Keh, Katherine C.

3B October 15, 2011

Unfair Competition and Trade Secrets Atty. Antonio Ray Ortiguera

An Analysis of How to Protect Traditional Knowledge Through Trade Secrets in the Philippine This paper seeks to provide an in-depth analysis of how trade secret can be used as a means to protect traditional knowledge, particularly environmental, agricultural and medicinal knowledge on local communities in the Philippines, its corresponding benefits to society and how it will sustain, develop, and encourage discovery of more traditional knowledge. This paper will not delve into the aspect of traditional cultural expressions such as folklore, songs and dances. Introduction Traditional Knowledge has not yet been given a clear-cut definition. But the term has been referred to by the World Intellectual Property Organization1 as a: tradition-based literary, artistic or scientific works; performances; inventions; scientific discoveries; designs; marks, names and symbols; undisclosed information; and all other tradition-based innovations and creations resulting from intellectual activity in the industrial, scientific, literary or artistic fields. "Tradition-based" refers to knowledge systems, creations, innovations and cultural expressions which: have generally been transmitted from generation to generation; are generally regarded as pertaining to a particular people or its territory; and are constantly evolving in response to a changing environment. It should be emphasized, however, that a precise definition of traditional knowledge is not a crucial requisite for establishing a system for its protection. Actually, most patent laws do not define inventions. Likewise, most trademark laws do not define signs. The crucial element for the protection of any subject-matter is the identification of some characteristics that it must meet as a condition for protection - such as novelty, inventiveness and susceptibility of industrial application, for inventions, and distinctiveness, for trademarks. The same criterion could be applied to traditional knowledge as well. In the Philippines, traditional knowledge has been referred to as consisting of the original rights of indigenous peoples and local communities over various elements -- plants and genetic resources, traditional medicines, agricultural methods and local technologies, and cultural products (e.g. weaving, pottery, poetry, folklore, music, and the like) which they have discovered and developed 2. It is important to note that the term traditional does not connote that it should have originated from the early decades of our Philippine history, it is "traditional" only to the extent that its creation and use are part of the cultural traditions of communities3. 1

Keh, Katherine C. 3B October 15, 2011

Unfair Competition and Trade Secrets Atty. Antonio Ray Ortiguera

Clearly, the term includes a whole of gamut of inventions and discoveries, some of which would not fall into the coverage of patent, copyrights, nor other intellectual property concepts that would grant its rightful owners concrete redress and protection. Importance of Traditional Knowledge The Philippines is known for its rich culture and traditions, including a wide array of cultural practices, medicines, rituals, beliefs, methods and concepts. Each local community have their own practices, secrets and methods different from those of the other communities. The importance of traditional knowledge is linked with our cultural identity4, to quote: Traditional knowledge has played, and still plays, a vital role in the daily lives of the vast majority of people. Traditional knowledge is essential to the food security and health of millions of people in the developing world. In many countries, traditional medicines provide the only affordable treatment available to poor people. In developing countries, up to 80% of the population depend on traditional medicines to help meet their healthcare needs. In addition, knowledge of the healing properties of plants has been the source of many modern medicines. As we note in Chapter 3, the use and continuous development by local farmers of plant varieties and the sharing and diffusion of these varieties and the knowledge associated with them play an essential role in agricultural systems in developing countries. Recently, the plant tawa-tawa was featured in the local news broadcast as it was said to be effective in providing cure against the widespread illness of dengue. Although more studies are still being conducted as to its effectivity, it can be said that it is a good research matter to be able to address the most common illness most of our Filipino men are facing to day, as it is still the dengue season. There are also others who claim that certain plants here in the Philippines provide cure against cancer. Since none of these are still medically tested and proven, it gives room for more research and development. All of these fall under the ambit of traditional knowledge. It cannot be gainsaid that traditional knowledge is intertwined with the communities day-to-day way of life and their dependence on it is highlighted by the fact of long usage, strength of community trust as to its results/practice, and perhaps, because there is seemingly no other option available due to the fact that most of 2

Keh, Katherine C. 3B October 15, 2011

Unfair Competition and Trade Secrets Atty. Antonio Ray Ortiguera

the people belonging to such communities do not have enough money or none at all. Why there is a Need to Protect Traditional Knowledge Traditional knowledge is ordinarily confined to a number of persons within a community, tasked to specialize or study a particular matter, process or method for the benefit of the entire community. For instance the albularyo, the folk healers, or medicine men in a community specializes in providing herbal and spiritual medicines rendering service to their community, either for a consideration or gratuitously. Their medicines or particular methods of healing are attributed to the entire community, although only a group of persons actually practice it, since it can be said that some or most of the methods or medicines are products of combined community effort though out time. Since traditional knowledge is considered to be the wealth of a certain community with regard to a particular practice or knowledge, it should be protected by the National Government from being misused, exploited, wrongfully misappropriated, or produced in the market, local or international, without giving proper acknowledgment, some form of control, and economic remuneration to its rightful owners5, the community. Based from studies, traditional knowledge provides certain multibillion dollar industries, including pharmaceuticals, cosmetics, and agriculture, with useful leads for product discovery and development6. Clearly, the community will suffer to lose potential income from the wrongful and unauthorized acquisition of their traditional knowledge. Current Laws Protecting Traditional Knowledge7 The Indigenous Peoples Rights Act of 19978 provides for a general legal framework aiming to protect the rights of the indigenous community/people, recognizing their rights over community intellectual rights9, right to indigenous knowledge systems and practices and to develop own sciences and technologies10, right to prior consent from access to biological and genetic resources11, and right to a sustainable agro-technical development12. However, this law does not provide for clear sanctions and enforceable means to protect traditional knowledge. At most, it only provides for the list of general rights of indigenous communities and its members. 3

Keh, Katherine C. 3B October 15, 2011

Unfair Competition and Trade Secrets Atty. Antonio Ray Ortiguera

Likewise, the Wildlife Resources Conservation and Protection Act13 recognizes the right to prior consent of indigenous community before the allowance of bioprospecting. Bioprospecting, by definition, means "the research, collection and utilization of biological and genetic resources for purposes of applying the knowledge derived there from solely for commercial purposes14. Executive Order 247 entitled Prescribing Guidelines and Establishing a Regulatory Framework for the Prospecting of Biological and Genetic Resources, Their By-Products and Derivatives, For Scientific and Commercial Purposes, and For Other Purposes, provides for research/commercial research agreement before allowing prospecting of biological and genetic resources within indigenous communities, hence enforcing the need to obtain prior consent from concerned local community and approval from an Inter-Agency Committee15. Significantly, EO 247 provides as a minimum requirement the payment of royalties or other forms of compensation to the National Government, local or indigenous cultural community an individual person or designated beneficiary in case of commercial use16. Under this law, the regulations for prospecting biological and genetic resources involves the Government as party to the agreement and grants it the power to terminate and interfere with such agreement. The Traditional and Alternatives Medicine Act (TAMA) of 199717 provides that it is the policy of the State to seek a legally workable basis by which indigenous societies would own their knowledge of traditional medicine. When such knowledge is used by outsiders, the indigenous societies can require the permitted users to acknowledge its source and can demand a share of any financial return that may come from its authorized commercial use. But other than the general provision, nowhere else was it specified in the said law how such share can be enforced. Why Patent Laws Fail to Fully Protect Traditional Knowledge18 Traditional knowledge is incompatible with patent. Most traditional knowledge would fail on five aspects. First, on the requirement of novelty: traditional knowledge have, more often than not, been existing and is in fact used or practiced for decades by local communities. It is not new. In fact, modern IP laws consider it part 4

Keh, Katherine C. 3B October 15, 2011

Unfair Competition and Trade Secrets Atty. Antonio Ray Ortiguera

of the public domain.19. Second, patent law excludes a wide list of inventions which could cover traditional knowledge, such as: method for treatment human or animal body by surgery or therapy & diagnostic method, plant variety or animal breed or essentially biological processes for the production of plants and animals, and etc20. Third, the patent system requires a documented invention in order to be protected, whereas, by the nature of traditional knowledge, it is widely undocumented at present. Although the Philippines is taking initiative steps to document some categories of traditional knowledge, it still has a lot yet to cover21. Fourth, while patent applications must identify the actual inventor or groups of inventors responsible for creating the invention, the communal and incremental development of traditional knowledge often makes it difficult or even impossible to identify specific creators within the community.22 Finally, the acquisition of patent is just too costly and not feasible for most poor traditional knowledge holders in the Philippines. What is Trade Secret Law In Air Philippines Corporation v. Pennswell, Inc.23, trade secret has been defined as a plan or process, tool, mechanism or compound known only to its owner and those of his employees to whom it is necessary to confide it. The definition also extends to a secret formula or process not patented, but known only to certain individuals using it in compounding some article of trade having a commercial value. A trade secret may consist of any formula, pattern, device, or compilation of information that: (1) is used in one's business; and (2) gives the employer an opportunity to obtain an advantage over competitors who do not possess the information. In the Philippines, many laws protect trade secrets. To quote from the above-mentioned case,24 The protection that this jurisdiction affords to trade secrets is evident in our laws. The Interim Rules of Procedure on Government Rehabilitation, effective 15 December 2000, which applies to: (1) petitions for rehabilitation filed by corporations, partnerships, and associations pursuant to Presidential Decree No. 902-A, as amended; and (2) cases for rehabilitation transferred from the Securities and Exchange Commission to the RTCs pursuant to Republic Act No. 8799, otherwise known as The Securities Regulation Code, expressly provides that the court may issue an order to protect trade secrets or other confidential research, development, or commercial information belonging to the debtor. Moreover, the 5

Keh, Katherine C. 3B October 15, 2011

Unfair Competition and Trade Secrets Atty. Antonio Ray Ortiguera

Securities Regulation Code is explicit that the Securities and Exchange Commission is not required or authorized to require the revelation of trade secrets or processes in any application, report or document filed with the Commission. This confidentiality is made paramount as a limitation to the right of any member of the general public, upon request, to have access to all information filed with the Commission. Furthermore, the Revised Penal Code endows a cloak of protection to trade secrets under the following articles: Art. 291. Revealing secrets with abuse of office. The penalty of arresto mayor and a fine not exceeding 500 pesos shall be imposed upon any manager, employee or servant who, in such capacity, shall learn the secrets of his principal or master and shall reveal such secrets. Art. 292. Revelation of industrial secrets. The penalty of prision correccional in its minimum and medium periods and a fine not exceeding 500 pesos shall be imposed upon the person in charge, employee or workman of any manufacturing or industrial establishment who, to the prejudice of the owner thereof, shall reveal the secrets of the industry of the latter. Similarly, Republic Act No. 8424, otherwise known as the National Internal Revenue Code of 1997, has a restrictive provision on trade secrets, penalizing the revelation thereof by internal revenue officers or employees, to wit: SECTION 278. Procuring Unlawful Divulgence of Trade Secrets. - Any person who causes or procures an officer or employee of the Bureau of Internal Revenue to divulge any confidential information regarding the business, income or inheritance of any taxpayer, knowledge of which was acquired by him in the discharge of his official duties, and which it is unlawful for him to reveal, and any person who publishes or prints in any manner whatever, not provided by law, any income, profit, loss or expenditure appearing in any income tax return, shall be punished by a fine of not more than two thousand pesos (P2,000), or suffer imprisonment of not less than six (6) months nor more than five (5) years, or both. Republic Act No. 6969, or the Toxic Substances and Hazardous and Nuclear Wastes Control Act of 1990, enacted to implement the policy of the state to regulate, restrict or prohibit the importation, manufacture, processing, sale, distribution, use and disposal of chemical substances and mixtures that present unreasonable risk and/or injury to health or the environment, also contains a provision that limits the right of the public to have access to records, reports or information concerning chemical substances and mixtures including safety data submitted and data on emission or discharge into the environment, if the matter is confidential such that it would divulge trade secrets, production or sales figures; or methods, production or processes unique to such manufacturer, processor or distributor; or would otherwise tend to affect adversely the competitive position 6

Keh, Katherine C. 3B October 15, 2011

Unfair Competition and Trade Secrets Atty. Antonio Ray Ortiguera

of such manufacturer, processor or distributor. Clearly from the foregoing, trade secret is deemed protected as a proprietary right.25 In order to qualify as a trade secret and hence, entitled to protection, the following elements must be present26, 1.) the protected matter is not generally known or readily ascertainable , 2.) it provides demonstrable competitive advantage, 3.) it was gained at the expense of the owner; and 4.) it is such that the owner intended to keep it confidential. Why Trade Secret Law is Compatible with Traditional Knowledge27 What patent cannot cover, trade secret can. Trade secret does not require novelty, actual economic value, nor does it require to identify a particular individual owner. Neither does it require the owner/s to undergo a stringent process of registration and administrative hearing/approval in order to be entitled to protection. Although it offers weaker protection than patent, it is the more practical and suitable protection for intellectual property falling under traditional knowledge. In trade secret, absolute secrecy is not required, relative secrecy would be sufficient for protection. Traditional knowledge as discussed usually is known within the community. Hence, it is not a knowledge confined to a single individual/person, but rather to a group of individuals/persons which they may pass on for generations. It is in this sense that is qualifies under relative secrecy because although more than one person holds the particular knowledge, it is still not known or made available to the public (i.e. those other than the members of the community). Should it be made known to the public by any lawful means, then it would loose its veil of protection under trade secrecy. In the trade secret law situation, there would be more autonomy between the traditional knowledge owner/s and the 3rd party involved. In this sense, there is less interference or involvement from the government. But this does not discount the possibility that the government will be the contracting party with the owner/s or their representative. In this instance, the government is like any other private party to a contract. The problem with government participation, as is present under our current laws protecting traditional knowledge (i.e. the research/ commercial research agreements), is that it takes a long process, stringent requirements are imposed 7

Keh, Katherine C. 3B October 15, 2011

Unfair Competition and Trade Secrets Atty. Antonio Ray Ortiguera

on the contracting parties, a lengthy measure of time before approval, and the remuneration which should be given to the traditional knowledge owner/s or community, sadly, becomes a means to perpetrate graft and corruption. At the end of the day, local communities or traditional knowledge owners would most likely not get the rightful share they deserve. Hence, there is a disincentive for them to disclose information when the government is involved. Trade secrets may be enforced in the context of three relationships 28. The first is the contractual relationship context. In this scenario, the traditional knowledge owner/s as well as the other contracting party is free to stipulate on terms and conditions he/she deems fit in exchange for the sharing of traditional knowledge. The owner/s is in control of what he/she would like to disclose, up to what extent, how the information given should be used, and the consideration for its disclosure. Otherwise, it would constitute a breach of contract actionable under the courts of law. The problem in this scenario is that most of the traditional owner/s are illiterate in drafting contracts, negotiating, or easily susceptible to be taken advantage of through fraudulent means, schemes or machinations. Since the government is not a party in the contractual scenario, unless it is the party contracted with by the owner/s, then there is less protection given to the owner/s in making sure that the terms are fair, reasonable, or could be validly enforced under the laws of our country. Hence, the second context becomes more relevant. The second is the relationship-based context. In this context, an express agreement such as that of a contract need not be present. Information is obtained through the confidence reposed towards the other party other than the owner/s and under the circumstances indicating that the disclosure is meant to be limited, such that there is an implied agreement not to disclose the information to other persons. Otherwise, it would constitute a breach of confidence. The situation is best illustrated as follows, to quote29: For example, suppose that company C (or a government research institute) approaches representatives of T to learn of the medicinal uses of various plants. T has historically used the nut of a local tree for hunger-suppressing purposes; T is interested in selling this nonpublic information to C. But C is unwilling to buy the information unless T first reveals it, and C can run its own tests to confirm that the 8

Keh, Katherine C. 3B October 15, 2011

Unfair Competition and Trade Secrets Atty. Antonio Ray Ortiguera

nut does what T says. Where T discloses the information for this limited purpose, C would not be able to use the information for other purposes or disclose it to others, even in the absence of an express agreement to that effect. In such a case, trade secret law would limit Cs ability to take advantage of T because [t]rust was reposed in C by T that the information thus transmitted would be accepted subject to that limitation, and C knew and understood this limited purpose. The third is the no relationship or improper means context. As long as information is acquired by an unrelated party (to the contract or not the party reposed with trust and confidence) through improper means in light of what the court would deem improper under the circumstances, there would be an actionable right under the trade secrets law. In this context, the liability would extend not only to persons to whom confidence is reposed as was discussed in the second context, but it would subject persons who transacted with those persons reposed with confidence, should the former be found to be in bad faith. This context can be said to be the most flexible context among the three. But the courts have to take caution in establishing what the improper means would be equivalent to in actual practice. Hence, it is only after courts start deciding on cases involving such issues will we be able to determine what it means in light of the Philippine setting. Trade Secrets Laws Encourage Disclosure of Information and Development of Traditional Knowledge As above discussed, trade secret laws give control to the traditional knowledge owner/s as to the terms and conditions of how such knowledge will be disclosed. The primary incentive will be the consideration owner/s will get from the disclosure, whether it be monetary or of any other kind. Should there be a breach of contact, or of confidence, or any other improper means employed, the owner/s will not be at a loss because they have a cause of action under our courts, or they can stipulate for penalties in case of breach. They can claim for damages or penalties stipulated in the contract. Moreover, traditional knowledge owner/s as well as other people belonging to the community will be encouraged to search for more knowledge or methods and processes that can be deemed useful by other people. A local community in itself, if such knowledge is known to most community members, can be pushed to gain self-independence as a community through cooperation of local community member by working together in searching for more knowledge and/or the development of such, pro9

Keh, Katherine C. 3B October 15, 2011

Unfair Competition and Trade Secrets Atty. Antonio Ray Ortiguera

rating the benefits obtained from disclosure to each community member equipped with such knowledge, or to the community itself. Also, should certain matters or methods/practices be deemed sacred to the community or knowledge owner/s such that they would not permit its disclosure, it would be a possible condition to the contract or agreement. In effect the owner/s are able to retain a degree of control and respect to the particular knowledge. Of course, this does not prevent people from reverse engineering or obtaining knowledge of that prohibited through lawful means. But the more important matter is to highlight the deciding and controlling factor from the traditional knowledge owner/s so that their knowledge is not merely exploited for free or easily. Trade secret laws provide for safety blankets to traditional knowledge owner/s. From the perspective of the contracting party, the knowledge seekers, they are not given an unfair position. They are free to contract and negotiate for the terms they deem best and fair. For as long as it is within the agreement, or does not constitute a breach of the trust reposed in them, and through lawful means, they are free to do what they want with the information obtained. They can develop it or study the matter, process or method to be able to come up with new products, or ways and means to improve the lives of people in general. They can also disprove the effects of certain elements or compounds being used by people who relied on community practice in order to be able to inform them early on, giving them ample time to search for other medicines, or methods, before time and lives are lost. Commercialization of the traditional knowledge obtained may be a good option since most of these knowledge seekers can gain access to capital provided by investors willing to invest in further research and development of the particular matter or knowledge, which can help develop and produce the traditional medicines or processes or any other knowledge in commercial quantities. This will increase the benefit accruing to the knowledge owner/s should they stipulate for a share in the returns of the sales, and likewise profit the knowledge seekers through increased sales. The primary goal of knowledge seekers is to be able to search and produce possible solutions to the problems faced by people living in this world. And it is in this goal that the benefit redounds not just to the 10

Keh, Katherine C. 3B October 15, 2011

Unfair Competition and Trade Secrets Atty. Antonio Ray Ortiguera

nation as a whole, but as well as to the whole world. Some illness such as cancer, dengue, or AIDS lack proper medicinal aid and many researchers and men in the field of medicine are in search for possible cure. A possible solution may be found in traditional knowledge. The law favors information to be part of the public domain so that people can have free access to information for development, innovation, and to alleviate the standard of living of people for the greater good of everyone. This is best forwarded by the trade secrets scenario because although information or parts of it will remain undisclosed for a certain period of time, it will eventually be available to the public through contractual stipulations or relationships. The difference between having a trade secret law aiding the process of dissemination compared to one which has no trade secret at all is the fact of control as to whom such information will be first disclosed, how it will be disclosed, and the incentive to search for more knowledge. Conclusion Undoubtedly, these are all theoretical situations which would not guarantee full protection against unwarranted disclosure of traditional knowledge. Proper enforcement and implementation is the key. In the Philippines, there is no case law yet about traditional knowledge being protected by trade secrets laws. We only have foreign jurisprudence to rely on. But as the importance of traditional knowledge, particularly those relating to traditional medicines and or those relating to the environment and agriculture, becomes more imminent in light of the changes in the peoples health, lifestyle, and other circumstances, it is best to protect traditional knowledge and inform the owner/s how to so that its continuous development through proper disclosure to trusted persons and/or entities will be able to provide solutions for our day-to-day problems.

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Keh, Katherine C. 3B October 15, 2011

Unfair Competition and Trade Secrets Atty. Antonio Ray Ortiguera

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WIPO INTERNTIONAL FORUM ON "INTELLECTUAL PROPERTY AND TRADITIONAL KNOWLEDGE: OUR IDENTITY, OUR FUTURE", INFORMATION NOTE ON TRADITIONAL KNOWLEDGE, http://www.wipo.int/arab/en/meetings/2002/muscat_forum_ip/iptk_mct02_i3.htm 2 Marga C. Domingo-Morales, THE ROLE OF INTELLECTUAL PROPERTY RIGHTS IN PROTECTING TRADITIONAL KNOWLEDGE (THE PHILIPPINE EXPERIENCE) 3 WIPO INTERNATIONAL FORUM ON "INTELLECTUAL PROPERTY AND TRADITIONAL KNOWLEDGE: OUR IDENTITY, OUR FUTURE", supra note 1. 4 TRADITIONAL KNOWLEDGE AND GEOGRAPHICAL INDICATIONS, www.iprcommission.org/papers/pdfs/final_report/Ch4final.pdf 5 Deepa Varadarajan, A Trade Secret Approach to Protecting Traditional Knowledge , 36 YALE J.INTL L.371 available at papers.ssrn.com/sol3/papers.cfm?abstract_id=1892359. 6 Id. 7 Marga C. Domingo-Morales, supra note 2. 8 R.A. 8371. 9 Sec. 32, R.A. No. 8371 10 Sec. 34, R.A. No. 8371 11 Sec. 35, R.A. No. 8371 12 Sec. 36, R.A. No. 8371 13 Sec. 14, R.A. No. 9147 14 Sec. 5 (a), R.A. No. 9147 15 Sec. 2 and 3, E.O. 247 16 Sec. 5 (e), E.O. 247 17 SEC. 2, R.A. NO. 8423 18 Deepa Varadarajan, supra note 5, page 383-385. 19 Deepa Varadarajan, supra note 5, page 384. 20 Intellectual Property Office of the Philippines. About Patents. http://www.ipophil.gov.ph/main2.php?contentid=1 21 Marga C. Domingo-Morales, supra note 2, page 4. 22 Deepa Varadarajan, supra note 5, page 384. 23 G.R. No. 172835, December 13, 2007. 24 Supra note 22. 25 Supra note 22. 26 Vicente B. Amador, Protection of Trade Secrets and Proprietary Information, page 3-4, www.ecapproject.org/.../Philippines/.../amado... 27 Deepa Varadarajan, supra note 5, page 396-398. 28 Deepa Varadarajan, supra note 5, page 399-404. 29 Deepa Varadarajan, supra note 5, page 401.