Most businesses will generate valuable data in the course of executing their business plan. This data can be 'non-technical' such as pricing data, forecasts, customer or vendor lists, or 'technical' such as product optimisation or performance data, secret product formulas or recipes, or know-how. Some of this data can deliver significant value to a business and a competitive edge, provided it is controlled and kept confidential from competitors. In this article, we look at what trade secrets are, why they are important, and the legal framework for trade secret protection in the United Arab Emirates (UAE).
Any data that has commercial value and is managed as confidential information can be considered a trade secret. Trade secrets play an important role in the knowledge-based ecosystem. With fast-moving technology and innovative business models, relying on patent protection to protect proprietary products or methods may not be appropriate or cost-effective. In some cases, those assets may not be protectable by patents. In other cases, for example, where the innovation is a manufacturing method, patent infringement will be difficult to detect and prove, and so the technology may lend itself better to trade secret protection.
With trade secret litigation on the rise in the US and Europe, robust policies and procedures around the management and use of trade secrets have become more important than ever in maintaining that competitive edge and being prepared for enforcement.
The Gulf Cooperation Council (GCC) region is fast becoming an area of commercial importance because of its strong economic outlook, geographic location and investment-friendly environment. For companies looking to expand into the GCC, an understanding of the legal framework around the protection of their valuable know-how and data is crucial.
What is a trade secret?
The World Intellectual Property Organisation (WIPO) defines trade secrets as secrets that add value to a business. Any commercially valuable and sensitive information can qualify as a trade secret. This includes your business strategy, a list of suppliers or customers, product testing and optimisation data, algorithms, manufacturing methods, and so on.
The WIPO provides the following elements for information to qualify as a trade secret. The information must be:
- commercially valuable because it is secret;
- known only to a limited group of persons; and
- subject to reasonable steps taken by the rightful holder of the information to keep it secret, including the use of confidentiality agreements for business partners and employees.
The definition above is consistent with the requirements set out in international legislation for trade secret protection. Emphasis is given to the last point, which requires 'reasonable steps' to be taken by the rights holder to keep the information secret. In other words, active management is required for information to qualify as a trade secret.
Why are trade secrets important?
Patents provide the best protection for new and innovative technology. However, relying solely on patents to protect new technology may not always be appropriate or possible. Patent laws generally exclude certain subject matter from patentability, including computer programs, mathematical models, and business methods. For example, manufacturing know-how, data, algorithms, insights and predictions generated by Artificial Intelligence (AI) are not patentable and best protected as trade secrets. Where patent protection doesn't apply, owners generally rely on trade secrets to plug the gaps in patent protection.
Trade secret protection does not require registration, so owners can rely on trade secret protection in the early stages of development and keep costs down. This is especially helpful if you are a startup or an established business testing a new product line. If patents are sought, it may take several years before they are granted, so trade secret protection offers businesses the ability to have a form of protection in place at a much earlier stage of the development cycle, and the ability to take action against unauthorised use much sooner.
In some cases, trade secret protection may be a more appropriate protection strategy than patents altogether. For example, if the innovation is an improvement to a manufacturing method that allows you to reduce costs, you may not want to patent this if it is difficult to detect the use of your proprietary method by a third party. Patents usually publish after filing, so trade secret protection will be more suitable where there is a greater commercial advantage in keeping the technology secret. In addition, patents are limited to 20 years of protection, whereas trade secret protection is indefinite, provided adequate steps are taken by the owner to keep the information confidential.
What is the legal framework for trade secret protection in the UAE?
The UAE does not have a standalone federal trade secrets law. Instead, a suite of protections and remedies for trade secrets are found under various laws. These are:
- Civil Code (Federal Law No. 5 of 1985), as amended;
- Penal Code (Federal Law No. 3 of 1987), as amended;
- Commercial Companies Law (Federal Law No. 2 of 2015), as amended;
- UAE Patent Law (Federal Law No. 11 of 2021); and
- DIFC IP Law (Law no. 4 of 2019)
As a result, there is no unified legal definition of what constitutes a trade secret in the federal laws of the UAE. The laws do not define what type of information is protected as a trade secret and what conditions must be met for the information to qualify for protection. Each law does, however, set out its own penalties for the misappropriation of a trade secret. These are set out below.
In addition to the federal laws, owners can rely on the DIFC IP law for trade secret protection and enforcement in the Dubai International Financial Centre (DIFC) free zone. This law applies to any person who owns, uses or seeks to enforce their UAE IP right in the jurisdiction of the DIFC. The law recognises rights created under the federal laws and is an alternative venue for enforcement where misappropriation occurs in the DIFC free zone. The law provides more clarity on the rights of trade secret owners, the acts that constitute misappropriation of a trade secret and the exceptions. These are also outlined below.
Civil Code – Articles 905, 909 and 922
The Civil Code provides that employees are under an obligation to keep the industrial and commercial secrets of their employer confidential, even after the expiration of their contract. The law goes on to say that actions relating to the disclosure of trade secrets are not subject to a limitation period. The law also prohibits an employee from competing with the employer or participating in competitive business for a limited time and to the extent necessary for the protection of the legitimate interests of the employer. The law goes on to say that actions relating to the disclosure of trade secrets are not subject to a limitation period, so employees would be required to keep trade secrets confidential beyond the non-compete period.
Penal Code – Article 432
The Penal Code provides for sanction over the unauthorised disclosure of trade secrets, for a person's own interest/benefit, or the interest/benefit of another and the person who became entrusted with the secret by virtue of their profession, craft, position, or art. A convicted person shall be sentenced to imprisonment for a minimum period of one year and/or to a minimum fine of AED 20,000 (equivalent to around USD 5,447). Where a public servant commits the crime and the trade secret is shared for the fulfilment of their duty, the penalty shall be temporary imprisonment for no less than five years.
Commercial Companies Law – Article 354
The Companies Law provides sanctions against any person who utilises or discloses the secrets of a company. The penalties are imprisonment for no longer than six months and/or a fine between AED 50,000 and AED 500,000 (equivalent to USD 13,617 - USD 136,170).
Patent Law – Articles 61-63
The Patent Law prohibits the disclosure, use or publication of 'undisclosed information'. The law allows a legal owner (of undisclosed information) to take certain measures to maintain the confidentiality of undisclosed information. There is no legal definition for what constitutes or does not constitute 'undisclosed information' in the law or regulations. Article 61 of the law sets out the requirements for protection of trade secrets:
- Confidentiality, whereas the information as a whole or in its terminological composition shall not be known or common in general among the practitioners of the industrial art in whose scope the information falls.
- Its commercial value shall be derived from its confidentiality.
- Its confidentiality shall rely upon the effective measures implemented by its legal holder for its protection.
Article 62 of the law defines the scope of protection of trade secrets in relation to pharmaceutical or agricultural products. Where trade secrets are disclosed for the purpose of obtaining marketing approval, the relevant authority will be required to keep the information confidential for a period not exceeding five years. This is in line with data exclusivity protection in many jurisdictions.
Article 63 of the law sets out the responsibilities of the owner of the trade secret. It requires them to take procedures that maintain the information 'to prevent access by non-competent persons', to regulate the access of information to prevent leakage, and to prove that they exerted 'adequate and reasonable effort' to maintain the information. Neither the law nor the regulations provide further clarity on what measures would constitute as 'reasonable and adequate'.
There are no specific provisions in the law dealing with remedies for misappropriation of trade secrets. The law does not provide for injunctive relief to prevent disclosure, circulation or unauthorised use of trade secrets. However, the law contains provisions that deal with compensation for damages, preventive measures and penalties for infringement of patents, utility certificates, industrial designs and integrated circuits. Although 'undisclosed information' is not explicitly covered, Article 66 of the law states that the provisions concerning patents and utility certificates shall apply to 'undisclosed information' where no special provisions have been made. Assuming these provisions apply, the penalties for misappropriation under the patent law would be imprisonment and/or a penalty between AED 100,000 and AED 1,000,000 (equivalent to USD 27,229 - USD 272,294).
DIFC IP Law – Article 52 - 55
DIFC IP law (No. 4 of 2019) contains provisions for the protection of trade secrets under Articles 52-55. Although no definition is provided for what constitutes a trade secret, the law provides the conditions for the protection of trade secrets, which are essentially the same as the federal patent law. The DIFC law protects against misappropriation of a trade secret by 'improper means' but does not define what actions constitute 'improper means'. The law provides a list of permissible acts, which include reverse engineering, the discovery, acquisition or use of information as a result of scientific research, innovation, invention, development, modification and improvement exerted by persons independent of the person lawfully in control of the trade secret, and the discovery of information pursuant to a licence, transfer, sharing or assignment of information.
With regard to penalties, the owner has the right to claim compensation for any damage caused due to misappropriation by any person. Remedies include a court order to stop the infringing activity or confiscate all materials related to the violation, a fine between AED 18,365 and AED 183,650 (equivalent to USD 5,000 – USD 50,000), or the owner can request a suspension of the DIFC license of the violator.
Steps you can take to manage your trade secrets
Trade secrets can flow in and out of a business with new or departing employees, third-party collaborations, and even more so if you operate in multiple jurisdictions. Although many countries have laws outlining how misappropriation of trade secrets is a crime, enforcement can be a long and costly process. Further, unless one can quickly identify a misappropriation and contain it, the secret is often, well, no longer secret. Although certain technology allows for the tracking and identification of potential security breaches, it can also facilitate the speedy transmission (including inter-jurisdiction transmission) of information that can result in significant losses to the owner.
With the rise in global trade secret litigation, it has become more important than ever for businesses to show actual and reasonable steps towards managing their trade secrets. The UAE laws do not set out the practical requirements for meeting the standards of reasonable steps, but there are some basic steps that can be taken to develop trade secret management practices.
- Businesses should start with an audit of their policies, processes and legal agreements affecting trade secrets.
- The second step is to develop a clear trade secret and data management policy that is aligned with the business strategy.
- Employee training, appropriate HR processes and IT measures should accompany the new policy.
- Although trade secrets management usually sits with the IP department, a multi-disciplinary management approach is required from different teams, including legal, corporate, HR, IT and data privacy teams.
- Businesses should also consider investing in an internal trade secret management system, e.g. Tangibly, to record and manage access to trade secrets.
Having strong policies and procedures to track and maintain control over trade secrets is important, but equally so is the ability to enforce trade secret rights if unauthorised use occurs. Proactive management allows you to be more prepared to take rapid action when a trade secret breach happens or is threatened. Protocols and response plans can also help employees identify a breach early and take action to mitigate potential damage. Once a trade secret is out in the open, it loses its status. So when it comes to managing your trade secrets, it is always better to be safe than sorry.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
