Trade secret laws and regulations in Croatia

Yes, the Trade Secrets Directive has been implemented in Croatian law by virtue of the Act on the Protection of Undisclosed Information with Market Value (Official Gazette No. 30/18), in force as of 7 April 2018.

Yes, apart from the Act on the Protection of Undisclosed Information with Market Value, trade secrets are also regulated by the Act on the Protection of Secret Information (Official Gazette No. 108/96, 79/07). In addition, Trade Act (Official Gazette No. 87/08, 96/08, 116/08, 116/08, 76/09, 114/11, 68/13, 30/14, 32/19, 98/19, 32/20) prescribes that unlawful acquisition or use of other person’s trade secret represents an act of unlawful trading, constituting a misdemeanour punishable by a fine.

Act on the Protection of Undisclosed Information with Market Value defines trade secrets as information, which fulfil all the following criteria:

1. it is 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;
2. it has commercial value because it is secret;
3. it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

This information includes, inter alia, knowledge and experience, business and technological information.

The Act on the Protection of Secret Information defines trade secrets as information, which are determined as trade secrets by virtue of the law, other regulations or internal acts of a legal entity, institution or other legal person, which represent a production secret, research or construction work results and other information the disclosure of which could result in adverse consequences to their economic interests.

Furthermore, this Act prescribes that information important for the business merger of legal entities and information related to protected technical improvement, discovery or inventions cannot be determined a trade secret. Also, it cannot be determined by an entity’s internal act that all information related to the business of that entity represent a trade secret nor information the disclosure of which is not reasonably contrary to that entity’s interests.

Yes, pursuant to the Act on the Protection of Undisclosed Information with Market Value, in order for information to be considered a trade secret, the person lawfully in control of the information has to undertake reasonable steps under the circumstances to keep this information a secret. The Act elaborates that such reasonable steps can include making an internal act on managing trade secrets by authorised persons and physical and technical protection of access and managing trade secrets.

Likewise, the Act on the Protection of Secret Information prescribes that an entity’s internal act determines the use and keeping of information, which represent a trade secret, including the measures, procedures and other circumstances important for the protection of trade secrets.

The laws regulating trade secrets do not address this matter. However, pursuant to the civil obligations law and due to the nature of a trade secret, trade secrets can be transferred or be subject to a license.

Only the rightful owner of trade secret can transfer or license a trade secret to a third party. Hence, should a party other than the trade secret owner license or transfer a trade secret to a third party, without the consent of the trade secret owner, this would be considered an infringement of a trade secret and unlawful use or disclosure of a trade secret.

The laws regulating trade secrets do not address this matter. However, there should be no legal impediments for a trade secret to be co-owned (e.g. if two persons co-developed technology representing a trade secret or a trade secret is transferred to two persons by a contract, entitling them to claim rights to the same trade secret).

Pursuant to the Act on the Protection of Undisclosed Information with Market Value, the acquisition of a trade secret without the consent of the trade secret holder is considered unlawful, whenever carried out by:

1. unauthorised access to, appropriation of, or copying of any documents, objects, materials, substances or electronic files, lawfully under the control of the trade secret holder, containing the trade secret or from which the trade secret can be deduced;
2. any other conduct which, under the circumstances, is considered contrary to honest commercial practices.

The use or disclosure of a trade secret is considered unlawful whenever carried out, without the consent of the trade secret holder, by a person who is found to meet any of the following conditions:

1. having acquired the trade secret unlawfully;
2. being in breach of a confidentiality agreement or any other duty not to disclose the trade secret;
3. being in breach of a contractual or any other duty to limit the use of the trade secret.

The acquisition, use or disclosure of a trade secret is also considered unlawful whenever a person, at the time of the acquisition, use or disclosure, knew or ought, under the circumstances, to have known that the trade secret had been obtained directly or indirectly from another person who was using or disclosing the trade secret unlawfully.

The production, offering or placing on the market of infringing goods, or the importation, export or storage of infringing goods for those purposes, and offering and providing services by which a trade secret is used, is also considered an unlawful use of a trade secret where the person carrying out such activities knew, or ought, under the circumstances, to have known that the trade secret was used unlawfully.

In addition, under the Trade Act, unlawful acquisition of trade secret owned by other person or unlawful use of other person’s trade secret represents unfair trading, constituting a misdemeanour punishable by a fine.

Also, unauthorised disclosure, delivery or making available information representing a trade secret to other persons, including acquisition of a trade secret with a view to deliver it to unauthorised person, represents a criminal offence punishable by imprisonment up to three years. If significant gain was acquired by such activities or significant damaged was incurred, the imprisonment can be up to five years.

Yes, the trade secret owner who initiated a civil proceeding for the protection of a trade secret is entitled to request from the court delivery of information about the origin and distribution channels of infringing goods or services, including information about names of manufacturers and distributors, wholesalers and retailers of the infringing goods or services, information about quantities of such goods, etc. Such a request is submitted against the defendant in the proceeding and against other persons who within the scope of their business activities have in their possession the infringing goods or use the infringing services.

Also, when a party during a civil proceeding invokes a document or other evidence and gives rise to likelihood that they are in a possession of the other party or a third party or are available to them, the court will invite these persons to deliver such evidence.

Pursuant to the Act on the Protection of Undisclosed Information with Market Value, the trade secret holder can request that the court order any of the following interim measures against the alleged infringer:

1. the cessation of the acquisition, use or disclosure of the trade secret or the prohibition of use or disclosure of the trade secret;
2. 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;
3. 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;
4. the prohibition of offering or providing services by which trade secret is used.

If the trade secret holder gives rise to a likelihood that the trade secret was unlawfully acquired, used or disclosed in business activities with a view to acquiring economic gain and as a result there is a risk of irreparable damage, the court can order seizure of movable property and real-estate owned by the infringer, which are not in an immediate connection to the infringement, as well as a prohibition on the disposal of bank accounts and other property.

There are also interim measures available for securing evidence:

1. making a detailed description of the infringing goods, including taking samples;
2. seizure of goods which are likely infringements;
3. seizure of materials and means, which were used for making and the distribution of goods, which are likely infringements, and related documentation.

Apart from the listed interim measures, the infringed person is entitled to request any other interim measure envisaged by general law regulating interim measures.

Final measures and remedies available under the Act on the Protection of Undisclosed Information with Market Value in the event of infringement of trade secrets include:

1. declaration of the infringement before the court;
2. cessation of infringement;
3. prohibition of use and disclosure of trade secret;
4. 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;
5. adoption of the appropriate corrective measures with regard to the infringing goods (recall of the infringing goods from the market, depriving the infringing goods of their infringing quality, destruction of the infringing goods or, where appropriate, their withdrawal from the market, provided that the withdrawal does not undermine the protection of the trade secret in question);
6. destruction of all or part of any document, object, material, substance or electronic file containing or embodying the trade secret or, where appropriate, the delivery up to the applicant of all or part of those documents, objects, materials, substances or electronic files.

Yes, if the interim measure was issued before the infringed person submitted the claim, the court will, in the decision by which it ordered the interim measure, order to the plaintiff to submit the claim for the purpose of justifying the interim measure, within a specific deadline, which can be maximum 31 day as of the delivery of the interim measure decision to the plaintiff.

Yes, the court may, upon request of the defendant, instead of the final measures described above, order payment of damages, if all following requirements are fulfilled:

• at the moment of use or disclosure of trade secret, the defendant was not aware and was not obliged to be aware under the circumstances, that the trade secret was acquired from other person unlawfully;
• implementing the subject measure would result in an excessive damage to the defendant;
• the amount of damages to the damaged party appears adequate according to reasonable judgement.

Also, the court may, based on a request by the defendant, instead of applying an interim measure, order providing a security for the damages to the trade secret owner.

Yes, the court can order the following interim measures without notifying the defendant if the plaintiff gives rise to a likelihood that otherwise the measure will not be effective or there is a risk of irreparable damage:

1. the cessation of the acquisition, use or disclosure of the trade secret or the prohibition of use or disclosure of the trade secret;
2. 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;
3. 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;
4. the prohibition of offering or providing services by which trade secret is used.

The court can order seizure of movable property and real-estate owned by the infringer, which are not in immediate connection to the infringement, as well as prohibition of disposal of bank accounts and other property, without notifying the defendant if the plaintiff gives rise to a likelihood that otherwise the measure will not be effective or this is necessary due to especially aggravating circumstances.

The court can also order the following interim measures for securing evidence without notifying the defendant, if the plaintiff gives rise to a likelihood that there is risk of destruction of evidence or irreparable damage:

1. making of a detailed description of the infringing goods, including taking samples;
2. seizure of goods which are likely infringements;
3. seizure of materials and means which were used for making and distribution of goods, which are likely infringements and related documentation.

The trade secret holder is entitled to seek compensation of damages and return of proceeds, which were acquired by unlawful acquiring, use or disclosure of a trade secret due to unjust enrichment. Two claims do not exclude each other.

The amount of compensation of damages is determined by the court based on all relevant circumstances, such as negative economic consequences, including lost profit suffered by damaged person, any unfair profit acquired by the infringer and, where adequate, non-economic elements, such as non-material damage suffered by the damaged person. Instead of using the described criteria, the court may, when adequate, determine the amount of damages in the amount of royalty or fee, which could have been due had a licence for the use of the trade secret existed.

Regarding limitation period, general rules set by the Civil Obligations Act apply.

Limitation period for claims related to misappropriation of trade secrets is five years (claim for declaration of the infringement, cessation of infringement, prohibition of use and disclosure of trade secret, seizure and destruction of infringing goods). The limitation period begins to run on the first day following the day of infringement.

The limitation period for claims for the compensation of damages is three years as of the day the infringed person became aware of the infringement and the infringer and five years as of the day the damage occurred.

The limitation period for return of proceeds due to unjust enrichment is five years as of the day the unjust enrichment occurred.

The limitation period is interrupted by the following events: (i) confession of the infringement by the infringer; and (ii) submission of claim and any other legal action undertaken by the infringed person before the court or other competent authority. When the interruption of limitation period occurs, the limitation does not run. After the interruption, the limitation period starts again and time lapsed prior to the interruption is not calculated in the limitation period.

The limitation period is suspended during marriage, between family members and in other situations listed in the Civil Obligations Act.

Yes, under the Act on the Protection of Undisclosed Information with Market Value, the parties, their lawyers or other representatives, court officials, witnesses, experts and any other person participating in legal proceedings relating to the unlawful acquisition, use or disclosure of a trade secret, or who has access to documents which form part of those legal proceedings, are not permitted to use or disclose any trade secret or alleged trade secret which the court has, in response to a duly reasoned application by an interested party, identified as confidential and of which they have become aware as a result of such participation or access. The subject obligation remains in force after the legal proceedings have ended.

The court can, upon a request by a party, take specific measures necessary to preserve the confidentiality of any trade secret or alleged trade secret used or referred to in the course of legal proceedings relating to the unlawful acquisition, use or disclosure of a trade secret. These measures include: (i) exclusion of the public from the proceeding or part of the proceeding; (ii) restricting access to any document containing trade secrets or alleged trade secrets submitted by the parties or third parties, in whole or in part, to a limited number of persons; (iii) restricting copying of documents containing trade secrets or alleged trade secrets and locking them in a special envelope, which can be opened only before the court; (iv) restricting access to hearings, when trade secrets or alleged trade secrets may be disclosed, and the corresponding record or transcript of those hearings to a limited number of persons; (v) making available to any person other than those within the limited number of persons referred to in points (ii) and (iv) a non-confidential version of any judicial decision, in which the passages containing trade secrets have been removed or redacted.

Act on the Protection of Undisclosed Information with Market Value prescribes that the court will dismiss an application for the measures, procedures and remedies where the alleged acquisition, use or disclosure of the trade secret was carried out for the purpose of protecting a legitimate interest recognised by EU or national law. However, the Act does not further elaborate which legitimate interests could be invoked, nor provides examples.

No such measures are available under the Act on the Protection of Undisclosed Information with Market Value.

See answer to question 13 above.

Primarily, the employer should regulate the issue of trade secrets by a special by-law or general act. Such a document should, among other things, define information that is confidential, specify the cases when the trade secrets and other confidential information can be disclosed to other persons and the manner of protection of such information, define authorised persons who may disclose as well as persons to whom such information may be disclosed.

In addition, to avoid misuse of trade secrets by employees, an employer can include a non-disclosure clause in the employment agreement or enter into a separate non-disclosure agreement with its employee. A contractual penalty can be agreed upon in case an employee breaches its non-disclosure obligations. 

Yes, this results from the employee's obligation to perform work in accordance with the instructions of the employer given in accordance with the nature and type of work. Furthermore, during employment, the employees are obliged to comply with national laws, international treaties that have been concluded and confirmed in accordance with the Constitution as well as other regulations such as collective bargaining agreements and employment by-laws.

Under Croatian laws, information considered a trade secret may not be disclosed or made available to unauthorised persons, unless otherwise provided by a special law. All employees who in any way find out about information that is considered a trade secret are obliged to keep such information a secret.

Aside from the abovementioned information, an employer should also consider implementing the following measures: 

• prohibit the use of e-mails and internet for private purposes;
• prohibit storing data on privately owned devices or sending company data to private email inboxes;
• restrict access to those who have a need to know the information;
• store paper records in a locked location with limited access;
• ensure that electronic records are encrypted, password protected (with passwords changed frequently), and maintained on a secure server;
• train employees and supervisors on the employer's data security policies, etc.

Yes, the Directive (EU) 2019/1937 of the European Parliament and of the Council of 23 October 2019 on the protection of persons who report breaches of Union law (Whistleblower Protection Directive) provides for a minimum level of protection for whistleblowers who report infringements of Union law. Croatia has implemented the subject Directive by adopting the Whistleblower Act (Official Gazette No. 46/22). According to the Whistleblower Act, if a person submits a report or publicly discloses information about irregularities falling within the scope of the Whistleblower Act, which includes trade secrets, and if that person is eligible for protection under the Whistleblower Act, such a report or public disclosure shall be deemed lawful to the extent that such acquisition, use or disclosure is required or permitted by European Union or national law. Additionally, a whistleblower will likely be protected against retaliation following such a report.

Under the Act on the Protection of Secret Information, it will not be considered an infringement of a trade secret if a person who is familiar with a trade secret discloses it in a notification to the supervisory authority for the purpose of exercising rights under the employment relationship.

The Act on the Protection of Undisclosed Information with Market Value prescribes that the court will dismiss an application for measures, procedures and remedies where the alleged acquisition, use or disclosure of the trade secret was carried out in disclosure by employees to their representatives as part of the legitimate exercise by those representatives of their functions in accordance with EU or national law, provided that such disclosure was necessary for that exercise.

Yes, when it comes to civil liability, an employer may be liable for an employee’s infringement of a third party’s trade secret. Under the Croatian Civil Obligations Act (Official Gazette No. 35/05, 41/08, 125/11, 78/15, 29/18, 126/21), the employer is liable for damages caused by an employee to a third person during employment or in relation to employment (e.g. by infringement of a trade secret). The infringed person is also entitled to seek damages directly from the employee. However, if the employee caused damage with intent or gross negligence, the employer that paid damages to the third person is entitled to request compensation from the employee.

Non-disclosure provisions are to be included in a commercial contract wherever a separate NDA has not been signed. The contract should clearly define what is to be considered a trade secret in the specific contractual relationship between the parties, as well as what rights a party has when it believes that there may be misappropriation and/or unlawful usage of trade secrets. The parties should define the liability for such a breach, and possibly include penalties. Including penalties for breach of trade secrets is advisable since proving the extent of damages is difficult in practice.

A combination of both the NDA with confidentiality commitments and the commercial contract setting out the particular rights and obligations regarding the cooperation of the parties is common in practice. In that case, it is important to interlink the two agreements, regulate their impact on one another and harmonise the term and surviving clauses.

The most common pitfall pitfalls in contracts regarding protecting trade secrets is nonalignment with mandatory provisions of law, which leaves the unaware parties exposed.

Also, it is common in practice that parties only copy the provisions of law and do not use the opportunity to clearly regulate what in fact represents trade secrets and/or forget to address the liability / penalties for breach of trade secrets provisions. 

In cross-border contracts, it is important to consider stipulated governing law and mandatory provisions of law applicable to the contractual obligations of the parties. In other words, it is important to choose as governing law the law of a state, which offers adequate protection for trade secrets, but also the procedural means to mitigate the consequences of a possible leakage and/or unlawful use of trade secrets.

Under Croatian law, it is possible to include penalty clause for breach of contractual obligations. This is also advisable since including this clause is both time and cost efficient as opposed to conducting official procedures, which require active engagement in determining (i.e. proving) damages as a result of misappropriation and/or unlawful use of trade secrets, and enforcement of a decision determining a breach. 

Where a contractual penalty is included, a party is entitled to it if a stipulated event of default has occurred and even if the penalty is higher than the damages incurred or if there are no damages at all. If damages suffered by the party are higher than the penalty, the party is entitled to seek compensation for the full amount of damages.