Considerable Territorial Variation in Protection of Confidential Information

As mentioned elsewhere in this collection, it is crucial to ensure the confidentiality of undisclosed information in order to retain its commercial value.  In the connected world in which we live, this requires worldwide protection to ensure that information does not enter the public domain where it is not protectable. 

Protection can vary widely.  Whilst many territories have a good system of protection, there are some major territories where there are significant issues.  It is relatively rare to find a territory where there is no form of protection as the World Trade Organisation’s TRIPS agreement requires basic protection; it is more likely that information will escape through a loophole in protection or as a result of an inadequate enforcement regime.

Potential Issues

A good example of a loophole in protection is found in Brazil, where undisclosed information is not classified as property.  A know-how licence is therefore treated as a transaction for the sale of the underlying information and it is not generally possible to ensure that the information is either returned or protected indefinitely.  There are also rules which limit the potential payments and other terms in licences.  

Enforcement and its aftermath is the area where most potential problems are found.  It is necessary to provide similar infringement remedies to those available for other forms of intellectual property.  In this case there is the additional requirement to maintain strict confidentiality throughout the enforcement process.    

This is a field where it is vital to examine the detail or to find somebody willing to do so.  A legal regime for effective enforcement needs to provide assistance with gathering evidence, preliminary and permanent injunctions, damages and account of profits.  It will also need to protect the confidential information throughout the proceedings and in any lasting court records such as the judgment.

It should not be necessary to check that the legal systems work in practice, the legislation is fully enacted and the important parts are used regularly, but regrettably it is crucial to do so.  There are countries which have adopted legislation which is not used in practice for one reason or another.  For example, preliminary injunctions, which protect information pending a full trial, are rarely granted in China.  Similarly, it is not clear what forms of protective order are recommended or even allowed in China.  

Finally, it is worth asking how long dispute resolution takes and how much it costs.    

IP Commercialisation Laws

IP commercialisation laws can be especially harsh as regards undisclosed information.  For example, they may prevent a licensor from terminating a licence and limit the royalty or other payments to be made under the licence as well as the period for which payments may be made, which is the case in Brazil.  There may also be restrictions or conditions on the licence or transfer of rights from the jurisdiction, as is the case in South Africa. 

It is also necessary to check whether there is exchange control and/or requirements for registration of documents and, if so, what the effects will be.

Protecting a Venture   

Gathering Information

It is crucial to find out the potential problems in the areas where you will be operating or to confine the areas in which you will be operating to those with which you are familiar.  That may require internal agreement or it may need to be included in the relevant agreement if you are dealing with other organisations.

It is also necessary to review the position regularly as laws change over time and for a number of reasons.  In some countries the protection is tightened up in order to encourage investment; the OECD found a correlation between the protection available and economic performance.  However, IP commercialisation and related laws may be the result of protectionism and there have been recent instances of increased protectionism.

Potential Measures

The measures described in this section are in addition to all the good housekeeping measures which are mentioned elsewhere in this collection.  Therefore, the suggestions below are limited to those which relate to territorial issues. 

If the investigations in the section above show that there are potential issues in a territory where undisclosed information will be kept, used, transmitted or commercialised, then it may be necessary to move territory. 

Before considering drastic action it is crucial to evaluate the extent of the problems and ways in which they can be avoided.  For example, it may be possible to retain certain information and processes in territories which are considered safe and then to export partially finished products or to export what are effectively crucial materials if the information cannot be detected when they are examined.   

It is also worth examining whether a change of deal or project structure would make a difference.  For example, does the legislation only affect licensing or possibly just intra-group transactions?  In that case, it may be possible to change the structure and avoid the problem.  When changing structure, there will, of course, be other considerations such as tax, but this option may be worth considering.

Post authored by Jennifer Pierce of McCarthy Denning