Trade Secret Protection During the COVID-19 Outbreak

The COVID-19 pandemic has impacted the way most businesses are operating and employees are working. Many companies have implemented remote working in response to this new era of “stay-at-home orders”. As a result, the companies face unprecedented challenges to protect their critically important and valuable business information, experience and know-how that give them an advantage over competitors.

The companies which operate in Bulgaria should be aware of the requirements of the Bulgarian trade secrets protection regimes in order for them to be able to address and ensure the security of their trade secrets in this new economic and social environment.
In the context of unfair competition, trade secrets protection is governed by the Bulgarian Protection of Competition Act which prohibits the obtaining, use or disclosure of production or trade secret, when inconsistent with fair business practices. Moreover, the use or disclosure of production or trade secret is prohibited in cases, when the confidential information is obtained or provided under the condition not to be used or disclosed. There are no limitations on the information which can be classified as production or trade secret, as long as such information is not public and relates to business activities. It is, however, necessary and important that the company has determined in a clear manner what is considered to be production or trade secret.

Further, the Bulgarian Labor Code provides for the duty of loyalty of the employees, which encompasses among others the obligation of the employee not to disclose “confidential information” of the employer. The Labor Code does not contain a definition of “confidential information”. The Bulgarian case law considers as confidential any information that is clearly qualified and indicated as such by the employer.

Without providing a definition for trade secret the Bulgarian Commercial Act regulates that commercial representatives, commercial agents and intermediaries must keep the confidentiality of the trade secrets of the persons who have assigned them performance of specific work. Similar confidentiality obligations are imposed on members of the management bodies of joint stock companies.

The Bulgarian Trade Secret Protection Act, on the other hand, sets forth the definition for a trade secret, trade secret holder, infringer and infringing goods and the conditions for the civil proceedings for protection of trade secrets. Business information is qualified as a trade secret if that information meets all of the following requirements:
– it is secret in the 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 that normally deal with the kind of information in question;
– it has commercial value because it is secret;
– it has been subject to measures, taken by the person lawfully in control of the information, to keep it secret.

Analyzing the trade secret protection regimes mentioned above it could be concluded that the law will only protect information as a trade secret/confidential if the trade secret holder inter alia has taken reasonable measures to identify and protect its trade secrets considering also the additional challenges brought by this new reality of COVID-19 outbreak. The measures taken should be appropriate to protect the secrecy of the valuable business information as the company will not be able to protect information as a trade secret if it loses its secret status.

Whether a trade secret is subject to reasonable protection depends on the specific business information to be protected. Generally, the more important, complex and confidential the information is, the stricter the requirements for reasonable protection.
This article outlines some of the protective measures that can be considered and taken by a company for the purpose of trade secret protection:

 

Develop Internal Trade Secret Policies and procedures

The protection of trade secrets starts at organizational level by setting up special procedures and policies for identifying and specifying what information exactly is to be classified and treated as confidential/trade secret and the respective protective measures. The trade secret policies and procedures developed should be communicated properly with the employees in order for them to understand their responsibility to keep the information qualified by their employer as trade secret confidential and respectively to ensure proper protection from misappropriation. Until the respective trade secret policies are formalized an email sent to all employees is a good way to briefly outline what information is to be considered confidential and to provide specific guidance on how to handle confidential information in case of working- from-home.

 

Specific instructions to employees working on work-from-home basis

it is recommendable: a) to instruct the teleworking employees to keep corporate information away from personal devices and systems to the extent possible and that documents should not be stored on personal devices, (b) to strictly limit hard copy materials use outside of the workplace, (c) documents to not be discarded in domestic bins, but are shredded or delivered back to the company for destruction, (d) to implement system to keep track of what information has been removed from office premises, (e) to educate the employees about phishing emails or other communications designed to infiltrate the business’s network and information, (f) to instruct the employees to ensure that they keep conversations and information strictly away from family members and friends; (g) the business information to be kept secure within homes in lockable rooms or cupboards wherever possible, (h) to ensure corporate devices are set to lock after a short time period.

 

Draft and conclude non-disclosure agreements with business partners, contractors, consultants, etc. considering the requirements of the applicable local law

It is recommendable that the companies draft a template of a non-disclosure agreement that can be used and signed where appropriate before disclosing or receiving valuable confidential business information. It could be considered to add language to the respective template explicitly outlining that the contractual rights and obligations apply with equal force during the COVID-19 pandemic and through any related exigencies. It would be useful to review the non-disclosure agreements in place in order to keep in mind and revise if needed the exceptions and the requirements for the disclosure of confidential information if any.
In case of trade secret misappropriation the trade secret holder shall consider the best protection provided by the applicable law, e.g.:

Pursuant to the Bulgarian Trade Secret Protection Act, the trade secret holder may bring an action before the court against the infringe seeking, e.g.:

  • compensation for the damages suffered and loss of profits.

Generally, the trade secret holder shall be indemnified for any damage suffered and loss of profit, which are a direct and immediate consequence of the unlawful acquisition, use or disclosure of a trade secret. The compensation shall be due when the infringer knew or ought to have known that he, she or it was engaging in unlawful acquisition, use or disclosure of a trade secret.
The employees shall be responsible for the damages suffered by their employer as a result of their unlawful acquisition, use or disclosure of a trade secret to the amount not exceeding the triple amount of their remuneration where they act without intent.

  • the cessation of or the prohibition of the use or disclosure of the trade secret;
  • the prohibition of the production, offering, placing on the market or use of infringing goods, or the importation, export or storage of infringing goods for those purposes;
  • the destruction of all or parts of documents, items, materials, substances or electronic documents that contain or bear the trade secret or, where appropriate, their delivery to the trade secret holder;
  • the prohibition of offering or providing services which significantly benefit from trade secrets that are unlawfully acquired, used or disclosed, etc.

 

Pursuant to the Bulgarian Protection of Competition Act

upon breach of the fair competition through obtaining, use or disclosure of production or trade secret, an administrative proceeding before the Competition Protection Commission may be initiated. In case the Commission finds that a violation has been committed, it will order cessation of the violation and impose a monetary sanction. The Commission, however, cannot award damages to the trade secret holder. The trade secret holder may seek compensation for damages on the basis of the Bulgarian tort rules before the courts.

Breach of the statutory obligation for confidentiality by the employee may lead to disciplinary sanctions (dismissal), as well as may trigger the employee’s liability as per the rules of the Labor Code.


For more detailed information related to the trade secret protection requirements and regimes as per the applicable law, you can contact us for additional information and assistance at [email protected]

The article provides general information related to the trade secret protection in Bulgaria, offers some potential reasonable steps for consideration and it is not exhaustive.