Venezuela: Protection of Trade Secrets in the Andean Region

I. Introduction

The protection of Trade Secrets has taken place in the Andean Region since the nineties, with the adoption of economic liberation policies. The protection of Trade Secrets has been mainly regulated by the regulations of the Andean Community and by the internal regulations regarding unfair competition.

In this article we make emphasis to the economic importance of trade secrets, and we make a brief synopsis of the most relevant items of the trade secrets protective legislation.

In recent years the economic science has abandoned the idea that the economic development is proportional to the accumulation of the material capital. Without overlooking this element, it has been proven that the greatest part of the quantitative increase of production and its qualitative modifications are originated by the use of new knowledge applied to the productive activities¹.

This development and application of technology takes place, in great measure, by information exchange, through different mechanisms supported by the legal order between the economic agents that originate them and those who use them. It is easy to deduce that the elaboration of regulative instruments that make easier the creation, protection and circulation of technology constitute one of the most important conditions in the growth process of the productive system.²

A part of this information that is subject to this exchange between the economic agents is mainly represented through (i) the technical data contained in the patent documents (ii) the technical or commercial information kept secret by the owner.

The patented knowledge are subject to a special regime of legal protection, incorporated in Decisión 486 of the Andean Community ( "Decision 486") and its complementary regulations based on the granting to the holder of a patent of the exclusive right to exploit the corresponding invention for a qualification and therefore lose, the possibility of obtaining legal ward directed to the confidential knowledge. Likewise, the mechanism of transmission of rights regarding the exploitation of patented inventions is substantially different from that regarding secrets³.

However, the economic transcendence of trade secrets is stands out even more than patents if it is observed that the acquisition, maintenance and transmission of the information object of the secret is not conditioned to be evaluated by any authority as a requirement for its protection; nor it is subject to payments of rates or periods of time of effectiveness for its exploitation.

The holder or the owner of the information will have the option between obtaining a patent and the maintenance in secret of that knowledge that may be subject to be warded by the patent regime as well as by that applicable to the not- patented technology. Obviously, the knowledge that are not subject to be patented Hill not have this option.

These characteristics may present trade secrets as an attractive figure in the design and execution of commercial policies for the economic agents (for it may represent a comparative advantage for the owner without meeting any formality and for an undetermined period of time), but due to its secret character it represents an obstacle for the diffusion of technology and the circulation of technical knowledge.

The regulations of trade secrets in the countries member of the Andean Community are established in (i) Decision 486 and (ii) internal regulative laws of unfair competition.

Decision 486 establishes a complete protection system of trade secrets. In such regard, Decision 486 qualifies any violation of trade secrets as acts of unfair competition, which may be sanctioned by the corresponding institutions in accordance with the internal legislations of each member country.

In general, Decision 486 establishes that that who legally has control of a trade secret will be protected against the disclosure, acquisition or use of said secret in opposed manner to the loyal commercial practices by third parties.

1. Definition of Trade Secrets

In accordance with Decision 486 trade secrets are defined as any non-disclosed information that a natural or artificial person legitimately owns, that may be used in any productive, industrial or commercial activities, and that may be transmitted to third parties.

The information of a trade secret may be referred to (i) the nature, characteristics or purposes of the products (ii) the methods or processes of production, and (iii) the means and ways of distribution or commercialization of the products or services.

The repealed Decision 344 regarding the Common Regime of Industrial Property that for the first time, regulated in the heart of the Andean Regime everything regarding secrets used the term "Industrial Secrets", limiting it, at least conceptually, to the information regarding the industry leaving aside from the commercial information.

Decision 486 introduced a new way to name the information subject to protection, calling it "Trade Secret", that covers industrial secrets as well as trade secrets. However, the legal property guarded by these figures is referred to reserved knowledge about ideas, products or proceedings, means and ways of distribution or commercialization of products and services.

2. Requirements of Trade Secrets

Trade Secrets must have the following requirements in order to be subject to protection:

1. The information shall be secret, in the sense that as a whole or in the configuration and precise gathering of its components, it is not generally known or easily accessible by those who are parts of the groups which normally have the respective information.
2. The information shall have commercial value for it being secret.
3. The information must have been subject to reasonable measures overtaken by the legitimate owner to keep it secret.
4. There shall not exist any legal disposition or legal order that forces the disclosure of the information (for example Financial Statements of the banks and insurance companies).

However, it is not considered as to enter to the public knowledge or that it is disclosed by legal disposition, that information granted to any authority by the legitimate owner, if it is granted in order to obtain licenses, permits, authorizations, registries or any other acts of authorities.

3. Protection of Trade Secrets

The holder of a trade secret is protected against disclosure, acquisition or use of said secret in contrary manner to the loyal commercial practices by third parties.

The following acts constitute acts of unfair competition regarding trade secrets:

1. Exploiting a trade secret, without the authorization of its legitimate owner, accessed as a consequence of a confidentiality obligation resulting from a labor or contractual relationship.
2. Communicating or disclosing a trade secret, without the authorization of its legitimate owner, accessed as a consequence of a confidentiality obligation resulting from a labor or contractual relationship, with the purpose of obtaining personal profit or by a third party or in detriment of said owner.
3. Acquiring a trade secret by illegal or if such are contrary to honest commercial purposes.
4. Exploiting, communicating or disclosing a trade secret by illegal means or if such are contrary to honest commercial purposes.
5. Exploiting a trade secret which has been obtained from another person, knowing, or having known, that the person who communicated the secret, obtained it through illegal means or by means which were contrary to honest commercial purposes, or without the authorization of the legitimate owner.
6. Communicating or disclosing a trade secret obtained in conformity with the aforementioned item e) for personal profit or by a third party, or in detriment of the legitimate owner of the trade secret.

A trade secret is considered as being acquired by means contrary to honest commercial purposes when the acquisition results, among many, from industrial espionage, breach of contract or obligation, trust betrayal, disloyalty, breach of a loyalty duty, or to incite any of these acts.

4. Duration of the Protection of Trade Secrets

The protection of trade secrets lasts as long as the requirements of the trade secrets are fulfilled. In such manner, as long as the information is kept secret, as long as it has commercial value and is subject to reasonable measures to keep it secret, it will be considered as trade secret and therefore, deserves the protection granted by Law.

5. Commercialization of Trade Secrets (Confidentiality Obligation)

That who legitimately owns a trade secret may transmit or authorize the use of said secret by a third party. The authorized third party shall have the obligation of non disclosure of the trade secret, unless there exists an agreement with who transmitted or authorized the use of said secret that establishes the contrary.

In the agreements where technical knowledge and assistance or basic or detailed engineering provision is transmitted, confidentiality clauses may be established in order to protect the trade secrets therein, as long as said clauses are not contrary to free competition.

Each and every person that having been warned about the confidentiality of a trade secret and that due to work, employment, position, professional exercise or business relationship, has access to said secret, shall abstain from using, disclosing or revealing it without a justified cause and without consent of the legitimate owner of the secret or the authorized user.

6. Protection of regulatory data of Pharmaceutical Products

When the presentation of regulatory data or other non-disclosed information which elaboration requires a considerable effort is demanded as a condition to approve the commercialization of pharmaceutical products or chemical agricultural products that use new chemical entities, said information shall be protected against any use of unfair competition.

A part from the protection of trade secrets established in Decision 486, which is applicable in the countries member of the Andean Community; these have internal regulations about trade secrets in the framework of their legislation regarding unfair competition. Below we will make a brief presentation of the legislations of Colombia, Peru and Ecuador; later on we will present some ideas regarding the Venezuelan protection of trade secrets system.

1. Protection of trade secrets in Colombia

Law 256 dated 1996 by which the regulations regarding unfair competition are dictated, establishes on Article 16, that it is considered as unfair competition the disclosure or exploitation, without authorization of the holder, of industrial secrets or any other type of trade secrets to which any person may have had access legitimately but with confidentiality obligation or illegality. Likewise, the Law establishes that the acquisition of secrets through espionage or any similar proceedings will be considered unfair.

Article 20 of the same Law establishes that the following acts may be interposed (i) criminal prosecution or declaratory action, to judicially declare the illegal nature of all the acts that have taken place and consequently order the violator to remove the effects produced by said acts and compensate the damages caused to the plaintiff, and (ii) a preventive or prohibiting action to request the judge to avoid any unfair conduct that has not taken place yet, or to prohibit it even though there have been no damages to the date .

2. Protection of trade secrets in Peru

Article 15 of the Law about Repression of Unfair Competition prohibits the violation of trade secrets. In such regard, article 15 describes the following as practices of unfair competition:

1. The disclosure or exploitation, without authorization of the holder, of the knowledge, information, ideas, technical proceedings or of any other type, of property of the holder, to which a third party may have had access legitimately but with confidentiality obligation or by illegal means.
2. The acquisition of trade secrets through espionage, improper access to microforms under the modality of microfilm, computer or similar documents, use of data transmission, through espionage or any similar means.

Apart from the pertinent legal actions, article 21 of the Ley sobre Represión de la Competencia Desleal (Unfair Competition Law) set forth that the Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual (INDECOPI), through the Secretaría Técnica de la Comisión de Represión de la Competencia Desleal, may initiate an investigation when the act of unfair competition is taking place.

3. Protection of trade secrets in Ecuador

Unfair competition regulations in Ecuador, specifically those which prohibit the violation of trade secrets, are established in the Law of Intellectual Property. In such regard, article 245 established that the disclosure, acquisition or use of secret information without the authorization of the holder or owner, are considered to be among others acts of unfair competition.

Decision 486, directly applicable in Venezuela in accordance with article 153 of the Constitution, as well as article 17(3) of the Law to Promote and Protect the Exercise of Free Competition ("Competition Law") establish that the violation of trade secrets is a practice of unfair competition.

As a practice of unfair competition, the violation of trade secrets may be investigated and penalized by the Superintendence for the Promotion and Protection of Free Competition ("Procompetencia"), the agency in charge of competition and unfair competition practices, as well as the mercantile and civil courts.

Article 17 of the Competition Law establishes the following::

1. Adoption of the Andean regulations to define trade secrets

Article 17(3) of the Competition Law does not define trade secrets. Therefore, Procompetencia has used the definition established in Decision 486. In such regard Procompetencia has established that the essential element to declare the existence of a trade secret is that the person who legitimately has the control of said secret has adopted reasonable measures to keep it secret. (Resolution 0204-00 dated February 21, 2001, case Wellhead vs. Sincor).

The Andean regulations established in Decision 486 are applicable in Venezuela to the effects of determining the existence of trade secrets.

However, in regards to the determination of the violation of trade secrets there are some differences in regards to the appropriation of the market.

2. Need of verification of the effects in the market

In accordance with the doctrine of Procompetencia, for the existence o fan unfair competition practice to be declared, it is necessary to prove that said practice generates effects in the market (See Resolution Nº 049-2004 dated August 9, 2004, case Digitel vs. Movilnet). Said verification is not established by Decision 486.

Therefore, for Procompetencia it is not sufficient to prove the violation of trade secrets, it also requires the verification of the effects on the market. These criteria of the need of verification of the effects on the market are based on the position that Procompetencia is a public institution of protection of the market.

Judicial precedents have established that the regulations contained in the Competition Law has as purpose the protection of the market and the competition as legal asset, but not of the individual rights of the economic agents, even when the protection of the market may result in a profit for said agents. It has also been distinguished between the regulations of Decision 486 as regulatory of intellectual property, which Project a specific interest and do not require the proof of appropriation of the market, and the regulations of the Competition Law that does require this verification (See decision of the Corte Primera de lo Contencioso Administrativo No. 526 dated March 25, 2002).

On the contrary, the civil and mercantile courts only require the proof of violation of trade secrets, and request a compensation for damages and prejudices.

3. Proceeding for the protection of Trade Secrets

That who owns trade secrets may turn to Procompetencia to request the beginning of a proceeding for violation of trade secrets. In this case, Procompetencia shall open an administrative investigation, and at its closure Procompetencia shall declare if there were violations of trade secrets.

In the event of turning to Procompetencia the compensation of damages and prejudices may be requested for the violation of trade secrets before the civil and mercantile courts, once the proceeding in which the existence of violation of trade secrets has been firmly declared. Therefore, that who turns to Procompetencia and obtains a favorable decision, may later turn to the civil and mercantile courts to file sue for the damages caused by the violation of the secrets.

Now, in accordance with Article 55 of the Competition Law, the holder or owner of trade secrets may file suit for compensation of damages and prejudices caused by the violation of trade secrets before the civil and mercantile courts without the need of beginning a proceeding before Procompetencia.

Nonetheless, if a suit has been initiated by the holder or owner of the trade secrets before Procompetencia, the suit for compensation of damages and prejudices must take place after Procompetencia has made a firm decision.

4. Trade secrets and confidentiality obligation in the labor legislation of Venezuela

The confidentiality obligation of the employee regarding the secrets of the employer is contemplated in the faithful fulfillment on behalf of the employee of the obligations acquired through the labor contract.

Article 17 of the regulations of the Organic Labor Law ("RLOT") establishes the fundamental duties of the employee: "Faithfully render services, with collaboration spirit, and abstain from executing designated duties which may be unfair or disclosing information about the productive activity which may be detrimental to the employer".

The importance that the fulfillment of the confidentiality obligation is such, that its infringement on behalf of the employee, grants the employee the right to apply the worker the highest disciplinary sanction, which is the dismissal of employment without justification. In such regard, article 102 of the Organic Labor law, contemplates as such: "h) Disclosure of manufacture, fabrication or proceedings secrets".

Apart from the aforementioned, our labor legislation does not contemplate regulations to establish the scope of such important obligation. This situation creates a series of debates which have not been covered by the doctrine or jurisprudence in Venezuela.

For example, one of the most debated topics is, if the confidentiality obligation outlives the termination of the labor contract. In general terms, the situation is that the labor rights and duties generate effects while the labor contract is in force and effect. However, in some situations the rights and correlative obligations may be accepted prior to the completion of the labor contract and its applications may be maintained after the termination of said contract.

Likewise the principle of no arbitrary discrimination in the employment contemplates the acts of the employer that may arise prior to the beginning of the labor relationship (Article 8 of the RLOT). Furthermore, the obligation of no unfair concurrence by the employee may be agreed for it to be in force for six months after the termination of the labor relationship (Article 19 of the RLOT)

The lack of regulation of the efficiency of the confidentiality obligation alter the termination of the labor contract must not be interpreted as an obstacle for that duty to be requested in said circumstance. The confidentiality obligation outlives, without temporary limits, the termination of the labor contract.

The express establishment of the confidentiality obligation in the labor contract is not essential, for it derivates from the Venezuelan Law. However, due that the Venezuelan legislation establishes the obligation, but does not determine the scope of the same, we use to recommend the detailed establishment of said obligation, either through the labor contract, or through a special confidentiality agreement undersigned for said effects or even for the situation that arises from the termination of the agreement.

5. Other sorts of protection of trade secrets in Venezuela

Apart from the regulations regarding unfair competition, there also exist other dispositions that establish protection mechanisms of trade secrets.

In such regard, article 340 of the Criminal Code typifies as felon that who has revealed news regarding inventions or scientific discoveries or industrial applications that must be kept secret and that has had access due to the position or work or due to the exercise of the profession, art or industry. The penalty is from 15 days to 3 months of prison. However, criminal law has shown that its guardianship has severe deficiencies due to the minor punishment.

There also exists the contractual protection, through contracts directed to protect trade secrets or as a part of legal acts of broader range, by which a person may agree to communicate determinate information to third parties, or not use them, Esther in a general manner or outside certain temporary, physical or economic limits. In conformity with the general principle of validity of the contracts, established in Article 1133 of the Venezuela Civil Code, this obligations are legal and binding, as long as they do not infringe any other laws, contrary to the proper behavior, opposed to the liberty of actions or detrimental, that due to its range, keep an employee from fulfilling of its duties or profession, or that may have restrictive effects on the competition, damaging the general economic interest.

At the Andean level the protection of trade secrets is established by Decision 486. The regulation of Decision 486 is similar to the fundamental items of the regulations established in Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and is therefore in accordance with the international standards of protection of trade secrets.

In regards to the countries members of the Andean Community, Colombia as well as Peru have specific laws of unfair competition where the violation of trade secretes is declared as a practice of unfair competition. In Ecuador the regulation about trade secrets is established within the legislation of intellectual property.

Two sorts of protection of trade secrets exist in Venezuela: (i) through the regulations established in Decision 486 of the Andean Community and (ii) through the prohibition of practices of unfair competition in accordance with the Competition Law.

The regulations established in the Competition Law has been developed by Procompetencia, who has applied Decision 486 for the effects of defining trade secrets, but has requested the verification of the effects on the market of the practices of unfair competition.