(S. B. 1850)

(No. 80)

(Approved June 3, 2011)

AN ACT

To adopt a new statute to regulate the use and protection of industrial or trade

secrets, to be known as the “Industrial and Trade Secret Protection Act of

Puerto Rico.”

STATEMENT OF MOTIVES

In high-technology industrial and trade sectors, so-called trade secrets are

useful to protect: (1) a patent-worthy invention, during the patent application

process; (2) information not subject to a patent; or (3) information that simply

cannot be patented, as well as processes, methods or mechanisms. These are also

known as industrial or trade secrets. These may be a process to manufacture, treat

or preserve materials, a formula or a recipe, a project or a pattern to develop

machinery, or simply a list of specialized clients that constitute a specific market,

which provide the owner with an advantage over his/her competitors.

At present, the protection of rights over intellectual property is one of the

most relevant legal issues regarding international trade. With the growth of trade

and investments made within an international context, trademarks, patents,

copyright, and trade secrets command even more importance. It is more likely that

a company decides to invest in a place where patents, as well as its manufacture

processes or any other kind of property, which are the result of mental processes,

are properly protected against misappropriation. By 2006, companies quoted in the

United States stock market owned trade secrets worth five billion dollars

($5,000,000,000).

The Industrial Revolution Era prompted the prolific invention of machinery

and mechanisms. Patent laws were developed to protect these inventions. In the

so-called Computer Age, the protection of trade secrets better conforms to

confidential information that cannot be patented and which is necessary to conduct

business. There is a wide array of information that could be considered as trade

secrets, as compared to patents. Furthermore, in some cases, trade secrets offer

significant advantages over patents, insofar as the former are a less costly and more

streamlined mechanism, for it does not require any approval by the Government.

The latter gains greater relevance in industries that shift rapidly in terms of new

trends or technologies. Likewise, there are studies that show information about

companies at their initial stages and which favor the use of trade secrets. On the

other hand, within the past few years, there have been several cases in which a

Court has found a patent to be invalid, which leads to a loss of the protection, if for

a limited time, offered under the law, and more importantly, to the loss of the

confidential status of the information, which was made public during the process of

obtaining the patent.

In the field of rights over intellectual property, laws that regulate so-called

trade secrets are drawing international attention because of their potential to

become a legal tool whenever a patent or a copyright fails to suit the owner’s

specific needs. This kind of law supersedes any physical or contractual

impediments.

An industrial or trade secret is deemed to be any confidential information

with trade or industrial value, which its owner reasonably protects to prevent its

disclosure. Industrial or trade secrets have a distinctive feature, since these do not

require registration or compliance with any formalities in order to be protected.

The origins of restrictions on trade secrets can be traced back to Roman law,

whereby competitors were punished if they corrupted or forced a slave to disclose

the trade dealings of his/her master. From that time, the law continued to evolve

and by the time the French Penal Code of 1810 was enacted, it provided that any

director, person in charge or factory worker who had communicated or attempted

to communicate to foreigners or French nationals residing in foreign countries any

secrets of the factory for which he/she worked, he/she would be punished.

Subsequently, trade secrets were protected under civil and criminal law in places

such as Great Britain, Germany, Norway, Spain, Italy, Holland, Brazil, and

Venezuela, as well as in the vast majority of the States of the American Nation.

A trade secret can be the most valuable asset owned by a person or a

company. It can be more valuable than any buildings, machinery or vehicles,

besides being irreplaceable. Failure to protect trade secrets could leave companies

at the mercy of any competitor or former employee who gains knowledge of any

such secret, whether directly from the owner or by other means. On the other hand,

according this kind of protection fosters the kind of research and development that

generates information and provides for its security.

This Legislative Assembly believes that Puerto Rico should be included

among the jurisdictions that have recognized the importance of regulating and

protecting this kind of information, thus providing such owners with greater

stability and peace of mind to better conduct and develop their operations in our

Island. It is therefore that this measure follows the model law known as the

Uniform Trade Secrets Act (UTSA), promulgated by the National Conference of

Commissioners on Uniform State Laws, attached to the Uniform Law

Commission, which is better known as the ULC. Among the advantages of

approving uniform statutes is being able to conform our laws to those in the

various States of the Union in matters in which uniform law is conveniently

feasible from a juridical standpoint. Such an action provides greater stability to the

economic exchange between States, while placing Puerto Rico on a competitive

footing equal to that of the States in terms of the protections our Island offers to

generate economic activity. In approving this uniform law in nearly forty-five (45)

States of the Union, in regard to trade secrets trade is promoted between persons or

businesses in these States and Puerto Rico.

BE IT ENACTED BY THE LEGISLATIVE ASSEMBLY OF PUERTO RICO:

Section 1.—Title.—

This Act shall be known as the “Industrial and Trade Secret Protection Act

of Puerto Rico.”

Section 2.—Definitions.—

For purposes of this Act, the following terms shall have the meaning

provided for below:

(a) Information.—Knowledge that broadens or clarifies knowledge

already garnered. It includes, but is not limited to, any formula, compilation,

method, technique, process, recipe, design, treatment, model or pattern.

(b) Improper Means.—Unlawful means not allowed under the law or

which is contrary to free competition and to laws and regulations in effect,

whereby a trade secret is obtained, including, but not limited to, misappropriation,

theft, bribery, malfeasance, deceit, breach of contractual duties, wiretapping, or

espionage through electronic or other means.

(c) Person.—Any natural or juridical person.

Section 3.—Trade Secret.—

Industrial or trade secrets are deemed to be any information:

(a) That has a present or a potential independent financial value or that

provides a business advantage, insofar as such information is not common

knowledge or readily accessible through proper means by persons who could make

a monetary profit from the use or disclosure of such information; and

(b) For which reasonable security measures have been taken, as

circumstances dictate, to maintain its confidentiality.

Any information generated by, used in or resulting from any failed attempts

to develop a trade secret shall also be deemed to be a part thereof.

Section 4.—Reasonable Security Measures.—

Reasonable security measures are any preventive measures that should be

taken in order to limit access to information under specific circumstances. These

shall be determined pursuant to any foreseeable conduct whereby the trade secret

could be accessed and the nature of the risk ensuing from such conduct, as well as

the cost-benefit ratio between the security measure and the trade secret.

Measures that can be deemed to be reasonable to maintain the confidentiality

of the trade secret include, but are not limited to:

(a) The nondisclosure of information to individual or entities not

authorized to access such information;

(b) Limiting the number of persons authorized to access such

information;

(c) Requiring company employees authorized to access such information

to sign confidentiality agreements;

(d) Keeping such information in a place separate from any other

information;

(e) Labeling such information as confidential;

(f) Taking measures to impede the indiscriminate reproduction of such

information;

(g) Establishing control measures for the use of or access to such

information by company employees; or

(h) Implementing any technologically available measures when

publishing or transmitting such information over the Internet, including the use of

email, web pages, message boards, and any other equivalent medium.

Section 6.—Grounds for Action.—

Any natural or juridical person who misappropriates a trade secret shall be

held accountable for any damages caused to its owner.

For purposes of this Act, misappropriation shall be:

(a) The acquisition of a trade secret belonging to another by a person who

knew or should have known that he/she acquired such secret directly or indirectly

through improper means; or

(b) The disclosure or use of a trade secret belonging to another without

his/her express or implicit consent, by a person who:

(i) Used improper means to gain knowledge of the trade secret; or

(ii) At the time of disclosure or use, such person knew or should

have known that such trade secret was:

(1) Obtained through a person who acquired such

information through the use of improper means;

(2) Obtained under circumstances from which a duty to

maintain confidentiality or to limit use ensues;

(3) Obtained through a person who had the duty-bound to the

trade secret’s owner to maintain confidentiality or limit use; or

(4) Known by accident or by mistake.

Section 7.—Special Proceedings.—

When in the judgment of the corresponding Court, in a lawsuit supported by

a sworn statement filed by the owner of a trade secret, specific facts are alleged

which clearly establish that the defendant misappropriated such trade secret, that

the disclosure or use thereof by the defendant shall cause damages to the plaintiff,

and that it is highly likely that the plaintiff shall prevail, the Court shall issue a

provisional ex parte order to require the defendant to immediately stop, cease or

desist, under warning of contempt, from the use and disclosure of the trade secret

which prompted such lawsuit, until a hearing is held within ten (10) days following

the date the provisional order is issued.

The provisional order shall provide for a hearing to be held within ten (10)

days following the date such order is issued, in order for the defendant to show

grounds for which a preliminary injunction should not be issued so as to allow for

the elucidation of the rights of the parties involved. The order thus issued shall be

rendered ineffective, inefficient, and invalid and shall not be enforceable after such

ten (10)-day term has transpired. Such term may only be extended if the Court

finds that extraordinary circumstances exist before the expiration of the term for

the previous order.

Section 8.—Remedies; Injunction.—

In all cases in which it is proven that an industrial or trade secret has been

misappropriated, the Court may issue a preliminary injunction order, for which the

plaintiff shall not be under the obligation to prove irreparable damages.

Furthermore, the Court may issue a permanent injunction once the case has been

fully heard.

The Court, by request of the defendant, shall terminate the injunction if such

industrial or trade secret has ceased to exist as a secret. The Court may extend the

injunction for an additional reasonable term so as to prevent the defendant from

obtaining an improper business advantage, or if the defendant is culpable when

such secret ceases to exist.

The Court may, under extraordinary circumstances, order that reasonable

royalties be paid if it finds that prohibiting the future use of an industrial or trade

secret would be an unreasonable measure. The term provided for paying such

royalties shall not exceed the term during which the use of the industrial or trade

secret was prohibited. Finding that a party is using the trade secret before being

aware or in a position that allowed him/her to be aware of the concept of

misappropriation shall be deemed to be an extraordinary circumstance, thus

rendering the injunction non-equitable.

Section 9.—Remedies; Damages.—

Except in cases in which there has been a change in position or situation,

before the defendant was aware or should have been aware of the concept of

misappropriation concerning the information of the industrial or trade secret, and

this renders a monetary settlement non-equitable, the plaintiff may recover any

material damages sustained because of such misappropriation. The plaintiff may

also claim any additional damages caused by any advantage obtained by the

defendant as a result of such misappropriation which have not been included in the

computation of losses caused by such damages. If unable to prove, to the

satisfaction of the Court, material damages or damages caused by improper

advantage, the Court may order the payment of royalties for a term that shall not be

longer than the term for which the use of such information would have been

prohibited.

The Court, in its discretion, may fix the sum total for damages in an amount

that shall not exceed thrice (3) the proven damages when the Court finds that the

violation was intentional and perpetrated in bad faith.

The elements to be considered when granting damages for misappropriation

of an industrial or trade secret include, but are not limited to:

(a) Loss of profit for the owner of such information;

(b) Value of the sum that would have been paid to a consultant to develop

such information;

(c) Depreciation of such information’s value as a result of disclosure;

(d) Developing costs in the process of acquiring such information; or

(e) Such information’s market value.

Section 10.—Attorney’s Fees.—

In addition to the circumstances provided for in the Rules of Civil Procedure

in effect, the Court shall impose on the claimant, in its ruling, a reasonable sum on

account of attorney’s fees if the evidence presented proves that such

misappropriation by the defendant was intentional and perpetrated in bad faith.

Section 11.—Conservation of Secret.—

(a) In any action filed whereby misappropriation of an industrial or trade

secret is alleged under this Act, the plaintiff, before discovery of proof, shall

describe the trade secret as specifically as possible, but without disclosing the

same.

(b) In any action filed under this Act, the Court shall keep the

confidentiality of the alleged industrial or trade secret and take measures as it

believes to be necessary, which may include, among others, the issue of a

protective order that ensures confidentiality, holding closed hearings, keeping the

records of such action sealed, and ordering any person involved in the lawsuit not

to disclose the industrial or trade secret without the previous authorization of the

Court.

(c) Before ordering the discovery of information classified by its owner

as an industrial or trade secret, the Court shall determine whether the party that

requests the discovery is in substantial need of such information. For purposes

of this Act, a “substantial need” shall be deemed to exist if the following

circumstances are present:

(i) The allegations presented with the purpose of establishing the

existence or absence of liability, have been presented in a specific manner;

(ii) The information for which discovery is sought is directly

relevant to the allegations presented in a specific manner;

(iii) The nature of the information for which discovery is sought is

such that the party seeking its discovery would sustain substantial damages

if access to such information is not allowed; and

(iv) There is the belief, in good faith, that the testimony or evidence

generated by such information that is a part of the trade secret shall be

admissible at trial.

(d) The Court shall not order direct access to databases that contain

information that is a part of a trade secret, unless the Court finds that the party

proposing the discovery is unable to obtain such information through any other

means and that such information is not privileged.

(e) By request of the owner of an industrial or trade secret, the Court may

make the discovery of such industrial or trade secret contingent upon the posting of

an appropriate bond.

(f) Any industrial or trade secret discovered under this Act may only be

disclosed to the persons identified in the order issued by the Court, and may only

be used or disclosed within the court proceedings in which its discovery is

authorized.

(g) Any person who receives information that is a part of an industrial or

trade secret under this Act shall be subject to the jurisdiction of the courts of the

Commonwealth of Puerto Rico.

(h) When an industrial or trade secret is discussed or disclosed at trial or

in a hearing, the Court shall order the removal from the courtroom of any persons

whose presence is not indispensable to continue court proceedings, and the owner

shall be allowed to obtain confidentiality agreements individually signed by all

persons present at the courtroom or who are party to any proceeding in which the

trade secret is discussed, presented or otherwise disclosed if such persons have not

previously executed a confidentiality agreement with the owner of such industrial

or trade secret.

(i) Any information that is a part of an industrial or trade secret, and any

copy, duplicate, document or any other means that reflects or contains such trade

secret information or any portions or excerpts thereof shall be returned to the

owner of such trade secret upon conclusion of lawsuit proceedings, or destroyed to

the owner’s satisfaction.

Except for the provisions in this Section, this Act preempts any law of the

Government of Puerto Rico that provides for civil remedies for misappropriation of

a trade secret.

This Act does not affect:

(a) Contractual remedies, whether or not based on the misappropriation of

a trade secret;

(b) Other civil remedies not based on the misappropriation of a trade

secret;

(c) Criminal actions, whether or not based on the misappropriation of a

trade secret.

Section 13.—Prescription.—

Any action or proceedings to enforce any provision of this Act shall be

instituted no later than three (3) years following the date the person affected

became or should have been aware of the occurrence of the facts that constitute

grounds for an action.

Section 14.—Severability Clause.—

If any clause, paragraph, section, subsection or part of this Act is found to be

unconstitutional by a competent Court, the ruling thus pronounced shall not affect,

impair or invalidate the remainder thereof. The effect of such ruling shall be

limited to the clause, paragraph, section, subsection or part of this Act thus ruled

unconstitutional

Section 15.—Effectiveness.—

This Act shall take effect immediately after its approval.

CERTIFICATION

I hereby certify to the Secretary of State that the following Act No. 80 (S. B. 1850)

of the 5th Session of the 16th Legislature of Puerto Rico:

AN ACT to adopt a new statute to regulate the use and protection of industrial or

trade secrets, to be known as the “Industrial and Trade Secret Protection Act of Puerto Rico.”

has been translated from Spanish to English and that the English version is correct.

In San Juan, Puerto Rico, on the 1st day of September, 2011.

María del Mar Ortiz Rivera, Esq.

Director