Protection of Trade Secrets

December 2020 Hazel Coşkun Baylan
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Trade secrets are confidential information, which are not known by the public, they provide economic benefits to its holder, and are protected to be kept as secret. Confidential information may be a formula, algorithm, method, or design, as well as sales strategies or customer data. Trade secret protection grants indefinite protection, and the content of the confidential information is not announced to the public but, rather, held as secret. Therefore, it provides an alternative to the patent protection that grants protection limited to 20 years with registration of the patent, which causes the content of the patent to be published. In this article, the scope of the trade secret protection under Turkish law, and solutions to avoid trade secret misappropriation, are reviewed.

Definition of Trade Secret

A trade secret is not defined under Turkish regulations. Although special regulations contain provisions on trade secret protection as indicated, below, these regulations are related to specific sectors. Therefore, the Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”) and Court of Cassation precedents are observed to better understand the concept.

TRIPS, which is an international agreement on intellectual property rights executed by all member nations of the World Trade Organization, including the Republic of Turkey, sets forth a definition of trade secrets. Pursuant to Article 39(2) of TRIPS, trade secrets are defined as follows:

  • The information that is secret in the sense that it is not, as a body, nor in the precise configuration and assembly of its components, generally known among, or readily accessible to, persons within the circles that normally deal with the kind of information in question;
  • The information that has commercial value because it is secret; and
  • The information that has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

The 23th Civil Chamber of the Court of Cassation defined a trade secret in its decision numbered 2016/6958 E., 2019/4349 K. and dated 21.10.2019 as follows: “A trade secret is defined as the information, which provides economic benefits to real persons or legal entity merchants against its competitors, kept as a secret, and necessary measures are taken to keep it secret. Trade secrets may also be defined by considering the unfair competition principles as ‘all information, such as formula, layout, and model, etc. that is used by the merchant for its commercial activities and provides advantages against the competitors, who do not have that information.’”

The criteria sought for commercial information to be deemed as a trade secret are, (i) not to be generally known or readily accessible by the public or relevant business circles, (ii) having a commercial value due to being secret; and (iii) reasonable steps should have been taken to keep it secret. Accordingly, although the commercial information of a company is not known by any other person, and its secrecy has commercial value, if no reasonable steps are taken to preserve the secrecy of this information, it will not be considered a trade secret. A good example for taking reasonable steps to protect the trade secrets is the Coca-Cola case. According to an affidavit given by a senior vice-president and general counsel for Coca-Cola in a court case, the written version of the secret formula of Coca-Cola is kept in a security vault at the Trust Company Bank in Atlanta, and the vault can only be opened by a resolution from the Company’s Board of Directors, and only two persons in the company shall know the formula at any one time, and that only those persons may oversee the actual preparation of the formula[1].

Legal Framework for Trade Secret Protection

There is no specific law that regulates trade secret protection under Turkish law, but it is rather protected by the provisions on unfair competition set forth under Turkish Commercial Code numbered 6102 (“TCC”) or by the provisions of special regulations, such as the Banking Law or Electronic Communications Law.

Unfair Competition Rules

Trade secrets are protected by unfair competition rules regulated under the TCC. As per Article 54 of the TCC, “Commercial applications and actions affecting the relations between the competitors or the suppliers and customers, which are deceptive or contrary to the good faith principle, are unfair and illegal.” In plain wording, it may be defined as abusing commercial competition by acting contrary to good faith, or by any other means[2]. For the existence of unfair competition, there is no need for the offender to gain benefit or to be faulty, or the sufferer to be damaged[3].

Article 55 of the TCC continues with examples that constitute unfair competition, which are not listed in a numerus clausus way. As per Article 55(b)(3) of the TCC, “To cause violation or termination of a contract by enticing the employees, proxies, and other supporting personnel to disclose or take possession of the production and business secrets of their employers or principals,” constitutes unfair competition. For instance, if an employee discloses the trade secrets s/he acquired while in the conduct of his/her duties to third parties in exchange for money, such action of the third party learning the trade secret shall cause unfair competition as designated under Article 55/1(b)(3) of the TCC[4].

As per Article 55/1(d), “The person, who illegally discloses production and business secrets and, especially, who reviews or informs others of the business secrets and the information s/he acquired in secret and without permission, or in any other illegal way, is deemed to have acted contrary to good faith.” Accordingly, reviewing or conveying to others trade secrets that are illegally acquired, or illegally disclosing the trade secrets, which have legally been acquired, shall constitute as unfair competition, and gaining economic benefits from such acts is not a requirement[5].

Special Regulations

Although there is no specific law regulating the protection of trade secrets, provisions on the protection of trade secrets exist in various special regulations. For instance, as per Article 6(1)(h) of the Electronic Communications Act, the Information Technologies and Communications Authority is obliged to protect the secrecy of trade secrets, investment and business plans of entities and preserve them, except for requests by judicial authorities. Similarly, pursuant to Article 25(4) of the Act on Protection of Competition numbered 4054, “Members of the Competition Committee and its personnel shall not disclose or use for their own or third parties,’ benefits of the secret information related to the Competition Authority and the trade secrets of the entities or entity unions, which they have learnt during the implementation of this Act, even after the termination of their recruitment.

On the other hand, there is a draft law titled Draft Law on Trade Secrets, Banking Secrets and Customer Secrets that has been before the Justice Commission since 25.10.2011; however, it is not yet codified. In this draft law, a trade secret is defined as “Information and documents on the company’s internal structure and organization, financial and economic situation, credit and cash flow, research and development activities, pricing strategy, raw material resources, technical properties of production, pricing policies, marketing strategies and expenses, market share, potential customers and customer networks, either wholesaler or retailer, contract connections, either subject to permission or not, and similar information and documents related to an entity or a company’s field of activity, which is known and attainable by a specific number of members or other personnel and, if known by competitors, the possibility of incurring losses has arisen, shall not be disclosed to third parties and the public, and has a high value for the entity or company’s economic success and productivity.”

Criminal Sanctions

Criminal sanctions for trade secret violation is regulated under Article 239 of Turkish Criminal Code numbered 5237. Accordingly, “A person disclosing or giving to unauthorized persons the information or documents qualified as trade secrets, banking secrets or customer secrets, and who acquired this information or documents due to his/her title, duty, profession or art, shall be sentenced to one to three years of imprisonment, and a judicial fine of up to 5,000 days shall be imposed, upon complaint.” As designated under the third paragraph of the same Article, if these secrets are disclosed to a foreigner who does not reside in Turkey, or to his/her officers, the punishment will be increased by one-third, and the requirement of a complaint shall not be sought.

Solutions to Avoid Trade Secret Misappropriation

Even though employees are bound by a duty of confidentiality regarding their employer’s trade secrets as per Article 396(4) of the TCO, in practice, trade secrets are generally violated by dismissed employees, or those employees who have resigned. For this reason, including a clause on a duty of confidentiality in the employment contract would ensure that the employee comprehends this duty and, thus, would minimize the risk of infringement. In addition to the duty of confidentiality, non-compete covenants included in employment contracts would also prevent the employees from using their ex-employer’s trade secrets for their own benefit. The validity criteria established by the Court of Cassation precedents shall be observed while drafting the scope of non-compete covenants because, otherwise, the courts may deem the covenant invalid or narrow its scope in the event of a dispute.

Aside from employment contracts, parties may also disclose their trade secrets during the performance of commercial contracts. These contracts may be cooperation or franchise contracts, where quite a lot of trade secrets are disclosed, or they may be in a sale and purchase contract where a few trade secrets are disclosed. In any case, it is important to designate a duty of confidentiality that covers a large scope in commercial contracts. The first issue to pay attention to while drafting a duty of confidentiality to a commercial contract is to include a broad definition of trade secrets. Additionally, provisions on extending the confidentiality duty to employees, authorized representatives and advisors of the parties, transfer of trade secrets to employees, authorized representatives and advisors of the parties, on a “need-to-know” basis, and the requirement to obtain a confidentiality undertaking from the employees, authorized representatives or advisors, may be added to the contracts.

Legal Remedies for Trade Secret Infringement

In accordance with Article 56 of the TCC, if a person (or a real entity), whose customers, credit, reputation, commercial activities or other economic benefits, is harmed, or encounters danger due to unfair competition, the following lawsuits may be pursued:

Declaratory Action: Declaratory action may be initiated to determine whether the duty of protection of the trade secrets has been violated;

Action on Prevention of Unfair CompetitionIn the case of an illegal disclosure of trade secrets, a lawsuit to prevent unfair competition violation may be filed;

Action to Eliminate the Circumstances that have arisen in Consequence of Unfair CompetitionIf there are concrete circumstances in consequence of the illegal disclosure of trade secrets, a lawsuit to eliminate such circumstances may be filed. If the infringement is inescapable, destruction of means and goods that are effectively used to unfairly compete, may also be requested;

Claim for Pecuniary CompensationThe person who incurred losses due to violation of his/her trade secrets may file a claim for pecuniary compensation. In order to file a claim for pecuniary compensation, the trade secret infringer should have acted in a faulty manner, and the trade secret holder should have suffered a loss;

Claim for Non-pecuniary Compensation: Provided that the conditions set forth under Article 58 of the TCO are satisfied, the trade secret holder may also file a claim for non-pecuniary compensation.

The statute of limitations of the lawsuits related to unfair competition are designated under Article 60 of the TCC. Accordingly, a trade secret holder shall file a lawsuit within one year from learning of the infringement, and within three years as of the date of infringement.

Conclusion

Although Turkish law does not define trade secrets, in accordance with the TRIPS and Court of Cassation precedents, trade secrets are the information that (i) are not generally known or readily accessible in the relevant business circles and public, (ii) has commercial value due to secrecy, and (iii) is protected by reasonable precautions. Apart from the special regulations related to specific sectors, trade secrets are protected by the provisions on unfair competition. Pursuant to Article 54 of the TCC, any deceptive actions, or actions in bad faith that affect the relations between the competitors or the suppliers and customers, shall be deemed unfair and illegal. Illegal disclosure of trade secrets, i.e. trade secret infringement, is regulated as an example of unfair competition. In order to prevent trade secret infringement, designating comprehensive contractual obligations as to duty of confidentiality in both employment and commercial contracts should be pursued, such as including confidentiality clauses, non-compete covenants, and clauses on obtaining undertakings from the persons to whom trade secrets are transferred on a “need-to-know” basis. In the case of trade secret infringement, a declaratory action, action on prevention of unfair competition, action to eliminate the circumstances that have arisen in consequence of the unfair competition, and provided that the required conditions are satisfied, a claim for pecuniary and non-pecuniary damages may be initiated before the Turkish courts.

[1] World Intellectual Property Organization, Module 4, Trade Secrets, p. 6, https://www.wipo.int/export/sites/www/sme/en/documents/pdf/ip_panorama_4_learning_points.pdf (Access date: 15.12.2020).

[2] Ballı, Mehmet“Türk Ticaret Kanunu’na Göre Haksız Rekabet Kavramı ve Unsurları,” Gümrük ve Ticaret Dergisi, No. 5, 2015, p. 65. (Poyraz, Ercan, Ticaret Hukuku, 2011, p. 111), https://dergipark.org.tr/tr/download/article-file/1020189

[3] Nomer Ertan, Füsun: Yürürlüğünün 7. Yılında ve Yargıtay Kararları Işığında Türk Ticaret Kanunu Sempozyumu III, Haksız Rekabet, On İki Levha Yayıncılık, January, 2020, p. 22.

[4] Bağrıaçık, Safiye Nur: Üretim ve İş Sırlarının Korunması. On İki Levha Yayıncılık, December 2017, p. 109, https://www.lexpera.com.tr/literatur/kitaplar/1-turk-ticaret-kanunu-nda-m-55-b-3-e-gore-uretim-ve-is-sirrinin-korunmasi-978-605-152-644-7/1 (Access date: 15.12.2020).

[5] Sulu, Muhammed: Ticari Sırların Korunması. On İki Levha Yayıncılık, January, 2017, p. 55.

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