Trade Secrets 2020

Last Updated April 28, 2020

Chile

Law and Practice

Authors



SCR Abogados is a boutique firm specialising in intellectual property and labour and employment law. The firm works with clients from diverse industry sectors, including software, pharmaceuticals, fishery, catering, restaurants, hotels, laboratories, NGOs and medical devices. Its client list includes Fortune 100 companies, domestic and foreign entities and start-ups, being able to assist its clients in diverse stages of growth and development. The firm's intellectual property department assists clients in portfolio management and maintenance, licensing, enforcement and litigation. SCR Abogados specialises in trade secret protection and enforcement from an interdisciplinary point of view so as to identify potentially eligible subject matter while assisting its clients in their contracts with third-party vendors, employees and clients.

Trade secrets are expressly regulated by the Chilean Industrial Property Act (IPA) which regulates them in Sections 86 et seq as “business secrets”. In addition, the Criminal Code contains references to the confidentiality obligations of public servants and professionals and industrial espionage (involving a current or former employee), the latter being referred to as “industry secrets”. Also, Section 2 of the Cybercrime Act penalises unauthorised access, use or disclosure of information at large (including trade secrets).

All of these bodies of law have a nationwide effect (Chile is not a federal country) and are to be construed jointly. The IPA regulates the requirements for protection and the civil effects of misappropriation or unauthorised use or disclosure, whereas the Criminal Code and Cybercrime Act regulate confidentiality infringements affecting certain individuals and industrial espionage, criminal actions for which may be available in the event of a trade secret violation but could also be available outside the context of a trade secret violation. 

Pursuant to Section 86 of the IPA, trade secret is defined as “[…] any knowledge about products or industrial processes, whose maintenance in secret affords its owner an improvement, advance or competitive advantage.”

Knowledge about products and industrial processes may be eligible for trade secret protection. This means that not only can the products or processes be eligible for protection but also knowledge related to those products and processes as long as the same affords its owner a competitive advantage.

Courts have expressly acknowledged as eligible for protection knowledge concerning product components, manufacturing processes, works of the intellect or resulting human ingenuity, development and manufacturing systems, engineering systems or reports, and information accessed in consideration of a confidentiality obligation (both for third party vendors and employees).

Eligibility requirements are:

  • secrecy of the knowledge, ie, that it is not generally known;
  • that the knowledge has commercial value, ie, that it affords a competitive advantage to the owner; and
  • control, ie, that reasonable measures are taken to maintain secrecy and control dissemination of the knowledge.

An owner is required to show that it took reasonable measures to protect its trade secrets. Such measures are assessed in the abstract on the basis of what a sensible man or woman would have reasonably done to maintain secrecy and control.

While determining whether measures were reasonable or not depends on the judge at the very least such measures involve putting in place: (i) confidentiality or non-disclosure agreements with third parties accessing relevant information; and (ii) confidentiality obligations on employees or contractors handling company information. In addition, depending on how sensitive the information is, labelling confidential information as such, restricting information access on a need to know basis and, in some cases, physical or technological protection measures to safeguard information, are advisable.

In principle, the disclosure of a trade secret to employees does not affect its protection, as long as confidentiality obligations are put in place in the relevant employment or service agreement. After termination of the relevant agreement, the release should contemplate the survival of such obligations.

For there to be a trade secret violation there needs to be unauthorised access or disclosure. If, without there being unauthorised access or disclosure, a third party gets to own the same information, there would be no trade secret infringement. That said, reverse engineering may be contractually limited and, in such cases, obtaining the information through reverse engineering would amount to unauthorised access and thus constitute a trade secret violation.

There are no special provisions in Chilean trade secrecy law concerning software and/or technology. However, there is a Cybercrime Act (19,223) which penalises anyone trying to obtain information through unauthorised interception of, interference with or access to an information treatment system (Section 2 of Act 19,223). 

The duration of trade secret protection is indefinite as long as the requirements for trade secret protection continue to apply.

A trade secret owner is entitled to commercialise the secret as he or she deems fit by selling, assigning, or disposing of it in any manner not expressly forbidden by the law. Licensing, not being forbidden, is accordingly allowed.

As long as the licensee has a confidentiality obligation, licensing does not affect the validity of the trade secret.

Trade secrets, unlike other forms of intellectual property, are not subject to registration; are, in principle, indefinite in duration; and their territorial scope may not be limited to the Chilean jurisdiction if the relevant requirements for protection in other jurisdictions are met.

Different forms of intellectual property right covering the same subject matter is allowed as long as the requirements for each relevant intellectual property right are met. In this sense, and just as an example, a confidential diagram impacting on a manufacturing process may be subject to both copyright and trade secrecy.

It is possible to bring claims related to trade secrecy that do not turn on misappropriation in Chile, such claims are customarily filed jointly as they may result in different damages subject to different compensation or penalisation schemes.

Pursuant to Section 87 of the IPA, misappropriation will take place when the trade secret is illegally acquired, its disclosure or exploitation is made without the owner’s authorisation, and also when the disclosure or exploitation relates to a trade secret legally acquired but subject to a confidentiality obligation, as long as the acquisition, disclosure or exploitation was made with the aim of obtaining a benefit (for the individual or a third party), or to harm the owner.

The elements of a trade secret misappropriation claim are the same when that claim involves an employee of the owner as those discussed in 2.1 The Definition of Misappropriation. However, the employee is also subject to fiduciary duties stemming from the employment relationship.

Joint venture agreements (JVAs) are not subject to a special regulation in Chile and are thus governed by general contract law. In the absence of any special regulation of JVAs there are no default rules and thus no special obligations between the joint venturers with respect to trade secrets; unless this is expressly contemplated in the JVA.

If the espionage is made though technological means (ie, if the owner’s servers are hacked) the Cybercrime Act applies. This law contemplates imprisonment of the offender in the event of misappropriation of information (including trade secrets).

Industrial espionage where an employee or former employee is involved may be subject to the industry secrets rules under the Criminal Code and contemplates imprisonment of offenders and a fine.

There is no official best practice document or set of recommendations, but in general any such recommendations should include:

  • raising awareness about trade secret protection potential within the organisation, especially when there is an R&D department;
  • classifying relevant documents containing information produced within the organisation to limit access to those documents on a need to know basis;
  • regulating access to proprietary information for individuals from within the organisation and for third parties, while generally maintaining a restricted access policy to information concerning new projects;
  • allowing for auditing in case of licensing; and
  • being mindful of the survival of confidentiality obligations when an employee or contractor with access to proprietary information leaves the organisation.

There are exit interviews in Chile, but they mostly aim at inquiring for the reasons for leaving and to get a sense of the work environment, without there being assurances as to confidentiality. This may be different in the case of key executives who may have agreed to a non-compete clause which is enforced after the termination of the employment relationship.

There is no distinction made in Chilean law between an employee's general knowledge and skills and protectable trade secrets.

It is important to look at the release form from an employee's prior employer(s) to confirm whether any confidentiality obligations survive termination. A general declaration of conflicts is also advisable as well as a declaration that, to the best of the employee's knowledge, there will be no use of third-party proprietary information in the performance of their duties.

To allege theft of a trade secret, it is necessary to file a claim with a civil court in writing explaining in detail the existence of the trade secret, the relevant misappropriation, and the nature of the damages suffered.

There are no special pre-requisites for filing a lawsuit.

If based on a breach of contract, the applicable statute of limitations is five years counted as from the date on which the breach took place. If based on torts, it is four years counted as from the date on which the misappropriation took place.

In order to bring a lawsuit, a trade secret owner will need assistance from an attorney to appear before the court. It would be advisable to have at hand evidence to ascertain the existence of the trade secret and of the relevant misappropriation.

The competent court for trade secret claims will be the civil court whose jurisdiction covers the place where the agreement was made (if stemming from a contract breach) or the domicile of the defendant (if stemming from torts).

There are no specialised courts for hearing trade secrecy cases.

A claimant must have hard evidence to file a lawsuit but most importantly a clear description of the facts (which may be proved during the evidence term to follow during the proceeding). There are evidentiary requests that can be filed in advance (such as witness declarations for those who will likely not be available for trial or a request for exhibition of records or documents from the future respondent) identifying the action to be filed and detailing the facts on which the misappropriation claim will be grounded. Furthermore, if such evidentiary requests are filed, it will be necessary to bring suit shortly after.

Chile allows for different mechanisms for obtaining evidence to support a trade secret claim in advance of a trial (they may also be used during a trial).

In civil proceedings, the plaintiff may require:

  • the exhibition of the object(s) which is or are going to be subject to litigation;
  • the exhibition of private documents relevant to a potential claim;
  • the exhibition of accounting records; and
  • the acknowledgement of a signature in a private instrument.

All of these requests require the authorisation of the judge and will be granted whenever it is deemed that they are necessary for the trial. It is worth pointing out that the acknowledgement of a signature request is always granted.

In addition, when the claimant can show that there is imminent risk of harm, or that the facts or documents may disappear, the claimant may request:

  • the physical inspection by the court;
  • the issuance of an expert report; and
  • affidavits issued by a certifying officer.

As to the types of evidence can be obtained, they are generally referred to as instruments and documents, witnesses, confessional, physical inspection by the court, expert reports, and presumptions.

Judicial proceedings tried before a civil court are public. In this sense, there is no mechanism to safeguard confidentiality of trade secrets during a trial. A special motion requesting secrecy may be filed but may not be granted as it is not expressly contemplated.

There is no closed list of defences available to the defendant. However, prior knowledge of the trade secret, independent development or discovery, lack of use of the relevant knowledge, non-forbidden reverse engineering or failure to comply with requirements for trade secret protection would be specific to trade secret litigation.

As a general rule, in terms of liability, all damages are to be compensated. In trial the defendant will need to show that they have taken all reasonable measures to prevent the misappropriation of a trade secret.

There are no dispositive motions in Chile.

It is difficult to anticipate expected costs for trade secret litigation. A future plaintiff should consider costs of formal service to the defendant and other intervening parties, experts' fees, clerks' costs and others (all of which will be relatively minor compared to attorneys' fees). Attorneys' fees in turn will likely include a fee determined on the basis of time spent or trial stages and a success fee. Such fees will be freely negotiated with the intervening attorney(s) and will mostly depend on the experience or specialism of the relevant attorney.

Contingency fees, while not expressly recognised by the law, are allowed and are customarily agreed in the event of trials.

There is no specific litigation financing method available for the time being.

Civil claims are decided by a judge on the basis of the evidence presented by the parties.

Civil claims are either tried before an arbitrator or before a civil court.

If before an arbitrator, the evidence is subject to the relevant arbitration rules set out by the parties.

If before a civil court, the case is concentrated with the plaintiff filing a written claim which is subsequently responded to in a “response and evidence” hearing, followed by an evidence term and finally a decision stage. There are no limitations on the forms of evidence submitted before a civil court. In either case, most of the submissions will be in writing and hearings will only relate to confessional evidence and witnesses or expert witnesses as the case may be. A typical case will take roughly 18-24 months before a first instance decision is reached.

Expert witnesses are expressly contemplated in Chilean law. One issue is that for there to be an expert witness in a trial that witness needs to be enrolled with the Court of Appeals within the relevant jurisdiction and relevant experts are not always enrolled. If they are, they have to be appointed by the court within the proceeding and their report will be given in writing and subsequently explained in trial. If a given technology requires a specialism for which there is no expert enrolled, the expert may declare himself or herself to be a witness and his or her expert report may be submitted to the court as documentary evidence.

In order to obtain a preliminary injunction it is necessary to indicate, by the time of the request, the action that will be filed by the future plaintiff and briefly summarise the arguments of the case to follow.

Requests prior to trial are generally classified as either: (i) those necessary for proceeding to trial (granted whenever the judge deems them necessary to allow the plaintiff to go to trial); or (ii) those seeking to warrant the results of the trial (granted when an estimate of damages can be shown to the judge in advance, and provided that the future plaintiff offers the court a bond or warranty in the event the action is rejected). If a request seeking to warrant the results of the trial is accepted, the action should be filed within ten days (this term may be extended at the request of the future plaintiff as long as it is duly grounded).

The IPA sets out a special rule for damages in Section 108, pursuant to which the plaintiff may recover damages under general rules (actual damages and lost profits) or under one of three alternatives contemplated therein:

  • profits that would have been earned in the absence of the infringement;
  • profits of the infringer as a consequence of the infringement; or
  • a reasonable royalty rate.

A successful claimant would need to prove the existence of an infringement and, depending on the alternative chosen, the amount of damages, profits of comparable rates.

A successful respondent may recover damages only if the claimant if fully defeated in court, in which case costs and attorneys' fees may be recovered.

There are no punitive damages for trade secret violations in Chile.

Injunctive relief is essentially transient. In the context of a trial, injunctions may be requested or obtained but shall only be maintained for as long the danger sought to be prevented is still a threat. The decision may impose additional restrictions on the defendant but rarely limits its rights to practise its trade unless this was agreed between the parties.

Section 106 of the IPA expressly contemplates the possibility of requesting that the court adopt measures to prevent the continued infringement of a trade secret. Such measures may include the seizure of potentially infringing products.

This alternative is available before a final judgment as long as, by the time of the request, the action to be filed by the future plaintiff is indicated, the request includes a brief summary of the future arguments of the case and irreparable harm could follow from a continued violation.

A party fully defeated in a civil case may be sentenced to pay other parties attorneys' fees (referred to as personal costs), unless, in the court’s opinion, the defeated party had a legitimate reason to bring the action or respond. Personal costs are discretionarily determined by the court.

In order to seek an award for personal costs, the parties simply have to request that the other party bear the costs of litigation. The case decision will issue a verdict on the subject.

Civil courts do not request the payment of court costs to initiate a legal process. Court officers (not the judge), however, do charge for service of summons, translations, expert reports, clerk time for typing during hearings, copies and other rather clerical work. These costs are, in general, minor costs and are generally referred to as judicial costs. A party fully defeated in a civil case may be sentenced to pay judicial costs, unless, in the court’s opinion, the defeated party had a legitimate reason to bring the action or respond to it. Such costs are determined over the basis of actual costs (receipts for which are included in the case file).

In order to seek an award for judicial costs, the parties simply have to request that the other party bear the costs of litigation. The case decision will issue a verdict on the subject.

Decisions in civil cases tried before a civil court may be appealed before the Court of Appeals. Decisions in civil cases tried before an arbitrator may be appealed only if the relevant arbitration rules contemplate the possibility of an appeal and designate the relevant appellate body. We refer below exclusively to appeals filed against civil court rulings (as the appeal process before a Civil Court of Appeals in the context of an arbitration process, wherein the parties may establish a different appeal proceeding, may differ substantially).

Both the plaintiff and the defendant are entitled to appeal an adverse decision.

The term for appealing a final decision in civil courts is ten days. The appeal takes 6-12 months to be heard.

Non-final judgments in cases tried before civil courts may be appealed within five days.

The Court of Appeals will review both factual and legal issues.

The standard for review is de novo, and the appeal results in a new decision rendered by the appellate body (either confirming or reversing the first instance decision).

In principle the Court of Appeals will only review the issues the parties seek to be reviewed and expressly identify in their relevant submissions. In this sense, even though there is no formal waiver of issues, in practice if a given portion of the decision is not appealed, it cannot be reviewed on appeal.

As to the appeal proceeding, the appeal submission is in writing and is followed by an appeal hearing. Each party has 30 minutes to present oral arguments and, prior to the oral arguments, additional evidence may be submitted.

The IPA does not contemplate special criminal actions for trade secret misappropriation. The Criminal Code penalises employees and former employees for unauthorised disclosure of industry secrets and the Cybercrime Act penalises unauthorised interception of, interference with or access to an information treatment system to access or disclose information (including trade secrets).

To initiate a criminal prosecution, the plaintiff may file a report with the prosecutor’s office or file a criminal action with the criminal court. In either case the prosecutor’s office will need to be informed of the details of the case in order to gather more evidence. If the prosecutor’s office is convinced that there is a case, a formalisation hearing will follow for the prosecutor’s office to formally initiate an investigation against the potential infringer. The court sets a term for investigation, following which the prosecutor’s office may decide to formally accuse the alleged infringer. Following an accusation, a trial date is set. Once the trial date is set, there will be a hearing for the prosecutor and the owner to present arguments and for the accused infringer to present its defence. The decision of the criminal court may be subject to an annulment recourse (only legal review). Customarily, the prosecutor’s office negotiates an alternative resolution with the accused party involving a commitment not to infringe again, abandonment or destruction of seized goods and compensation for the benefit of the owner or an NGO. Unless the owner agrees not to, civil actions may subsequently be filed.

In terms of potential penalties, cybercrime infringements involve imprisonment for from two months up to three years whereas penalties for industrial secret violations involve imprisonment for from two months up to three years or a fine.

For contract breaches, and only for contract breaches, the parties may contemplate arbitration to settle any potential disputes between them. This is a good alternative to maintain secrecy as court case files are generally available for public inspection whereas arbitration files are, in principle, confidential.

The parties may designate a specific arbitrator by the time the arbitration clause is agreed, or an arbitration body to designate an arbitrator from their panel, or civil courts to designate an arbitrator. Arbitration is usually faster as the arbitrator has a maximum of two years to issue a final ruling and the rules of arbitration may be freely determined by the parties. Costs of arbitration vary depending on the arbitration body. Customarily they are determined on the basis of the case value with scaled percentages ranging between 0.1% and 5.5% of the case value.

Interim measures may be requested at the arbitration tribunal but for the enforcement thereof, the arbitrator will need to resort to civil courts.

SCR Abogados

Avda. Isidora Goyenechea 2934
Oficina 403
Las Condes
Santiago
Chile

+56226048321

Jfreyes@scr.cl www.scr.cl
Author Business Card

Law and Practice

Authors



SCR Abogados is a boutique firm specialising in intellectual property and labour and employment law. The firm works with clients from diverse industry sectors, including software, pharmaceuticals, fishery, catering, restaurants, hotels, laboratories, NGOs and medical devices. Its client list includes Fortune 100 companies, domestic and foreign entities and start-ups, being able to assist its clients in diverse stages of growth and development. The firm's intellectual property department assists clients in portfolio management and maintenance, licensing, enforcement and litigation. SCR Abogados specialises in trade secret protection and enforcement from an interdisciplinary point of view so as to identify potentially eligible subject matter while assisting its clients in their contracts with third-party vendors, employees and clients.

Compare law and practice by selecting locations and topic(s)

{{searchBoxHeader}}

Select Topic(s)

loading ...
{{topic.title}}

Please select at least one chapter and one topic to use the compare functionality.