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How to strengthen protection and enforcement of trade secrets in East Africa

16 August 2018
– 10 Minute Read

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Across East Africa, with the notable exception of Uganda, there is a compelling case for reforming the judicial procedures and structures for the enforcement of trade secrets.

Business entities employ different means to secure the results of their innovation-related activities including patents, utility models, trade marks, industrial design rights or copyrights. Businesses may also protect access to, and exploit, knowledge that is valuable to the business and that is not widely known. This know-how and undisclosed business information that is intended to remain confidential is referred to as a trade secret.

No matter the size of the business, trade secrets are highly valuable. Confidentiality is used as a business competitiveness and research innovation management tool. This extends beyond technological or industrial knowledge, which may include production methods, chemical formulae, blueprints or prototypes. Commercial data such as information on customers and suppliers, business plans, market research and strategies could also be considered trade secrets, which are important for innovation.

Small and medium-sized enterprises (SMEs) value and rely on trade secrets even more than larger enterprises do. They may see trade secrets as a way to derive profit from their creation or innovation, either to complement or as an alternative to intellectual property rights such as patents, utility models, trade marks, industrial design rights or copyright.

Trade secrets are one of the most commonly used forms of protection of intellectual creations and innovative know-how yet, under the existing legal framework, they are the least protected against their unlawful acquisition, use or disclosure by other parties. Businesses are increasingly exposed to dishonest practices aimed at misappropriating trade secrets. These include outright theft, unauthorised copying, economic espionage or the breach of confidentiality requirements.

Developed countries have recognised the need to protect trade secrets and enacted legislation to this effect.

What developed countries are doing

In the United States of America (USA), there has been state legislation on trade secrets, namely the Uniform Trade Secrets Act adopted by 48 states, but it was only in 2016 that the federal government enacted the Defend Trade Secrets Act. Trade Secrets, unlike other intellectual property rights, do not have to be registered to enjoy legal protection. The two statutes create a cause of action called misappropriation. Courts protect right holders by enjoining misappropriation; they may award damages, injunctions, reasonable attorneys’ fees to the prevailing party and court costs, and order parties that have misappropriated a trade secret to take measures to maintain its secrecy.

In the USA, some criminal remedies are also available for specific types of trade secret theft. The court preserves the secrecy of trade secrets by reasonable means such as sealing the records of the action and holding in-camera hearings.

Trade secrets are generally treated as being complementary to other intellectual property rights, but of note is that a patent and trade secret cannot exist concurrently over the same invention or data since patents require public disclosure. However, trade secrets can be licensed, though care has to be taken to ensure the confidentiality of the information.

In Japan, trade secret protection provisions are found in the Unfair Competition Prevention Act. The law provides for criminal penalties, deterrents and civil remedies to combat misappropriation of trade secrets. Remedies available to the holders of trade secrets include damages, injunctions and necessary measures to restore business credibility. Those found guilty of misappropriating trade secrets face imprisonment with work for not more than 10 years or a fine of JPY10 million or both. This extends to persons who wrongfully acquire a trade secret outside Japan. Of interest is that distribution of products manufactured using the misappropriated secret is expressly provided for, and results in criminal sanctions and civil remedies.

Existing legal framework in East Africa

In East Africa, only Uganda has a complete statute dedicated to trade secrets. Burundi, Rwanda and Zanzibar have sections within their intellectual property legislation dealing with trade secrets, in the context of unfair competition.

In Kenya and Tanzania, protection of trade secrets is mostly by way of common law and equity, in the form of judicial decisions – of which there are few. Some form of protection of trade secrets can also be found in various pieces of legislation such as employment laws and contract laws, among others.

Inadequate protection and enforcement of trade secrets received international attention at the World Trade Organisation (WTO), leading to the conclusion of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). The TRIPS Agreement contains, among others, provisions on the protection of trade secrets against their unlawful acquisition, use or disclosure by third parties. All East Africa states are members of the WTO. Notwithstanding the TRIPS Agreement, there are important differences in the East Africa territories regarding the protection of trade secrets.  Because not all countries in East Africa have legislation relating to trade secrets, the scope of protection is not clear or readily accessible. There is no consistency regarding the civil law remedies available in situations of unlawful acquisition, use or disclosure of trade secrets.

The Uganda Trade Secrets Act is a very simple, precise piece of legislation that can be emulated by other East African countries to provide basic protection of trade secrets. It clearly stipulates the elements of a trade secret as: information that is secret; that has commercial value; and that has been subject to reasonable steps to maintain its secrecy. As long as these conditions remain, the trade secret is protected.

Furthermore, disclosure that is contrary to honest commercial practice, acquisition or use of a trade secret by improper means is actionable in a court of law. The beneficiary of the secret is entitled to injunctions, damages, account of profits, adjustment orders or orders of delivery as remedies for infringement. As in the USA, the court is required to preserve the secrecy of information in proceedings. The Uganda Act expressly recognises the right of the beneficiary to assign, transfer or license trade secrets and places an obligation on the licensee to protect the trade secret against disclosure.

Lessons from the EU Directive

Also relevant to East Africa is the Directive (EU) 2016/943 of the European Parliament and the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure (OJ L157,15.6.2017, p.1).

The Directive identified a number of areas of uncertainty to be addressed by the legislation of the EU member states. Though the Uganda Trade Secrets Act makes adequate provision for trade secrets, many aspects of the Directive are relevant to the statute and the other East African countries should take this into account when enacting their own laws.

One area of uncertainty identified by the Directive relates to whether legitimate trade secret holders are allowed to pursue the destruction of goods produced by third parties who use trade secrets unlawfully. Coupled with this is the whole question surrounding the return or destruction of any documents, files or materials containing the unlawfully acquired or used trade secret.

As would be the case in the East Africa territories, the Directive identified another area where uniformity is lacking: rules on the calculation of damages. The rules do not always take into account the intangible nature of trade secrets. This makes it difficult to demonstrate the actual loss or the unjust enrichment of the infringer where no market value can be established for the information in question.

The Directive identified yet another area of lack of uniformity. This relates to the conduct of judicial proceedings where a trade secret holder introduces a claim for alleged unlawful acquisition, use or disclosure of the trade secret by a third party. There is inadequate provision for appropriate protection of the confidentiality of a trade secret in judicial proceedings. This tends to adversely impact the effectiveness of the proceedings. Lack of uniformity in proceedings could reduce the attractiveness of the existing measures and remedies and weaken the protection offered.

Legitimate trade secret holders wishing to defend their trade secrets may find the prospect of revealing a trade secret in the course of judicial proceedings a serious deterrent. This brings into question the effectiveness of the measures, procedures and remedies provided.

Dispute resolution framework in need of reform

In view of the lack of uniformity and inherent weaknesses in judicial structures and systems, there is a strong case for reforming the framework for handling disputes related to trade secrets in East African territories. This could be done by way of policy and legislative measures aimed at addressing a number of areas. These could include preservation of confidentiality during judicial proceedings, treatment of parties who originally acquire a trade secret in good faith, but become aware of the trade secret at a later stage, and reliefs available to litigants in disputes.

Uganda appears to be a leading light in regard to legislation on trade secrets within the East Africa region.

Turning to confidentiality during judicial proceedings, it is necessary to establish specific requirements aimed at protecting the confidentiality of the litigated trade secret. This ought to be balanced with appropriate safeguards to ensure the right to an effective remedy and to a fair trial. Such protection should remain in force after the legal proceedings have ended and for as long as the information that constitutes the trade secret is not in the public domain.

One way to ensure confidentiality in the course of judicial proceedings would be to restrict the circle of persons entitled to have access to evidence or hearings. Confidentiality can be preserved by having everyone with access to evidence or hearings subjected to appropriate confidentiality requirements. Only the non-confidential elements of judicial decisions should be published. Bear in mind that assessing the nature of the information that is the subject of a dispute is one of the main purposes of legal proceedings. Therefore, it is essential to ensure both the effective protection of the confidentiality of trade secrets and respect for the right of the parties to those proceedings to an effective remedy and a fair trial.

In some instances, a person could have originally acquired information in good faith, but became aware at a later stage that it was a trade secret. For example, a person could have become aware that a trade secret was derived from sources using or disclosing it in an unlawful manner only after being served notice by the original trade secret holder. Under these circumstances it is necessary to ensure that the corrective measures or injunctions provided do not cause disproportionate harm to that person.

Turning to reliefs awarded to litigants, injunctions would generally be available in deserving cases where breach is established. In other instances, pecuniary compensation can be awarded to the injured party as an alternative measure. This could for example, arise where a person originally acquires information in good faith, but becomes aware it is a trade secret at a later stage.

Concerning damages, the amount awarded to the injured trade secret holder should take account of all appropriate factors. These would include loss of earnings by the trade secret holder or unfair profits made by the infringer and any moral prejudice caused to the holder. Where, considering the intangible nature of trade secrets, it would be difficult to determine the value of the actual prejudice suffered, the amount of the damages might be derived from elements such as the royalties or fees which would have been due had the infringer requested authorisation to use the trade secret in question.

Conclusion

In conclusion, there is a strong case for reform of the judicial procedures and structures related to enforcement of trade secrets. Overall, the effectiveness of measures, procedures and remedies available to trade secret holders could be undermined if there is no compliance with the relevant decisions adopted by the competent judicial authorities. Courts should enjoy the appropriate powers of sanction to give comfort and impetus to businesses to sufficiently protect access to, and exploit, their trade secrets.

by John Syekei, David Opijah and Rose Njeru