27 August 2018

We are no longer keeping it secret: in August, the new law on the protection of business secrets entered into force, which, unlike the fragmented rules that have been applied so far, will protect business secrets and know-how in Hungary more uniformly and effectively. We summarize the most important aspects of the new law in our article.

Why was the new regulation needed?

There is an EU directive behind the new law aimed to provide a higher level of unified protection of business secrets between the Member States, as there has been a significant difference between levels of protection (eg.: Maltese law only considered a breach of confidentiality if the infringer had previously signed a non disclosure agreement etc.).

On the other hand, domestic regulation was very fragmented, we could find provisions on business secrets in several acts (eg.: Civil Code, Competition Act), so it was wiser to pass a separate law protecting business secrets.

What is a business secret and a know-how?

We can talk about business secrets or know-how if the information meets the dual aspect of secrecy: on one hand, it is not public, it can not be easily accessed, and on the other hand, the keeper of the secret has to take the usually expected measures to keep the information secret. Another condition is that the information must have commercial value.

For example, information about an application in a tendering procedure can have commercial value as with that knowledge the competitors can easily get into winning position.

In contrast, it is difficult to imagine that a company would suffer any disadvantages if it would have been revealed what coffee brand the employees are consuming in the office.

The commonly used know-how term covers an economic, technical, organizational experience or solution that is captured by the owner of the secret in a way that can be identified afterwards. With the above example, a detailed description of how to compile an application can be qualified as a know-how, but the operation of the coffee machine can hardly be.

It is important that the new regulation continues to provide the same level of protection for both business secrets and know-how.

Who owns the secret?

The question is legitimate because the new law emphasizes that business secrets and know-how are pecuniary rights, so they are marketable, or we can assign the right of use to someone else.

In practice, this happens when McDonalds, or Fornetti, shares the know-how needed to produce products with the contractors buying the franchise.

So, before we suspect infringe, we need to inspect who, and in what extent have privilege over the secret.

What is considered a breach of secrecy

A breach is a case where someone obtains, exploits, discloses or publishes the business secret in an unauthorized manner.

Secrets can be obtained through unauthorized access, theft, or even duplication.

It is important that under the new law we may commit breach of secrecy indirectly as well.

This happens when we obtain the information legitimately, but the person from whom we have obtained it, has acquired the information unlawfully, and under the circumstances of the case we should have known this.

So, if someone sells the secret recipe for Coca-Cola on the net and only accepts bitcoin, it's better not to jump into the transaction that looks like the deal of the century ...

The concept of infringing goods appears as a novelty, in which case the design and manufacture of goods is based on the use of unlawfully acquired business secrets.

What are the sanctions?

The new law provides a number of options for penalties for breach of secrecy, ranging from declaring the fact of a breach to destruction of the infringing goods

For preventive purpose, publication of the breach in a nationwide newspaper can be ordered by court.

Interestingly, in the case of goods withdrawn from commercial circulation, the claimant may request that the product be handed over to a non-governmental organization performing charitable activities (instead of destroying it).

The new law introduces a sanction not yet applied in Hungarian law, the alternative financial remedy that the court may order instead of the above penalties if they would cause disproportionate disadvantages to the infringer or if the bona fide infringer had no knowledge of the one from whom the secret was obtained has acquired the secret unlawfully.

Overall, the new law is much more elaborate and complying with EU law, therefore it will definitely give more emphasis to protecting business secrets, while more detailed regulation will provide more effective legal protection in the future.