Breach of Competition Law through Divulging of Trade Secrets

Vitaliy S. Bakhurinskiy, Artem Y. Ustiugov

Protection against unfair competition in Ukraine is currently at the stage of formation. Although the position regarding clarification competition law compliance and appropriate decision of the Antimonopoly Committee of Ukraine in this area confirm an attempt to educate fair discipline and fair play on the market. Furthermore, given the fact of positive movement toward Ukraine in the legal consciousness of European countries, as well as attempt to translate the experience of developed countries in their activities, it is hoped that Ukrainian security system will summarize relevant experience and eventually reach the most effective form of combatting unfair competition.

It is known that there is more vague legislation written with little detail, especially since there are violations of the business game in the field of economic relations. Disputes relating to such violations in 70% of cases are resolved through negotiations. The penalty is prohibiting the use of the trademark and civil or criminal liability. In addition, litigation regarding the consideration of disputes between the two entities of economic competition in Ukraine is almost absent, and this suggests that Ukraine does not have a good legal framework for the regulation of competition on the market. Quite often business faces the problem of the violation of technologies for economic activity (intellectual property) and, increasingly, there is a desire to protect yourself from fraud of his former employees and competitors.

In accordance with Paragraph 1 of Article 432 of the Civil Code of Ukraine stipulates that everyone has the right to go to court to protect their intellectual property.

In turn, Paragraph 2 of Article 16 of the Code sets out common ways to protect intellectual property rights. Moreover, the list of methods of protection is not an exhaustive one and the court may protect a civil right or interest in another way, by contract or by law.

In addition, Article 420 of the Civil Code of Ukraine stipulates that a trade secret is one part of intellectual property. Under intellectual property rights in trade secrets belonging to a person, who owns this information that is a trade secret, unless otherwise provided for by a contract.

In the everyday life of companies, unfortunately, it is not a rare occurrence that due to the dismissal of a worker (whether this is the choice of the employee or employer), the company loses some of its customers and, consequently, its financial performance is reduced.

This is often due to the fact that an employee opens their own businesses and provides/produce similar services/products as his former employer.

However, not everyone knows that the information about the customer base, the characteristics of the provision of services and works can be classified as trade secrets, business and in the case of disclosure — to protect their violated rights in court and prosecute the company that illegally uses trade secrets by appealing to the territorial office of the Antimonopoly Committee of Ukraine with a claim of anti-competitive actions.

To ensure that the company had the right to seek protection of their rights in court or the Antimonopoly Committee of Ukraine, the information associated with the production, technology, management, financial and other activities of the entity must belong to a trade secret (Article 420 of the Civil Code of Ukraine).

What does confidential information mean?

Confidential information is information to which access was restricted by a person or entity, and that can only apply to them in a certain order according to their discretion, subject to certain conditions being established.

One way to restrict access to the information that the company considers confidential is development of domestic provisions regarding confidential information of an enterprise and conclude agreements with employees on non-disclosure of such information.

Thus, such provisions shall contain a complete list of information, including technological, industrial, financial or other that acquire the status of trade secrets.

In the contract a point of non-disclosure of confidential secrets between employer and employee is included. The contract must definitely prescribe a term of validity of the contract, whereby it is advisable to note that the agreement is valid from the date of signing and completing the action after the expiration of the calendar year following the dismissal of an employee, and responsibility employee for the disclosure or use of the information relates to confidential and become known to him in connection with the performance of their duties.

Under the above conditions, the employer has several options for protecting their rights, whereby they can be used simultaneously or separately.

At the same time, as mentioned above, Ukraine has used the experience of international law and ratified the Paris Convention for the Protection of Industrial Property of 20 March 1883, which came into force for Ukraine on 25 December 1991, ordered the country. As a result, the provisions of this Act formed the basis of the On Protection Against Unfair Competition Act of Ukraine, Competition Act, On the Antimonopoly Committee of Ukraine Act of Ukraine.

Without doubt, the actions of former employees who disclose and use the information that has been classified as confidential of a previous employer, can be described as being in violation of the basic principles of competition provided by these acts.

How do you protect trade secrets?

Thus, there are two stages of protection of trade secrets at that stage when secrets are not violations and the stage when the secret was divulged, but you still want to ban the party that violated of use this information in their work. The first stage involves the activities of professional legal work in the development of documentary intrinsically local information security at enterprise level. It should be remembered that in order to protect trade secrets, this  must be linked to compliance with the following requirements: 1) the information is a trade secret, is not known to others; 2) there is no free access to this information; 3) take measures to protect the confidentiality of information. It takes legal measures to protect the information; the Conference is to help legal professionals.

In turn, the second stage involves the restoration and protection of rights of the holder of commercial information by administrative and judicial protection.

The administrative protection option is an appeal to the territorial office of the Antimonopoly Committee of Ukraine that reports anti-competitive conduct in relation to the applicant.

As regards a territorial office of the Antimonopoly Committee of Ukraine, during the inspection, violations of competition laws now apply significant administrative fines for an entity that acted unfairly.

Another option regarding protection of their rights is an appeal to a court to collect from companies that illegally use or divulging someone else’s information, referred to trade secrets, damage caused to the applicant from the use of such information.

However, when the applicant refers to commercial courts this raises the problem of proving the presence of the defendant’s actions and the fault of illegal behavior on the part of the defendant; namely a causal link between the actions of the defendant and the causing of damage.

If the wrongfulness of a defendant’s conduct can be confirmed by a ruling of a territorial office of the Antimonopoly Committee of Ukraine and the presence of damage and the relationship between the actions of the defendant and damages, the applicant is required to prove the latter.

Unfortunately, it is rather rare for cases to meet the requirements of damages for anti-competitive actions of other entities among judicial decisions adopted by the commercial courts of Ukraine.

So, it should be noted that the competitive right in Ukraine is in the process of formation. Thus, it is necessary to develop a high-quality legal basis for compensation for those entities whose rights have been violated. However, it is quite an effective mechanism in compliance with the rules of competition law is a fine of the Antimonopoly Committee of Ukraine, which, in turn, for companies whose rights have been violated have only moral satisfaction and hope that in the future their rights will not be violated. But Ukraine must pay great attention to build a base of legislation as to the offending company which violated the law. For example, damages in the amount of 100% of the sum of revenue in the year the company committed the offence. All that you`ve earned thanks to information which doesn’t belong to you, actually returns to the owner of this information.

Furthermore, in our opinion, legislators have to expand and improve legislation on competition law and responsibility to develop effective mechanisms to implement them in practice. For example, in Australia the disclosure of trade secrets by employees’ unfair competition law provides for imprisonment for a period of up to 3 months or a fine of up to 180 daily rates. At the same time, according to the Civil Code of France those guilty of this offence may be sentenced to imprisonment for a period from 3 months to 2 years and a fine up to 8,000 francs. Imprisonment for a period because of transfer of a trade secret to a foreign person ranges from 2 to 10 years.