December 2024

Wednesday, 04 Dec 2024

Trade Secret Protection for MSME in Indonesia

 

Small and Medium Enterprises business (“MSME”) play an important role in Indonesia economy today because MSMEs, most of which are household business activities, can absorb a lot of workers. Data from the Coordinating Ministry for Economic Affairs on 5 May 2021 shows that there were 64.2 million MSMEs with a contribution to Gross Domestic Product of 61.7% or equal to Rp8,573.89 trillion. The contribution of MSMEs to the Indonesian economy includes the ability to absorb 97% of the total workforce and can collect up to 60.4% of total investment. This proves that MSMEs contribute to reducing the unemployment rate in Indonesia.

Many MSMEs in Indonesia already know the importance of using and protecting brands for their businesses, but do not fully understand what trade secrets are and the importance of protecting trade secrets for their businesses.

Trade secrets become an important asset for an MSME when the MSME's business is related to methods and information that are confidential and have economic value, for example: MSMEs in the food and beverage processing sector and restaurants. There are many cases where several MSME actors experience business disputes with former employees or distributors who later set up similar businesses using the same recipes or methods. These business disputes can be prevented if the MSME’s actors have sufficient knowledge about trade secrets and made several protection efforts.

Protection of trade secrets in Indonesia is regulated by Law Number 30 of 2000 concerning Trade Secrets (“Law 30/2000”). Based on this Law, trade secrets are defined as information that is not known to the public in the field of technology and/or business, which has economic value because it is useful in business activities, and its confidentiality is maintained by the owner of the trade secret. Specifically, Law 30/2000 also regulates that this trade secret information can be in the form of production methods, processing methods, sales methods or other information in the field of technology and/or business that has economic value.

The contents of trade secrets are not recorded or registered with the Directorate General of Intellectual Property Rights (“DGIP”) due to their confidentiality. However, trade secrets can be licensed to another party based on an agreement, to grant and enjoy the economic benefit of such trade secret, that is protected for a certain period of time and conditions (not a transfer of rights). The trade secret licenses must be recorded with the DGIP through the official trade secret page at the DGIP’s website (DJKI - Login)which will legally bind third parties.

Due to its confidential nature, which may even include its licensee, special efforts are required by the owner of the trade secret as a business actor to protect its trade secret. In general, there are several things that can generally be done by business actors including MSMEs to maintain their trade secrets, namely:

1. Limiting and controlling access to information that is confidential and constitutes a trade secret, for example by limiting the number of personnel who know the contents of the trade secret, using passwords for access and data encryption/changing data into certain codes in a computerized system.
2. Make a non-disclosure agreement with personnel who have access to trade secrets including employees, distributors and related dealers before they gain access to the confidential information.
3. Conduct regular internal socialization especially to employees about the importance of trade secrets including efforts to protect trade secrets and sanctions that will be received for violations.
4. Create a special team to control and maintain restrictions on access to trade secrets.
5. Maintain strict security of electronic and physical data related to the business and restrictions on access to trade secrets.
6. Use the services of an advocate to draft a confidentiality agreement or carry out supervisory, controlling and restricting access to trade secrets.

The preventive efforts in maintaining trade secrets as mentioned above will be useful in providing evidence in civil, criminal or arbitration settlements when there are indications of trade secret leaks involving employees or parties who have access to the information in the future.

One example of a trade secret case that has become a landmark in Indonesia is the case of CV Bintang Harapan (“CV Bintang”) owned by John Satria Salim with his former employee Hi Pin in 2011. Hi Pin was a former employee of John's CV Bintang.

Around 2009 or after Hi Pin resigned from CV Bintang, Hi Pin established same business, i.e. coffee factory, namely CV Tiga Putra Berlian (“CV Tiga Putra”) and did several things that could be suspected as acts that intentionally and without the right used John’s trade secret by:

a)   Persuaded and offered more benefit to several of CV Bintang’s employees so they joined CV Tiga Putra.

b)   Ordered former CV Bintang’s employees who joined to create similar working system like CV Bintang such as making the same fryers, grinders, filters, and packaging, hence, the result of CV Tiga Putra’s coffee product taste and aroma can be the same as those produced by CV Bintang.

c)   Used the same marketing methods and distribution networks as CV Bintang, hence, CV Bintang lost several of their customers.

At the first level, all criminal charges of the public prosecutor were rejected by the panel of judges of the Palu District Court through Decision Number 55/Pid.B/2011/PN.PL on the grounds that Hi Pin was not legally and convincingly proven guilty of committing a criminal act of violating trade secrets.

Only then at the cassation level, the panel of judges at the Supreme Court believed that Hi Pin had violated trade secrets. The panel of judges overturned the District Court’s decision based on the evidence that had been previously submitted as follows:

1. coffee powder samples,
2. photos of coffee factory production equipment,
3. coffee price lists, and
4. a list of CV Tiga Putra’s customer shops.

The Panel of Judges at the Cassation level at the Supreme Court then decided that Hi Pin was guilty through court decision No. 332 k/Pid.Sus/2013 on 16 June 2015.   

If CV Bintang as an MSME actor has sufficient knowledge on trade secrets and has made efforts to protect trade secrets as described above, for example: (i) entering into a confidentiality agreement with Hi Pin and other former employees, (ii) restricting and controlling access to confidential information, then, these can be used as strong evidences to demonstrate the violation of Law 30/2000, namely Hi Pin's actions in persuading, inviting and ordering his colleagues to create the same work system and use the same marketing as CV Bintang. Therefore, CV Bintang did not need to experience defeat in the first instance court and wait for several years to win the case at the cassation level.

 

Disclaimer: This legal news serves as general guidance only and should not be treated as legal advice. If you wish to have further information on this topic, please contact  Diyah Ratnajati (dratnajati@rosetini.co.id), Andre Suprapto (asuprapto@rosetini.co.id) or Rosetini Ibrahim (ribrahim@rosetini.co.id).