Federal Law on Commercial Secrets

August 2004

Russia has recently adopted its new Federal Law on Commercial Secrets (the "Commercial Secrets Law"). The Commercial Secrets Law, dated 29 July 2004, has been in force from 16 August 2004.

On its face, the Commercial Secrets Law appears to pool together a number of basic rules on commercial secrets which can be found in certain existing laws and regulations such as the Civil Code, the Labor Code, Law on Banks and Banking Activity, RSFSR Government Resolution No.35 of 5 December 1991, as well as to introduce a number of new rules. However, the Law also goes farther by clarifying and strengthening certain provisions in the existing rules.

Commercial Secrets

The Commercial Secrets Law determines which information is regarded as a commercial secret. A commercial secret is confidential information (i) which has actual or potential commercial value because it is unknown to third parties, (ii) to which there is no free access on legal grounds and (iii) with respect to which the owner has introduced a commercial secret regime (i.e., has taken measures to maintain the confidentiality of the information).

Historically, certain data could not be considered a commercial secret. RSFSR Government Resolution No. 35 of 5 December 1991 contained a list of such data, which included such items as the foundation documents of a legal entity; information on the number of employees, the payroll system, availability of vacancies; information on environmental pollution; and other items.

The Commercial Secrets Law broadens this list. For example, persons engaged in entrepreneurial activity cannot treat the following information as a commercial secret (and thus cannot refuse to disclose it): violations of Russian law, and findings on liability for such violations; the list of persons entitled to act on behalf of a legal entity without a power of attorney; the indebtedness of an employer with respect to salary and social payments.

The purpose of such broadening is to make companies more transparent and simplify the work of tax and law enforcement authorities. In addition, a commercial secret owner cannot refuse to disclose the commercial secret to judicial and law enforcement authorities.

Commercial Secrets Regime

Russian law recognizes and provides specific protection measures for other types of "secrets," such as, for example, state, bank, audit and advocate secrets.

The Commercial Secrets Law provides specific protection measures for commercial secrets. Moreover, it states that information shall be treated as a commercial secret provided that the holder of such information has taken all necessary measures to protect its confidentiality. Conversely, if the information owner has failed to undertake all such measures, the information may not be protected as a commercial secret.

The Commercial Secrets Law lists the following measures that an owner must undertake to protect its confidential information:

• determine the list of data to be treated as a commercial secret;
• limit access to the protected information;
• keep a record of all persons allowed access to the protected information and/or to whom the protected information has been disclosed;
• include a confidentiality clause in employment contracts and agreements with third parties; and
• affix a "Commercial Secret" notice to documents containing commercial secrets; and this notice should contain information on the owner (for a legal entity Ц full name and address, for an individual entrepreneur Ц first name, last name, patronymic and residential address).

Of course, in addition to now being legally required for commercial secret protection in Russia, such steps are prudent for any owner of confidential business information.

Contract Requirements

If the commercial secret owner wishes a counterparty or employee to protect the confidentiality of a commercial secret, the owner should include the steps to be taken in a contract with the counterparty or employee. Otherwise, the Commercial Secrets Law allows the counterparty to select measures for protection of the information in its own discretion.

Notwithstanding the absence of a confidentiality clause in an employment contract, the Commercial Secrets Law now obliges an employee to keep confidential the commercial secrets of her/his employer for three years after termination of employment, unless a different period is established in the employment contract.

Commercial Secrets vs. Confidential Information; Practical Solutions

We wish to note a problem of terminology raised by the new law. The Commercial Secrets Law and other legislation refer to "commercial secrets." However, Russian law also uses the term "confidential information." The Federal Law on Information, "Informatization" and Protection of Information, No. 24-FZ, of 20 February 1995, defines "confidential information" as information in documented form, access to which is restricted in accordance with the legislation of the Russian Federation. This 1995 law does not require that confidential information has to be of commercial value, or that the owner has to undertake specified protection measures (in contrast to the Commercial Secrets LawТs requirements). Therefore, the definition of confidential information appears to be broader than the definition of a commercial secret.

Furthermore, the owner of a commercial secret is protected from its unauthorized use by law (similar to other types of "secrets"), whereas the owner of confidential information is generally protected only as a matter of contract.

Unfortunately, Russian law does not clearly address the measures available to protect against unauthorized use of confidential information in breach of a contract provision. Of course, a contract may be governed by the laws of a jurisdiction other than Russia, if it is between a Russian and a foreign counterparty, for example. This may allow choice of a jurisdiction that provides more clear protection to confidential information, although the parties should bear in mind that in Russia, foreign judgments (i.e., decisions of foreign courts) are not enforceable in most cases, and in practice it may also be difficult to enforce foreign arbitral awards (i.e., decisions of foreign arbitral tribunals).

 

Author: Vasilisa Strizh.

This article appeared in the April 2005 edition of Russia/Eurasia Executive Guide.