Determining the economic value of trade secrets in public procurement | In Principle

A key issue in protecting trade secrets in public procurement is to demonstrate the economic value of the confidential information. Despite many rulings by the National Appeal Chamber and interpretations by commentators, it remains a controversial issue.

Grounds for protecting trade secrets

The need to demonstrate the economic value of confidential information in public procurement in Poland arises under Art. 18(3) of the Public Procurement Law, which refers to “information constituting a trade secret within the meaning of the Unfair Competition Act of 16 April 1993,” Art. 11(2) of which in turn provides: “A trade secret is understood as technical, technological or organisational information of an undertaking or other information having economic value….”

The assertion of protection for a trade secret in public procurement must demonstrate all the grounds set forth in Art. 11(2) of the Unfair Competition Act, including economic value. Therefore, it is essential to establish the economic value of confidential information.

The concept of economic value

Unfortunately, no definition of “economic value” is given in any of the statutes, so we turn to the legal literature and the case law.

The National Appeal Chamber held in case no. KIO 448/23, “It should be recognised that such information will be information that in some way affects the value of the undertaking on the market. It can be information helping to generate profits or save money. A trade secret is not an end in itself, but is intended to protect the undertaking from the negative consequences that providing particular information could have for its activity.”

And in case no. KIO 715/21, the chamber explained: “Economic value can be expressed positively, through the valuation of a specific good as an intangible (for example, a trademark, copyright, or some unique organisational solution with a permanent application and creating a certain value), having a defined value that can be expressed in specific monetary units (valuation), which therefore, at the same time, should be regarded as a value belonging to the holder (which in the case of an undertaking may be recognised in accounting documents and financial statements as an intangible asset). In a particular situation, this value may also be reflected in the potential harm that the contractor could suffer if the information were disseminated to a wider audience.”

These rulings provide a number of indications allowing for a better understanding of the economic value of information.

First, economic value can be twofold:

• It can increase the value of the undertaking, or
• It may enable the undertaking to make savings.

This is confirmed in the judgment of the Supreme Administrative Court in case no. II GSK 2806/14, holding that it is information (of at least minimal or potential value) the use of which by another undertaking could save it expenses or increase its profits.

However, the possibility that the contractor could sustain harm from release of the information is also a manifestation of economic value. Thus this concept should also reflect the potential for avoiding payment of contractual penalties (liquidated damages). As the chamber held in case no. KIO 991/22: “In the context of the economic value of the protected information, it is relevant that in its agreements with counterparties, the appellant includes provisions requiring both parties to keep particular information confidential, under the sanction of paying a contractual penalty.”

Another clue is that the economic value must have an objective dimension. Whether the information has economic value is determined not by the contractor unilaterally, but by objective grounds. It is not sufficient for the contractor to declare that the information has economic value.

What this objectivity should consist of also needs to be clarified. For this purpose, we can take examples from the National Appeal Chamber rulings. As the chamber held in case no. KIO 783/23, the mere fact that a confidentiality agreement was made covering the information transferred between the parties does not relieve the contractor from the obligation to demonstrate that the particular information not disclosed in the procurement procedure has objective economic value. The economic value of information cannot be equated with confidentiality created by the contractor itself.

In turn, in case no. KIO 3210/21 the chamber pointed out that enclosing a document with a claim does not make the document a protected trade secret. This is determined solely by the objective reality that a particular document relating to an entity deserves to be covered by secrecy, as otherwise it may cause detriment to the assets of the entity, for which it undeniably has economic value.

The objectivity of the economic value of information will primarily be manifested by the fact that it is not the contractor’s own statement that has caused the information to have economic value. The value arises from the essence of the information and its importance to the contractor.

Improper practices

In the body of rulings by the National Appeal Chamber, contractors have often been found to abuse the right to protect trade secrets. Upholding some of these practices could pervert the principle of transparency in public procurement, and in essence make every procedure confidential. Such a practice would include, for example, the notion that because a contractor has incurred a cost in preparing lists of people or services, the information in the list must have economic value.

Another improper practice by contractors is to assert that information has economic value simply because it was prepared specifically for a given contract. As the chamber pointed out in case no. KIO 968/21, this would be true in virtually every public procurement procedure in which an entity submits a bid. Thus taking the effort to prepare a bid would in effect entitle a contractor to bootstrap its way into protection of information from disclosure. Once again, the economic value of the information must be assessed objectively, not through the contractor’s subjective belief that the information deserves protection.

And as the chamber stated in case no. KIO 29/22, “Economic value can only be found in a set of data regarding the contractor that can be used by it in the future, not only this one time.”

But even in such cases, there may be exceptional situations allowing the contractor to properly demonstrate the economic value of information. The facts of the case will be decisive.

The form of economic value

With some understanding of the economic value of confidential information, the question remains how to demonstrate this value.

Unfortunately, the National Appeal Chamber has taken inconsistent views on whether it is sufficient to describe the economic value of the information, or the value must also be quantified. Of course, quantifying the economic value helps dispel doubts. But it would not be proper to automatically reject an assertion of economic value merely because the justification for protection fails to quantify the value. Either approach should be correct, because the law does not specify how economic value should be demonstrated.

The question also arises whether if a contractor indicates a particular amount of value, it is necessary to calculate it precisely. But again, the law does not specifically impose such an obligation on contractors. It is inappropriate to require that the value must always be precisely calculated, and a specific amount indicated.

As mentioned above, one manifestation of economic value may be the potential for avoiding loss. By its nature, a potential future loss cannot be precisely quantified. The extent of potential harm can be known only when it occurs. Therefore, the contractor cannot be required to demonstrate the precise amount of economic value. As the chamber recognised in case no. KIO 991/22, “A contractor can hardly be expected to provide physical evidence whenever it seeks to demonstrate the economic value of protected information. Sometimes obtaining certain benefits or cost savings due to protection of secret information can be a contingent future matter, but this does not necessarily mean that the information lacks economic value.”

It is permissible to quantify the value for example through an estimate. At the same time, the contractor is not required to indicate how it calculated the estimated economic value in the justification for protection of the information. No provision of the Public Procurement Law or the Unfair Competition Act sets forth such an obligation. Besides, the mere fact that the justification states an inaccurate amount of economic value does not mean that the information has no economic value.

Conclusion

The concept of economic value is not specifically addressed by the Public Procurement Law or the Unfair Competition Act, but in applying these acts, a working definition has developed recognising that information has economic value if it can generate profit, save money, or avoid potential harm.

Depending on the facts, it is permissible to demonstrate the economic value of information by describing it and also quantifying it, or simply identify the value descriptively.

The contractor’s justification for protection of trade secrets will be vital for determining that the information has economic value and the other grounds set forth in Art. 11(2) of the Unfair Competition Act are met. Only careful preparation of the justification will allow the contractor to protect trade secrets from disclosure in procurement proceedings.

Rafał Świerzbiński, attorney-at-law, Infrastructure, Transport, Public Procurement & PPP practice, Wardyński & Partners