Are trade secrets privileged information?
Trade secrets are not currently defined under any specific rule of evidence under Philippine law.
And yet time and again, their protection is sought and their enforcement pursued before our courts.
Trade secrets are, after all, recognized as confidential under many laws, which provide penalties for the breach of confidentiality.
Protection of trade secrets
The Revised Penal Code, for one, penalizes the revelation of industrial or trade secrets of an employer by an employee.
Also, the Securities Regulation Code prohibits the Securities and Exchange Commission from requiring the revelation of trade secrets or processes in any application, report or documentation filed before it.
In corporate rehabilitation proceedings, the Rules of Procedure on Corporate Rehabilitation allow the court to issue an order to protect trade secrets or other confidential research or information of debtors.
The National Internal Revenue Code of 1997 likewise prohibits and punishes any employee of the Bureau of Internal Revenue who shall divulge any confidential information or trade secrets concerning the business income or inheritance of any taxpayer.
The Toxic Substances and Hazardous and Nuclear Wastes Control Act of 1990, in turn, limits the right of the public to information through the access of records, reports or information on chemical substance and mixtures if those are confidential and would ultimately result in divulgence of trade secrets.
From all the above, one thing is clear—trade secrets are considered confidential information.
But there is a difference between confidential information and privileged information.
In at least one case, Banco Filipino vs Monetary Board (142 SCRA 523 [1986]), the Supreme Court ruled that the mere fact that a law declares information confidential does not mean that it is privileged in nature.
In layman’s terms, this means that, when a matter is considered privileged, not even a court of law can require it to be presented in evidence.
Privileged matters are given special treatment—a cloke of secrecy—in the interest of a higher policy. A good example is communication between husband and wife.
The Rules of Court explicitly protect the communication from being presented in evidence even if it is necessary to decide a pending case in the higher interest of protecting the sanctity of the marriage.
So the question is: Are trade secrets privileged information?
The case
According to our jurisprudence, the answer is in the affirmative.
In Air Philippines Corporation vs Pennswell Inc., (December 13, 2007), petitioner Air Philippines Corporation was a domestic corporation engaged in the business of air transportation services, whereas respondent Pennswell Inc. was engaged in the business of manufacturing and selling industrial chemicals, solvents and special lubricants.
Pennswell sold and delivered to Air Philippines Corporation sundry goods in trade. Air Philippines refused to pay its outstanding obligations to Pennswell, contending that it was defrauded and deceived by Pennswell when the latter merely altered the names and labels of the goods that it had sold.
Pennswell filed a complaint for collection against Air Philippines. During the trial, Air Philippines filed a motion to compel Pennswell to give a detailed list of the chemical components and the ingredients used for the products that were sold. Pennswell opposed the motion for production, contending that the requested information was a trade secret that it could not be forced to disclose.
So, the issue in the case is whether the requested information was privileged in nature.
The Supreme Court ruled that the ingredients and chemical content of the product requested by Air Philippines formed part of the trade secrets of Pennswell.
Citing precedents, the Court held that because of public policy, trade secrets are privileged and the rules providing for the production and inspection of books and papers do not authorize their production in a court of law.
The Court further held that, like banking transactions, trade secrets are among the recognized restrictions to the right of the people to information as exemplified in the Constitution.
In the context of the case at hand, the Supreme Court reiterated that the revelation of respondent’s trade secrets will serve no better purpose to the disposition of the case at bar, which actually involves a collection of a sum of money.
Moving forward
The express judicial recognition of trade secrets as privileged information is a significant measure taken by the Supreme Court to protect and enhance business in the Philippines.
After all, any successful product in the market is founded on a trade secret, in one way or another.
In the words of the high court, “[t]rade secrets should receive greater protection from discovery because they derive economic value from being generally unknown and not readily ascertainable by the public.”
For instance, Coca-Cola has been in possession for almost 125 years of the trade secret behind its successful beverage—Coke.
Other similar businesses likewise rely on trade secrets to dominate or, at least, remain a key player in the industry they are engaged in.
That is not to say that a blanket claim that information is a trade secret will simply be upheld by the courts.
While privileges receive a cloak of protection, they are not expansively interpreted because they hinder the search for truth. No less than our Supreme Court has already made this indication when, in a very carefully worded cautionary note, it said that a claim of the confidential nature of trade secrets must have “substantial factual basis which can pass judicial scrutiny.” (Cocoland Development Corporation vs National Labor Relations Commission, July 17, 1996)
(The author is the co-managing partner of the Accralaw Offices and teaches evidence at the Ateneo Law School. He may be contacted through [email protected].)
