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Safeguarding trade secrets in business operations

By Pinja Hoffrichter
Published: 12.12.2023 | Posted in Insights

Trade secrets frequently serve as crucial financial assets for a company’s business. Unfortunately, the significance of trade secrets is often recognised only when confidential company information has been disclosed to external parties, or when potential misconduct is suspected. If a company has not proactively considered the legal criteria for maintaining business confidentiality, it runs the risk of losing a significant competitive advantage should confidential information be transferred to a competitor or become public through former employees or business partners.

Definition of a trade secret

According to the Trade Secrets Act, a trade secret is information:

  1. which is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons who normally deal with the kind of information in question
  2. which has financial value in the business activities owing to a characteristic referred to in subparagraph one
  3. the lawful holder of which has taken reasonable steps to protect it.

According to the law, for information to qualify as a trade secret, it must satisfy all three criteria outlined in the definition. Merely relying on the subjective perspective of the business owner regarding the confidential nature of the information may not be adequate, as the provisions of the Trade Secret Act are obligatory.

Trade secret

By definition, information that is commonly known to professionals in a specific field cannot be deemed a trade secret. Such information encompasses details that are part of the general training within the sector and the typical experience and knowledge acquired by individuals in the regular course of their work. This criterion is in place to prevent constraints on the free movement of labour and the constitutional right to engage in a profession. Drawing a clear distinction between a professional’s knowledge and the definition of a trade secret can be challenging, given that the knowledge and skills acquired on the job are not easily erased from an employee’s memory.

One criterion for assessment is that only knowledge that an employee can recall without the aid of tools, such as notes and documents, qualifies as professional knowledge. It is essential for the employee to refrain from disclosing the trade secret in their new job, recognising that criminal liability for breaching a trade secret extends up to two years after the termination of employment.

Furthermore, information is not considered a trade secret if it can be reasonably ascertained, meaning that it is obtained from literature, publications, articles, “reverse engineering,” websites, or other freely available sources.

The financial value of a trade secret

Moreover, a trade secret must possess financial value in business due to its confidential nature; that is, the information must be capable of being concretely applied in a business context. It is not mandatory for the information to be currently in use within the business; however, it is adequate if a practical financial advantage can be demonstrated—meaning that the information has the potential to be useful. Consequently, confidential information pertaining to private matters is not eligible for protection as a trade secret.

Reasonable measures to maintain confidentiality

In practice, the most crucial measures for safeguarding trade secrets involve actions taken to maintain their confidentiality. This criterion aims to ensure that, beyond external confidentiality, those handling trade secrets are cognizant of the confidential nature of the information and their obligations to preserve it. Practical safeguards may encompass confidentiality obligations embedded in employment contracts, collaboration agreements, and documents, along with explicit references to the law on trade secrets. Furthermore, information may be fortified by security measures on information systems and physical premises. Whenever feasible, the company should restrict access to trade secrets to a limited number of employees.

The substance of a trade secret can encompass, in principle, any technical or financial information, provided it satisfies the criteria of a trade secret. According to the preamble to the Act, trade secrets may span manufacturing data, test results, business ideas, pricing information, know-how, market studies, economic forecasts, competitor analyses, customer registers, and details related to the administration and organisation of businesses. Specific know-how acquired on the job or what is commonly referred to as negative information may also qualify as trade secrets.

Remarks and exceptions

Unlike the holder of intellectual property rights (copyright, trademark, or patent), the legal possessor of a trade secret does not enjoy exclusive rights to use the trade secret or to prevent others from utilising the information. Instead, the same trade secret may be held by several different parties, either on the same or different legal grounds.

A trade secret can be legally acquired through various means, such as independent invention or the creation of information. Additionally, it is permissible to engage in “reverse engineering,” which involves discovering another’s trade secret by observing, examining, disassembling, or testing a product or object that has been made available to the public or is lawfully in the possession of an individual not bound by an obligation to restrict the acquisition of a trade secret. It is important to consider reverse engineering, among other factors, when a company discloses prototypes or designs of its products to a third party. Reverse engineering may be restricted by contractual terms.

Legal remedies in cases of infringement

If an offence is suspected, prompt action should be taken, and the police may be called upon to conduct searches of equipment and premises, seizing materials containing trade secrets to prevent further abuse. Typically, the affected party is required to play a very active role in the preliminary investigation, as the representative of the affected party is the only individual aware of the nature of the trade secret. The preliminary investigation authority relies on this support to identify trade secret information.

Alternatively, the offended party can bring the matter before the market court as a dispute. Upon the trade secret holder’s request, the market court may issue injunctions and remedies or order the defendant to pay a royalty for the use of the trade secret. Furthermore, the trade secret holder may seek damages and compensation for the costs associated with publishing the judgement.

Read more about our corporate law and dispute resolution services.

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Pinja Hoffrichter
Attorney, Partner, Helsinki +358 40 518 2234

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