The data economy and trade secrets | In Principle

In previous articles in our series we discussed whether data can be subject to property rights or can be protected within known categories of intangibles. Today we will consider if and when data can be protected as a trade secret.

First we should clarify what a trade secret is and what protection this qualification provides.

Trade secrets: When is protection provided?

Under Polish law, issues relating to the protection of trade secrets are mainly regulated by the Unfair Competition Act of 16 April 1993. At the European level, the Trade Secrets Directive (2016/943) has harmonised the protection of trade secrets to some extent.

Here we will consider “trade secrets” (tajemnica przedsiębiorstwa), and not “business confidentiality” (tajemnica przedsiębiorcy) as referred to in Art. 5(2) of the Act on Access to Public Information of 6 September 2001. Judgments issued under that act indicate that in certain situations “business confidentiality” may be understood more broadly than “trade secrets” within the meaning of the Unfair Competition Act, and also includes information which does not necessarily have economic value as such but the disclosure of which could have a significant impact on the undertaking’s economic situation and competitiveness (Supreme Administrative Court judgments of 17 January 2020, case no. I OSK 3514/18, and 5 July 2013, case no. I OSK 511/13).

Under Art. 11(2) of the Unfair Competition Act, a trade secret is understood as technical, technological and organisational information or other information having economic value which, as a whole or in a particular configuration and assembly of its components, is not generally known or readily accessible to persons that normally deal with that type of information, provided that the person authorised to use or dispose of the information has, in the exercise of due care, taken measures to keep it confidential.

Therefore, information may constitute a trade secret. Specifically, it can be data on which the data economy is based, that is data:

• Originating from websites, social media, devices or sensors
• In the form of, for example, text, numbers or images
• Collected by a human or obtained automatically via automated technologies
• Structured or unstructured
• Recorded or unrecorded. (It is not a prerequisite for protection as a trade secret that information be recorded (J. Szwaja (ed.), Unfair Competition Act: Commentary (5^th ed., Warsaw: Legalis, 2019)). However, according to legal commentators, recording a trade secret on a tangible medium is necessary for in-kind contribution of a trade secret to a company, and also facilitates the admission of evidence in potential court proceedings.)

The act refers to information of a technical or technological nature or referring to the enterprise’s organisational matters, but this is not an exhaustive catalogue.

However, to benefit from protection, the information must have economic value. Customer lists, sales forecasts, product formulas, research results, advertising campaign plans, information obtained when delivering services to customers, and information about suppliers, salaries, complaints, or work organisation, are examples of information with economic value.

Furthermore, to benefit from protection, information, as a whole or in a particular configuration and assembly, cannot be generally known to persons usually dealing with that type of information, or easily accessible to such persons. And the information holder must take diligent efforts to maintain its confidentiality. Information becomes a “secret” when a business manifests a desire to keep it unknowable to third parties. It does not lose that character by being known to a certain limited group of people bound by confidentiality (e.g. the company’s employees). However, information that an interested person could obtain in an ordinary and generally accessible way cannot constitute a trade secret (Białystok Court of Appeal judgment of 24 October 2019, case no. I ACa 41/19).

Within the meaning of Art. 2 of the Unfair Competition Act, only a business entity may benefit from protection under the trade secret regime. Thus, data collected by natural persons not engaged in business activity will not be protected in this way, even if they are of very high economic value (although in a specific case such data might be protected, for example, as a personal good under the Civil Code or under tort law). However, the definition of a business entity (przedsiębiorca) under the Unfair Competition Act is relatively broad. What matters is that the entity is involved in business trading, even if it is incidental. This may extend for example to farmers, local government units, non-profit organisations, schools, universities and political parties (J. Szwaja, supra). However, an employee hired by such organisations will not be eligible, as he or she does not participate in trade independently. Thus it seems that in the case of data collected during research, the party entitled to trade secret protection will not be the university employee who collected them, but at most the unit where the researcher is employed.

Can any and all data be protected as a trade secret?

Since a trade secret protects information, it would seem to be an appropriate regime to protect non-personal data. However, on closer inspection, the situation turns out to be more complicated.

First of all, a question arises whether trade secret protection can cover a single piece of information (individual data) or only a collection of information (aggregated data). It cannot be ruled out that in specific situations, where other conditions are met, even a single piece of information may constitute a trade secret. But in practice it is mainly aggregate information that has economic value.

We might also wonder which layer of data—physical, syntactic or semantic—may be protected as a trade secret. It seems that under the trade secret regime, information can be protected both in a physical recording thereof and in its syntactic and semantic layer. Technical information, recorded in the form of drawings and graphs (syntactic layer) on a piece of paper (physical layer), understandable only to selected specialists (semantic layer), which the company keeps confidential, could constitute a trade secret (J. Drexl, “Designing competitive markets for industrial data: Between propertisation and access,” Max Planck Institute for Innovation and Competition Research Paper no. 16-13). However, the extent of protection under the trade secret regime may depend on the specific facts.

Another question: Is it the ease of obtaining information from available sources that determines whether information is a trade secret? For example, data collected by smart cars in public spaces are easily accessible and can be collected by various entities. Some rule out protecting such information altogether. Others point out that for readily accessible data, protection should be sought under other regimes, such as the sui generis right to databases (D. Gervais, “Exploring the interfaces between Big Data and intellectual property law,” 10 (2019) JIPITEC 3 par. 1). Still others are of the opinion that even if data are accessible and have been collected easily, it cannot be excluded that sets of such data acquire an economic value that deserves protection under the trade secret regime (G. Noto La Diega & C. Sappa, “The Internet of Things at the intersection of data protection and trade secrets: Non-conventional paths to counter data appropriation and empower consumers,” (2020) 3 Revue européenne de droit de la consommation/European Journal of Consumer Law 419–458).

Conclusions or analyses arising from processed information (even publicly available) may also merit trade secret protection. For example, a set of data collected from individual users of a smart home application may constitute a trade secret if the company uses it to improve its product. More and more such applications require the user to consent to the use of anonymised data captured during the use of a smartphone-integrated device for purposes including improving product quality.

It seems that in such a situation, a single piece of information, within the reach of the user of an application and stored in the history of the user’s smartphone, is not protected. On the other hand, a set of information from different users can be protected under the trade secret regime.

Is a trade secret a subjective right?

There seems to be an unresolved dispute whether under the Unfair Competition Act the confidential information holder (business entity) is entitled to a subjective right (J. Szwaja, supra). Two different concepts clash:

• A trade secret does not constitute a subjective right, but is a de facto exclusivity of use protected, among other things, by the Unfair Competition Act (more in E. Wojcieszko-Głuszko, Legal protection of know-how in Polish law in a comparative law approach (Kraków 2002)).
• A trade secret constitutes a subjective right. Supporters of this view point out that the Unfair Competition Act defines with adequate precision the subject matter (“someone else’s information constituting a trade secret”) and the substance of the business entity’s right (the right to demand that any unauthorised person refrain from acquiring, disclosing and using someone else’s confidential information without the consent of the right holder). Moreover, a trade secret constitutes an intangible asset of an enterprise within the meaning of the Civil Code (J. Szwaja, supra).

The choice of one of these concepts affects the application of specific legal constructs in the use and disposal of a trade secret. For example, courts and commentators unanimously recognise that a trade secret has the capacity to be contributed in-kind to a company. At the same time, assuming that the holder of the trade secret does not have a subjective right, it is necessary to rely on the construction of de facto exclusivity of use and resort to complicated legal constructs to achieve the same effect as that given by a subjective right (J. Szwaja, supra). (A discussion of the legal implications of these positions is beyond the scope of this article.)

As implemented in the Polish legal system, the Trade Secrets Directive establishes only a system of liability for specific unlawful acts, and not a new exclusive right. As recital 16 states, “In the interest of innovation and to foster competition, the provisions of this Directive should not create any exclusive right to know-how or information protected as trade secrets.” Nevertheless, the wording of the directive gives additional arguments to supporters of the concept of a subjective right.

As stated in the Polish legal literature, “The right to one’s own trade secret is an absolute, albeit non-exclusive, intellectual property right (cf. recital 16 of the preamble to Directive 2016/943), as it may be held simultaneously by several persons who are not linked by a relationship of legal commonality” (J. Szwaja, supra). The amended Art. 11 of the Unfair Competition Act repeatedly uses the term “right holder” (uprawniony), which emphasises that the information holder has the right to use and dispose of trade secrets (J. Szwaja, supra).

What kind of protection does the trade secret regime provide?

Trade secret protection is narrow. It does not protect against any and all use of data, but requires unlawful conduct by a third party that can be considered contrary to fair business practice.

Where such behaviour is identified, to protect a trade secret the right holder may demand that the infringer cease and desist further infringements, that the effects of the infringement be removed, and that damages be paid and any unjustly gained benefits be returned. As of 2018, in connection with implementation of the Trade Secrets Directive in the Polish act, the right holder may also demand, instead of compensation under general rules, a lump sum corresponding to the fee that, at the time of assertion of the claim, would have been due if the infringer had requested authorisation to use the trade secret. However, to obtain protection from unlawful infringement, the right holder must demonstrate that:

• The information was unlawfully obtained, disclosed or used by an unauthorised party
• The right holder took reasonable measures to protect the trade secret from being acquired, disclosed or used
• The information is not readily available or known in the community of persons customarily dealing with this type of information, and
• The information has economic value.

It goes without saying that the disclosure of a trade secret weakens its economic significance and, in some cases, may deprive it of any further protection. In most cases, the compensation obtained from the infringer will not compensate the right holder for the loss it has suffered as a result of disclosure of the trade secret. In an extreme case (e.g. publication of trade secrets on the internet), the information will become economically worthless, as anyone with internet access will be able to use it.

Summary

Only in certain situations can a single piece of data (information) benefit from the protection afforded to business entities under Art. 11 of the Unfair Competition Act. To benefit from this protection, the information must be properly secured against unauthorised access, and must have economic value or belong to a set or compilation that has economic value. An enterprise that has complied with these conditions will be able to assert claims for protection of a trade secret, as well as engage in transactions involving the subject of the trade secret.

However, as part of the data economy, it is proposed (e.g. in the European Commission Communication of 19 February 2020 “A European strategy for data”) that data should be available to everyone: public and private entities, large and small, startups and giants. This is intended to increase innovation and competitiveness in the common market.

Dr Monika A. Górska, attorney-at-law, Ewa Nagy, attorney-at-law, Intellectual Property practice, Wardyński & Partners