Trade Secret Protection Agreement and accompanying trade secret protection measures and documentation

Author: Krasimira Kadieva

Translation of the article in English: Boyana Boyadzhieva

I. Introduction

Most companies have valuable information that their competitors do not have access to, such as formulas, algorithms, customer lists, production processes, methods, techniques and marketing strategies. This confidential information, also known as trade secrets, is a crucial intangible asset that provides the company with a competitive advantage, which in turn enables greater innovation, profitability and dominance in the target market. Therefore, at a time when information is easily disseminated, the protection of trade secrets has become particularly important for any business wishing to maintain its competitive advantage. We provide you with several examples of trade secrets with significant commercial value, the non-disclosure of which is of great importance to the success of their owners:

– The recipe for Coca-Cola: The formula for Coca-Cola’s signature drink is one of the world’s most famous trade secrets. The exact recipe and combination of ingredients remain undisclosed, giving the company a major marketing advantage.

– Google’s search algorithm: Google’s search algorithm, which determines the ranking and relevance of web pages in search results, is considered a closely guarded trade secret. Its algorithms and methods have played a key role in Google’s dominant position as a search engine.

– KFC’s Original Recipe: The original recipe for Kentucky Fried Chicken, consisting of 11 herbs and spices, remains a closely guarded trade secret. The exact combination and preparation method are kept secret to distinguish the taste of KFC’s fried chicken from its competitors.

– Apple Product Design: Apple Inc. is known for its innovative product design, such as the iPhone, MacBook and iPad. Specific product design details, manufacturing processes and materials are carefully protected as trade secrets.

In Bulgaria, the matter of trade secrets is regulated in several provisions of the Competition Protection Act and in the Trade Secrets Protection Act adopted in 2019. Pursuant to Article 3 of the Trade Secrets Protection Act, a trade secret is any commercial information, know-how and technological information that simultaneously meets the following requirements:

1. it is a secret in such a way that it is not generally known or readily accessible, either in its entirety or in its precise configuration and combination of elements, to persons in the circles that ordinarily use that type of information;
2. has commercial value due to its secret nature;
3. measures have been taken to keep it secret by the person having control over the information.

An important feature is that, unlike industrial property objects such as trademarks, patents, utility models, industrial designs, which can be registered, there is no registration regime for trade secrets. In order for a trade secret to be protected, it must not be made public and must be kept absolutely secret. Precisely because a trade secret is not registrable, it can be protected indefinitely unless it is lawfully acquired by others and disclosed to the public.

II. How can trade secrets be protected in the event that they need to be disclosed to third parties?

There are occasions when it is necessary to disclose trade secrets to employees, workers, contractors, franchisees, and persons external to the enterprise. In such cases, trade secret owners implement a comprehensive strategy that combines legal measures, internal policies and technological safeguards, such as:

• entering into a trade secret protection agreement (trade secret protection agreement);
• Non-Disclosure Agreement (NDA);
• an internal trade secret policy;
• a declaration to destroy the existence of confidential information concerning the enterprise on all personal devices;
• a notice stating that the information to be opened/read is confidential and may not be disclosed to third parties;
• limited access to trade secrets (secure physical and digital storage);
• employee training;
• secure IT infrastructure;
• systems to monitor any unauthorised access or attempts to copy, download or transfer trade secrets;
• regular audits and reviews to assess the effectiveness of measures taken to protect trade secrets.

III. What measures should be taken in order to be successful in a case concerning the establishment of infringements for knowledge, use or disclosure of trade secrets?

According to the practice of the Commission on Protection of Competition (CPC) and the constant case law, in order to be successful in a case concerning the establishment of infringements for knowledge, use or disclosure of trade secrets is necessary:

• The relevant facts, information and circumstances which are production or trade secrets shall be explicitly indicated in advance, by means of specific acts (decision, order or other act internal to the company) and specific means and actions, and shall be distinguished from other company information. In this way, the information which is a trade secret is specified precisely, since it is not possible to consider all the information created, used, processed and made available in an undertaking as its trade secret. Trade secrets need to be specified and explicitly characterised as such in a manner appropriate to the particularities of the undertaking’s activities and organisation, by specific types of data or documents, or in any other appropriate manner that creates clarity and certainty.
• The act by which the prohibition is introduced must be brought to the attention of the persons charged with the obligation not to use or disclose unlawfully information constituting a manufacturing or commercial secret.
• The persons entitled to handle the trade secret are identified. These persons should be aware that the secrecy of the trade secret should be maintained.
• A dedicated regime of restricted access and protection of trade secrets is in place. Measures are in place to protect trade secrets: both physical and technical.

IV. Documentation to ensure protection of trade secrets

This part of the article will provide more detailed information on the documentation that is advisable to be created on securing trade secret protection, such as the trade secret protection agreement, non-disclosure agreement (NDA), internal trade secret protection policy.

1.Trade Secret Protection Agreement

A trade secret protection agreement is a contract that creates a confidential relationship between the parties entering into it with respect to trade secrets. The parties agree not to disclose the trade secrets as agreed in the contract to third parties. The conclusion of a contract for the protection of trade secrets is preferred in many cases by the parties, as maintaining confidentiality is essential in order to ensure that the trade secrets will not be disclosed to third parties.

What clauses does a comprehensive trade secret protection agreement include?

– Identification of parties (disclosing and receiving party);

– The purpose for the disclosure of trade secrets;

– A detailed description of what constitutes a trade secret: – definition of a trade secret; – subject matter of the trade secret; – measures taken by the Disclosing Party to keep the trade secret a secret; – persons entitled to access and use trade information, know-how and technological information constituting a trade secret.

– Acquisition, use and disclosure of trade secrets: – lawful acquisition, use and disclosure of trade secrets; – unlawful acquisition, use and disclosure of trade secrets.

– Rights and obligations of the parties: – obligation not to disclose trade secrets; – non-use and non-disclosure obligations; – trade secret rights and licensing agreements; – due diligence. Notification upon disclosure; – duty of non-disclosure; – return of confidential information.

– Compensation for failure to comply with the trade secret protection agreement.

– Remedies: – liability of the Receiving Party for breach of its obligations; – liability under the Trade Secrets Act; – liability under the Competition Act; – costs of the proceedings.

– Term.

– Additional provisions: – independent status of the parties; – non-involvement of the parties; – amendment of the agreement; – form of validity of communications and notifications between the parties; – dispute resolution; – time limit; – applicable law; – amendments.

2. Non-Disclosure Agreement (NDA)

Non-disclosure agreements are contracts that establish confidentiality obligations between parties involved in the exchange of confidential information. In contrast to a trade secret agreement, which is aimed at protecting a trade secret as an item of intellectual property that includes a formula, model, design, method or other confidential information that offers a competitive advantage to the enterprise, a non-disclosure agreement is used to protect other information that is not a trade secret but needs to be kept confidential.

3. Internal Trade Secret Polic

The internal trade secret protection policy is an important document that details the meaning of the term “trade secret” and all necessary definitions, such as “trade secret holder” and “violator”, how to determine whether information is a trade secret, what is the legal framework for trade secret protection, what are the duties of employees and workers in the company in order to protect trade secrets, what are the necessary measures to protect trade secrets in the company.

What clauses does a comprehensive trade secret policy include?

– Definitions of: confidential information; trade secret; trade secret holder; violator; disclosure of trade secret.

– How do we assess whether information is a trade secret?

– What is the trade secret of its holder?

– Who has access to trade secrets?

– Where is the trade secret stored?

– Acquisition, use and disclosure of trade secrets: improper acquisition, use and disclosure of a trade secret; lawful acquisition, use and disclosure of a trade secret.

– In what cases is the use and disclosure of trade secrets permitted?

– Protection of trade secrets during employment: – legal framework; – measures upon entry into employment.

– Prohibition and obligation not to use or disclose trade secrets;

– Measures used to ensure the protection of trade secrets;

– Final Provisions.

4. A declaration of the guaranteed destruction of the existence of confidential information concerning the company on the departing employee’s personal devices.

5. A statement of assurance that the person to whom the trade secret has been disclosed is aware of the Internal Trade Secret Policy;

6. A list of the people to whom the trade secret has been disclosed.

V. What internal trade secret protection measures are advisable?

The primary threat to the trade secrets of all businesses relates to their current or former employees, workers, contractors, franchisees and their employees. Often, the aforementioned individuals have greater access and ability to (mis)use the business assets of their employer/franchisor or its partners if the latter have disclosed some of their trade secrets in order for employees to perform their job duties. In order to protect their trade secrets, businesses should implement additional internal measures within their organisations to ensure that confidential information and trade secrets are not disclosed.

We encourage any business that owns and wants to protect its trade secrets from misuse by current and former employees, workers, contractors, franchisees and their employees to consider implementing the following practical steps to protect its business assets:

• Remind new employees of their obligations to their former employer – they should not disclose anything about their previous employment. Make sure they do not submit documents or data;
• Require all new hires to sign a non-disclosure agreement (NDA);
• Make sure that the employee’s employment contract includes a comprehensive section on protecting your trade secrets;
• Have all new hires sign a comprehensive agreement to protect your trade secrets;
• Create an employee handbook with a policy to protect trade secrets. Make sure every employee is familiar with this policy and has easy access to it whenever needed;
• Take notes during the discussions. Create a paper trail;
• Train employees on the importance of trade secrets and their role in protecting your trade secrets. Train them on security best practices, including handling confidential information, recognizing phishing attempts, and keeping electronic devices secure. Make sure you monitor the presence of your employees.
• Limit access to trade secrets to only those individuals who need them to perform their duties. Thus, the risk of unauthorized disclosure is significantly reduced. Implement strict access controls for trade secrets, such as secure physical and digital storage, password protection, encryption, and authentication protocols.
• Protect your IT infrastructure: implement robust cybersecurity measures to protect your trade secrets if they are in digital form. This includes using firewalls, antivirus software, encryption, secure networks and regular software updates to protect against hacking, data breaches and unauthorised access.
• Ensure that physical documents containing trade secrets, prototypes or samples are stored in secure restricted areas. Use locked cabinets, monitoring systems, visitor controls, and appropriate procedures for the disposal of sensitive physical materials.
• Put systems in place to detect and monitor any unauthorized access or attempts to copy, download or transfer your trade secrets. Intrusion detection systems, data loss prevention tools and activity logs can help identify suspicious activities and prevent potential breaches.
• Conduct periodic internal surveys and audits to evaluate the effectiveness of your trade secret protection measures. Identify vulnerabilities, update policies and procedures, and address any security gaps in a timely manner;
• Do monitor the downloading of materials from the employee’s laptop/computer during the notice period;
• Interview your employees when they leave. Remind the employee of his/her duties. Prepare a statement for the employee to sign upon hire that ensures that all confidential information that the employee has had access to and that is on the employee’s personal devices is destroyed. Require the employee to return all company devices that he or she worked with during the employment contract.

Due to the many specifics to be considered when drafting the trade secret protection agreement and the accompanying documentation, it is advisable to seek the assistance of a specialist experienced in this matter. The team of Krasimira Kadieva Law Firm will gladly assist you in drafting a trade secret protection agreement and the accompanying documentation, as in our practice we have repeatedly helped our clients to take the necessary measures to protect their trade secrets.

In order to provide a complete service regarding trade secret protection, our team has developed the service “Consultation and preparation of a trade secret protection agreement and accompanying documentation”.

The service “Consultation and preparation of a trade secret protection agreement and accompanying documentation” includes:

1. Legal advice on trade secret protection;
2. Preparation and submission of the following documents, namely:

• Trade Secret Protection Agreement;
• Non-Disclosure Agreement (NDA);
• Internal Trade Secret Policy;
• A statement of assurance that confidential company information on the departing employee’s personal devices will be destroyed;
• A statement of assurance that the person to whom the trade secret has been disclosed is aware of the Internal Trade Secret Policy;
• A list of the people to whom the trade secret has been disclosed.

3. Assistance in negotiations with the other party.

If you would like to receive more information about the service “Consultation and preparation of a trade secret protection agreement and accompanying documentation” you can contact us on 00359 882 308 670 or by using the contact form on this website.

EACH CLIENT WILL RECEIVE A FREE E-BOOK CONTAINING ARTICLES WITH USEFUL INFORMATION ABOUT TRADEMARKS.

FOR YOUR NEXT ORDER OF ANY OF OUR SERVICES YOU WILL RECEIVE UP TO 15% DISCOUNT.

Legal Disclaimer: This material prepared by Krasimira Kadieva aims to provide information about trade secret confidentiality agreements. It does not constitute a legal opinion and cannot be interpreted as individual consultation on any concrete facts or circumstances. The advice of an intellectual property specialist should be obtained for specific questions and situations. For more information on the above-mentioned issues and individual consultations, please contact Krasimira Kadieva at 00359 882 308 670 or make an inquiry using the contact form of this website. Krasimira Kadieva is a Bulgarian and European trademark and design attorney. She can assist in negotiating and drafting of trade secret confidentiality agreements.