Trade secrets protect the most valuable asset a company has. It can be know-how, strategy and customers. How can we ensure that important information does not fall into the hands of competitors? Is it enough to sign an NDA, or do you need more? What mistakes most often lead to data leaks? And what to do if someone misuses your trade secrets? We provide an overview of legal protections, practical measures and real-life cases that show how costly inattention can be.
Trade secrets are the key to the competitive advantage of companies. That is why protecting trade secrets is so important for maintaining unique knowledge and strategies. In the Czech legal system, trade secrets are dealt with in the Civil Code. Unauthorised handling of trade secrets may even be a criminal offence under the Criminal Code.
The Civil Code provides that trade secrets include information:
Trade secrets therefore cover a wide range of information. These include, for example, the following segments:
Don’t rely on generic templates and have a professional draft your non-disclosure agreements. We will guarantee its accuracy and that such an agreement will not be easily challenged.
Intellectual property includes patents and trademarks. Both are registered and have limited validity. In contrast, trade secrets are not formally registered anywhere and their protection lasts as long as the conditions of confidentiality and security are met.
Intellectual property is more complex and includes exclusive rights. A trade secret is protected as an intangible asset and ‘only’ its secrecy is emphasised.
Only information that meets the following three conditions can be considered a trade secret and therefore protected by legal means. These three conditions are:
Our law firm was contacted by Ms. Katherine, the managing director of a small family business, who suspected that a former employee was making unauthorized use of information about their suppliers. She claimed that the list of important suppliers and the specific terms of the agreements were trade secrets. She demanded legal action against the former employee, who, after leaving, started his own competing company and began working with the same suppliers.
However, after analyzing the case, we concluded that the information about the suppliers did not qualify as a trade secret. In fact, the suppliers were commonly known in the industry and their contact details were easily traceable. The terms of cooperation were not contractually marked as confidential and some prices were publicly available on their websites.
Although Catherine argued that knowledge of specific suppliers simplified the former employee’s business, she did not show that disclosure of this information would have constituted a significant competitive disadvantage. Moreover, these were not unique suppliers, but rather companies commonly used in the industry. Moreover, the company had no measures in place to protect this information. Employees were not bound by confidentiality, there were no confidentiality agreements in place and access to the data was free even for ordinary employees.
On the basis of the above, we had to explain to Ms. Katherine that her request to protect this information as a trade secret was not justified. We advised her to introduce internal measures such as confidentiality agreements, a non-compete clause, restrictions on access to sensitive data and clear labelling of confidential information to prevent similar situations in the future.
For maximum protection of trade secrets, put in place a system of protection that includes contracts, training and internal regulations. Regularly review and update these measures. And assess the risks associated with cyber threats and employee attrition.
Every company can take several steps to protect its trade secrets. The most common is to enter into a Non-Disclosure Agreement (NDA). This agreement can be signed by employees, business partners, suppliers or consultants. A non-disclosure agreement explicitly prohibits sharing confidential information with third parties. In practice, this means that if a company, for example, has an external designer develop a new product, it will bind the designer to a non-disclosure agreement before the collaboration begins to prevent the concept from being leaked to competitors.
The next step may be to introduce internal guidelines. Each company should set clear rules on who can access sensitive information and under what conditions. These rules typically include, for example, controlled access to files, regular reviews, or an obligation to keep information confidential after employment ends. In practice, this may mean, for example, setting a rule that development documents can only be opened by research team leaders and that any access to the file is automatically logged by the system.
Nowadays, of course, securing information with modern technology is also essential. Best practices include encryption of sensitive data, two-factor authentication or regular access monitoring.
One of the most common reasons is data leakage by an employee. This occurs, for example, when an employee downloads a customer database before leaving the company. It is not only for these reasons that the employment relationship with senior employees is often terminated by agreement, so to speak, from hour to hour, in order for the company to prevent such cases.
Furthermore, trade secrets can be misused by competitors. This happens when a competitor gets hold of, for example, product development documentation and uses it for its own production.
In this day and age of social networking, unauthorised disclosure of information is also increasingly common. An employee wants to post something on a social networking site and may unknowingly disclose confidential information in the process. However, ignorance of the law is no excuse in this case either.
Tip: In recent years, companies are increasingly turning to freelancers instead of traditional employment. Find out how to set up such cooperation correctly to avoid problems.
As a first step, the company can file a lawsuit against the person who violated the trade secret. We will be happy to help you prepare it. In the lawsuit, we can seek to remedy the situation while representing you, so that, for example, further use of the secret information by competitors is prevented.
You can also seek damages. You can seek compensation from the guilty party if your company suffers financial losses as a result of the trade secret violation.
Sometimes you can even obtain a court order to stop the offending party from further disseminating sensitive information.
In a case from 2021, the Czech courts awarded damages of CZK 5 million for a customer database leak committed by a former employee. He provided the database to a competitor. This decision shows that courts in the Czech Republic take the protection of trade secrets seriously and large damages may be at stake.
For example, email communications are then key in proving intent and the manner in which secret information was passed on. Internal documents proving the existence of trade secrets and their protection within the company are also needed. If you have records of access to sensitive files, they will also be useful to show who worked with the protected data and when.
At our law firm, we can help you not only with drafting confidentiality agreements for employees and partners. You can also turn to us when you suspect a leak of trade secrets or disputes over the unauthorized use of confidential information. Proper organization and legal action can protect your company not only from financial loss, but also from reputational damage.
Trade secrets are a key asset of any company, protecting its know-how, strategic plans and important business information. The Czech legal system provides legal protection against unauthorised use of this information and allows affected parties to seek damages or judicial protection. Common cases of trade secret violations include data leakage by an employee, misuse of confidential information by a competitor or unauthorised disclosure. Companies should actively protect their trade secrets through confidentiality agreements, internal policies and modern technological measures. In the event of a breach, it is possible to file a lawsuit, seek damages or obtain a court order to prevent further dissemination of information. Evidence such as email communications, internal documentation or records of access to sensitive files play a key role. Taking the right legal and organisational steps can help businesses avoid financial losses and reputational damage.
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Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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