Trade Secret Privilege

Section 26. Privilege relating to trade secrets. – A person cannot be compelled to testify about any trade secret, unless the non-disclosure will conceal fraud or otherwise work injustice. When disclosure is directed, the court shall take such protective measure as the interest of the owner of the trade secret and of the parties and the furtherance of justice may require. (n)

1. Trade secret – is a technology, formula, or procedure which is being strictly kept and concealed to protect the product from being copied exactly. It is being strictly kept and concealed so that it cannot be copied and used by the possible imitators. Example: the formula of San Miguel Corporation in making its pale pilsen beer, the procedure in making the pale pilsen beer, or the technology in the manufacturing of Red Horse Beer.

2. The jurisprudence defined trade secret as follows:  

“A trade secret is defined as a plan or process, tool, mechanism or compound known only to its owner and those of his employees to whom it is necessary to confide it.  (BLACK’S LAW DICTIONARY 1494 (1991), 6th ed).The definition also extends to a secret formula or process not patented, but known only to certain individuals using it in compounding some article of trade having a commercial value. (Id., citing Palin Mfg. Co., Inc. v. Water Technology, Inc., 103 Ill.App.3d 926, 59 Ill. Dec. 553, 431). A trade secret may consist of any formula, pattern, device, or compilation of information that: (1) is used in one’s business; and (2) gives the employer an opportunity to obtain an advantage over competitors who do not possess the information.   (AMJUR EMPLOYMENT § 178, citing Saunders v. Florence Enameling Co., Inc., 540 So. 2d 651 (Ala. 1988); Air Products and Chemicals, Inc. v. Johnson, 296 Pa. Super. 405, 442 A.2d 1114 (1982).  Generally, a trade secret is a process or device intended for continuous use in the operation of the business, for example, a machine or formula, but can be a price list or catalogue or specialized customer list. (Id). It is indubitable that trade secrets constitute proprietary rights. The inventor, discoverer, or possessor of a trade secret or similar innovation has rights therein which may be treated as property, and ordinarily an injunction will be granted to prevent the disclosure of the trade secret by one who obtained the information “in confidence” or through a “confidential relationship.” (9 A.L.R.3d 665, citing Am Jur, Injunctions (Rev.ed. sec. 72). The Restatement of the Law of Torts sec. 757)”.

3. Revealing industrial secrets is unlawful, as a rule. But revealing the industrial secrets can be ordered by the court if the non-disclosure will conceal fraud and/or in order to dispense justice. 

4. The Revised Penal Code provides penalty for revelation of industrial secrets, to quote:

Article 292. Revelation of industrial secrets. – The penalty of prision correccional in its minimum and medium periods and a fine not exceeding 500 pesos shall be imposed upon the person in charge, employee or workman of any manufacturing or industrial establishment who, to the prejudice of the owner thereof, shall reveal the secrets of the industry of the latter.

5. Trade secrets may not be the subject of compulsory disclosure. Here is the case:

Air Philippines Corporation 
vs.
Pennswell, Inc. 

G.R. No. 172835, December 13, 2007

Facts: Petitioner Air Philippines Corporation is a domestic corporation engaged in the business of air transportation services. On the other hand, respondent Pennswell, Inc. is engage in the business of manufacturing and selling industrial chemicals, solvents, and special lubricants.

Respondent delivered and sold to petitioner its products.

For failure of the petitioner to pay, respondent filed a Complaint for a Sum of Money with the RTC.

In its Answer, petitioner contended that its refusal to pay was not without valid and justifiable reasons. According to petitioner, respondent’s products, namely Excellent Rust Corrosion, Connector Grease, Electric Strength Protective Coating, and Anti-Seize Compound, are identical with its Anti-Friction Fluid, Contact Grease, Thixohtropic Grease, and Dry Lubricant, respectively. Petitioner alleged that when the purported fraud was discovered, a conference was held between petitioner and respondent, whereby the parties agreed that respondent would return to petitioner the amount it previously paid. However, petitioner was surprised when it received a letter from the respondent, demanding payment of the amount of ₱449,864.94, which later became the subject of respondent’s Complaint for Collection of a Sum of Money against petitioner.

During the pendency of the trial, petitioner filed a Motion to Compel respondent to give a detailed list of the ingredients and chemical components of its products. The RTC directs [herein respondent] Pennswell, Inc. to give [herein petitioner] Air Philippines Corporation[,] a detailed list of the ingredients or chemical components. Respondent sought reconsideration of the foregoing Order, contending that it cannot be compelled to disclose the chemical components sought because the matter is confidential. The RTC gave credence to respondent’s reasoning, and reversed itself. 

Alleging grave abuse of discretion on the part of the RTC, petitioner filed a Petition for Certiorari under Rule 65 of the Rules of Court with the Court of Appeals, which denied the Petition and affirmed the Order of the RTC.

Issue:  Whether the respondent can be compelled to reveal in detail the list of ingredients of its lubricants.

Ruling:  The ingredients or composition of [respondent] Pennswell’s lubricants are trade secrets and cannot be compelled to disclose.

The chemical composition, formulation, and ingredients of respondent’s special lubricants are trade secrets within the contemplation of the law. Respondent was established to engage in the business of general manufacturing and selling of, and to deal in, distribute, sell or otherwise dispose of goods, wares, merchandise, products, including but not limited to industrial chemicals, solvents, lubricants, acids, alkalies, salts, paints, oils, varnishes, colors, pigments and similar preparations, among others. It is unmistakable to our minds that the manufacture and production of respondent’s products proceed from a formulation of a secret list of ingredients. In the creation of its lubricants, respondent expended efforts, skills, research, and resources. What it had achieved by virtue of its investments may not be wrested from respondent on the mere pretext that it is necessary for petitioner’s defense against a collection for a sum of money.

Indeed, the privilege is not absolute; the trial court may compel disclosure where it is indispensable for doing justice. (Francisco, Evidence (3rd ed., 1996), pp. 171-173). We do not, however, find reason to except respondent’s trade secrets from the application of the rule on privilege. The revelation of respondent’s trade secrets serves no better purpose to the disposition of the main case pending with the RTC, which is on the collection of a sum of money. As can be gleaned from the facts, petitioner received respondent’s goods in trade in the normal course of business. To be sure, there are defenses under the laws of contracts and sales available to petitioner. On the other hand, the greater interest of justice ought to favor respondent as the holder of trade secrets. If we were to weigh the conflicting interests between the parties, we rule in favor of the greater interest of respondent. Trade secrets should receive greater protection from discovery, because they derive economic value from being generally unknown and not readily ascertainable by the public. To the mind of this Court, petitioner was not able to show a compelling reason for us to lift the veil of confidentiality which shields respondent’s trade secrets.
WHEREFORE, the Petition is DENIED. The Decision and the Resolution of the Court of Appeals are AFFIRMED.