/ Trade Secrets and Current Trends in Chile
January 29, 2025Associate Alessandri Abogados
Introduction
A trade secret is defined as confidential information that enjoys special and rigorous protection. This undisclosed information, which an individual or entity possesses and that can be used in productive, industrial, or commercial activities, must meet several fundamental criteria.[1]
Owning trade secrets gives its holder a significant competitive advantage over third parties, increasing its value to the company in both commercial and manufacturing contexts. To ensure its proper protection, it is essential that this information be clearly identified as a trade secret and effectively safeguarded in accordance with legal provisions. This includes the implementation of security policies, confidentiality agreements, and physical and technological measures that limit access to sensitive information.
Chilean Context
In Chile, trade secrets are regulated by various laws, including the Industrial Property Law (No. 19,039), the Unfair Competition Law (No. 20,169)[2], and the Criminal Code. With the recent reform to legislation on economic crimes, the former Article 284, which dealt with factory secrets, has been replaced by six new articles (Articles 284 to 284 sexies). These new provisions establish a much more detailed and comprehensive framework, better suited to current needs, for the protection of information considered confidential.[3]
The Chilean Criminal Code, in Article 284 sexies, refers to the Industrial Property Law to define what constitutes a trade secret, establishing that it will be understood as such any information that meets the requirements set out in that law. These requirements include that the information must be: 1) secret, 2) have commercial value due to its confidential nature, and 3) that reasonable measures have been implemented to maintain its secrecy.
Using Trade Secret Protection Can Be Beneficial
Patentability requirements, which include novelty, inventive activity, and industrial application, serve as significant barriers to market entry. These criteria protect a broader spectrum of subjects and ensure that only inventions that genuinely contribute something new and non-obvious can be patented. This not only fosters innovation but also limits competition by establishing standards that competitors must meet in order to develop similar products. Furthermore, patentability can incentivize companies to invest in research and development, knowing their inventions will be legally protected.
One of the most notable advantages of trade secrets is their indefinite duration, as long as the information remains secret. In contrast, patents typically have a maximum duration of 20 years from the filing date. This difference is crucial for companies that possess valuable information which may be difficult to patent or does not meet patentability requirements. The ability to maintain a trade secret indefinitely can be more appealing for certain business strategies, especially in industries where innovation is fast and continuous. Costs associated with obtaining and maintaining patents can be significant, including application fees, legal fees, and defense costs in the event of infringement. In comparison, trade secrets do not require a formal registration process, which can result in considerable savings. However, maintaining a trade secret may also involve costs related to implementing security measures and training employees to protect confidential information, ensuring the intended protection is effective.
Trade secrets offer considerable flexibility compared to patents. They can cover a wide range of information, from manufacturing techniques to customer lists and marketing strategies. This breadth allows companies to protect assets that are not necessarily patentable, such as formulas, processes, and business methods. Moreover, the lack of formal protection requirements allows businesses to adapt quickly to market changes without the restrictions imposed by patents. Likewise, when properly identified and managed according to the law, trade secrets provide their owners with various legal actions in case of misuse. This includes the possibility of suing those who acquire the information unlawfully or, having had legitimate access, use or disclose it without authorization. Legal actions may include claims for damages and interim measures to prevent future disclosure. This legal framework offers businesses a powerful tool to protect their confidential information and maintain their competitive edge in the market.
It is crucial to bear this in mind for all confidential information from the moment of its creation. Appropriate protection measures must be implemented until the type of legal treatment or protection, whether through patents, trade secrets, or other forms of intellectual property protection, is evaluated and decided. This approach not only minimizes the risk of unauthorized disclosure but also maximizes the strategic value of innovation, enabling the company to maintain its competitive advantage in the market.
Organizational Culture: Fostering an Environment that Prioritizes Confidentiality and the Handling of Sensitive Information
For information to qualify as a trade secret, it must be secret in the sense that it is not, as a whole or in the precise configuration of its components, generally known or readily accessible to persons within the circles that normally handle this type of information. This implies that the information must be sufficiently specific and not obvious to those with expertise in the relevant field. Non-public disclosure and control over access are essential; for example, a company may restrict access to this information to a limited number of employees and use confidentiality agreements to protect it.
The information must have a commercial value derived from its secrecy. This means that the information provides its holder with a competitive advantage in the marketplace, either through process improvement, cost reduction, or the creation of innovative products. This value can be tangible, such as increased sales, or intangible, such as brand reputation. The ability of the information to generate economic benefits is a key criterion for its classification as a trade secret. For example, the formula for an exclusive product or an innovative marketing strategy can be extremely valuable if it is kept secret and managed as such.
Conclusion
Finally, the information must have been subject to reasonable measures taken by its legitimate holder to keep it secret. This includes the implementation of appropriate security policies, such as the use of access control systems, the marking of documents as confidential, and the training of personnel on the importance of confidentiality. Companies should establish clear protocols for handling sensitive information, ensuring that all employees understand the consequences of unauthorized disclosure. In addition, the existence of non-disclosure agreements (NDAs) with employees, suppliers and business partners is essential to protect confidential information and establish a legal framework in case of violations.
In the field of intellectual property, the protection of confidential information and trade secrets is essential to safeguard a company’s competitiveness. To this end, it is crucial to implement general measures such as the formalization of Non-Disclosure Agreements (NDAs)[4] that extend not only to employees, but also to suppliers and business partners, ensuring that everyone involved understands the importance of confidentiality. In addition, the classification of information according to its level of sensitivity allows controlled access, ensuring that only authorized personnel can handle critical data. In addition, robust physical and digital security policies must be established, including access control and data encryption systems, as well as the compartmentalization of information to minimize risks. Ongoing employee training on trade secret management and internal policies is essential to foster a culture of protection. In addition, regular audits and monitoring can detect and prevent information leaks, while exit policies ensure that employees who leave the company return all confidential information and remember their confidentiality obligations. Finally, it is vital to document all efforts made, including protocols, NDAs and trainings, to comply with legal requirements and to be able to take effective action in case of violations, thus ensuring that trade secrets are effectively dealt with.
[1] WIPO MAGAZINE – Article “Protecting Trade Secrets: How Organizations Can Meet the Challenge of Taking ‘Reasonable Steps’” – By John Hull, Queen Mary Intellectual Property Research Institute, London (UK) – https://www.wipo.int/web/wipo-magazine/article-details?assetRef=41043&title=protecting-trade-secrets-how-organizations-can-meet-the-challenge-of-taking-reasonable-steps
[2] Chilean Law 20169, which regulates unfair competition.
[3] Chilean Law 19039, which establishes rules applicable to industrial privileges and protection of industrial property rights.
[4] Informative Note Alessandri Abogados – Experts shared key recommendations to protect trade secrets – https://alessandri.legal/en/breakfast-at-alessandri-experts-share-keys-to-protecting-trade-secrets/
This article was originally published in Mundo ASIPI Magazine, January 2024