Blockchain technologies are open ledgers of information which are verified and distributed across a peer-to-peer network. Simply put, it is a means of structuring data and replicating it on a myriad of computers or participating servers (nodes).

Each transaction or block is recorded on the Blockchain. A transaction can only be added to the Blockchain if it is verified and validated by each node. When a node is added, it creates what is known as a “hash” which is uniquely linked to the document or transaction.

Such technologies are used in various spheres such as contracts, Intellectual Property rights, the music industry and financial sphere. Could the Blockchain be used to protect trade secrets?

This article will focus on the terms, definitions and conditions set out in the European Union’s (EU) Directive n°2016/943 on Trade secrets of June 8th, 2016. It must be transposed by June 9th, 2018 and harmonises the regulations on trade secrets within the EU. Mathias Avocats has published an article on how to best prepare for its coming into application.

Article 2 of the Directive defines trade secrets as meaning “information which meets all of the following requirements:

  • it is a secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
  • it has commercial value because it is a secret;
  • it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret”.

Mathias Avocats explains how the Blockchain and trade secrets interplay.

How can Blockchain protect trade secrets?

As previously stated, trade secrets must remain secret to be protected. An example of a trade secret is the Coca-Cola recipe or the algorithm powering Google’s search engine. Signing a non-disclosure or confidentiality agreement may be a way of protecting them. However, the process is lengthy and may be costly (ex: lawyers’ fees). Furethremore, in the event of a breach, the business must be able to prove that it had a particular concept or information at a specific time. The latter is a delicate issue.

Blockchain technologies offer an efficient and secure alternative. If a business registers its trade secrets on a Blockchain technology, it will be encrypted. The trade secrets in itself will not be available to the public. The only available information is the hash which is similar to a timestamp. It can thus be used in the event of a breach. Moreover, no negotiations or lawyers are involved. The business can swiftly protect its trade secrets without any additional cost.

Under the EU’s Directive, registering trade secrets on the Blockchain could be considered as a “reasonable step (…) to keep it

[the information] secret”. Using Blockchains technologies could a means of protecting commercial information.

Far from a hypothetical situation, companies have started using Blockchain technologies for trade secrets. For example, MyDocSafe offers companies and individuals the possibility to protect sensitive commercial information (trade secrets) through smart contracts by using Etherum (an alternative Blockchain).

How can trade secrets protect the Blockchain?

Blockchain can support and protect trade secrets. However, can trade secrets protect Blockchain technologies?

To be protected under the Directive, the blockchain technology would have to answer all three criteria set out in Article 2 of the Directive. If a business develops a new blockchain technology, the code or algorithm can be kept secret as opposed to open-source code which is available to the public. The technology would most likely have commercial value and the business would have to take reasonable steps to keep the information secret.

If each condition is met and a breach occurs, the business would have a wide range of legal remedies: damages, injunction, recall of the infringing good or the destruction of all or part of any document/object/material/substance/electronic file containing or embodying the trade secret (articles 9 and 14 of the EU Directive n°2016/943).

Therefore, businesses using or developing Blockchain technologies should consider protecting their trade secrets as an alternative to patents or copyrights.

Mathias Avocats can guide you through this process and advise you as to how to best protect your assets.