Confidential Business Information – Considerations and Strategies

Set of computers with images depicting different forms of information in the background

by Yotam Werzansky-Orland

Knowledge is power. But in the business world in general and in the field of technological innovation in particular, knowledge can be a competitive advantage that gives its owner a significantly higher income compared to its competitors. In order for certain knowledge to actually provide its owner with a business advantage over time, it is necessary to understand the different ways to protect information. But that is not enough. The essential question is how to choose one way over the other. In this post, we will try to provide tools to answer this question.

Cyprus has set itself the goal of attracting technology companies and startups from different countries and was recently even ranked as one of the countries whose innovation performance is higher than the average of the other EU countries.[1]

In order to provide technology companies and startups with a comfortable platform to grow and develop in, Cyprus not only offers economic incentives, but also adapts its legislation and practices to the reality in the age of technological innovation.

The law provides two main channels of protection for information: one channel that provides protection for information that is a technological invention that can be protected through patent registration; and a second channel that provides protection for any type of information (including information that is a technological invention) on the assumption that it constitutes a “trade secret”.

Trade Secrets

Cyprus has recently adopted into law the European Directive (EU) 2016/943 regarding the protection of trade secrets.[2] The law defines a “trade secret” as information that is not generally known or easily accessible to people that normally deals with that type of information (i.e. is secret); That information has commercial value because it is secret; And that the owner of that information has taken reasonable steps to keep it secret.[3]

There are two types of information: information that is consisted of an invention in a technological field and information that is not, for example a recipe for a carbonated stimulant drink, a customer list, a distribution list or a business or production method. Most of the time, the trade secret channel can be a possible path to protect both types of information, considering that all criteria of its definition are being met.

Apparently, there is no expiration date for information considered a trade secret. Unlike other intellectual property rights, including a patent, there is no need to register a trade secret (after all, such a registration may be considered the disclosure of the secret information) and therefore there is no expiration date for this right either.

However, there are risks to the decision to keep important commercial information in this way, and this goes beyond the malicious leakage of confidential information out of the hands of its owners (for example, an employee who transfers information from party A to party B without authorization). Thus, the law states that, if the confidential information comes to the knowledge of a third party through a means of an independent discovery or creation or by observing, studying, disassembling or testing (for example by reverse engineering), it is considered to be a lawful acquisition of said information and does not constitute a violation thereof.[4]

Patents

A patent is an exclusive right granted for an invention (a product or a process) that does something in a new way or offers a new technical solution to a problem.[5]

An invention will be considered eligible for a patent only if it is new, has an inventive step and can be used industrially.[6] An invention is considered to have an inventive step, if, in the judgment of a reasonable expert, it does not seem obvious, taking into account the prior art.[7]

In order to receive the right of a patent, an application needs to be filed in the Patent Office of a certain territory (country). After examining the application, the Patent Office will decide whether to grant a patent for the invention or not. Should the patent be granted, its term will be for 20 years from the date of application.

It is common to assume that obtaining a patent is the safest way and has a higher degree of certainty regarding the protection of the information.

However, there are some risks to consider. First, during the examination of the application, the information contained in the application is disclosed to the public. Therefore, not every patent application is accepted. There are many cases where the request is denied. And this is where the additional and complementary risk comes in: in a situation where a patent application has been rejected and the information contained in it has already been disclosed to the public, the inventor and the applicant will no longer have exclusivity and ownership of that information.

Strategic Decision

However, “the law” is not always the only thing that should guide decision makers in the world of business and technological entrepreneurship. Of course, the question of whether it is “permitted” or “forbidden” to take a certain action is an important one, but no less important is the question of whether it is “worthwhile” to take a certain action or which action is “more appropriate” to choose from a business perspective. That is, since the information at the base of the venture is important from a business point of view and the owner of the information wishes to hold it exclusively to the extent that this may provide him with a business advantage, this is a fundamental strategic question.

The importance of a trade secret, a patent and their commercial advantages are best exemplified by the case of the Coca Cola Company’s famous Coca Cola beverage that was first introduced on May 8, 1886.[8]

Should the inventors of the beverage’s recipe or formula have applied for a patent that same year (assuming for the sake of this example that the recipe was eligible for registration under patent law), their application would have been made public by 1890 and would have been transferred to the public domain by 1906 (assuming a patent had been granted).

This means that if the company had chosen the patent path, by now we would have been drinking different beverages from various manufacturers, which all have the exact same taste. However, in what turned to be one of the most significant and commercially wise decisions for the company, it chose to keep the recipe a secret and succeeded doing so to this very day.

Today, unlike the era in which Coca-Cola began to develop, it is much easier to reverse engineer and recover information. Therefore, when it comes to information that may be considered an invention in a technological field, it is necessary to examine to what extent the information can be reproduced and obtained through independent research.

The table detailed below attempts to summarize the main differences between the trade secret and patent channels and is presented as a basic strategic decision-making tool.

ToolType of informationTermMain Risk
PatentTechnological invention20 years from application, if granted.Disclosure during examination, prior to decision of grant.
Trade SecretAny type of informationUnlimited, as long as kept secret.Leaks, reverse engineering.

It is important to remember that no channel provides absolute protection for information. Each of the channels has its own advantages and disadvantages and those interested in utilizing their information in a way that provides them with a business advantage over their competitors, should consider the unique characteristics of each channel when deciding which one to choose.

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Yotam Werzansky-Orland was chosen among the top 300 innovation & IP strategists worldwide “who are leading the way in the development and implementation of strategies that maximize the value of IP portfolios.” IAM Strategy 300, 2018, 2019, 2020.

This article is intended to be used for general informational purposes only. It is not a legal advice and should not be relied upon as such or used for any particular purpose.


[1] European Innovation Scoreboard 2022. Issued by the European Commission. 14.09.2022

https://research-and-innovation.ec.europa.eu/knowledge-publications-tools-and-data/publications/all-publications/european-innovation-scoreboard-2022_en.

[2] Law No. 164(I)/2020 on The Protection Of Undisclosed Know-How And Business Information (Trade Secrets) Against Their Unlawful Acquisition, Use And Disclosure (hereinafter: “the Trade Secrets Law”).

[3] Directive (EU) 2016/943 on the Protection of Undisclosed Know-How and Business Information (Trade Secrets) Against Their Unlawful Acquisition, Use and Disclosure.

[4] Section 4 of the Trade Secrets Law.

[5] Definition of a “Patent” by the World Intellectual Property Organization (WIPO).

[6] Section 5(1) of The Patents Law of 1998 (16(I)/1998).

[7] Section 7 of The Patents Law of 1998 (16(I)/1998).

[8] The Coca-Cola Company. (n.d.). The birth of a refreshing idea. The Coca-Cola Company. Retrieved October 19, 2022, from https://www.coca-colacompany.com/company/history/the-birth-of-a-refreshing-idea.

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