret.

2) establishing restrictions on access to information (such as storage in safes, password restriction of files and folders with information, etc.);

3) maintaining a list of persons who have access to such information;

4) obligatory conclusion with employees and counterparties of a document regulating relations with the provided commercial secret;

5) application of the “Commercial Secret” label on the information carriers with indication of the owner of such information (for legal entities – full name and location, for individual entrepreneurs – surname, name, patronymic of a citizen who is an individual entrepreneur and place of residence).

Often, holders of trade secrets rarely comply with all of the above requirements, and therefore are deprived of the opportunity to protect their rights in the event of illegal use of information.

Thus, the most common violation is the absence of the “Commercial Secret” stamp on documents [3]. For example, documentation containing production secrets or important information about key counterparties is sent by a company employee to a third party by e-mail without a corresponding stamp. In such a case, the use of the transmitted information in the future is absolutely legal and cannot be challenged even in the presence of a signed agreement [4].

Another common mistake when dealing with trade secrets is not familiarizing employees with the Regulations on Trade Secrets under personal signature [5].

Before allowing an employee access to its trade secrets, the employer must ensure that all regulations and agreements are duly signed by the employee. Only then can it be guaranteed that the trade secrets will be respected.

The above-mentioned circumstances, as well as the fairly frequent practice of obtaining a refusal to protect rights in relation to trade secrets, allow us to conclude about the complexity of this category, the need to take into account all the peculiarities of legal regulation and judicial practice in the process of transferring documents and information important for the company.

 2. Liability for violations of the trade secret regime

In cases where the trade secret regime is correctly established, the legislation allows the company to protect its rights in various ways:

1. First of all, a person may be held criminally or administratively liable for violating the regime of secrets protected by law, including trade secrets.

The Criminal Code of the Russian Federation provides for liability in the form of a fine of up to one million RUB, or correctional labor for up to two years, or compulsory labor for up to four years, or imprisonment for the same period of time. [6].

For example, if an employee knowingly collects and transmits a company’s technical documentation, he or she could be sentenced to imprisonment for trade secret disclosure [7].

Similar actions, but in an amount insufficient for the application of criminal liability, are punishable under administrative liability in the form of a fine of up to two hundred thousand RUB [8].

2. Within the framework of civil liability in case of violation of the trade secret regime, the person whose right has been violated has the right to claim compensation for losses incurred by him or her [9].

To date, the category of damages is quite complex in court practice. As a rule, plaintiffs face difficulties in proving the existence of losses, their amount and the causal link to the fact of disclosure of trade secrets [10].

In this regard, when drafting documents, it is extremely important to provide in advance for the amount of liability and the procedure for determining it. Only in this case it is possible to guarantee a positive recovery of monetary amounts.

3. The Labor Code of the Russian Federation provides for the right of an employer to unilaterally dismiss an employee if the employee has disclosed a trade secret [11].
4. An important additional tool to protect a company’s rights in case of disclosure of trade secrets is an appeal to the Federal Antimonopoly Service for violation of the Federal Law “On Protection of Competition”.

Clause 3, Article 14.7, paragraph 3 of the Law on Protection of Competition prohibits unfair competition through illegal use of trade secrets [12]. Specifically prohibited are:

1) obtaining and using trade secrets possessed by another competing business entity without the consent of the person authorized to dispose of them;

2) use or disclosure of the said information, the owner of which is another competing business entity, due to violation of the terms of the contract with the person authorized to dispose of it;

3) use or disclosure of the said information, the owner of which is another competing business entity and which was obtained from a person who has or had access to the said information due to the performance of official duties, unless the non-disclosure period established by law or contract has expired.

This means that in cases where a competitor has obtained a trade secret in order to fulfill obligations under a contract concluded with it and, as a consequence, has started using the obtained trade secret for its own benefit, its activities can be banned by applying to the Federal Antimonopoly Service [13].

Information held by a company is an important asset in the current environment. Companies should ensure that it is properly protected in advance, that documents are drafted in accordance with legal requirements and practices and that all parties involved in turnover clearly comply with them.

III. Confidential information and agreement on its protection

The legislation does not give “confidential information” a separate status, unlike the “trade secret” discussed in the previous article. Nevertheless, business practice actively uses the concept of “confidential information” in an attempt to protect its data without resorting to the establishment of any regimes that automatically entail a large number of restrictions.

For example, a confidentiality agreement has become widespread in business practice.

This agreement allows its participants to protect not only their trade secrets from dissemination, but also to additionally include protection of other legally protected data, such as personal data. Taking into account the tightening of liability in terms of protection of personal data dissemination of individuals, the conclusion of such non-disclosure agreements is becoming mandatory.

Nevertheless, as stated earlier, it will not be possible to include in the agreement information that does not comply with the requirements for establishing a trade secret regime. In order to receive proper protection, the information must be protected from the point of view of the law, and in this regard, compliance with all the formalities specified in the Federal Law “On Commercial Secrets” is required.

Following the principle of freedom of contract, the Agreement on Non-Disclosure of Confidential Information may contain any conditions not contrary to the current legislation.

Thus, one of the important clauses of the Agreement should be a provision on a penalty for breach of the provisions of the Agreement. The penalty should be set in the form of a fixed sum of money, the amount of which is determined depending on the volume and nature of the transferred data constituting confidential information. This will allow the party affected by the disclosure to recover its rights more effectively and quickly.

However, it should be noted that for the confidentiality agreement, which is part of the labor contract or an additional agreement to it, it is impossible to use by analogy the norms of the Civil Code of the Russian Federation on transactions and contracts, methods of ensuring the performance of obligations, and therefore to establish a penalty for disclosure of information, since civil and labor relations have a different legal nature, different principles and methods of regulation. The labor agreement on confidentiality assumes the fulfillment of the obligation not to disclose information within the framework of performance of the labor function, this agreement may also stipulate the obligation not to disclose restricted information for a certain period of time after the end of performance of the labor function.

If an employee violates the confidentiality agreement, he/she may be subject to disciplinary measures provided for by Chapter 30 of the Labor Code of the Russian Federation. In addition, the employee may be held financially liable under the rules of Chapter 39 of the Labor Code of the Russian Federation.

In the confidentiality agreement it is also necessary to provide a list of protected information, in respect of which the parties introduce restrictions. For example, in addition to the above information, it may also include production secrets (know-how), sales reports, sales plans, marketing policy, customer base, information about the technologies used, the content of business negotiations and other commercial information.

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[1] Article 3, paragraph 1 of Federal Law No. 98-FZ “On Commercial Secrets” dated July 29, 2004.

[2] part 1 of Article 10 of Federal Law No. 98-FZ of July 29, 2004 “On Commercial Secrets”.

[3] Decision of the Fourth Arbitration Court of Appeal of January 27, 2022 in case No. A78-8206/2019; Decision of the Arbitration Court of the Novosibirsk Region of October 26, 2020 in case No. A45-18365/2020; Decision of the Arbitration Court of the Chelyabinsk Region of November 6, 2019 in case No. A76-8895/2019; Decision of the Arbitration Court of the Udmurt Republic of June 23, 2023 in case No. A71-2998/2023.

[4] Decision of the Arbitration Court of the Sverdlovsk Region dated July 4, 2023 in case No. A60-12114/2023.

[5] Decision of the Second Cassation Court of General Jurisdiction of 16.11.2021 in case No. 88-24340/2021.

[6] Article 183 of the Criminal Code of the Russian Federation.

[7] Appeal ruling of the Kostroma Regional Court of 21.07.2022 in case No. 22-628/2022.

[8] Article 13.14 of the Code of Administrative Offenses.

[9] Article 15 of the Civil Code of the Russian Federation.

[10] Resolution of the Seventh Arbitration Appeal Court of 25.04.2012 N 07AP-2839/12 in case No. A27-12862/2011; Resolution of the Moscow District Arbitration Court of 26.08.2019 N F05-13297/2019 in case No. A40-211667/2018.

[11] Article 81 of the Labor Code of the Russian Federation.

[12] Article 14.7 of Federal Law No. 135-FZ “On Protection of Competition” dated 26.07.2006.

[13] Resolution of the Seventh Arbitration Appeal Court of 19.02.2018 N 07AP-240/2018 in case No. A45-6978/2017.