This content is from: Patents

How trade secrets are regulated

Mexico regulates trade secrets in line with TRIPs requirements. Eduardo Castañeda and Juan Carlos Hernandez of Basham, Ringe y Correa discuss protection, enforcement and effective strategies

Trade secrets constitute valuable assets for the people and companies that keep them. While it has been contended that their existence and protection may actually have a negative effect with respect to the industrial property system, the effective protection of trade secrets is important for the advancement of markets and economies.

Patents and trade secrets appear to be systems in conflict. While the patent system provides incentives to disclose in exchange of the certainty provided by a period of a right to exclusive use, trade secrets will be legally protected as long as they are not revealed. Critics of trade secrets contend that they foster the appropriation of information that could be of value to society; contrary to the patent system, which implies not only disclosure of the invention itself, but the revelation of the best mode contemplated by the inventor of carrying out the invention and the eventual placement thereof in the public domain.

However, as the US Supreme Court recognized in Kewanee Oil Co v Bicron Corp, in 1879, trade secret law and patent law have coexisted for many years "and the operation of one does not take away from the need for the other". The reasoning of the Supreme Court in the referred case appears to be consistent with that adopted by countries that protect both patents and trade secrets: "each has its particular role to play, and the operation of one does not take away from the need for the other. Trade secret law encourages the development and exploitation of those items of lesser or different invention than might be accorded protection under the patent law, but which items still have an important part to play in the technological and scientific advancement of the Nation."

International treaties that regulate IP rights have also focused on providing adequate protection for trade secrets. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) includes a section for the safeguard of undisclosed information. This section, comprised by Article 39 of the TRIPs Agreement, intends to ensure protection against unfair competition as provided in Article 10bis of the Paris Convention for the Protection of Industrial Property, through the protection against the disclosure of information that is secret, has a commercial value and has been subject to reasonable steps to keep it secret.

Trade secrets in Mexico

As a party to the Paris Convention and the TRIPs Agreement, Mexico has adopted provisions in its domestic legislation aiming to protect trade secrets. Trade secrets were first regulated by the Federal Criminal Code. In 1991 they were included and defined in the Industrial Property Law (IPL). This law also includes criminal offences regarding trade secrets.


"As a party to the Paris Convention and the TRIPs Agreement, Mexico has adopted provisions in its domestic legislation aiming to protect trade secrets"


The IPL, in full force and effect, states that one of the objectives of the Law is to protect industrial property through the regulation of trade secrets and includes a specific title for this subject.

The inclusion of provisions related to trade secrets was new to industrial property legislation in Mexico. The preceding statute of 1976 did not include any provision related to this subject matter. The Statement of Legislative Intent of the 1991 Industrial Property Law explained the importance of the inclusion of provisions regarding trade secrets and indicated that certain information of a technical or commercial nature tends to be fundamental for the holders thereof, which could include businesses as diverse as bakeries, chemical product manufacturers and travel agencies.

According to the Statement of Legislative Intent, the importance of trade secrets, being commercial or industrial, could not be undermined. The total or partial loss of industrial or commercial information that was kept as secret could erode in a short time the advantageous position acquired by the holder. The importance of adequate measures for the preservation of the confidential nature of the information was also stressed.

Trade secrets are defined by the IPL in Article 82 as any information having an industrial or commercial use kept by an individual or company as confidential, which gives them a competitive or economic advantage vis-à-vis third parties in carrying out economic activities and in connection with which they adopted proper means or systems to preserve such confidential nature and restrict access to it. According to the IPL, the information of a trade secret must necessarily relate to the nature, characteristics or purposes of the products; to the production methods or processes; or to the distribution or marketing or service systems or outlets.

The definition of trade secret included in the IPL conforms to the standards set by the TRIPs Agreement (Article 39.2) and was established by the negotiations of the North American Free Trade Agreement. However, the IPL goes beyond this definition and states that the information considered an industrial secret is to be set forth in documents, electronic or magnetic media, optical discs, microfilms, films or other similar media. This is a positive aspect of the legislation in Mexico, since it provides certainty as to the "proper means or systems" that should be adopted to prove that the information considered a trade secret was kept as such.

The IPL also includes the following relevant aspects in the regulation of trade secrets:

  • The keeper of a trade secret may transfer it to or authorise its use by a third party. Authorised users are compelled to refrain from disclosing said trade secret, through any means.
  • Agreements in which technical knowledge is transferred, technical assistance is rendered, or basic or detailed engineering is furnished may contain clauses of confidentiality to protect trade secrets, provided that all aspects deemed confidential are precisely determined.
  • Anyone who, by virtue of work, employment, office, or post, the exercise of profession, or a business relationship, obtains access to a trade secret of the confidentiality of which he has been duly warned is obligated to refrain from revealing it without justified cause and without the consent of the person keeping said secret or of an authorised user thereof.
  • An individual or entity who engages an employee who is working or has worked for, or a professional, advisor or consultant who renders or has rendered services to another person, in order to obtain the trade secret of said other person, shall be liable for payment of such damages as he may have caused to said person.
  • An individual or entity who obtains through any unlawful means any information contemplating a trade secret shall also be liable for payment of damages.
  • Any information required by special laws to determine the safety and efficacy of chemical/pharmaceutical products and chemical/agricultural products using new chemical components shall be protected as provided by the international treaties to which Mexico is a signatory.
  • In any judicial or administrative proceeding in which any party to the same is required to disclose an industrial secret, the authority hearing the proceeding must take or adopt all the necessary measures to prevent its disclosure to third parties not related to the controversy. No interested party may ever disclose or use any industrial secret to which reference is made in the preceding paragraph.
  • If the information is considered or falls in the public domain, or it is obvious to a technician in the field or must be disclosed for legal disposition or for judicial order, it cannot be considered as a trade secret. Notwithstanding that, if the information is disclosed due to a legal obligation or statement for the purpose of obtaining licences, authorisation, permits, registration or any other similar rights, the information disclosed will not be considered or fall in the public domain, so that it is still possible to protect it as a trade secret.

Even when the only legal regulation of trade secrets is contained in the IPL, there are other fields in which this topic is regulated.

The relevant issues for contractual aspects are that a confidentiality clause has to be clear in establishing what kind of information or knowledge is a secret and which are the legal (civil and criminal) responsibilities for the breach of that clause.

In the labour field, the employer has control over all information created and handled by any employee who has produced or discovered it under assignment, although it has to be established in the contract between the employer and employee. The contract must include the agreement of non-disclosure and non-use of the commercial and industrial information.

Co-ownership of trade secrets is not addressed by the Mexican legislation or case law; nevertheless, it can be adopted by contract. In this case, it is recommended to establish rules of use with respect of the trade secret

Enforceability of trade secrets

One of the characteristics of trade secret protection in Mexico is that it is possible to enforce them not only against the person who illegally obtains the same from the premises of the owner of said trade secret, but also against other persons who acquire the trade secret from said first person and use it for obtaining economic profit or for damaging the owner of the trade secret.

For instance, section IV of Article 223 of the IPL, states that the unauthorised revealing to a third party a trade secret that was known by virtue of employment, position, responsibility, the practice of a profession or business relations, or as a result of the grant of a licence for its use, having been advised of its confidentiality, for the purpose of procuring an economic benefit, or for the purpose of harming the owner of the trade secret constitutes a criminal offence. Imprisonment ranging from two to six years in length and a fine of about $420 to $42,000 would be applicable.

The IPL also establishes that regardless of the criminal actions, the plaintiff may demand from the perpetrator or perpetrators thereof compensation and the payment of damages, as provided for in Article 221 bis of this Law, for the harm sustained as a result of said offences.


"Demonstrating damages and injuries caused by the unauthorised use, disclosure or transfer of the trade secret is not a simple task"


Notwithstanding the above, possibly the main problem in the enforcement of trade secrets is that they will only be considered as such when the information is contained in a physical or electronic form. This means that if the trade secret is not contained in such media, it would not be feasible to enforce such rights against third parties. Thus this may represent a disadvantage if it is necessary to demonstrate the existence of the trade secret in a litigation proceeding.

Moreover, demonstrating damages and injuries caused by the unauthorised use, disclosure or transfer of the trade secret is not a simple task. Another current challenge in our jurisdiction is the difficulty to detect effectively when a trade secret has been appropriated in an unlawful way. Many times, when the owner of the secret acknowledges that a trade secret has been unlawfully appropriated or disclosed, an economic damage has already been suffered. Any proposed improvement to solve the unlawful appropriation or the disclosure of information has to be in accordance with TRIPs, Article 39.2.c). By this provision reasonable steps have to be taken under the circumstances, by the person lawfully in control of the information, to keep it secret. Those reasonable steps have to be sufficiently clear and understandable to any persons directly involved with the undisclosed information.

Trade secret protection is best achieved through criminal remedies, with the possibility for the proprietor to demand damages when those secrets are violated. Criminal remedies are needed in order to protect thoroughly the information which can be relevant to the development of the markets. No preliminary injunction or temporary restraining orders can be filed to protect trade secrets. There are no remedies available against someone who obtains trade secrets in good faith.

Mexican legislation on trade secrets has adapted to standards imposed by the TRIPs Agreement, resulting in certainty for the owners thereof. However, for effective protection of trade secrets in Mexico, it is important that the particular features of their regulation are known and understood. Preventive measures such as the fixation of trade secrets on physical or electronic media should be taken. Furthermore, the respective media should be adequately labelled and protocols for their handling and distribution should be adopted. Agreements referring to the transfer or authorisation of trade secrets should consider the provisions of the IPL so that eventual enforcement is effective.

Juan Carlos Hernadez
Hernandez-Carlos-Juan-80

Juan Carlos is an associate of Basham in the IP practice group in the Mexico City office. His practice focuses on planning and consulting in the field of intellectual property, both nationally and internationally, including aspects related to trade marks and slogans, copyright, trade secrets and confidential information, domain names, new technologies and social media. He also has wide experience in performing due diligence of intellectual property, negotiating and drafting contracts and in litigation and anti-counterfeiting strategies. He is the author of various articles and publications and a speaker in IP forums. He has also taught IP courses at Mexican universities.


Eduardo Castañeda
Castañeda_Eduardo

Eduardo is an associate at Basham in the intellectual and industrial property area in Mexico City. His practice has been developed in the areas of planning , consulting and strategy for defending rights such as patents, trade marks , trade secrets, copyright, reserved rights, domain names, licences, franchises, contracts, unfair competition, product counterfeiting, piracy and use of IP rights and industrial social media and internet. He focuses on administrative litigation before administrative authorities and judicial courts (Federal Court of Tax and Administrative Justice, District Courts, Circuit Courts Circuit and Supreme Court), both national and international (World Intellectual Property Organization). He has authored several articles and publications and given several lectures in Mexico.


The material on this site is for law firms, companies and other IP specialists. It is for information only. Please read our Terms and Conditions and Privacy Notice before using the site. All material subject to strictly enforced copyright laws.

© 2021 Euromoney Institutional Investor PLC. For help please see our FAQs.

Related

Instant access to all of our content. Membership Options | 30 Day Trial