Million-dollar fine for violation of trade secrets
Indemnification for infringement of trade secrets provided under a confidentiality agreement..
Confidential information as an asset
Today, one of the most important assets for an organization is information, especially confidential information. Companies develop business models and make decisions (for sales and acquisitions of companies, for example) based on the exploitation and exchange of this secret, confidential information. For all these reasons, it is essential for organizations to properly protect the use of this information.
This issue is the one analyzed by the Provincial Court of Barcelona, in its judgment number 853/2022, dated May 20, 2022, which resolves the appeal against the judgment of the court of first instance. This resolved the case in which a lawsuit was filed for exploitation of business secrets and violation of the confidentiality agreement between the parties, in relation to the acquisition of a hotel and its management company. Let us briefly review the facts on which the Court ruled:
In 2017, Smarttia Spain, S.L. (plaintiff) hired CBRE Real Estate as advisors in the procedure of the possible acquisition of the hotel complex Hotel Marinas de Nerja.
In turn, CBRE Real Estate contacted Grupo Ona, a business group to which First Ona Cap (defendant) belongs, and requested a commercial offer to carry out the management of the hotel complex. To this end, and after its representative had signed a confidentiality agreement, it provided it with the business information necessary for the preparation of such offer.
According to the stipulations of the agreement, the Ona Group undertook to use the information provided for the sole purpose of preparing a bid for the management of the hotel activity. In July 2018, a company related to First Ona Cap purchased all the shares of Apartur Marinas de Nerja, S.L. (the company that managed the indicated hotel complex). According to the plaintiff, First Ona Cap used the confidential information to carry out a reasonable proposal for the acquisition of the company’s shares. Therefore, the plaintiff understands that the defendant, First Ona Cap, would have committed an act of unfair competition, since it used for its own benefit all the confidential information provided by CBRE Real Estate on the operation of the hotel complex.
Relevant aspects
The judgment of the Provincial Court rejects all the grounds alleged in its opposition to the defendant’s appeal, and analyzes four relevant aspects:
- The statute of limitations of the unfair competition action.
- The defendant argues that the action is time-barred, in accordance with the provisions of art. 35 LCD, since more than one year has elapsed since it could have been exercised. On the other hand, the Provincial Court understands that the defendant does not take into account the interruption of the statute of limitations period due to the out-of-court injunctions made on several occasions, nor the previous judicial measures filed by the plaintiff; therefore, the action is not time-barred.
- Lack of standing to sue First Ona Cap, also dismissed by the Court, since the confidentiality agreement was signed by the defendant’s director of expansion.
- Confidentiality or non-confidentiality of the information transmitted and received.
The fifth and sixth paragraphs of the Judgment, which refer to the confidentiality of the information, are of great relevance, due to their practical importance and their conflicting nature. In this regard, the defendant denies the confidential nature of the information provided to the plaintiff under the confidentiality agreement; therefore, it denies the alleged violation of trade secrets.
What do we understand by trade secret?
In order to resolve the question raised, the Provincial Court refers to the definition of “trade secret” contained in Law 1/2019, of February 20, 2019, on Trade Secrets (LSE). In this regard, Article 1 of the LSE states that:
“For the purposes of this law, any information or knowledge, including technological, scientific, industrial, commercial, organizational or financial, that meets the following conditions shall be considered a trade secret:
- Be secret, in the sense that, as a whole or in the precise configuration and assembly of its components, it is not generally known to, or readily accessible by, persons belonging to the circles in which the type of information or knowledge in question is normally used;
- have a business value, either actual or potential, precisely because it is secret
- having been the subject of reasonable measures on the part of its owner to keep it secret.
Having set out the specific analysis of the present case, the Provincial Court establishes that the information transmitted from the plaintiff to the defendant was not available to other operators in the sector, but was only provided to the defendant after the signing of a confidentiality agreement; therefore, having been subject to reasonable measures of protection by the plaintiff to preserve its secret nature, it had commercial value, allowing the defendant to prepare a business plan and two commercial offers for the rental of the hotel complex, and therefore, it was a complete and valuable information with a reserved or confidential nature.
In the Judgment, the Provincial Court cites art. 32.2. of the LSE “the use or disclosure of a trade secret is considered unlawful when, without the consent of its owner, it is carried out (…) by anyone who has breached a confidentiality agreement or any other obligation not to disclose the trade secret, or who has breached a contractual or any other obligation limiting the use of the trade secret”.
Therefore, the Provincial Court ruled that the defendant breached the confidentiality commitment assumed under the confidentiality agreement signed by the parties, incurring in unfair conduct by exploiting the plaintiff’s business secrets.
Lastly, the judgment establishes compensation for damages of 4,274,777.61 euros in favor of the plaintiff for the loss of the commercial opportunity and the damages sustained.
The analysis of this judgment highlights the essential nature of the signing of confidentiality agreements prior to the exchange of information between companies, especially in M&A processes, in order to preserve the confidential nature of this information, and limit its use only for the purpose stipulated, since information has become one of the most important assets of companies.
AddVANTE, as lawyers with extensive experience in contractual matters, as well as in M&A transactions, stresses the importance of taking appropriate advice when exchanging sensitive information or information that may be considered confidential, and we remain at your disposal to help and provide the necessary legal support.
