Business secrets in the sense of the serbian law on companies

The duty of keeping the business secrets is one of the special duties prescribed by the Law on Companies. In this sense, the Law on Companies prescribes the following duties:

1. Duty of care
2. Duty to report jobs and activities in which there is a personal interest
3. Duty to avoid conflicts of interest
4. Duty of keeping the business secrets
5. Duty to respect the prohibition of competition

The Law on Companies also prescribes which persons are obligated to act in accordance with the stated duties, as well as the consequences if they don’t behave in accordance with these duties.

Of course, a lot can be said about each of these duties, so in this text we will explain in detail only one of them, and that is the duty of keeping the business secrets.

What is a business secret?

It is in the interest of every company to be as successful and competitive as possible on the market and to generate as much income as possible. One of the ways to achieve this is related to business secrets.

Short example: Imagine a company that produces, for example, mobile phones. Then, imagine that the company, after conducting research, discovers a mechanism by which it can produce the same number of mobile devices on a daily basis with less material and with less time and labor, without compromising the quality of the final product. In this way, the company reduces costs and maintains production at the same level, so the income increases. It is clear that in this situation, the company will be motivated to keep the discovered mechanism a secret, and, in order to accomplish that, the company will make a special act, for example a rulebook, in which it will declare the mechanism a business secret. In that way, the precious mechanism is protected from others.

Of course, not every piece of information related to the company’s operations is also a business secret. Thus, the Law on Companies prescribes certain restrictions in this sense and states which data are considered business secrets, and which cannot be that.

According to the Law on Companies, a business secret is:

1. Information whose disclosure to a third party could harm the company, as well as information that has or may have economic value because it is not generally known, nor it is easily accessible to third parties that could benefit from its use or disclosure and which is protected by appropriate measures which company takes in order to keep secrecy of certain information

2. Other information which is by a law, another regulation or by a company act determined as a business secret

Various data may fulfill the listed conditions and in that sense be considered a business secret and as such protected, either on the basis of law or other regulations, or on the basis of a company act. For example, for a business secret can be considered financial data, data of technical or technological nature, documents, also drawings, sketches, notices or instructions related to a particular company, research results etc., but only if the conditions prescribed by law are fullfiled.

As we said, the law gives the opportunity to the companies to protect certain data as a business secret by their own acts. However, this possibility is limited:

• only information that fulfills the conditions prescribed by law can be determined as a business secret by the company’s act (see the previous paragraph under 1.)
• the company is not allowed to determine as a business secret all the information related to its business

Who is obliged to keep business secrets of the company?

The Law on Companies exhaustively prescribes who is obliged to keep business secrets of the company:

• partners and general partners
• members of a limited liability company and a shareholder who, independently or with other persons acting together with him, owns more than 25% of the voting rights in the company (significant participation in the share capital of the company)
• a member of a limited liability company who is a controlling member of the company, i.e. a shareholder who is a controlling shareholder in a joint stock company. Control in this sense means that a certain person has the right or possibility to, independently or with other persons who work together with him, have control influence on the business of another entity. This can be achieved through participation in the share capital, contracts or the right to appoint a majority of directors or members of the supervisory board in the controlled company. Also, the Law assumes that a certain person or legal entity has control if it, independently or with related persons, owns more than 50% of the voting rights in the company (majority participation in the share capital of the company)
• directors and members of the supervisory board
• representatives and procurators
• liquidation manager
• persons employed in the company
• other persons who are determined by the founding act or the statute as persons who have special duties towards the company, which depends on the will of the company itself

Who are the related parties?

In order to make sure that a certain information remains a secret, it is necessary that the persons obligated to act in accordance to the the special duty of keeping the business secret are not only the persons listed above, but also persons connected with them.

If someone, for example, is a member of the supervisory board in a company, one of the duties he/her has is the duty of keeping the business secrets. However, it is possible for the spouse of that person to find out about the information that is a business secret. Then the confidentiality of the data is compromised. The legislator also noticed the above, so the persons connected with the persons who have special duties towards the company are also obligated to act in accordance with duty of keeping the business secret.

However, the legislator does not explicitly state that related parties are obliged to keep business secrets, but such an interpretation corresponds to the meaning of the law, i.e. provisions about special duties towards company, as well as situations that are easily imaginable and common in reality.

Following persons are considered as a persons related to a certain natural person, all in the sense of the Law on Companies:

1. blood relative in the direct line, blood relative in the collateral line up to the third degree of kinship, spouse and extramarital partner of these persons
2. spouse and extramarital partner and their blood relatives concluding with the first degree of kinship
3. adoptive parent or adoptee, as well as the descendants of the adoptee
4. other persons which are living with that person in a joint household

Following persons are considered as a persons related to a certain legal entity, all in the sense of the Law on Companies:

1. legal entity in which that legal entity has a significant share in the capital, i.e. independently or with other persons acting together with it, owns more than 25% of the voting rights in the company, or has the right to acquire such participation from convertible bonds, warrants, options etc.
2. controlled company, i.e. a legal entity in which that legal entity is a controlling member of the company
3. legal entity which, together with that legal entity, is under the control of a third party
4. person who has a significant share in the capital in that legal entity, or the right to acquire such a share from convertible bonds, warrants, options etc.
5. person who is a controlling member of that legal entity
6. person who is a director, i.e. a member of the management or supervisory body of that legal entity

It should be noted that the concept of control is explained in the part of the text Who is obliged to keep business secrets of the company.

For example, Company A has the right to name a majority of the directors in Company B and Company C, so it has control over these companies. In other words, company A is a controlling company, while company B and company C are controlled companies. In this sense, company B and company C are together under the control of a Company A, so they are related parties.

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What are the consequences of not keeping business secrets?

If a person has disclosed a business secret and in that way acted contrary to the duty of keeping the business secrets, the company may file a lawsuit against that person.

In the lawsuit, the company may request that the court oblige the person who violated the duty of keeping the business secrets to pay compensation for the damage caused by such actions.

If the person who violated the duty of professional secrecy is also a member of the company that filed the lawsuit, the company may request the exclusion of that person as a member of the company.

The Law on Companies explicitly prescribes that filing a lawsuit against a person who has violated this duty does not exclude or condition the possibility of termination of employment contract concluded by company and that person, all in accordance with the Labor Law. Therefore, if a person who acted contrary to the duty of keeping the business secrets is employed by the company, the company is free to decide whether to fire him/her, all in accordance with the provisions of the Labor Law.

When does the duty of keeping the business secrets not exist?

It is clear that the data that are protected as a business secret are important for the successful business of the company, and as such enjoy adequate legal protection. However, that legal protection is often misused.

The company has the right to protect certain information as a business secret only if that information fulfills the conditions already discussed in this text. However, what if this information is the key for detecting illegal behavior, for example, of a company director?

This has been recognized by the legislator himself, so the Law on Companies states that the disclosure of information that is protected as a business secret is not considered a violation of the duty of keeping business secrets in the following situations:

• if the obligation to disclose certain data is prescribed by law
• if disclosure of certain information is necessary in order to perform business or protect the interests of company
• if the data are disclosed to the competent authorities or to the public for the purpose of indicating the existence of an act punishable by law. In that case, the company whose data are no longer a secret is obliged to provide full protection to the person who acted conscientiously and disclosed the data to the competent authorities for the stated purposes.

Date: 21.07.2020.