Trade secret – controversies

The regional court in Łódź decided in 2004 that the contracting authority is bound by the economic operator’s stipulation regarding confidentiality of some of the information contained in the offer. It may accept it or may reject the offer, but it has no right to disclose it. In 2005 the Supreme Court of the Republic of Poland declared something completely to the contrary in its resolution: the contracting authority has the right to disclose information which does not satisfy statutory conditions of a trade secret. Is the Supreme Court right and does its resolution constitute the final word in this matter? In my opinion, the resolution in fact only raises more doubts.

In the course of a lecture on ethics and protection of information in public procurement its participants – employees of a well-known international corporation engaged in public procurement as economic operators for years – pointed out that in their opinion there are shortcomings in competences of the National Appeals Chamber (Krajowa Izba Odwoławcza – KIO) and courts at various levels when it comes to complicated public procurement matters. With no competence for material evaluation of the ‘reprehensible’ judicial decisions, I have decided to look into decisions of KIO and of the courts concerning trade secrets, which lies within my area of interest.

I would like to begin with a general reflection. No wonder that courts and national chambers are not always proficient when dealing with public procurement in a situation where continuous amendments of the law constitute their biggest problem. During the term of the previous act on public procurement which was in force between 1994 – 2004, the law was subject to 18 amendments – statistically two per year. Within the first year following the enactment of the new Public Procurement Law (UPZP) 5 amendments were introduced – in general, between 1994 and September 2012 when the last amendment was made, the act on public procurement was changed around 40 times. And that’s not all. During the conference organized by the Polish Confederation Lewiatan on April 17th, 2014 all of its participants, including members of the parliament, called for new public procurement law to be enacted – stating it is time for a new act and that such law making is not only a problem for the courts, it is also a fertile soil for corruption.

Despite the legal confusion, it might have seemed that the matter of trade secrets in the public procurement procedures is not at all disputable since it is mentioned only in a few paragraphs in a very lengthy act (227 articles). Nothing could be further from the truth – trade secrets raise controversies not only in the relations between the contracting authority and the economic operator, but is also a subject of controversial judicial decisions.

To be clear in this line of reasoning, it is worth referring to some provisions of UPZP which relate to trade secrets. At the beginning the act states that public procurement procedure as such is open. The principle of open proceedings is fundamental for public procurement law. Any infringement of this norm results in flaws of the proceedings and may in effect lead to their invalidity.

Further the act provides that information constituting trade secret within the meaning of the act on combatting unfair competition must not be disclosed if the economic operator makes a reservation as to confidentiality no later than on the date of submission of the offer or applications to be admitted to the proceedings. Economic operators cannot reserve confidentiality of their names and addresses as well as of the information concerning price, performance date, guarantee period and payment terms contained in offers. Furthermore economic operators cannot reserve as confidential the excerpts from business activity register which is public as well as information from the KRS companies register, since every citizen has the right to obtain information from the register and information from the companies register does not constitute trade secret.

That would be all as far as trade secret provisions in the act are concerned. Where are the controversies? There are some, and they are serious. Let’s look at the issue indicated at the beginning: does the contracting authority have the right to disclose information constituting trade secrets?

The decision of the National Appeal Chamber of July 20th, 2011 (KIO 1472/11) does not leave any doubts that it is the contracting authority’s duty to assess if the information reserved by the economic operator as trade secrets falls within the definition stipulated in article 11 point 4 of the act of April 16th, 1993 on combatting unfair competition. Evaluation of the confidentiality reservation is part of offer examination process.

There are two contradictory court decisions as to whether the contracting authority may disclose confidential information of the economic operator if it asserts that it does not satisfy the necessary conditions to be regarded as trade secret.

In its resolution of October 20th, 2005 [citation: IIICZP 74/05], the Supreme Court stated that if the contracting authority considers given information to be illegally reserved as confidential – when the economic operator had no right to do so – it discloses the documents. It is the contracting authority that is to decide what can be disclosed, what may remain confidential.

The above resolution is quite controversial and many experts oppose it. In their view, the contracting authority should not disclose such documents itself – if it believes the document was illegally classified as ‘trade secret’, it should reject such offer pursuant to article 89 point 1 section 3 (submission of such offer constitutes unfair competition practice within the meaning of unfair competition laws).

The decision of the Regional Court in Łódź from 2004 [Ca 919/04] is contradictory to the Supreme Court’s resolution. According to the judgment, the contracting authority is bound by the reservation submitted by the economic operator as to secrecy of some of the information contained in the offer, since no provisions of any legislative acts authorizes the contracting authority to treat such reservation at liberty. If such offer is inconsistent with article 11 point 4 of the act on combatting unfair competition, it must be rejected. The effects of revealing company’s trade secrets by the contracting authority are irreversible, and unjustified disclosure of trade secrets is punishable with imprisonment for up to two years pursuant to article 23 of the unfair competition law.

The Supreme Court or the Regional Court in Łódź? Obviously, a decision of a higher court is of greater importance. Moreover, the Supreme Court issued such interpretation in 2005, therefore it must have been aware (at least that is what is presumed) of the position of the Regional Court in Łódź yet it did not share it.

The supreme Court’s legal interpretation is well functioning and constitutes grounds for many decisions and assessments. Experts from the Public Procurement Office take the same stand. The officers agree that the economic operator’s refusal to disclose information becomes valid only, where as a result of the appropriate examination, the contracting authority determines that the confidential information constitutes trade secret within the meaning of unfair competition laws. Whereas if the contracting authority assesses the information and asserts that it does not amount to trade secrets or that the information is public on the basis of UPZP provisions (e.g. article 96 point 3) or based on other acts, the contracting authority is obliged to disclose it in the public procurement proceedings. They also maintain that ungrounded reservation of confidentiality on grounds of trade secrets does not constitute basis for rejection of the offer under article 89 point 1 section 1 of the Public Procurement Law.

At this point it is worth asking: was the Supreme Court right in allowing the contracting authority to reveal trade secrets when it finds it justified? On what basis?

Analysis of the available publications on disclosure of information previously reserved as the economic operator’s trade secrets by the contracting authority, as well as of legal opinions on this issue rendered by representatives of various law firms, allows me to formulate my conclusion that there is some ignorance in their attitude to the Supreme Court’s standing which strikes me. No criticism of the fact that the contracting authorities have just been given the right to disclose companies’ trade secrets at their own discretion, where no such right or entitlement is granted by any key acts – neither by UPZP nor by the act on combatting unfair competition.

The Supreme Court stated: „In public procurement proceedings the contracting authority examines the validity of confidentiality reservation made by the offeror under article 96 point 4 of the act of January 29th, 2004 – Public Procurement Law – concerning refusal to reveal information confirming satisfaction of requirements stemming from the terms of reference. Waiver of information confidentiality is a result of determination that such reservation, based on article 96 point 4 of the act, is invalid.”. No lawyer has wondered or has asked the court the following: Does this stem from one of the statutory provisions, or is it a result of the Court’s arbitrary interpretation?

What is more, many lawyers praise the Supreme Court by underlining its „human face” – when it treats the disclosure of confidential information by the contracting authority as the only „detriment” suffered by the economic operator, due to the fact that the operator is not being „punished” with elimination from further proceedings.

At least two situations, as presented below, should be projected:

1. The economic operator does not agree to its confidential information being revealed even when threatened with elimination from the tender, hence it does not wish to be „pleased” by being allowed to remain in the proceedings.
2. The economic operator acted deliberately when reserving its information as trade secrets, being fully aware that it was infringing the law – it was sort of testing the contracting authority – but its intentions were not properly interpreted. Hence it engaged in an unfair competition practice, yet the practice was not acknowledged – therefore the economic operator has not been punished by being eliminated from the proceedings, but by its confidential information being revealed. There is even still a possibility for such practice to be „rewarded” with obtaining the contract.

In both cases, the right of the contracting authority to disclose economic operators’ trade secrets results in deplorable consequences, though you can imagine other effects.

So how can this problem be solved? It seems very simple to me, provided the UPZP is slightly refined. The following rules would have to be observed:

The contracting authority has no right, in any case, to disclose information reserved as business secrets by economic operators.

If in the course of the assessment of confidential information the contracting authority comes to the conclusion that the information does not satisfy the statutory definition of a trade secret, it informs the economic operator that it is facing two solutions: it may either disclose the reserved information itself by submitting an applicable written statement, or the offer will be rejected.

If the contracting authority determines that the economic operator reserved as confidential the information which clearly does not meet the criteria of business secrets, and at the same it knowingly committed an act of unfair competition, it rejects the operator’s offer. This situation is in so far complicated, as it is most difficult to prove bad intentions.

The economic operator can neither authorize the contracting authority to disclose trade secrets on its behalf nor consent to such action. It must declassify the information itself by a written statement of will.

The Polish legislation provided models of such solutions in the Act on Protection of Classified Information of August 5th, 2010. We should therefore adopt the practice used in case of declassification of classified information.

The lifting or amendment of classification are possible only upon written consent of the person who classified the information. Recipient of confidential information, in case it ascertains overclassification or underclassification, may ask the person who classified the information or their supervisor to introduce appropriate changes.

In case of refusal to amend the confidentiality clause or failure to reply within 30 days from the date of submission of the application, the act on protection of classified information states that the recipient of confidential information may directly request the ABW (the Internal Security Agency) or SKW (the Military Counterintelligence Service) to resolve the dispute. As far as public procurement is concerned, such dispute may be settled for instance by the Public Procurement Office, KIO (the National Appeals Chamber) or other institution, depending on whom those competences are granted to in the act.

Such solutions would certainly be less controversial, and would further confirm the universal and civilized practice that only the executor of the confidential document (information) may decide whether to waive or amend the clause.

Author: Marek Ciecierski, PhD

Profesjonalny Wywiad Gospodarczy Skarbiec Sp. z o. o.

2014 Law Firm Skarbiec