Commercial LawCompetition LawTrade Secret Concept and Protection

What is a Trade Secret and How to Protect It? Secure Your Competitive Advantage

The value of a company does not only consist of its tangible assets such as buildings, machinery or money in the bank. Often, the real competitiveness and market value of a company lies in its confidential information, so-called “trade secrets”. Coca-Cola’s formula, Google’s search algorithm, a pharmaceutical company’s research data on a new drug or a software company’s source code are the best-known examples of trade secrets worth billions of dollars. Although trade secrets are not subject to registration like patents or trademarks, they are legally protected information and are among the most sensitive and valuable assets of a company. If these secrets fall into the hands of competitors, the competitive advantage that the company has built up over years of labour can be destroyed in an instant. In this article, we will examine in detail the legal definition of a trade secret, what information can be considered a trade secret, and the legal and practical steps to be taken to protect these valuable assets.

What is a Trade Secret? Legal Definition and Elements: Although there is no clear definition of trade secret in Turkish law, its elements are determined by the doctrine and case law of the Court of Cassation. In general, in order for an information to be considered a trade secret, the following three elements must coexist

1. Confidentiality: The information should not be generally known or easily accessible by persons in the relevant sector. Information that is known to everyone or can be accessed through a simple research is not a trade secret.
2. Commercial Value: The information must provide an economic benefit or competitive advantage to its owner due to its confidentiality. If this information is learnt by competitors, it should economically harm the owner of the secret.
3. Willingness to Keep Confidential and Reasonable Measures: The owner of the secret must show an active will to keep the information confidential and must have taken reasonable measures (physical, technical, legal) to protect this confidentiality. If no effort is made by the owner to protect the information, it cannot be expected to benefit from legal protection as a trade secret.

Which information can be a trade secret?

• Technical Information: Production methods, formulae, chemical compositions, machine designs, software source codes, test data.
• Commercial Information: Customer lists, supplier information, pricing strategies, cost analyses, marketing plans, business strategies.
• Negative Information: Methods or failed experiments in a product development process that do not work can also be a valuable trade secret, as they will prevent competitors from making the same mistakes.

Legal Protection Mechanisms of Trade Secrets:

1. Turkish Commercial Code (Unfair Competition Provisions – Art. 55 TCC): The TCC provides the most basic and broadest legal ground for the protection of trade secrets. According to Article 55 of the TCC, the following acts are deemed unfair competition

   • Unlawful disclosure of production and business secrets.
   • Benefiting from or disclosing to others production and business secrets that it secretly and unauthorisedly obtains or otherwise unlawfully learns.
   • Inducing employees, labourers or other auxiliary persons to obtain or disclose the production and business secrets of their employer or client. The owner of a secret who is subjected to such an act of unfair competition may bring actions for determination, prohibition, rectification and compensation before the commercial court of first instance.

2. Turkish Penal Code (Art. 239 TPC): The TPC regulates the disclosure of trade secrets as an offence. According to Article 239 titled “Disclosure of information or documents in the nature of trade secrets, banking secrets or customer secrets”, the person who discloses these secrets without authorisation shall be sentenced to imprisonment from one year to three years and a judicial fine up to five thousand days upon complaint. This provides a deterrent criminal sanction for the protection of secrets.

3. Labour Law (Duty of Loyalty): According to the Labour Law, one of the most fundamental obligations of the employee towards the employer is the “duty of loyalty”. This obligation includes the obligation to keep the production and business secrets of the employer that the employee learns during his/her work. This obligation may be continued for a certain period of time after the termination of the employment contract through special agreements such as non-competition agreements. The employee who violates the duty of loyalty is liable to compensate for the damages incurred by the employer, and this constitutes a just cause of termination for the employer.

Practical Steps to Protect Trade Secrets:

1. Non-Disclosure Agreements (NDA): This is the most basic and effective method of protection. A detailed confidentiality agreement should be signed not only with employees, but also with all third parties who may have access to your secrets, such as consultants, suppliers, potential investors and business partners, before the business relationship begins. In this agreement, the definition of “confidential information” should be clearly defined, the purpose of use should be limited and penal conditions to be applied in case of violation should be determined.

2. Internal Policies and Procedures: An “Information Security Policy” must be established within the company. This policy should regulate which information is a trade secret, who has access to this information (“need-to-know” principle), how the information will be stored and destroyed.

3. Technical and Physical Security Measures:

   • Technical Measures: Controlling access to servers and computers containing sensitive data with passwords and authorisation, encrypting data, using firewalls and cyber security software.
   • Physical Measures: Keeping sensitive documents in locked cabinets, keeping entrances to critical areas such as R&D centres under control.

4. Training and Awareness: All employees should receive regular training on what trade secrets are, why they are important to the company and the rules they must follow to protect them. It is also important to raise awareness of employees against attacks such as social engineering.

5. Separation Procedures: Ensure that a departing employee returns all confidential information belonging to the company (laptop, phone, documents, etc.) and remind them in writing that their confidentiality obligations continue (exit interview minutes).

Trade secrets form the basis of a company’s innovation power, competitive advantage and ultimately its presence in the market. Protecting these valuable assets is not only a legal obligation but also a smart business strategy. While legal protection mechanisms (unfair competition lawsuits, criminal complaints) are important, the most effective protection is to take proactive steps to prevent secrets from being disclosed in the first place. A multi-layered protection strategy consisting of comprehensive confidentiality agreements, strong internal policies, effective technical measures and ongoing training is the only way to secure your company’s most valuable treasure – your trade secrets.