Trade secret laws in the Czech Republic

Yes.

The Trade Secrets Directive was implemented into the Act No. 221/2006 Coll., on Enforcement of Industrial Property Rights and on the Protection of Trade Secrets (the “Enforcement Act”).

Yes.

The relevant regulation is also provided in the Act No. 89/2012 Coll. Civil code, as amended (the “Civil Code”), the Act No. 99/1963 Coll., Civil Procedural Code, as amended (the “Civil Procedure Code”), and the Act No. 40/2009 Coll., Criminal Code, as amended.

Trade secrets are considered competitively significant, identifiable, valuable and in relevant business circles normally unavailable information related to the enterprise, whose confidentiality is ensured by the owner in his own interest.

No.

There are no specific conditions to be fulfilled. However, the definition of trade secrets has to be met and therefore it is requested to adopt certain measures to ensure the confidentiality of the trade secrets.

Yes, both courses of action are possible.

According to Czech law, it is not possible to validly transfer and/or license trade secrets by a person who is not authorised to do so (the “Nemo plus iuris…” principle). Therefore, such a transfer and/or licensing would most likely not be valid (we do not refer to a transfer of license and/or sublicensing by an authorised licensee).

Moreover, such a transfer and/or licensing would most likely constitute violation of rights of the trade secrets owner and/or other authorised person (e.g. licensee).

Yes.

Breach of trade secrets is defined as any act whereby a person unlawfully discloses or makes available to another person, or uses for himself or for another person, trade secrets which can be used in competition and of which the person learned:

• as a result of having been entrusted with the trade secrets or as a result of the trade secrets having been otherwise made available to him under his employment relationship with a competitor, or under another relationship with the competitor, or, where applicable, in the discharge of the office to which he was selected by a court or another body; or
• by the person’s own act or the act of another in violation of the law.

Yes.

Pursuant to the Civil Procedure Code, a court may (also prior to the commencement of judicial proceedings) gather or preserve evidence if there is danger that the evidence will later not be possible to carry out at all or that it will be possible to carry out only with great difficulties.

Interim measures

There are no specific interim measures. However, pursuant to the Civil Procedure Code, a court may (also prior to the commencement of judicial proceedings), order interim measures if it is necessary to temporarily regulate the parties' relations or if there is an apprehension that the enforcement of the judgment will be jeopardised.

The court may, for example, order the cessation of or, as the case may be, the prohibition of the use or disclosure of the trade secrets on a provisional basis, the prohibition of the production, offering, placing on the market or use of infringing goods, or the importation, export or storage of infringing goods for those purposes, or the seizure or delivery up of the suspected infringing goods, including imported goods, so as to prevent their entry into, or circulation on, the market.

Final measures

Pursuant to the Enforcement Act, a court may order the infringer to cease the violation or threat of violation of the trade secrets and to remedy the violation or the threat of violation. Specifically, but not exclusively, the court may order the recall of the infringing goods from the market, the destruction or definitive removal of the infringing goods from channels of commerce, or recall, order the destruction or definitive removal from the channels of commerce of materials, tools and equipment intended or used for the violation or the threat of violation of the trade secrets.

Pursuant to the Civil Code, a court may order the infringer to compensate the damages, return the unjust enrichment or pay reasonable satisfaction.

Pursuant to the Enforcement Act and the Civil Procedure Code, a court may order, at the request of the injured person and at the expense of the infringer, appropriate measures for the dissemination of the information concerning the decision, including publishing it in full or in part.

Yes.

Pursuant to the Civil Procedure Code, an applicant must submit the substantive action within a statutory period or a period provided by the court.

Yes.

Pursuant to the Enforcement Act, a court may order, on the motion of the infringer, pecuniary compensation to be paid to the injured person instead of applying the specific final measures, if the infringer at the time of use or disclosure neither knew nor ought to have known that he was infringing the trade secrets, the execution of the specific final measures would cause that person disproportionate harm, and pecuniary compensation to the injured party appears reasonably satisfactory.

Interim measures are available also through ex parte hearings.

Pursuant to the Enforcement Act where the pecuniary compensation is ordered, it will not exceed the amount of usual fees for the authorisation to use the trade secrets in question, for the period of the infringement.

Further, pursuant to the Enforcement Act, a court may determine, upon receiving a motion of the injured person, the amount of damages, unjust enrichment and reasonable satisfaction to be paid by the infringer as a lump sum at least in the amount of usual fees for the authorisation to use the trade secrets in question, for the period of the violation, if the infringer at the time of use or disclosure knew or ought to have known that he was infringing the trade secrets.

Pursuant to the Civil Code, there are two statutory limitation periods: three-year subjective limitation period, and ten-year objective limitation period (or 15-years objective limitation period where the infringement was intentional).

The beginning of both limitation periods varies depending on the raised claim. Generally, the limitation periods start on the date on which the right could have been enforced for the first time (i.e. once the injured person became aware of the circumstances decisive for the start of the limitation periods or when it should and could have known the circumstances).

The Civil Code provides for certain circumstances when the limitation periods are suspended or interrupted (e.g. the limitation periods are suspended for the duration of judicial proceedings where the claims of the infringed trade secrets are raised). The limitation periods are interrupted, and a new ten-year limitation period starts to run if a debt is acknowledged by the debtor and/or if the right is admitted by a judicial decision.

Yes.

Pursuant to the Civil Procedural Code, it is possible to exclude public to ensure the secrecy of trade secrets. The similar applies to review of court files.

Pursuant to the Civil Code, provisions of civil law may be only applied to the extent they are in compliance with the Charter of Fundamental Human Rights. We also note that the abuse of right is forbidden.

No.

There are no specific measures available.

See answer to question 13 above.

If the employer wishes to extend statutory protection of trade secrets, they can enter into the following agreements with their employees:

Non-disclosure agreement (“NDA”) – The employer and the employee may conclude an agreement that prohibits the employee to disclose certain information gained in connection with their employment. The NDA with an employee may last during the employment, but also after the employment's end and must not contain any contractual penalty. It is important to specify the confidential information in sufficient detail, otherwise the employee could argue they were not aware the relevant piece of information was protected by the NDA. Although a written form is not mandatory, it is highly recommended to improve the employer’s position in potential disputes on the scope of confidential information and for the evidencing purposes. 

Non-compete agreement – In addition to non-compete restriction, which applies by virtue of the law during an employment relationship (see below), the employer and the employee may conclude an agreement that prohibits the employee from performing a gainful activity that would be either identical or of a competitive nature to the business activity of the employer after the employment relationship has ended. 

The agreement must be in a written form and may be concluded either as a separate agreement or as part of the employment contract. The maximum duration of the non-compete is one year after the end of the employment and the employer must provide the former employee with financial compensation in the minimum amount of one half of the former employee’s average monthly earnings (bonuses are included in the calculations) per each month of the employee’s compliance with the non-compete agreement. The non-compete agreement may include a contractual penalty payable by the employee in case of breach, but the non-compete agreement ceases to exist upon payment of the agreed-upon contractual penalty. Employers can conclude non-compete agreements only with employees on such job positions where it is reasonable to anticipate a potential misuse of trade secrets with regard to the nature of information, knowledge, operational and technological know-how that the employees obtained in the employment relationship. Due to (i) the obligation to pay remuneration over the non-compete period and (ii) rather strict rules applicable to a withdrawal from the agreement by the employer, it is generally recommended to enter into non-compete agreements only with key employees.

Statutory protection of employer trade secrets derives from:

• The employees’ obligation not to conduct activities contrary to the employer’s legitimate interests and to protect the employer’s property; and
• Non-compete restrictions applicable by virtue of law (contrary to the post-termination non-compete, which must be agreed upon between the employer and the employee) to employees during their employment relationship where employees are prohibited from conducting gainful activity that is identical to the employer’s business activity unless they obtain a prior explicit written consent from the employer. 

The above obligations ensure base-level protection of the employer’s trade secrets since (i) a disclosure of trade secrets by employees is prohibited by law as it is clearly against the employer’s legitimate interests and may diminish the value of the employer’s property; and (ii) the employer has control over its employees’ simultaneous gainful activities that are identical to the employer’s business activity (e.g. work done for the employer’s competitor), which would enhance the risk of disclosure or misuse of the employer’s trade secrets.

The safest form of protection applicable to the period after the end of employment is to conclude a non-compete agreement and an NDA (covering the period after the end of employment), and they both must be concluded during the employment relationship. In addition to contractual obligations and restrictions applicable under the above agreements, employers may consider the following:

• including confidentiality clauses in employment contracts or termination documents;
• adopting an internal policy concerning confidentiality obligation arising from employment relationships (the policy should indicate the scope of information that must not be disclosed); 
• prohibiting employees from using their work equipment and company means of communication (e.g. email) for private purposes; 
• prohibiting employees from taking pictures and video on the employer’s premises;
• introducing regular employee training to raise awareness on the importance of and obligation to protect the employer’s trade secrets and confidential information.

No.

Protection of whistleblowers is not currently regulated in the Czech Republic since the Czech government failed to timely implement Directive (EU) 2019/1937 of the European Parliament and of the Council of 23 October 2019 on the protection of persons who report breach Union law (the “Directive”), which provides for a minimum level of protection for whistleblowers. The national law implementing the Directive is expected to be adopted in the course of 2022. Once the new whistleblowing law is adopted and goes into effect, employees will likely be protected against disciplinary action and other retaliation if they report irregularities or misconduct in line with the whistleblowing law even if their report discloses employer trade secrets. 

See our Expert Guide to Whistleblower Protection and Reporting Channels for more information. 

Yes.

The employer is liable for an employee’s infringement of a third party’s trade secrets if the infringement happened while the employee both objectively and subjectively aimed to perform a work task. From the employer’s liability perspective, it is not decisive whether the employee acted in accordance with the employer’s instructions or not (i.e. the employee’s non-compliance with the instructions does not constitute a reason for termination). The employee’s conduct by which they infringed a third party’s trade secrets can be subject to disciplinary action or other retaliation (e.g. a claim for damages) by the employer.

In regular commercial contracts, we recommend including a confidentiality clause that includes trade secrets among confidential information. In commercial contracts where the trade secrets form a substantial part of the contractual relationship or trade secrets are highly valuable, we recommend defining trade secrets in detail, specifying the rules for handling these trade secrets, including limiting the number of authorised persons with access to the secrets, and specifying the means of protection of the trade secrets, including technical and organisational measures.

The confidentiality provision should also be safeguarded by a contractual penalty against a breach. The contractual penalty is advisable because proving that damage was actually caused by the breach of a confidentiality obligation is a difficult task and often subject to expert examination. 

Identifying what a trade secret is for the other contractual party (or what the contractual party might consider a trade secret to be) may be difficult in certain cases. Therefore, defining trade secrets in detail limits the risk of unintentional breach of the rights of the other contractual party to its trade secrets, or the risk of a dispute over an alleged breach of the commercial contract.

The parties also often fail to agree upon a contingency plan. Parties generally do look at the protection of confidential information and the consequences of a breach, but forget to stipulate what parties should do when the breach occurs. The main goal of the parties should be to maintain the secrecy of a trade secret. When a trade secret is disclosed, however, the parties should have a contingency plan in place to limit negative consequences as much as possible.

The contractual parties should always consider the applicable law and its regulation on the protection of trade secrets. Within the European Union, the level of protection is harmonised by Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (i.e. trade secrets) against their unlawful acquisition, use and disclosure. However, if the commercial contract is to be subject to other applicable laws, the parties must always ensure that level of protection.

Parties should be specifically careful when dealing with other parties from countries where the risk of disclosure of the trade secrets or even confiscation of foreign property exists.

Czech law allows the contractual parties to safeguard the confidentiality obligation by a contractual penalty. The amount of the contractual penalty should always be proportionate to the value of the trade secrets. If a contractual penalty is unproportionate, upon the motion of the breaching party a court may lower the amount of the contractual penalty up to the amount of actual damage caused by the breach of the confidentiality obligation.