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No Way Out: Mandatory Trade Secret Protection Laws in International Arbitration

December 2, 2016 • International Law

By Charles H. Camp, Anna R. Margolis & Camellia H. Mokri

The World Trade Organization’s member countries are required to include trade secret protections in their respective laws. With that in mind, this article discusses why a State must be critical in every contract it enters with another State.

 

As of today, 164 of the 195 countries in the world are members of the World Trade Organization (the “WTO”). Each of the WTO member countries are required to provide trade secret protections under their respective laws.

According to a policy statement by the United States Patent and Trademark Office1 (“USPTO”),

“Trade secrets consist of information and can include a formula, pattern, compilation, program, device, method, technique or process. To meet the most common definition of a trade secret, it must be used in business, and give an opportunity to obtain an economic advantage over competitors who do not know or use it.”

The United States complies with its international legal obligation to provide trade secret protection as a WTO member, as well as a party to the Agreement on Trade Related Aspects of Intellectual Property Rights (“TRIPS”), by having each of the states within the United States enact the Uniform Trade Secrets Act (“UTSA”) – something which virtually every state has done.2

According to the USPTO official policy statement,3

“As a member of the World Trade Organization (WTO) and a party to the Agreement on Trade Related Aspects of Intellectual-Property Rights (TRIPS), the United States is obligated to provide trade secret protection. Article 39 paragraph 2 requires member nations to provide a means for protecting information that is secret, commercially valuable because it is secret, and subject to reasonable steps to keep it secret. The US fulfils its obligation by offering trade secret protection under state laws. While state laws differ, there is similarity among the laws because almost all states have adopted some form of the Uniform Trade Secrets Act. The language of the Uniform Trade Secrets Act is very similar to the language in TRIPS.”

The obligations of the 164 WTO states to provide trade secret protection – a virtually worldwide public policy requiring trade secret protection – make trade secret protection laws “mandatory rules of law” (or “mandatory rules”) that cannot be contracted out of by parties to international contracts requiring disputes to be resolved through international arbitration.

In other words, parties’ freedom to contract is not unlimited.4 Instead, the parties’ choice of governing law may be overridden by mandatory rules, i.e., rules of law that “cannot be derogated from by way of Contract.”5

A mandatory rule of law has long been defined as:

 
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About the Author

camp_charles_liCharles H. Camp has taught International Negotiations at George Washington University Law School for over ten years and is an international lawyer based in Washington, D.C. with over thirty years’ experience representing foreign and domestic clients in international litigation, arbitration, negotiation, and international debt recovery. After practicing at large, international law firms for twenty years, Mr. Camp opened the Law Offices of Charles H. Camp, P.C. in 2001 to focus exclusively on complex, international commercial disputes.

 

margolis_anna_liAnna R. Margolis, a graduate of the George Washington University Law School, is an associate at the Law Offices of Charles H. Camp, P.C. Her practice focuses on international arbitration and litigation, including complex international and domestic commercial disputes. Ms. Margolis has worked extensively on litigation matters in the regions of South America and Asia.

 

mokri_camellia_liCamellia H. Mokri, is an associate at the Law Offices of Charles H. Camp, P.C., practicing in the area of international dispute resolution, including international arbitration and litigation. Ms. Mokri focuses on commercial disputes and jurisdictional matters involving foreign sovereigns. Prior to joining the firm, Ms. Mokri, a graduate of New York Law School, was with UBS in New York.

 

References

1. Trade Secret Policy, United States Patent and Trademark Office, https://www.uspto.gov/patents-getting-started/international-protection/trade-secret-policy (last visited Oct. 25, 2016).
2. As of 25 October 2016, only Massachusetts and New York have not yet enacted the UTSA, something they both are expected to do during 2016. See Legislative Fact Sheet – Trade Secrets Act, Uniform Law Commission, http://www.uniformlaws.org/LegislativeFactSheet.aspx?title=Trade%20Secrets%20Act (last visited Oct. 25, 2016).
3. Trade Secret Policy, United States Patent and Trademark Office, https://www.uspto.gov/patents-getting-started/international-protection/trade-secret-policy (last visited Oct. 25, 2016).
4. Y. Derains and E. Schwartz, A Guide to the ICC Rules of Arbitration 239 (2d ed. 2005).
5. N. Blackaby and C. Partasides, Redfern and Hunter on International Arbitration, para. 3.128 (6th ed. 2015).
6. P. Mayer, Mandatory Rules of Law in International Arbitration, 2 Arb. Int’l 274, 274-275 (1986).
7. M. Baniassadi, “Do Mandatory Rules of Public Law Limit Choice of Law in International Commercial Arbitration,” 10 Int’l Tax & Bus. L. 59, 83-84 (1992).
8. Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (“Rome I”), Art. 9.
9. Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (“Rome II”), Art. 14(2).
10. See Restatement (Second) Conflict of Laws §187 (1988 Revision).
11. Draft Recommendations of the ICC Commission on Law and Commercial Practices (1980), cited in O. Lando Conflict-of-Law Rules for Arbitrators, in H. Kötz, et al. (eds.), Festschrift Für Konrad Zweigert 157, 176 (1981) (“Even when an arbitrator does not apply the law of a certain country as the law governing the contract he may nevertheless give effect to mandatory rules of the law of that country if the contract or the parties have a close contact to that country and if and insofar as under its law those rules must be applied whatever be the law applicable to the contract. On considering whether to give effect to those mandatory rules, regard shall be had to their nature and purpose and to the consequences of their application or nonapplication.”).
12. G. Born, International Commercial Arbitration, p. 2715 (Vol. 2, 2014); N. Blackaby and C. Partasides, Redfern and Hunter on International Arbitration, paras. 3.128-3.130 (6th ed. 2015).
13. ICC Rules, Art. 41.
14. M. Baniassadi, “Do Mandatory Rules of Public Law Limit Choice of Law in International Commercial Arbitration,” 10 Int’l Tax & Bus. L. 59, 65-66 (1992).
15. G. Born, International Commercial Arbitration, p. 2715 (Vol. 2, 2014); C. Brower, “Arbitration and Antitrust: Navigating the Contours of Mandatory Law,” 59 Buff. L. Rev. 1127, 1143-1144 (2011).
16. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 653 (1985) (internal citations omitted).
17. Id. at 637, n. 19 (emphasis added).
18. See Mintel Learning Tech., Inc. v. Beijing Kaiti Ed. & Tech. Dev. Co., No. C-06-7541 PJH, 2007 U.S. Dist. LEXIS 103180, at *28, *29-30 (N.D. Cal. 2007) (“A forum has a significant interest in protecting the intellectual property of its citizens and businesses from infringement by foreign defendants … the questionable choice of law clause which defendants allege supplements the original agreement matters little with regard to California’s compelling interest in defending its citizens”); see also Magnecomp Corp. v. Athene Co., 209 Cal. App. 3d 526, 540 (Cal. Ct. App. 2d Dist. 1989) (“California has manifested a strong interest in providing a forum for its resident for causes of action arising from misappropriation of trade secrets by its enactment of the Uniform Trade Secrets Act”).
19. 2 Henry Batiffo and Paul LaGarde, Droit International Privé 277 (1987).
20. See H. Grigera Naón, Choice of Law Problems in International Commercial Arbitration 159 (1992) (“[T]he limits on the parties’ choice of law stipulations are to be found in the mandatory national norms (lois de police and self-applying lois d’applcation necessaire) which directly claim application, because of their substance and purposes, to international disputes and in the fraude a la loi doctrine. The latter doctrine is understood as preventing the parties from choosing a law leading to avoidance of the prohibitive provision of all the national legal orders objected connected with the transaction”); see also Mitsubishi at n. 19 (“We . . . note that in the event the choice-of-forum and choice-of-law clauses operated in tandem as a prospective waiver of a party’s right to pursue statutory remedies for antitrust violations, we would have little hesitation in condemning the agreement as against public policy.”)
21. ICC Rules, Art. 21(1).
22. Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (“Rome II”).
23. See Innovia Films Ltd v Frito-Lay North America, Inc [2012] EWHC 790 (Pat) at para. 110; Conductive Inkjet Technology Ltd v Uni-Pixel Displays Inc [2013] EWHC 2968 (Ch) at para. 125; and T. Aplin, Gurry on Breach of Confidence, para. 23.70 (2d. ed. 2012).
24. Rome II, Art. 4 (emphasis added).

 

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