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Businesses need to identify their trade secrets by taking appropriate measures and to protect them systematically. The confidentiality agreement plays an important role in the protection of trade secrets. For this reason, confidentiality provisions should be included in the contracts concluded between the parties, or separate confidentiality agreements should be made. This article emphasises the importance of confidentiality agreements in the legal protection of trade secrets. It also sets out the points to be observed in drafting confidentiality agreements, the measures to be taken and the conditions of validity.
Points to Note Regarding the Confidentiality Agreement for the Protection of Trade Secrets
I- TRADE SECRETS
A trade secret is the body of information that enables a company to obtain an economic advantage over its competitors. The regulations on trade secrets and competition law aim to protect the important information of businesses and to ensure fair conduct in the competitive environment, while at the same time safeguarding both businesses and consumers.
A trade secret is confidential information of commercial value that a business holds in the course of carrying out its commercial activities and does not share with third parties. Trade secrets, which provide businesses with a competitive advantage, may include various elements such as know-how, formulas, techniques, supplier names, internal organisational structure and organisation, economic, financial and credit/cash position, customer data, business strategy, production methods, research and development plans, technical specifications of manufacturing, sources of raw materials, pricing policies, marketing tactics and costs, customer potential and data in electronic form.
By protecting these trade secrets, businesses will increase their ability to obtain a sustainable competitive advantage, the establishment of equal competitive conditions in the market will improve, and innovation will be encouraged.
II- THE IMPORTANCE OF THE CONFIDENTIALITY AGREEMENT IN THE LEGAL PROTECTION OF TRADE SECRETS
In addition to the legal provisions on the protection of trade secrets found in the Turkish Commercial Code (TCC), the Law on Intellectual and Artistic Works (FSEK) and the Law on the Protection of Competition (RKHK), businesses need to identify their trade secrets by taking appropriate measures and to protect them systematically.
For this reason, it is of considerable importance for businesses to draw up internal regulations, to conclude confidentiality agreements or to include confidentiality provisions in their contracts.
In this way, companies will protect themselves by reaching agreement with their employees, suppliers and customers on confidentiality policies. In addition, in order to prevent the disclosure of their trade secrets, businesses/companies must also take technical and operational measures such as access controls in physical environments, encryption methods, database security and network security measures
By means of the confidentiality agreement to be signed between the parties, it will be possible to determine matters such as not disclosing information of a trade secret nature to persons who are not parties to the legal relationship, ensuring that the confidential information obtained is protected for the term of the contract or for a certain period from the termination of the contract, and what this confidential information is and in what manner it may be used.
It is important that each contract be assessed and drafted separately according to the nature of the legal relationship.
III- THE CONFIDENTIALITY AGREEMENT
A confidentiality agreement aims to protect private or commercial information and documents that are of a confidential nature for the business and to prevent their being shared with another party. It is therefore a type of legally binding contract that sets out certain obligations as to how information and documents are to be used. Although a Confidentiality Agreement is generally signed between potential investors, creditors, customers and suppliers, any person may be a party to a Confidentiality Agreement.
A confidentiality agreement may be a contract concluded on its own, or the matter of confidentiality may also be regulated as an article within a contract being signed or as an annex to the contract. A confidentiality agreement may be signed on a unilateral, bilateral or multilateral basis.
THE FOLLOWING POINTS MUST BE OBSERVED WHEN SIGNING A CONFIDENTIALITY AGREEMENT OR WHEN DRAFTING CONFIDENTIALITY PROVISIONS WITHIN A CONTRACT THAT IS SIGNED
The parties should be clearly identified. The parties should be stated correctly, and attention should be paid to whether the person signing the contract has authority to do so.
The purpose of the contract should be determined in accordance with its content. Whether the contract can be signed should be considered, and there should be an express provision that the information to be shared with the other party will not be disclosed to anyone else.
The definition of the confidential information to be protected under the contract should be complete. The matters and information that the confidential information covers, and the framework within which the disclosed information may be used, should be clearly determined.
Including exceptions to the definition of confidential information may also make it easier to resolve disputes that may arise later. When the scope of the definition of confidential information is being drawn up, care should be taken to be selective and unnecessary matters should be left out of the definition, since disagreements between the parties may arise if the definition is needlessly broadened. Where a comprehensive definition is made, it will be important to make the contract easier to understand by including, and thereby determining in advance, the matters that constitute exceptions to the definition.
The obligations of the parties in relation to the confidential information should be clearly determined, and the limits of responsibilities should be expressly set out in the contract
The manner in which and by whom the confidential information will be used, which party holds ownership, and in which cases and in what manner the confidential information may be disclosed should be determined. There must be an express provision that the information to be shared with the other party will not be disclosed to anyone else. For example, where, in proceedings to be conducted, a court order (müzekkere) is issued to one of the parties and that party is under an obligation to disclose the confidential information in its possession, a clause providing for notice to be given to the other party to the contract may be included.
The term for which the contract will be valid, the period for which and the manner in which the confidential information must be protected, and how long the confidentiality obligation will continue should be determined in detail. For example, it may be provided that the confidential information must be kept for the duration of the contract or for a certain period after the end of the contract. The manner in which the confidential information will be stored may also be regulated. For example, a provision may be included that the confidential information may be stored only in a system to which solely the parties to the contract have access. In addition, it is important to have a provision on the return or destruction of the confidential information.
A penalty clause should be included. The sanction and the amount to be applied in the event of acting contrary to the confidentiality agreement or breaching a provision of the contract must be expressly stated.
It will be important to include provisions on amendments to the contract. Taking into account the situations in which any amendment to the contract may be required, it may be agreed that the notice of a request for amendment must be in writing.
Regulating assignment may also be beneficial. Prohibiting the assignment of the rights and obligations undertaken under the contract, or making it subject to conditions such as the prior written consent of the other party, may help to prevent possible breaches.
It is also important to include the form and grounds of termination in the confidentiality agreement. The conditions under which the Confidentiality Agreement may be terminated, the consequences of termination, which party has the right of unilateral termination and similar matters must be included in the termination article of the contract.
In the Court of Cassation decision set out below, it was held that the conditions for the penalty clause had been met under the contract concluded between the parties on account of conduct contrary to the rules on confidentiality and information security, but that the penalty clause could be reduced pursuant to the last paragraph of Article 182 of the Turkish Code of Obligations (TCO).
Decision of the 9th Civil Chamber of the Court of Cassation (Yargıtay) dated 22.12.2020, File No. (E.) 2018/4159, Decision No. (K.) 2020/19615:
“The plaintiff company is a technology firm; Article 11 of the employment contract signed with the defendant employee set out rules on confidentiality and information security in sub-paragraphs, explained that the employee must comply with the information security rules, and provided that a penalty clause of TL 150,000 would be payable to the employer in the event of a breach of the confidentiality and information security rules. The employment contract provision in question stipulates a penalty clause linked to a breach of the confidentiality and information security obligations, and in this case the penalty clause cannot be said to be invalid on the ground that it is not bilateral. This is because the counterpart of the penalty clause is the employee's acting contrary to the obligations provided for, and the Court's dismissal of the action solely on the basis of Article 420 of the TCO is erroneous.
…In the concrete dispute, it is understood that the defendant employee acted in breach of the duty of confidentiality and the rules on confidentiality and information security, and the conditions of the penalty clause in Article 11 of the employment contract have been met. Since the Court should have assessed the last paragraph of Article 182 of the TCO, given a decision as to reduction and rendered a judgment on the claim, its dismissal is erroneous and requires reversal.”
Decision of the 23rd Civil Chamber of the Court of Cassation (Yargıtay) dated 03.04.2018, File No. (E.) 2015/9590, Decision No. (K.) 2018/2590:
“According to the claim, the defence and the entire case file, the Court decided to dismiss the action on the grounds that a logistics services contract and a confidentiality agreement existed between the parties, that the contract contained a penalty clause under which the defendant would pay the plaintiff TL 50,000.00 in the event of a breach of contract, that the plaintiff could not submit any concrete evidence other than the notice served through the ...... 6th Notary Public, journal number ...., dated 13.02.2012, and that, even if the breach of the confidentiality agreement and the existence of the breach were accepted, it could not be proved that it occurred as a result of the defendant party's culpable act.”
This decision states that it must also be proved that the breach of the confidentiality agreement occurred through the fault and conduct of the other party.
Decision of the 11th Civil Chamber of the Court of Cassation (Yargıtay) dated 18.02.2023, File No. (E.) 2018/4411, Decision No. (K.) 2020/1668:
The Court decided to dismiss the action on the grounds that, according to the claim, the defence, the expert reports and the entire case file, the information of a trade secret nature that was the subject of the confidentiality agreement between the parties and was alleged to belong to the plaintiff consisted of information and methods that had been used previously and was not information of a secret nature belonging exclusively to the plaintiff; that, although proven methods that are known and used by everyone in commercial life had been made the subject of the confidentiality agreement owing to the defendant party's lack of knowledge, the fact that the plaintiff presented the information in question as being of a trade secret nature and as information/methods belonging only to itself did not require the information in question to be accepted as a previously unknown method; and that, since the defendant's use of the information in question was not unlawful, the plaintiff had no right to claim compensation.
….
CONCLUSION: For the reasons explained above, the plaintiff's counsel's appeal request is rejected and the decision given by the Regional Court of Appeal is UPHELD pursuant to Article 370/1 of the Code of Civil Procedure (HMK); the case file is to be sent to the Regional Court of Appeal for action to be taken pursuant to Article 372 of the HMK; the assessed hearing attorney's fee of TL 2,540.00 is to be collected from the plaintiff and given to the defendant; the remaining appeal judgment fee of TL 18.50, stated below, is to be collected from the appellant plaintiff; it was decided finally and unanimously on 18/02/2020.”
In the Court of Cassation decision set out above, it is held that, even where proven methods that are known and used by everyone in commercial life have been made the subject of a confidentiality agreement, the use of the information does not constitute a breach of confidentiality, because such methods do not have the character and nature of a trade secret belonging exclusively to a party.
In conclusion, the protection of trade secrets is an important element of commercial life. By protecting trade secrets and determining the term and form of that protection, it is very important to take the necessary measures, by drawing up confidentiality agreements or provisions, in order to prevent the losses that may arise if confidential information is wrongfully acquired. In addition, both technical and operational measures must also be taken to protect trade secrets.
