How Can Companies Protect Trade Secrets in Open Court?
Introduction
Businesses may need to submit formulas, source code, manufacturing processes, customer information, pricing methods, or other confidential materials as evidence when prosecuting intellectual property theft. The difficulty is that court proceedings are generally public, while public disclosure of the evidence may destroy the very commercial value the business seeks to protect.
Philippine law recognizes that trade secrets deserve protection during litigation. A business may ask the court to restrict testimony, seal or redact sensitive documents, limit access to exhibits, and conduct portions of the proceedings privately when disclosure would cause commercial harm or prejudice the fair administration of justice.
What Is a Trade Secret?
A trade secret is confidential business information that derives economic value from not being generally known or readily ascertainable by persons who may obtain economic value from its disclosure or use. Examples include manufacturing formulas, chemical compositions, algorithms, source code, business methods, marketing plans, and confidential customer or supplier information.
The information must ordinarily be treated as confidential by the business. Courts are more likely to protect information when the owner can show restricted access, confidentiality agreements, password controls, document classifications, employee policies, and other reasonable safeguards.
What Rule Protects Trade Secrets in Court?
Section 26, Rule 130 of the 2019 Amendments to the 1989 Revised Rules on Evidence provides that a person cannot be compelled to testify about a trade secret unless nondisclosure would conceal fraud or otherwise work injustice. If disclosure is ordered, the court must adopt protective measures that consider the interests of the trade-secret owner, the parties, and the furtherance of justice.
This protection applies principally to compelled testimony. It also reflects the broader judicial policy that confidential commercial information should not be unnecessarily exposed during the presentation, discovery, or evaluation of evidence.
The protection is not absolute. The court may order disclosure when the information is indispensable to resolve the dispute, or when refusing disclosure would conceal fraud or otherwise produce injustice.
What Does the Supreme Court Say About Trade Secrets?
In Air Philippines Corporation v. Pennswell, Inc., G.R. No. 172835, December 13, 2007, the Supreme Court held that the chemical composition and ingredients of industrial lubricants constituted trade secrets and could not be compelled through discovery merely because the requesting party wanted to conduct a chemical comparison.
The Court recognized that trade secrets have proprietary and economic value because they are not generally known or readily ascertainable. It also held that the party seeking disclosure must show more than ordinary necessity for its defense in a civil case.
The Court explained that the privilege is not absolute, but found no compelling reason to compel disclosure where the requested information was not indispensable to the collection claim. The decision supports a careful balancing of the need for evidence against the commercial injury caused by disclosure.
How Can a Company Request a Closed-Door Hearing?
A party seeking a closed-door hearing should file a written motion before the sensitive evidence is presented. The motion should identify the specific testimony or exhibit involved, explain why it qualifies as confidential commercial information, and describe the concrete injury that public disclosure may cause.
The motion should ask for a limited restriction rather than a blanket closure of the entire trial. Courts are more likely to grant narrowly tailored relief directed only at the testimony, exhibit, argument, or portion of the hearing involving the trade secret.
Possible requests include:
- excluding the public and unrelated observers while the sensitive evidence is presented;
- allowing only the parties, counsel, authorized experts, court personnel, and essential witnesses to remain in the courtroom;
- requiring the parties and their experts to sign confidentiality undertakings;
- prohibiting photography, recording, copying, or electronic transmission of the evidence;
- placing confidential exhibits in sealed envelopes or sealed electronic files; and
- issuing an order identifying the persons authorized to access the material.
The request should be supported by affidavits from an officer, technical expert, or information-security representative explaining the nature of the trade secret, the persons who have access to it, its commercial value, and the likely consequences of disclosure.
Can the Court Seal or Redact Public Records?
Yes. A party may ask the court to file a redacted version of a pleading or exhibit for the public record while submitting an unredacted version under seal for the court’s confidential examination.
Redaction should be limited to information that is genuinely sensitive. For example, a party may redact the precise chemical formula while leaving visible the existence of the product, the relevant dates, the parties’ contractual relationship, and the general nature of the claim.
A sealing request should specify:
- the exact document or portions to be sealed;
- the factual basis for treating the material as a trade secret;
- the duration of the requested restriction;
- the persons who may inspect the sealed material; and
- the conditions for later unsealing, substitution, or review.
The court may also order that secret processes, developments, or research need not be disclosed in a deposition, or may require documents and information to be submitted in sealed envelopes to be opened only as directed. These protective measures are recognized under Rule 23 of the 2019 Amendments to the 1997 Rules of Civil Procedure.
What Protective Measures May the Court Use?
| Measure | Purpose |
|---|---|
| Closed hearing | Prevents public attendance during testimony concerning the trade secret. |
| Sealed exhibit | Restricts public access to the original confidential document or object. |
| Redacted pleading | Allows a public record while removing formulas, codes, or other sensitive details. |
| Confidentiality undertaking | Limits use and disclosure by counsel, experts, witnesses, and authorized personnel. |
| Protective discovery order | Controls inspection, copying, deposition questions, and the handling of confidential information. |
Protective measures must be proportionate. The court should preserve public access to matters that do not reveal the trade secret while restricting only the information whose disclosure creates a legitimate risk of commercial injury.
When May the Court Compel Disclosure?
Disclosure may be ordered when the requesting party demonstrates that the information is indispensable to prove or defend the case. Mere relevance, convenience, curiosity, or a generalized claim that the information may assist the defense may not be sufficient.
Under Section 26, Rule 130, disclosure may also be compelled when nondisclosure would conceal fraud or otherwise work injustice. The court must then determine what safeguards are necessary, such as restricting access, permitting inspection without copying, receiving testimony in camera, or ordering the material returned after the proceeding.
In Air Philippines Corporation v. Pennswell, Inc., the Supreme Court favored protecting the trade-secret owner because the requested formulation was not shown to be indispensable to the collection dispute. The ruling illustrates that the court weighs the evidentiary need against the risk that competitors may obtain and exploit the information.
How Does Corporate Record Inspection Affect Confidentiality?
Section 73 of the Revised Corporation Code of the Philippines, R.A. No. 11232, recognizes inspection rights over corporate records by qualified directors, trustees, stockholders, or members. Those rights are subject to confidentiality obligations under prevailing laws, including the rules on trade secrets, the Data Privacy Act of 2012, the Securities Regulation Code, and the Rules of Court.
Corporate inspection rights do not automatically authorize unrestricted public dissemination of confidential records. A company should identify sensitive records, maintain a confidentiality policy, and raise appropriate objections when an inspection demand seeks information beyond the lawful purpose of the inspection.
When corporate records are later submitted in court, the company should separately request sealing or redaction. The fact that a record is maintained in corporate books does not by itself eliminate its confidential commercial character.
What Should a Company Establish Before Seeking Protection?
A company should present evidence addressing four matters:
- Specificity: identify the precise information claimed to be confidential rather than broadly labeling an entire file or business system as secret.
- Secrecy: show that the information is not generally known and is not readily available through legitimate means.
- Economic value: explain how secrecy provides a competitive or commercial advantage.
- Reasonable safeguards: prove that the company actually restricted access and took measures to preserve confidentiality.
Useful supporting evidence may include employment agreements, nondisclosure agreements, access logs, security protocols, internal policies, restricted folders, confidentiality markings, expert affidavits, and testimony regarding the cost of developing the information.
What Are Common Litigation Mistakes?
A party may weaken its request by filing the alleged trade secret in an unrestricted public pleading, presenting the information in open court before seeking protection, or asserting confidentiality without identifying the specific commercial harm.
Another mistake is requesting that the entire case be closed. A narrowly drafted motion that protects only the sensitive portions of the evidence is generally more defensible than a request that would unnecessarily impair public access to judicial proceedings.
The company should also avoid claiming trade-secret protection over information that is already publicly available, independently developed by another party, or readily ascertainable from public records or ordinary industry practice.
What About Mediation and Other Confidential Proceedings?
Proceedings before the National Privacy Commission may involve confidentiality protections under the 2021 Rules of Procedure of the National Privacy Commission. Mediation conferences are private, and information obtained during mediation must not be disclosed. Admissions and statements made during mediation are generally inadmissible in other proceedings, although evidence that was independently admissible or discoverable does not become protected merely because it was used in mediation.
These mediation protections are distinct from trade-secret protection in open court. A company should not assume that placing information in mediation automatically prevents its later disclosure in litigation, particularly where the same evidence can be obtained from an independent source.
Recommended Steps for Prosecuting Intellectual Property Theft
- Classify the information and identify the particular formula, process, code, record, or communication that must be presented.
- Prepare a confidentiality affidavit explaining secrecy, economic value, access restrictions, and the expected harm from disclosure.
- File a motion for protective order before discovery, deposition, or trial presentation of the sensitive material.
- Submit public redacted versions and confidential unredacted versions of pleadings and exhibits.
- Request an in-camera hearing limited to the portions that reveal the trade secret.
- Propose specific safeguards, including restricted access, confidentiality undertakings, sealed exhibits, and limits on copying.
- Maintain a record of all persons who receive or inspect the confidential material.
Conclusion
Philippine courts recognize that trade secrets should not be exposed merely because they are relevant to a dispute. Under Section 26, Rule 130 of the 2019 Amendments to the 1989 Revised Rules on Evidence, the court may protect confidential business information unless nondisclosure would conceal fraud or otherwise work injustice.
A company prosecuting intellectual property theft should act before disclosure occurs. A specific motion supported by evidence of secrecy, economic value, and reasonable confidentiality measures can support a closed hearing, sealed exhibits, redacted pleadings, and controlled access to the record.
The most effective request is neither unsupported nor excessive. It should preserve the court’s ability to decide the case while preventing unnecessary disclosure of the information that gives the business its competitive advantage.
About Nicolas and De Vega Law Offices
Nicolas and de Vega Law Offices is a full-service law firm in the Philippines. You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines. You may also call us at +632 84706126, +632 84706130, +632 84016392 or e-mail us at [email protected]. Visit our website https://ndvlaw.com.
