Confidential information and trade secrets in Baltic States

Trade secrets and confidential information are inseparable from business development in any country. Trade secrets and confidential information is so important that lawsuit could be not only to recover suffered damages but also it might give rise to criminal liability. In this article we will look into national legislation of Estonia, Latvia and Lithuania and how the laws can enact the protection of trade secrets and confidential information.

In Latvia from January 1, 2014 with amendments to Civil law is established that:

1. Contractual penalties are penalties which a person undertakes to bear regarding his or her obligation in such case as he or she does not perform the obligation, or does not perform it satisfactorily;
2. Penalty for non-performance of obligation is a certain sum of money or other value, which may not be established multiple (repeatedly) or with increasing payment or contribution form;
3. Penalty for improper performance of obligations or for non-performance in established time (time limit) can be set as increasing, but not more than 10 % of the basic debt or the principal amount of the obligations;
4. Penalty amount is determined by the parties, and is not limited by the extent of the damages as expected from the non-performance of the agreement, but it must be proportionate and appropriate to fair business practice.

In Lithuania similar principles apply to contractual penalties for non-performance of obligations. First of all Lithuanian civil code defines commercial (industrial) and professional secret as “Information shall be considered to be a commercial (industrial) secret if a real or potential commercial value thereof manifests itself in what is not known to third persons and cannot be freely accessible because of the reasonable efforts of the owner of such information, or of any other person entrusted with that information by the owner, to preserve its confidentiality”. For instance Latvia and Estonia does not have a formal definition of trade secrets so, the notion is derived from case law and jurisprudence.

One common aspect in Baltic States is that an action can be brought against anyone who obtained the information, even if in good faith (although, damages are unlikely to be awarded in this event). In these cases the remedies are potentially available regardless of the recipient’s good or bad faith. Also legislation in Baltic States requires in order to obtain damages for unauthorised release of trade secrets and confidential information there has to be established these conditions:

 (i) it is technical or commercial information related to the business;

(ii) it is secret in the sense that it is not generally known or easily accessible;

(iii) it has economic value consisting of conferring a competitive advantage to its owner; and (iv) it is subject to reasonable steps to keep it secret.

Damages are calculated on an equitable basis - taking into account all the circumstances of the case - if the claimant has not been able to provide sufficient evidence on the amount of damages in Lithuania and Estonia.

In Lithuania and Estonia if actions for trade secret infringement are based on tort, to commence a legal proceeding, besides the defendant’s fault, the plaintiff is also required to prove the damage he suffered by virtue of the infringement and the causation between the infringement and the damage. Damages based on tort cover both accruing damages and loss of profits. Loss of profits, however, is in most cases very difficult to prove.

Also in Lithuania Supreme Court noted that penalties provided for in agreements between the parties, as well as preliminary agreements can be larger than the damages suffered due to non-fulfilment or improper fulfilment of obligations. But if the penalties agreed upon in the agreement are in excess of the amount of damages suffered by the creditor, the court has the right, evaluating the amount of penalties agreed upon in the agreement, reduce penalties. In Lithuanian Civil Code the notion is that the principles of offsetting of penalties against damages provided for do did not form legal grounds for reduction of contractual penalties till the amount of proven damages. Therefore the provisions of the rule regarding relationship between penalties and damages are meaningful for reduction of penalties by the fact that the court can reduce penalties only so much that they would not become less than the damages suffered due to non-fulfilment or improper fulfilment of obligations. As the law does not concretise the notions of “penalties that are obviously too big“ or “unreasonably big penalties“, the courts that examine specific cases are to establish criteria which are used in order to decide whether penalties are too big and to use such criteria for evaluation of penalties.

The conduct which normally gives rise to violations of trade secrets include the access to confidential information, the use or the disclosure thereof or the illicit acquisition for exploitation by the offender or third parties. See Table No. 1 for criminal liability.

Conduct concerning trade violations and related criminal punishment

Table no. 1

Prepared according to Study on Trade Secrets and Confidential Business Information in the Internal Market Final Study April 2013; European Commission; available at {http://ec.europa.eu/internal_market/iprenforcement/docs/trade-secrets/130711_final-study_en.pdf}