Trade Secrets and How Employers Can Protect Them

Since the commencement of the Trade Secret Act in the middle of 2002 the business community in Thailand has increasingly used non-disclosure agreements and clauses in work rules and employment agreements with their staff. These agreements and clauses generally prohibit employees with access to trade secrets from disclosing such information to other parties. Along with this growth in non-disclosure clauses and contracts, employers are also protecting their trade secrets by using non-compete clauses which aim to stop employees from engaging or working with any employer that competes with their ex-employer’s business. The reason behind this growth in non-compete clauses is that many employers fear that if their employees resign and then join a competitor, their ex-staff will disclose their trade secrets which could cause them significant commercial damage.

Meaning of Trade Secret:
In order to understand the rationale behind the growth in clauses and agreements aimed at protecting trade secrets in Thailand, it is necessary to understand the precise legal meaning of the term ‘trade secret’. According to Thai law a trade secret will be considered as such if it meets the following requirements:

1. Firstly, the relevant information must be considered as ‘trade information’ which is defined under the Trade Secret Act to mean:

any medium that conveys the meaning of a statement, facts, or other information irrespective of its method and forms. It includes formulas, patterns, compilations or assembled works, programs, methods, techniques, or processes.

2. Secondly, in order for trade information to be considered as a ‘trade secret’ it must be:

“trade information that is not yet publicly known or not yet accessible by persons who are normally connected with the information. The commercial value of which is derived from its secrecy, the controller of the trade secret has taken appropriate measures to maintain the secrecy”

Some examples of trade secret information would include customer information, sales commission figures or data relating to the cost of production, however, in order for such information to be deemed as a ‘trade secret’ it must:
a. Not be publicly accessible;
b. Be in a suitable medium, for instance spreadsheets or a database; and
c. The owner of the information must limit access to it through such means as having access regulated by a login and password system or having such data under lock and key in a secure location with limited access.

Non-Disclosure Agreements:
In many businesses, certain employees will have the opportunity to gain access to their employer’s trade secrets because their duties require them to use such information in the course of their work. In some cases, an employer will be required by their client to sign a non-disclosure agreement whereby they commit to maintaining the confidentiality of the client’s trade secrets. However, in some cases the employees of the servicing company will also be required to enter into similar non-disclosure agreements, however, many Thai staff are often reluctant to enter into such agreements for fear of the legal repercussions should the agreement be breached as well as a lack of understanding with the legal terms and conditions.

Non-Compete Clauses & Agreements:
As previously noted, one of the most common approaches used by businesses in Thailand to protect their trade secrets is to prohibit employees from engaging in or working with businesses that compete with their business in Thailand during their period of employment and for a period of approximately 2-5 years from the date that they ceased to be an employee of the employer. Non-compete clauses are commonly used in non-disclose agreements as well as in employment agreements between employers and employees. However, employers should be aware that non-compete clauses cannot prevent an ex-employee from working with a competitor on an ongoing basis, rather such clauses cannot normally extend past 2-5 years from when an employee leaves their job as to do so would contravene the employees right to earn a living. Non-compete clauses which have excessively long prohibition periods may be found to be invalid by the Thai courts if the contract is litigated in the courts.

Non-Competition & White Collar Workers:
Despite the fact that many employers in Thailand use non-compete clauses which prohibit their employees from working with commercial competitors, many employee’s still breach such clauses, especially ‘white collar’ employees. In many cases, white collar employees receive an offer to join a commercial competitor who agrees to provide them with a higher salary in order to gain the employees knowledge and skill and in some cases their trade secrets from their previous employer(s). Despite the fact that many of these white collar staff realize that their actions breach the non-compete clauses of their employment agreement with the previous employer, many still willfully breach their contracts as they desire higher remuneration and benefits and don’t expect that their previous employers will take action to enforce their legal rights under the contract.

In terms of enforcing non-competition clauses in court, employers should be aware of several practical problems which can undermine such legal action:

Court Jurisdiction:
Firstly, it is necessary to consider in which court an employer should file their plaint, some may consider that the appropriate forum is the Labour Court whilst others may consider that the Intellectual Property and International Trade Court is a more suitable venue. If the dispute relates to a breach of an employment agreement and the infringement of an employer’s trade secrets then I recommend that the case should be filed with the Intellectual Property and International Trade Court as it has greater expertise in handling cases involving intellectual property law. However, one advantage of using the Labour Court is that if you file a case in the Labour Court, it won’t charge any court fees whereas the IP&IT court will.

Compensation & Direct Damage:
In regards to claiming compensation from an employee who breaches a non-compete clause by working for a competitor company, it is very difficult to achieve given that an employer can only claim compensation based on direct damage which occurred from the breach of the employee agreement; one example of direct damage would be where an employer’s sales volume decreased because an ex-employee lured away customers to do business with a competitor company for whom they now work.

In order to substantiate direct damages in court, an employer will require strong and robust evidence. For instance, in a case similar to the example above, in order to get compensation an employer would likely require testimony given in court by the relevant customers to state that they were lured away to the competitor company by the ex-employee. Such evidence is difficult to obtain due to a myriad of reasons, hence many employers often decide that it is not in their interests to pursue their legal rights under the contract.

Conclusion:
Given the above factors, it is likely that many employers will decide not to take legal action against their ex-employees who breach non-compete clauses. However, despite this, I would suggest that employers should insert a liquidated damages clause in their employee’s employment contracts for breach of the non-compete clause because if such a breach occurs and litigation ensues the employer can get around the issue of proving direct damages which as previously noted can be highly problematic to prove. However, employers must be aware that just because an employment contract may provide for liquidated damages in case a non-compete clause is breached, it is not guaranteed that they will get such an amount, rather it will depend on the court’s consideration. If the court considers that the stated penalty is too high then the court will decrease the amount such that it is deemed fair considering the circumstances of the case.