As a matter of fact, Trade secret being an intangible property, can also be used as collateral in the event of debt financing.
How are trade secrets protected?
Trade secrets, which is another name for confidential information in some jurisdictions, are lost once the secret becomes public knowledge. Once lost, the protection is gone forever. The law relating to trade secrets is scrappy in nature in Nigeria. Despite the increase in the number of technology-driven start-ups in Nigeria, the regulation of Intellectual property is still limited to Patents, Designs, Copyright and Trademark.
In the absence of any definite legislation protecting or regulating trade secrets in Nigeria, the originator of such trade secrets has to put in extra effort to protect such from being disclosed to a third party or the entire world. This author would advise a Colonel Sanders’ move; the founder of KFC, who kept the secret ingredient of the original recipe in the safest place in the world – his head. He eventually wrote the recipe down, and the original handwritten copy is in a safe in Kentucky.
Another way to protect Trade secrets is through confidentiality/non-disclosure and non-compete agreements. The employer/licensor of the trade secret executes a Confidentiality/Non-disclosure Agreement (CNDA) with every employee and contractor of the business, most especially those exposed to or who come in contact with and may have knowledge of such trade secret. Alternately, a properly worded non-compete clause could be included in the employment, service or other contracts (as the case may be), to protect the interest of the originator of the trade secret, in the event of disengagement by resignation or dismissal from service.
This was the case in Andreas Koumolis v Levantis Motors Limited, where the Supreme Court held that it could reasonably be inferred from the surrounding circumstances, that the appellant (a former employee of the respondent) had utilized the trade secrets of his ex-employer upon his assuming duties with a competitor company, located in the proximity of the respondent’s address. The apex Court further held that the restrictive clause which read that the former employee will not for “a period of one year undertake to carry on either alone or in partnership nor be employed or interested directly or indirectly in any capacity whatever in the business of Merchants Engineers or any other business carried on by the Company within a radius of fifty miles from any Trading Station in West Africa” was reasonably necessary for the protection of the business interest of the respondents (former employer) and therefore valid and enforceable in law.
The Misappropriation Of Trade Secrets
Obtaining secret information, which is the subject matter of a trade secret, without proper authorization or through unlawful means, constitutes the tort of misappropriation. On the one hand, an action for misappropriation can be maintained by the licensor based on assumed contractual obligations; On the other hand, an action in tort can only be predicated on an ongoing confidential relationship with the licensee.
Generally, misappropriation of trade secrets occurs when there is a breach of a duty or obligation to maintain secrecy. It can also happen when there is theft, bribery or electronic and corporate espionage.
Remedies For Misappropriation Of Trade Secrets
The Courts, mindful of the foundational legal principle of ubi jus ibi remedium (where there is a wrong, there must be a remedy), will intervene in order for justice to come to the aid of an injured or likely to be injured party.
The two most important remedies for misappropriation of trade secrets are damages and the equitable remedy of injunction – applied where there is a prima facie case, insufficiency of damages to remedy the wrong done, the balance of convenience tilts in favour of the applicant and undertaking as to damages by the Applicant.
Defences To A Misappropriation Claim
A claim for trade secret misappropriation may be rebutted by establishing that the information was obtained via proper means and/or independent effort, availability of the information in the public domain, reverse engineering, or through published literature.
Some Nigerian Legislations That Border On Trade Secrets
The most significant reassuring provision for the protection of trade secrets in Nigeria can be found in section 15(1)(a) Freedom of Information Act 2011 (FOIA). It mandates public institutions to deny applications for information that contains “trade secrets and commercial or financial information obtained from a person or business where such trade secrets or information are proprietary, privileged or confidential, or where disclosure of such trade secrets or information may cause harm to the interests of the third party.” Section 15(1)(a) is thus, a welcome curtailment of the section 1 right of an applicant to request information in the custody of any public official, agency or institution.
There are other legislations that affect the protection of trade secrets. For instance, the Revised Guidelines for Registration and Monitoring of Technology Transfer Agreements in Nigeria (Guidelines) made pursuant to the National Office for Technology Acquisition and Promotion Act (NOTAPA) mandates the submission of relevant technology transfer (service) agreements (which could implicate disclosure of trade secrets), as part of documentation requirements for NOTAPA‘s registration of such agreement. However, there is no corresponding provision for protection in both the Revised Guidelines and the NOTAPA.
The need to protect trade secrets in Nigeria cannot be overemphasized. With the increase in technology-driven start-ups, coupled with the adoption of remote working, and the entrepreneurial underpinnings of business impacting technological innovations and other non-technical ideas, there must be a comprehensive legal framework to protect trade secrets.
The National Assembly should enact subject-specific legislation like the UTSA, which provides for injunctive reliefs against propagation or dissemination of trade secrets, protective measures in trials, and for materials seized and remedies in case of actual or attempted prejudicial disclosure like injunction and damages, and award of cost of attorney’s fees where an injunction was obtained unduly.