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Philippine law recognises the privileged character of trade secrets. Foremost, the Intellectual Property Code (IP Code) recognises that the protection of undisclosed information forms part of intellectual property rights, incorporating provisions from the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

In certain countries like the US, there is a basic model law, namely, the Uniform Trade Secrets Act, which defines trade secrets, outlines claims related to their violation, codifies common law principles, and has been adopted by 47 states and the District of Columbia.

The same situation exists in Germany, where trade secrets are primarily covered by the new Trade Secrets Act on the protection of confidential know-how and business information (business secrets), against unlawful acquisition use and disclosure.

In other countries such as Brazil, China and the Philippines, trade secrets are protected through disparate law sources such as general intellectual property laws, specific laws on unfair competition that include violations of trade secrets, civil code and penal code, rather than a single, specific trade secrets law.

The following body of statutes and jurisprudence, in addition to TRIPS, further mandates the protection of undisclosed information, establishing the trade secrets framework in the Philippines.

Statement of the law

The Revised Penal Code (RPC) prohibits the disclosure of trade secrets. Article 291 of the RPC applies generally to any manager or employee, provided that the disclosed information came to their knowledge by reason of their office or position.

In particular, article 292 of the code applies to a person in charge, employee, or workman of a manufacturing or industrial establishment. The disclosed information relates to the manufacturing process, specific or limited to their factories. Imprisonment and fines are imposed accordingly.

Further, the National Internal Revenue Code (NIRC) restricts the procurement of unlawful divulgence of trade secrets by internal revenue officers. Section 278 of the NIRC imposes imprisonment and fines against “any person who causes or procures an o?cer or employee of the Bureau of Internal Revenue to divulge any confidential information regarding the business, income or inheritance of any taxpayer, knowledge of which was acquired by him [or her] in the discharge of his [or her] o?cial duties”.

In Republic Act (RA) No.6969, or the Toxic Substances and Hazardous and Nuclear Wastes Control Act, the public is provided access to records concerning chemical substances and mixtures. However, section 12 of RA No.6969 clarifies that the Department of Environment and Natural Resources may consider records confidential and limit the right of access when such reports divulge trade secrets.

These hold production and sales methods, processes unique to the manufacturer, and other information that tend to adversely affect the competitive position of such manufacturer, processor or distributor. Exceptions are only provided to medical research or scientific institutions in case the information is needed for the purpose of medical diagnosis and treatment of a person exposed to the chemical substance.

Notably, RA No.7394, or the Consumer Act, establishes standards of conduct for business and industry. Article 40(f) of RA No.7394 prohibits the disclosure and use of information concerning any method or process which, as a trade secret, is entitled to protection. Any person in violation of the provision is subject to imprisonment and a fine. In case the offence is committed by a juridical person, the chairman of the board of directors, president, general manager, partners and persons directly responsible are penalised.

Contracts

The protection of trade secrets may be enforced in contracts and other private instruments. For instance, an employment contract may include non-disclosure clauses. Similarly, service contracts between juridical persons may prohibit the disclosure of manufacturing information. In case of a breach, the party in violation is liable for damages or a penalty.

The Civil Code governs obligations and contracts. Article 1168 of the Civil Code provides the remedies of the creditor in negative obligations, such that “when the obligation consists in not doing, and the obligor does what has been forbidden him [or her], it shall also be undone at his [or her] expense”.

Further, article 1170 of the Civil Code mandates that those in contravention of the tenor of the contracts are liable for damages. Article 1226 of the code clarifies that in obligations with a penal clause, the penalty substitutes the indemnity for damages. However, damages must still be paid in case the obligor refuses to pay the penalty or is guilty of fraud in the fulfilment of the obligation.

The liability for damages is not limited to the contracting parties. Article 1314 of the Civil Code on tortious interference provides that any third person who induces a contracting party to violate their contract must be liable for damages to the other contracting party.

The requisites of the action are:

1. the existence of a valid contract;
2. knowledge by the third party of the existence of the contract; and
3. interference by the third party without legal justification. It must be noted that malice or spite is not an essential element. Here, the liability of the contracting party in violation and that of the third party are solidary. The contracting party commits the breach, and the third party commits the tortious act of interference.

Jurisprudence

The Supreme Court consistently upholds the privileged character of trade secrets. In Garcia v Board of Investments, the court recognises that trade secrets and confidential, commercial and financial information are exempt from public scrutiny. This is further reiterated in Chavez v Presidential Commission on Good Government, where the court acknowledges trade secrets as restrictions against compulsory disclosure. Clearly, a party cannot be compelled to produce, release or disclose documents, papers or any object that are considered
trade secrets.

In the landmark case of Air Philippines Corporation v Pennswell, Inc, the Supreme Court provides the comprehensive definition of a trade secret: “A trade secret is defined as a plan or process, tool, mechanism or compound known only to its owner and those of his employees to whom it is necessary to confide it. The definition also extends to a secret formula or process not patented, but known only to certain individuals using it in compounding some article of trade having a commercial value. A trade secret may consist of any formula, pattern, device or compilation of information that: (1) is used in one’s business; and (2) gives the employer an opportunity to obtain an advantage over competitors who do not possess the information. Generally, a trade secret is a process or device intended for continuous use in the operation of the business, for example, a machine or formula, but can be a price list or catalogue or specialised customer list. It is indubitable that trade secrets constitute proprietary rights.”

In the same case, the court adopts from American jurisprudence the following factors to determine whether a piece of information is a trade secret:

1. How the information is known outside of the employer’s business;
2. How the information is known by employees and others involved in the business;
3. Measures taken by the employer to guard the secrecy of the information;
4. Value of the information to the employer and competitors;
5. E?ort or money expended by the company in developing the information; and
6. How the information could be easily or readily obtained through an independent source.

These effectively delineated the parameters for the doctrinal “substantial factual basis” standard in the determination of trade secrets. In the earlier case of Cocoland Development Corporation v National Labor Relations Commission, the court laid down the rule that any determination by management as to the confidential nature of technologies, processes, formulae or trade secrets must have a substantial factual basis that can pass judicial scrutiny.

The court opined that to rule otherwise would be to permit an employer to label anything as a trade secret and weaponise it to dismiss an employee on the pretext that an arbitrary trade secret had been disclosed.

Conclusion

In the Philippines, the legal framework for trade secrets is embodied in congressional laws, administrative rules and regulations implementing such laws, contracts and quasi-contracts, and judicial decisions.

The state recognises that an effective intellectual and industrial property system develops domestic and creative activity, facilitates the transfer of technology, attracts foreign investment and ensures market access for its products. In protecting trade secrets, it secures the exclusive rights of scientists, inventors, artists and proprietors to their intellectual property, promoting national development and progress.

ROMULO MABANTA BUENAVENTURA SAYOC

& DE LOS ANGELES
21st Floor, AIA Tower,
8767 Paseo de Roxas
Makati City 1226, Philippines
Tel: +63 2 8555 9555 / +63 2 8848 0114
Email: romulo@romulo.com

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