What can you do to protect yourself from unfair competition?
Around 14-16 thousand new legal entities are registered in Lithuania every year. For example, in 2023, 15.7 thousand new companies were registered, the highest number in the last 25 years.
Not to mention those who provide a range of services on a self-employed basis. Competition is fierce, professionals have a lot of choice and often migrate between different companies in the same field in search of a change, a higher salary or a friendlier team. In many cases, the newcomer not only has specific knowledge of the competitors' company and its characteristics, but also a close relationship with the clients of the former employer.
They are particularly welcome by competitors, even though they may not realise that they are unfairly competing with their previous employer or giving the new employer the opportunity to do so. Jonas Zaronskis , Partner at AVOCAD, tells us what company information is protected by law and what an employer can do to protect itself against unfair competition .
What company information is protected by law?
In a company, some information is usually protected by law (e.g. trade secrets) and the rest is protected by special agreements and contracts. Trade secrets are confidential data which are specific and highly significant and the use of which could in any way prejudice the rights and legitimate interests of the rightful owner of the information. Even after the termination of the employment relationship, a business secret is protected for a period of time in accordance with the law and may not be used for any purpose. According to case-law, information is considered to be a trade secret if it meets three requirements: secrecy, value (commercial value) and whether reasonable steps have been taken to preserve the information. Thus, company managers should bear in mind that the more valuable the particular information constituting a trade secret is, the more intensive the actions taken by the owner of the information to protect it must be in order for the protection to be considered reasonable.
It is very important to note that, according to case law, a company's customer list is also a trade secret. Customer data is to be protected as a trade secret if it contains information other than the name of the customer that is not available to the public, such as contact persons, decision makers, business practices, technical information to assist in the operation of the business, service and quality requirements, planned projects, solvency etc. Thus, if you leave your job and take your former employer's customers with you, you may face significant legal consequences.
Agreements on confidential information
In some cases, companies choose to include in the employment contract or in a separate agreement certain data and conditions that are treated as confidential information within the company. The agreement on the protection of confidential information must specify the data constituting the confidential information, the duration of the agreement on the protection of confidential information, and the employer's obligations to assist the employee in maintaining the confidentiality of this information. The employer and the employee may agree in the agreement on penalties for non-performance or improper performance of the agreement. The agreement on the protection of confidential information shall be valid for a period of one year after the termination of the employment relationship, unless the parties to the employment contract agree on a longer period.
When signing these types of agreements, company directors should bear in mind that the court assesses not only whether the specific confidentiality agreement has been respected, but also whether the information included in the agreement was sufficiently important and whether sufficient care was taken to preserve that information.
In practice, the terms "business secret" and "confidential information" are often used synonymously, but the relationship between these types of information is relevant for the purposes of deciding on the consequences of the disclosure or use of such information. In essence, a trade secret is a type of confidential information, but confidential information is not necessarily protected as a trade secret. An obligation to protect confidential information normally exists where it is provided for in a contract.
Is it better to patent the information or hide it as a trade secret?
However, there are two ways to protect information - you can hide it (e.g. trade secrets, confidentiality agreements, etc.) or you can make it public (e.g. patents).
As a way of protecting information, a trade secret has a number of significant advantages: the information does not have to be disclosed to anyone (e.g. registered in public registers); it is not subject to strict formal requirements (e.g. novelty, originality); etc. In addition, legal protection of trade secrets is open-ended.
So why patent information that could already be a trade secret? Trade secrets have several drawbacks: there is always the possibility that another entity will discover or create the trade secret information on its own, there is also the possibility that the information will be disclosed to another entity in a legitimate attempt to reproduce it (e.g. by trying to replicate the recipe of a drink), and there is the possibility that the trade secret may be disclosed inadvertently or intentionally.
A patent ensures that only you can make, sell or otherwise use the invention. So only you will make a profit from selling and using it. This protects the money you have invested in the invention, and you can always demand that competitors do not use the invention and pay damages. However, the owner of the invention can only enjoy this exclusive right for 20 years. Since a patent is only valid for 20 years and a trade secret is protected indefinitely, very exclusive products, such as the recipe for a Coca-Cola drink, are protected by trade secrets and not by patents.
So basically, the way you choose to protect information depends on the information itself, its importance and even the nature of your business.