Trade secret violations can result in significant financial losses for businesses. Therefore, companies must take appropriate steps to safeguard their trade secrets to minimize the risk of infringement and mitigate potential financial impacts.
Trade secrets are among the most valuable assets of a company, serving as key factors in business success and competitive advantage in the market. Trade secrets include confidential commercial information protected by the company, such as formulas and recipes, production processes, and marketing strategies. Despite stringent confidentiality measures, trade secrets remain vulnerable to unauthorized use and breaches.
Trade secret violations pose serious issues, potentially causing significant financial repercussions for businesses. Breaches may occur due to several factors, including:
- Intentional disclosure of trade secrets;
- Breach of agreements or obligations to maintain confidentiality;
- Lack of dedicated responsibility for trade secret protection;
- Employee disclosure of sensitive information.
In Indonesia, trade secret protection is regulated under Law No. 30 of 2000 concerning Trade Secrets (“Trade Secret Law”). The provisions within this law align with the Trade-Related Aspects of Intellectual Property Rights (“TRIPs”) Agreement, which is an annex to the Agreement Establishing the World Trade Organization, ratified through Law No. 7 of 1994.
Financial Consequences for Businesses
Trade secrets provide companies with a competitive edge, distinguishing them from competitors. According to Article 3(1) of the Trade Secret Law, trade secrets are protected if they meet three criteria: confidentiality, economic value, and reasonable efforts to maintain secrecy. When confidential business information is stolen or misused by competitors, companies may lose market share, leading to reduced revenue and profit margins.
Additionally, trade secret owners risk losing their rights as outlined in Article 4 of the Trade Secret Law, which grants them the authority to:
- Use their trade secrets exclusively;
- License or prohibit third parties from using or disclosing trade secrets for commercial purposes.
Another financial consequence of trade secret breaches is the potential loss of investments. Companies often attract investments based on their innovations and proprietary knowledge. If trade secrets are exposed and become publicly accessible, the company’s valuation may decline significantly, resulting in losses for investors.
Financial Consequences and Sanctions for Trade Secret Violators
Article 13 of the Trade Secret Law stipulates that trade secret violations occur when an individual intentionally discloses trade secrets, breaches contractual or non-contractual confidentiality obligations, or unlawfully acquires or controls trade secrets in violation of applicable laws, as stated in Article 14 of the Trade Secret Law.
To address trade secret violations, legal sanctions have been established to serve as a deterrent and compensate trade secret owners for their losses. Article 17(1) and (2) of the Trade Secret Law stipulates that:
- Any individual who knowingly and unlawfully uses another party’s trade secret or commits any act as defined in Articles 13 and 14 shall be subject to imprisonment of up to two (2) years and/or a maximum fine of IDR 300,000,000 (three hundred million rupiah).
- This offense is categorized as a complaint-based offense.
To prevent trade secret violations, companies should implement risk mitigation strategies, including strict security policies. Additionally, businesses must ensure that only authorized employees have access to confidential information. Company policies on trade secret protection should be clearly outlined, and employees must sign legally binding confidentiality agreements.
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Legal References:
- Law No. 7 of 1994 concerning the Ratification of the Agreement Establishing the World Trade Organization.
- Law No. 30 of 2000 concerning Trade Secrets.
- Trade-Related Aspects of Intellectual Property Rights (“TRIPs”) Agreement.