Various Issues Surrounding the Use of Undisclosed Information

The Civil Code of the Republic of Kazakhstan recognizes the concept of “undisclosed information.” Indeed, the right to use such information is a recurring topic in the provisions governing licensing/sublicensing contracts, pursuant to which a rightsholder (licensor) grants a licensee/sublicensee the right to use the rightsholder’s intellectual property, including undisclosed information.

According to the Civil Code of the Republic of Kazakhstan, such information can comprise technical, organizational, and commercial data, including trade secrets (know-how), that are unknown to third parties. Under Kazakh law, such information may be deemed to be undisclosed if certain statutory conditions applicable to operational and commercial information are met:

• The information is of actual or potential commercial value that derives from its nonpublic nature.

• The information is deemed, from a legal standpoint, not to already be publicly available.

• The information’s proprietor has made demonstrable efforts to ensure its confidentiality.

In practice, when undisclosed information transmitted for use pursuant to a licensing/sublicensing contract is used by the recipient party to conduct that party’s own legitimate activities, this often includes further transmission of the information for use by the licensee/sublicensee’s agents (consultants, distributors, and so forth). Thus undisclosed information, after being obtained, is sometimes ultimately transmitted by the licensee/sublicensee in such a way as to make it publicly known, typically by failing to further sublicense that information’s use in a manner consistent with the terms already imposed on the licensee/sublicensee and instead transmitting the information pursuant to other—less stringent—civil contracts entered into with its agents.

The prevalence of such practices notwithstanding, Kazakhstan’s competent bodies tend to construe such transmissions of undisclosed information by licensees/sublicensees to their agents as violations of the provision of the Civil Code of the Republic of Kazakhstan that governs disclosure of undisclosed information whose commercial value derives from its nonpublic nature. Specifically, the nature of the licensee/sublicensee’s transmission of the undisclosed information is held to have obviated that information’s actual or potential commercial value by making it, to some degree, public knowledge.

Accordingly, a licensee/sublicensee’s transmission of undisclosed information to an agent, when not made pursuant to a sublicensing contract under the auspices of the original contract, could be viewed as a breach of statute. Such a breach could result in direct adverse consequences for the original licensee/sublicensee, including annulment of the licensing/sublicensing contract and subsequent return by all parties of all benefits obtained as a result of the transaction.

However, the present authors believe that Kazakh law enables both licensor and licensee to independently determine the licensee/sublicensee’s permissible uses of the information, including those involving transmission of that information to agents pursuant to the terms of licensing/sublicensing contracts.

Specifically, paragraph 1, article 966 of the Civil Code of the Republic of Kazakhstan states that the party holding the rights to the product of intellectual creative activity (licensor) may grant to another party (licensee) the right of temporary use of that product in a certain manner, pursuant to the license contract. Furthermore, according to paragraph 1, article 964, the use of that product by other persons is permissible only with the consent of the rightsholder (and in certain other cases stipulated by Kazakh law).

Accordingly, to avoid exposure to the risks heretofore described, we recommend that licensing as well as sublicensing contracts expressly delineate the extent to which the licensee/sublicensee may transmit undisclosed information with the intent of engaging a limited audience in its use (agents, consultants, distributors, and the like). We also recommend that such contracts directly address the issue of how third parties will relate to the undisclosed information in question, particularly by making provision for any further persons or entities not originally party to the licensing/sublicensing contract and that thus have not yet assumed the responsibility of maintaining the confidentiality of the undisclosed information at issue.

In short, the relationships between the licensor and the licensee, as well as any sublicensees and possible consultants, must be structured in a manner that clearly distinguishes agents (consultants, distributors, and the like) from the originally licensing third party.

Turning to the requirement that undisclosed information be deemed, from a legal standpoint, not to be already publicly available, we consider that an agent’s access to undisclosed information pursuant to a civil contract entered into with the licensee/sublicensee hardly qualifies as public access. Furthermore, we note that the Civil Code of the Republic of Kazakhstan identifies “legal grounds” for determining information’s public accessibility as those stipulated by the existing body of law of the Republic of Kazakhstan: to wit, according to the legal commentary accompanying the Kazakh civil code, that “the information, the public access to which is provided for by the laws, cannot be considered as sensitive information or information constituting a trade secret.” This admonition is supplemented by an example of such legally prescribed access: the codification of universal access to certain information regarding real estate transactions—registration of transaction, registered rights for immovable property, and so forth.

Information contained in this Client Update is of general nature and cannot be used as legal advice or recommendation. Please note that Kazakhstan is an emerging economy, and its legislation and legal system are in constant development. Should you have any questions or want to discuss matters addressed in this Client Update, please contact us.