Nigeria: An Appraisal Of Trade Secrets As An Intellectual Property Right*

1. INTRODUCTION

Trade secrets are defined as capsules of information, ideas and knowledge which give the owner a competitive advantage over others in the same industry. They are usually identified as the success formula but only when they are kept secret. The creation of a trade secret usually takes time, experience and skill which makes them valuable and warrants their protection.²

Trade secrets may be durable or ephemeral as long as they help enterprises to perform better, faster or operate at a lower cost. Trade secrets address a wide variety of information including different types of technical information such as designs, drawings, architectural plans, blueprints and maps, algorithms, instructional methods, manufacturing processes, repair processes, techniques and knowhow, document tracking processes, formulas for producing products, business information such as sales and distribution methods, lists of suppliers and clients and consumer profiles, business and advertising strategies, marketing plans, financial information. Negative information such as processes which do not work could also be protected as trade secrets.³

Trade secrets are distinguished from other kinds of intellectual property because they are essentially internal instruments with the responsibility for protecting them within the purview of the owner of the secrets. The law does not keep the secret for the owner, rather the owner keeps his secret while the law protects the owner and the information which is already secret. Trade secrets are not disclosed to anyone including the government even though laws created by the government is what protects them. The oldest trade secret which can be identified in the world today is the Coca-Cola formula which is locked in a bank vault in Atlanta and can only be opened by a resolution of the company's board and is only known to two Coca-Cola employees at any one time. The public is not privy to the names of these employees and these employees are not allowed to fly on the same airplane. Such extreme methods are not practiced in all organisations but there is a reasonable number of steps taken to maintain information which needs to stay secret.⁴

2. ELEMENTS OF A TRADE SECRET

The kind of information which can be protected as trade secrets are not restricted to a specific subject and there is no requirement for the information to be in any particular form.⁵

Trade secrets are strongly related to the tort of misappropriation. A plaintiff in a trade secret action must be able to prove that he has a secrecy interest which can be recognised by the law. To demonstrate this, the plaintiff must show that the secret information is of independent commercial value, and reasonable steps have been taken by him to maintain the secrecy of the information.⁶

Irrespective of the various definitions adopted by various countries, there is an identifiable similarity in conceptualisation due to their conformity with the provisions of Article 39 of the Trade Related Aspect of Intellectual Property Rights (TRIPS) Agreement. These elements are secrecy, commercial value and reasonable protective steps.

3. TRADE SECRET MISAPPROPRIATION

An action for trade secret misappropriation can only arise where the secret is gained through improper means such as theft, bribery, misrepresentation, breach or inducement of a breach of duty to maintain secrecy, or espionage through electronic or other means.⁷ Trade secret misappropriation can occur in 3 main situations:

a. Where a duty of confidence has been breached.

b. Where an independent legal norm has been violated.

c. Where the means of acquisition, use or disclosure are deemed improper.

There are three categories of defendants who can be liable for trade secret misappropriation:

1. The person who acquires the information by improper means.

2. A person who is bound by secrecy but discloses the secret. The defendant here may have obtained the secret improperly or properly.

3. The person who obtains the information with reason to know that the information was discovered improperly.

In Physicians Interactive v. Lathian Sys., Inc.,⁸ 'improper means' refers to acts which can already be actionable in themselves such as trespass, breach of contract, conversion of physical property and misuse of computer networks. It is because of this that trade secrets are deemed to be parasitic, and it is asserted that there is no autonomous body of trade secrets.⁹

Trade secret litigation is usually focused on differentiating between proper and improper means of acquiring a trade secret.

4. THE IDENTITY CRISIS OF TRADE SECRETS

Although trade secrets are central to intellectual property, they are generally neglected. Scholars argue that the reason for the identity crisis of trade secrets is the fact that trade secrets do not have a foundational field of law. There are several arguments in relation to the particular law which trade secrets rests upon or is founded upon and there are also arguments that there is no independent body of trade secret law. Trade secrets are described as a 'toad' in the conceptual garden of intellectual property.¹⁰ This argument is described as the identity crisis of trade secrets.

Regardless of the fact that trade secrets are usually the most valuable intellectual property rights to firms, it is still an anomaly in comparison to the other kinds of intellectual property in existence. The other kinds of intellectual property asides trade secrets such as patents, trademarks and copyright bestow upon the holder exclusive rights which are enforceable against the whole world and these rights bind those who have never come in personal contact with the owner of the property from using the property or deriving benefits from the property without appropriate licensing and authorisation.

For example, trademark law imposes liability where a mark is coincidentally similar and patent law still imposes liability for independently coming up with an innovation which has already been patented.

Although trade secrets are property, they are not necessarily property in the usual sense. It is viewed in the eyes of the law as property regardless of the fact that it does not possess one of the most important features of property in the sense that trade secrets do not bestow upon its owner exclusive rights to use and enjoy the property.¹¹ If a trade secret is discovered by reverse engineering or the secret is leaked accidentally, no remedy is provided by the law. The law only gives remedies where the secret is lost as a result of breach of contract, trespass, theft or fraud.

In the case of E.I. du Pont deNemours & Co. v. Christopher,¹² one of du Pont's competitors hired and paid a pilot to take an aerial photograph of a plant which du Pont was building with the aim of figuring out the secret to du Pont's manufacturing process. The court held that although the defendants act did not constitute trespass because an overflying aircraft was used, the court held the competitor liable for violating the common law rights of du Pont. As a result of the court's finding that the act of the defendant did not constitute trespass, the common law right invaded was trade secrets.

Trade secret is described as an anomaly because characteristically, trade secrets are different. Trade secret misappropriation only occurs when a person wrongfully obtains the information such as by breach of contract, fraud, or theft of the information. However, if the secret is reverse engineered or independently discovered, there is no right of action available to the owner of the trade secret. Therefore, there is a right way to obtain trade secrets for which the law provides no remedy.

It is argued that trade secrets are more related to contract laws rather than property law as a result of the fact that trade secret misappropriation occurs where there is a breach of relationally specific duties. Although trade secret actions against aliens who misappropriate these secrets through fraud and theft exist, a substantial amount of trade secrets cases are as a result of breach of contracts, non-disclosure agreements or where unfaithful employees disclose the secrets of their employers in breach of their employer-employee relationship. Regardless of this, courts do not treat trade secret misappropriation as a breach of contract. Rather, it is treated sui generis.¹³

In the practice of trade secrets law, the law and the courts impose the duty of confidentiality regardless of the fact that no contract was in place. In some instances, the law holds aliens liable where there is no ground for any relational duty. Judges see trade secret law as a way to ensure a minimum level of morality in commercial relationships.

It is contended by Bone, an early researcher on the concept of trade secrets that there is no trade secret law in actual fact but what exists and is known as trade secret law is merely a collection of already existing legal norms which are connected by the fact that they are already used to protect secret information. He argues that there is no reason to impose liability for only taking what is non-consensual.¹⁴

Trade secret law is described as a parasitic law which depends on already existing theories as its host. It is merely a collection of other legal wrongs and once it is viewed as such rather than an independent body of laws, the whole idea of trade secrets becomes easier to understand. The debate as to whether trade secret law is independent or is a 'parasitic' law based on relational obligations (arising from contracts, fiduciary relationships, employee-employment relationships), property rights, equity, unfair competition, or trade secret nihilism have been expressed and broken down by Claeys¹⁵ as follows:

I. The Torts View

In viewing trade secrets as a variation of tort, references are made to the statement of Justice Oliver Wendell Holmes in the earlier cited case of E.I. du Pont v. Masland,¹⁶ "the starting point" for a trade secrecy dispute "is not property or due process of law, but that the defendant stood in confidential relations with the plaintiffs." The relational duty is one created as a result of already existing claims under tort such as misappropriation. Furthermore, in the First Restatement of Torts, trade secrets were classified with torts and in a subsequent restatement by the American Law Institute, trade secrets were related to the tort of unfair competition.

II. The Equity View

It is often argued that trade secrets flow from the principles of fair play and equity. The courts described the enforcement of trade secrets in Kewanee Oil Co. v. Bicron Corp¹⁷ as focusing on the maintenance of standards of commercial ethics. Trade secrets are argued by scholars to be from the common law doctrines such as unjust enrichment, or in equity which provided remedies such as injunctions or damages. Viewing trade secrets from the angle of fairness and equity have led scholars to describe the locus of trade secrets to be in the behaviour of the non-holder.

III. The Property View

Under this view, the beginning of a trade secret is not whether a contractual or relational duty was in existence but whether there was a trade secret to be misappropriated. The property view explains some features of trade secrecy such as its ability to be assigned or licensed. However, as previously stated, the idea of trade secrets being property is rejected because it does not confer its owner with the right to exclude the whole world from its use as the law provides no remedy in the instance of innocent discovery or reverse engineering.

IV. The Relational Obligations View

The scholars who propose this theory are of the view that trade secrets law assists and strengthens relational norms created by contracts or fiduciary relationships. This argument is the most conceivable because most trade secrets cases arise from already existing relationships. Regardless, scholars argue against it stating that if trade secrets were truly relationship based, then courts would have made proof of an existing relationship to be an element requiring proof by a plaintiff in a trade secret action. Trade secret actions have also succeeded without any proof of relation by contract or any other means. A plaintiff may create a design or process for himself and not share it with a single human and it may still be misappropriated. If trade secrets were based on a relational obligation, a misappropriation action would be impossible because a person cannot enter into a contract with themselves. In E.I. du Pont deNemours & Co. v. Christopher,¹⁸ the defendant had no contract or relationship with du Pont asides being a rival businessman, but the court still held them liable for trade secret misappropriation.

V. Trade Secret Nihilism

This last view offered by Claeys is in line with Bone's argument.¹⁹ The proponents of this theory argue that trade secrets have no theory which unifies them. They argue that there is no independent body of trade secret law, rather, trade secrets are a collection of already existing legal norms such as contract or fraud.

5. TRADE SECRETS AND OTHER INTELLECTUAL PROPERTY RIGHTS

In contrast to tangible property which we can see, touch, and hold, intellectual property is made up of property which is intangible under the following categories:

• Literary and artistic works of authorship such as sound recordings, photographs, music, books, writing, art etc which are protected by copyright law
• Signs, symbols, names, colours, designs, and words that characterise and distinguish one brand from another which is protected by trademark law
• Inventions of processes, machines and compositions that are useful, new, and non-obvious which are protected by patent law
• Confidential and undisclosed information which makes a business unique which is protected by trade secrets law

Trade secrets in comparison to other intellectual property rights are described as an anomaly²⁰ as they have a fundamental difference which must be taken into consideration.

Copyright protection, trademarks and patents grant their holders exclusive rights which are enforceable against the whole world where they are violated wrongfully or innocently. In some jurisdictions, trademark and copyright violations may be criminally litigated. For a trade secret on the other hand, it does not thwart attempts to obtain and use the trade secrets. It only prevents acquisition by improper means. If an individual is able to reverse engineer a product trade secret cannot stop him from creating a brand and becoming a competitor of the original trade secret owner. If the secret is disclosed, the protection will be lost.²¹

With knowledge of all of the above, the question is often raised as to why a business owner would opt for trade secret protection rather than other kinds of intellectual property rights. One major reason is that acquiring trade secret protection in comparison to other kinds of intellectual property rights is cheaper. It requires a small amount to acquire which makes it much more attractive to small and medium business owners. It is simply just faster, easier, and quicker to maintain. Furthermore, trade secret protection can be indefinite. As long as the secret is not disclosed, the protection will not be lost. For other intellectual property rights, there are registration costs and for some like patents, the registration needs to be renewed.

Furthermore, trade secrets are the only intellectual property rights that offer indefinite protection. All other intellectual property rights have time limits or require renewal. For example, the original formula of Coca-Cola was patented in 1893 but after the patent expired, they chose to use trade secrets to protect their formula and it is still protected till this day.²²

However, the reasons why businesses opt for trade secrets may not necessarily be as a result of the advantages it may have over other kinds of intellectual property, but it is because the kind of information they wish to protect can only qualify for trade secret protection. The closest alternative to trade secrets are patents. There have been various discussions, arguments by scholars on the relationship between trade secrets and patents. Most commentaries on the comparison of trade secrets to other intellectual property compare trade secrets to patents. This shows that the protected information is both privately and socially valuable that is why resources are spent protecting them.

Trade secrets as the primary alternative to patents accord inventors proprietary rights to technologies, processes, designs, or formulas which may not meet all the requirements within the patenting process. However, there are instances where patents are preferred to trade secrets because of the lack of protection for reverse engineering.

In Kewanee Oil Co. v. Bicron Corp²³ the US Supreme court stated the importance of trade secrets as follows:

Trade secret law will encourage invention in areas where patent law does not reach, and will prompt the independent innovator to proceed with the discovery and exploitation of his invention. Competition is fostered and the public is not deprived of the use of valuable, if not quite patentable, invention.

Regardless of the points of overlap between trade secrets and patents, the protection provided by each intellectual property still differ and the process for gaining each kind of protection are different. For one, trade secrets do not require approval by an administrative agency. Under patent law, protection is granted to the first person with a successful application to use, sell, license and import the invention during the life cycle of the patent which is usually 20 years. This right is enforceable whether or not infringement is innocent or fraudulent. To gain access to these exclusive rights, the owner of the right must disclose the working of the invention to the relevant administrative agency thereby making avid contributions to knowledge.

6. CONCLUSION

Since the inception of the legal concept of trade secrets, different scholars and researchers have considered different aspects of already existing law where trade secrets could have possibly derived its conceptual background. The position that trade secrets do not exist as an independent body of law, but survives on already existing concepts such as tort, contract, equity etc is justified. As explained in the body of this work, the methods under which trade secrets protect valuable information already legally existed in some form or the other before the concept of trade secrets was formulated. Perhaps, this justification is why a country like Nigeria has no independent body of law for the protection of trade secrets, but rather relies on Common Law, Law of Torts, and Contract Law for the protection of trade secrets.

Footnotes

* Folakemi Ayodele-Davis, Graduate Intern, Intellectual Property Department, SPA Ajibade & Co., Lagos, Nigeria.

2. Harshwardhan and Keshri (2007) 'Trade secrets: A secret still to unveil', Journal of Intellectual Property Rights, Vol 13, May 2008, pp. 208-217.

3. Gabriel Omoniyi, (2021) 'Nigeria: Protections: A commentary on trade secrets in Nigeria' ( available at https://www.mondaq.com/nigeria/trademark/1041406/protections-a-commentary-on-trade-secrets-in-nigeria) accessed 16^th November 2022.

4. Nair (2002) 'Protection of trade secrets/undisclosed information' (JIPR 7(6) 526-529.pdf)

accessed 3^rd November 2022.

5. Kline & Kappos (2021) 'Introduction to intellectual property', available at: https://openstax.org/books/introduction-intellectual-property/pages/5-4-the-secrecy-requirement accessed 3^rd November 2022.

6. Claeys, E.R. (2011), "Private Law Theory and Corrective Justice in Trade Secrecy," 4 Journal of Tort Law, Article 2. available at: https://www.law.gmu.edu/assets/files/publications/working_papers/1114PrivateLawTheory.pdf accessed 26^th February 2023.

7. Section 1 of the Uniform Trade Secrets Act 1979.

8. 69 U.S.P.Q.2d (BNA) 1981 (E.D. Va. 2003).

9. Friedman, Landes & Posner, (1991) 'Some economics of trade secrets law' Journal of Economic Perspectives, Volume 5, Number 1, Winter 1991—pp. 61–72.

10. Todd M. Sloan, 'Trade Secrets: Real Toads in a Conceptual Garden' 1 W. ST. U. L. REV. 113 (1972-73).

11. Friedman, David D., William M. Landes, and Richard A. Posner. 1991. "Some Economics of Trade Secret Law." Journal of Economic Perspectives, 5 (1): 61-72, available at https://www.aeaweb.org/articles?id=10.1257/jep.5.1.61 accessed 27^th February 2023.

12. 431 F.2d 1012 (5th Cir. 1970).

13. 'Sui generis' means something of its own kind or class. See, Garner, Bryan A. and Henry Campbell Black, Black's Law Dictionary 9th ed. St. Paul, MN, West, 2009.

14. Bone, Robert, (2014) 'The (Still) Shaky Foundations of Trade Secret Law' Texas Law Review, 2014, U of Texas Law, Public Law Research Paper No. 563.

15. Claeys, E.R. (2011), "Private Law Theory and Corrective Justice in Trade Secrecy," 4 Journal of Tort Law, Article 2.

16. 244 U.S 100, 37 S. Ct, 575 (1917).

17. 416 U.S. 470, 481 (1974).

18. 431 F.2d 1012 (5th Cir. 1970).

19. Bone, Robert, (2014) 'The (Still) Shaky Foundations of Trade Secret Law' Texas Law Review, 2014, U of Texas Law, Public Law Research Paper No. 563.

20. Ibid.

21. Clarivate, (2016) 'Intellectual property v. Trade Secrets' available at https://clarivate.com/blog/intellectual-property-vs-trade-secrets/#:~:text=Trade%20secrets%20involve%20no%20registration,trade%20secrets%20to%20protect%20IP accessed 4th November 2022.

22. Ibid.

23. 416 U.S. at 484-85.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.