The new Law on Trade Secret Protection entered into force at the beginning of June 2021, and compared to the previous Law, regulates some of the key matters in this field, thereby raising the legal protection of trade secrets to a higher level.
In addition to more precisely refining the terminology of certain terms, this is the first time that non-disclosure agreements are mentioned in a legal document, as a protection mechanism. Additionally, the Law prescribes stricter sanctions, which indisputably lead to far greater caution when handling confidential information.
With the Law on Trade Secret Protection (hereinafter: the Law) the Serbian legislation has made a massive step towards an all-encompassing legal regulation of trade secret protection and confidentiality, as well as towards harmonization with the European legal standards in this field.
It seems that in recent years, the awareness of the need to raise the protection of confidentiality (especially in business relations) has risen to a higher level in Serbia.
Table of contents
4 Pivotal Points of the Law on Trade Secret Protection
TL;DR: The Law gives more precise definitions of trade secrets and reasonable protection measures, clearly sets out lawful and unlawful actions (including reverse engineering), broadens judicial protection and sets lawsuit deadlines to one year from learning of the violation, or five years from the violation. Natural persons and entrepreneurs can also be held liable, not only legal entities.
1. Legal Definitions
Firstly, the Law contains a definition of a trade secret:
- a trade secret represents information that has commercial value as it represents a secret;
- the property of “secrecy” of information derives from the fact that it is not generally known or easily accessible to individuals who, within their activities, usually come into contact with such information;
- it is also necessary that the person who is lawfully controlling the information in the given circumstances has taken reasonable steps to maintain its confidentiality. However, the Law does not remain vague here, but exemplifies (although not exclusively) which protection measures will be considered “reasonable”.
In that case, if your company is the holder of trade secret, it will be considered that you have taken all reasonable measures to protect the secret if (for example):
- you draft an internal act on handling the trade secret and the circle of persons who handle the trade secret,
- you conclude non-disclosure agreements with individuals who could potentially come into possession of your trade secret, including employees, business partners, external associates, and consultants, or
- you draft and deliver confidentiality statements to be signed by the individuals from the previous item.
The legal term of the trade secret includes an example of specific information that is covered by it: it foresees that, among other things, know-how, business, and technological information are considered a trade secret.
Besides the term of trade secret itself, the Law precisely defines who is considered to be:
- a holder of the trade secret,
- an individual who committed a violation of the trade secret,
- an individual who is suspected to have violated the trade secret,
as well as what shall be considered goods by which the violation of the trade secret was carried out.
2. (Un)Lawful Actions
The Law on Trade Secret Protection explicitly states the cases when obtaining, usage, and disclosure of the trade secret will be considered lawful, i.e., unlawful.
The Law states a particularly noteworthy provision in one of the examples of permitted disposal of trade secrets, i.e., the situation of performing reverse engineering, given that other conditions provided by the Law are met. In IT agreements, like software licensing agreements, such conduct is most often provided for within prohibited activities, and is related to the subject of the license, which does not transfer the entire right, but only certain authorizations within intellectual property rights. In any case, the introduction of such a term in the Law, which is very often used in the IT industry globally while no regulation of the Republic of Serbia has recognized it before, showed the first step of domestic legislation in modernizing the legal system and approaching developed global systems with more comprehensive legal regulations in the field of information technology and intellectual property.
3. Judicial Trade Secret Protection
From the practical aspect, one of the most significant provisions of the new Law is the way of regulating the protection of trade secrets, starting from prescribing the requests that the holder of the trade secret can direct against the person who violated trade secrets, by the deadlines for filing a lawsuit.
- In case of a violation of the trade secret, the holder of the trade secret has several requests which they may direct to the competent courts at their disposal. One must keep in mind that all lawsuits may be filed not only against the individual who has made the violation but also against the intermediary who offers services to the individual who made the violation, by which they indirectly allow, i.e., make the violation easier.
- On the other hand, aside from the holder of the trade secret, the lawsuit can be filed by the licensee for the use of the trade secret if they have appropriate grounds.
So, if you decide to transfer the rights of use of your trade secret with a license to your business partner or associate, they will also be able to initiate the process of protecting your trade secret before the court, even though they are not its source “creator”.
The holder of the trade secret (and licensee) can request compensation of damages from each individual who knew or had to know that they are taking part in unlawful actions in relation to the trade secret. The Law does not foresee the possibility to request triple the amount of the usual compensation instead of the compensation of property damage that the holder would receive for (lawful) use of a trade secret (as it was the case in previous legislation), but instead, it broadens the term of damage to include intangible, alongside tangible damage.
In practice, this means that in case your trade secret gets into the hands of third parties, you are entitled to request compensation, not only for property damage in the form of actual damage and lost profit, but also as intangible damage made to your reputation, name, or brand.
The deadline for filing a lawsuit for violating a trade secret is one year from the day of learning about the violation, i.e., five years from the day when the violation was committed.
4. Penalties for the Violation of Trade Secret
Besides the aforementioned, the new Law prescribes stricter punitive measures in comparison to the older legislation: above all, natural persons, as well as entrepreneurs, may be held responsible for the violation of trade secret, not only legal entities.
As for the sanctions, different amounts are prescribed:
- a natural person who commits a misdemeanor by violating a trade secret may be fined in the amount of RSD 20,000 to 150,000 (approximately EUR 150 to 1300);
- an entrepreneur may be fined for the same violation, ranging from RSD 50,000 to 500,000 (approximately EUR 430 to 4300);
- if the violation is committed by a legal entity, it risks being fined for an economic offence in the range of RSD 100,000 to 3,000,000;
- while for the same economic offence a responsible person in a legal entity will be issued a fine ranging from RSD 50,000 to 200,000 (approximately EUR 430 to 1700).
What Are the Anticipated Effects of the “Enhanced” Trade Secret Protection?
TL;DR: The Law brings trade secret protection closer to the protection of other intellectual property rights, even though trade secrets are often seen as “quasi” intellectual property without the formal characteristics of copyright, trademark or patent. This should speed up the development of court practice and the expertise of judges. More stable protection standards may encourage the exchange of business ideas, partnerships and cooperation between companies in Serbia.
The new Law could represent a huge step forward for the domestic legal system when it comes to intellectual property rights.
Although such a view is not unanimous, trade secret and confidential information are often considered to be “quasi” intellectual property based on the fact that they do not possess the formal characteristics inherent in other intellectual property rights such as copyright, trademark or patent, but still carry invaluable importance and they represent an increasingly valuable resource of modern society and thus deserve adequate protection.
Since the regulation additionally makes the protection of trade secrets “official”, and thus approaches the legal protection of other intellectual property rights, it is justifiable to hope for faster development of court practice, as well as the expertise and experience of judges in this field.
Not only that, the establishment of more stable standards for the protection of trade secrets can be expected to encourage a more dynamic exchange of business ideas in the market, now that business entities have reliable legal grounds for the protection of their confidential information.
Frequently Asked Questions
What is considered a trade secret under the Law?
A trade secret is information that has commercial value because it is a secret, meaning it is not generally known or easily accessible to individuals who usually come into contact with such information, provided that the person lawfully controlling it has taken reasonable steps to maintain its confidentiality. Among other things, know-how, business and technological information are considered trade secrets.
Which protection measures are considered reasonable?
A trade secret holder is considered to have taken reasonable measures if, for example, it drafts an internal act on handling the trade secret and the circle of persons who handle it, concludes non-disclosure agreements with employees, business partners, external associates and consultants, or has them sign confidentiality statements.
Is reverse engineering allowed?
Yes. The Law lists reverse engineering as one of the examples of permitted disposal of trade secrets, provided that the other conditions set by the Law are met. In IT agreements, such as software licensing agreements, this conduct is nevertheless most often contractually prohibited.
Who can file a lawsuit for a trade secret violation?
A lawsuit can be filed by the trade secret holder and also by the licensee for the use of the trade secret, if they have appropriate grounds. Claims may be filed not only against the individual who made the violation, but also against the intermediary who offers services to that individual and thereby enables or facilitates the violation.
What is the deadline for filing a trade secret lawsuit?
A lawsuit must be filed within one year from the day of learning about the violation, or within five years from the day the violation was committed.
What are the penalties for violating a trade secret?
A natural person may be fined RSD 20,000 to 150,000, and an entrepreneur RSD 50,000 to 500,000, for a misdemeanor. A legal entity risks a fine for an economic offence of RSD 100,000 to 3,000,000, and the responsible person in the legal entity a fine of RSD 50,000 to 200,000.
A trade secret is only as strong as the measures that protect it. If you want to check whether your company has taken reasonable measures, or you need help with an internal act, non-disclosure agreements and confidentiality statements, contact our intellectual property law team.
Reviewed by: Tijana Žunić Marić, Partner · View profile
Updated by: Marta Luković, Senior Associate · View profile
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