case files with title trade secret

Protection of business secret under the new legislation

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On 27th May 2021, the National Assembly of the Republic of Serbia adopted a new Law on the Protection of Business Secrets (hereinafter: Law), by which legal regulations in subject area became in line with the regulations of the European Union.

The matter of protection of business secrets has so far been regulated by the Law on Protection of Business Secrets (“Official Gazette of RS”, No. 72/11). This law was adopted before Directive 2016/943 came into force, which aimed to harmonize the regulations of EU member states in order to provide adequate legal protection against illegal acquisition, use or disclosure of business secrets on the European Union market. Therefore, by adopting the new Law on Protection of Business Secrets, Serbia has harmonized its regulations in the field of protection of intellectual property and business secret with EU Directive 2016/943 and thus at the same time fulfilled its obligations under the Stabilization and Association Agreement.

The main question in the subject matter is, what are the biggest changes brought by the new Law on Protection of Business Secrets, as well as whether there are some new obligations that companies are obliged to undertake in order for their business secret to enjoy legal protection.

What is a business secret

Simply put, business secret means information of companies that are not generally known to public and that enjoy a certain degree of protection. The idea is to encourage and provide legal protection for the company’s investments in the acquisition, development, knowledge and experience. Therefore, business secret protects various types of information, such as data on the production process, business plans, financial plans, advertising strategies, market research results, lists of suppliers and customers, drawings, architectural projects, construction drawings, creative creations etc. The field of protection of business secrets has an increasingly important role in the modern economy and the way of doing business of economic entities, and therefore the adoption of a new Law that accompanies the development of modern business is quite desirable.

Changing the definition of a business secret

What is one of the most significant changes that the new Law has brought is a slightly changed definition of a business secret. Besides the condition that information which is claiming to enjoy the protection of business secrets is not generally known or available to third parties, has a certain commercial value and as such is protected, the new Law no longer requires that the use of this secret can provide economic benefits and harm the holder of a business secret. Thus, in this way, bearing in mind that the definition of a business secret includes a smaller number of conditions, its protection is more comprehensive, although on the other hand the question arises of the purpose of legal protection of information that would not bring any economic benefit to a third party or has no detrimental consequences for the holder of the business secret.

Limited protection of business secrets of foreign entities

The new Law also envisages changes regarding the entities that have the right to protection of their business secret.

In this regard, the previous Law on Protection of Business Secrets is not a real difference in terms of protection of business secrets between foreign and domestic persons. However, the new law. although it still provides for the legal protection of business secrets of foreign economic entities, it now does so only under the condition that such protection arises from international agreements binding on the Republic of Serbia or from the principle of reciprocity, which is not the case, as in some other institutes, but the burden of proving the existence of reciprocity in each particular case falls on the side that invokes its existence.

Protection measures

As we have already stated, one of the conditions for information to enjoy the status of a business secret is that such information is protected by its owner. The previous Law on Protection of Business Secrets also overlooked this condition, but did not elaborate it further, leaving the fulfillment of this condition to the case law for each specific case, bearing in mind the assessment of the risk of illegal acquisition, use or exploitation.

However, now the new Law stipulates that protection includes, among other things, drafting an internal act on handling business secrets and specifying the circle of persons and their rights and obligations when handling business secrets.

Therefore, in order for your business secret to enjoy legal protection, the Law suggests that it is necessary to first pass a general act on the protection of business secrets as well as to take other protection measures to prevent third parties from accessing confidential information.

Protection of business secrets

As in the previous case, the law provides for special provisions regarding the protection of business secrets that can be achieved in both civil proceedings and criminal proceedings for economic offenses. What is different is the deadline for initiating civil proceedings, which has now been extended to one year instead of the previous six months from the day of finding out about the injury and the perpetrator, i.e., 5 years instead of the previous 3 years from the committed injury i.e., from the day of the last committed injury if the violation was committed continuously.

The law also prescribes the types of lawsuits that can be filed. Namely, in accordance with the EU Directive, it is prescribed that the holder of a business secret may, in the event of a breach of a business secret, request: cessation of the violation, determination of the violation or prohibition of infringement, ie the prohibition of import, export or storage of infringing goods for the purposes of production, offering, placing on the market or use of goods, determining appropriate measures relating to infringing goods, including withdrawal of goods from the market, removal from such goods of the properties that make them a commodity that violated a business secret and destruction of goods, as well as the destruction or surrender of documents, objects, materials, substances or electronic documents that contain a business secret or which in themselves constitute a business secret.

The holder of a business secret and the licensee have active legitimacy for filing a lawsuit, if he is authorized to do so on the basis of a contract or law. In terms of damages, an interesting solution is that the court envisages filing a lawsuit against a person who knew or should have known that he was violating a business secret, as well as against a person who gained some benefit due to the said violation, but these claims are not mutually exclusive.

For the first time, a legal entity acquires the right to compensation for non-pecuniary damage

Also, one of the most important innovations is that the holder or licensee has the right to compensation for material and non-material damage if the person who violated the business secret knew or had to know how to participate in the illegal acquisition, use or disclosure of business secrets.

This solution brings a real small revolution in the current practice of courts in terms of compensation for legal entities. Namely, according to the general regime of compensation for damages prescribed by the Law on Contracts and Torts and established court practice, legal entities have so far not had the right to compensation for non-pecuniary damage, given that we have not accepted the general but limited number of explicitly prescribed cases when to non-pecuniary damage as well as considering the unilateral position of commercial courts that a legal entity cannot suffer physical and mental pain and therefore cannot suffer non-pecuniary damage.

We only have to wait in what way the courts will explain the violations and compensation of non-pecuniary damage for legal entities, which arises due to the violation of business secrets.

In addition, what causes special attention is that the new Law for the first time provides for the circumstances that the court is obliged to take into account when considering the claim, such as: value and other specific characteristics of business secrets, measures taken to protect business secrets, behavior the perpetrator of the violation in obtaining, using or disclosing a business secret, the consequences of illegal use or disclosure of a business secret, the legitimate interests of the parties and the consequences that the adoption or rejection of claims could have on them, legitimate interests of third parties, public interest and protection of fundamental rights.

Therefore, bearing in mind that the new Law explicitly insists that economic entities as a measure of protection of business secrets regulate their protection by a general internal act and that the court is obliged to take into account measures taken by economic entities for its protection. We believe that in the coming period, economic entities should take all necessary steps towards the adoption of a general act on the protection of business secrets, as well as to take other measures to ensure not only factual but also legal protection of their information.

This article is for informational purposes only and does not constitute legal advice. If you need additional information related to the subject or help with drafting a general act or taking long measures to protect business secrets, feel free to contact us by email office@ncrlawyers.com or by phone +381677049551.