Awareness of Trade Secrets and Non-Disclosure Agreements (NDA) After Quitting Jobs and Work for Competitors

Kenny Wiston

INTRODUCTION

This memorandum addresses the legal framework governing trade secrets and Non-Disclosure Agreements (NDA) in Indonesia, focusing on their definitions, legal consequences for employees moving to competitors, enforcement mechanisms, requirements for protection, and the approach of the Supreme Court in trade secret disputes. The analysis is based on the relevant provisions of Law Number 30 of 2000 concerning Trade Secrets and the Indonesian Civil Code, providing a comprehensive overview of the rights, obligations, and remedies available to trade secret owners and parties to NDAs within the Indonesian legal system.

The Legal Nature of NDAs and Their Relationship to Trade Secrets

• Under Indonesian law, specifically Article 1 point 1 of Law Number 30 of 2000 concerning Trade Secrets, a trade secret is defined as information in the field of technology and/or business that is not generally known to the public, has economic value, and is kept confidential by its owner.
• An NDA (Non-Disclosure Agreement) is not itself a trade secret but a legal instrument designed to protect trade secrets.
• The NDA serves as a contractual mechanism, based on the principle of freedom of contract as stipulated in Article 1338 of the Indonesian Civil Code (KUH Perdata), whereby parties agree not to disclose certain confidential information.
• The function of the NDA is to ensure that parties who receive or have access to trade secrets are legally bound to maintain their confidentiality. Breach of an NDA may result in civil or criminal liability if it involves trade secrets, as regulated in Articles 13 and 17(1) of the Trade Secrets Law.
• Therefore, the NDA is a protective mechanism, while the trade secret is the object protected by both the NDA and the Trade Secrets Law.
• In summary, an NDA is not a trade secret but a contractual agreement to safeguard and protect trade secrets in accordance with prevailing laws and regulations.

Legal Consequences for Employees Moving to Competitors in Relation to NDAs and Trade Secrets

• Employees who have signed an NDA containing confidentiality obligations are legally bound not to disclose or use the former employer’s confidential information, both during and after employment, pursuant to the principle of freedom of contract (Article 1338) and the validity of contracts (Article 1320) of the Indonesian Civil Code.
• If an employee discloses or uses the former employer’s trade secrets for the benefit of a competitor, such conduct may constitute a violation of trade secrets as regulated in Article 1 point 1 and Article 4 of Law Number 30 of 2000 concerning Trade Secrets, which grants the trade secret owner the right to prohibit others from using or disclosing the trade secret for commercial purposes.
• Breach of an NDA may result in civil liability, such as claims for damages or contractual penalties, as illustrated in the case of PT Foom Lab Global vs. former employee, where the court imposed a fine for NDA violation.
• If the breach meets the elements of a criminal offense, such as intentional and unauthorized use or disclosure of another party’s trade secret, the employee may be subject to criminal sanctions under Article 17(1) of the Trade Secrets Law, with a maximum imprisonment of 2 years and/or a fine of up to IDR 300 million. This is a complaint-based offense (delik aduan), requiring a complaint from the aggrieved party (Article 17(2)).
• The new employer (competitor) may also be held liable if it is proven that they intentionally acquired or used the trade secret in violation of the law (Articles 4 and 13 of the Trade Secrets Law).
• Courts will assess the reasonableness and proportionality of NDA clauses, including scope, duration, and geographic limitations, and ensure the absence of coercion in the agreement.
• In conclusion, employees moving to competitors remain bound by NDAs and trade secret obligations, and violations may result in both civil and criminal sanctions under applicable law.

Enforcement of Rights and Legal Protection for Trade Secret Owners

• Trade secret owners are granted exclusive rights to use their trade secrets, license them, or prohibit others from using or disclosing them for commercial purposes, as stipulated in Article 4 of the Trade Secrets Law.
• Legal protection is afforded to information that meets the following criteria: it is secret, has economic value, and is kept confidential through reasonable efforts (Article 3(1) of the Trade Secrets Law).
• In the event of a violation, the trade secret owner may pursue civil remedies by filing a lawsuit in the district court for damages and/or cessation of unauthorized use or disclosure (Article 11(1) of the Trade Secrets Law).
• In addition to civil remedies, criminal prosecution is available for intentional and unauthorized use or disclosure of trade secrets, with penalties as provided in Article 17(1) of the Trade Secrets Law. Criminal proceedings require a complaint from the injured party (Article 17(2)).
• Investigations may be conducted by the police or designated civil servants within the Ministry of Law and Human Rights (Article 16(1) of the Trade Secrets Law).
• To maintain confidentiality during court proceedings, the judge may order closed hearings at the request of the parties (Article 18 of the Trade Secrets Law).
• Disputes may also be resolved through arbitration or alternative dispute resolution mechanisms such as negotiation, mediation, or conciliation (Article 12 of the Trade Secrets Law).
• Thus, trade secret owners in Indonesia are provided with comprehensive legal protection through exclusive rights, civil and criminal remedies, and alternative dispute resolution options.

Requirements for Obtaining Rights and Legal Protection over Trade Secrets

• According to Article 3(1) of the Trade Secrets Law, legal protection is granted only if the information fulfills three cumulative requirements:
  1. The information is secret, meaning it is only known to certain parties or not generally known to the public (Article 3(2)).
  2. The information has economic value, i.e., its confidentiality can be used for commercial activities or to increase economic gain (Article 3(3)).
  3. The information is kept confidential, with the owner having taken reasonable and appropriate steps to maintain its secrecy (Article 3(4)).
• The scope of trade secret protection includes production methods, processing methods, sales methods, or other information in the field of technology and/or business that has economic value and is not known to the public (Article 2).
• Rights over trade secrets arise automatically without the need for registration, provided the above requirements are met (Article 1 point 2 and the general explanation of the Trade Secrets Law).
• Therefore, to obtain rights and legal protection as a trade secret, the information must be secret, have economic value, and be properly safeguarded by its owner in accordance with Article 3 of the Trade Secrets Law.

The Stance and Decisions of the Supreme Court in Trade Secret Disputes

• The Supreme Court (Mahkamah Agung, MA) upholds the principles of trade secret protection as set out in Law Number 30 of 2000, emphasizing justice, legal certainty, and proportionality in protecting trade secret owners and the rights of other parties.
• The MA carefully examines whether the disputed information meets the criteria for trade secrets as stipulated in Article 3(1), and whether a violation has occurred as regulated in Articles 13 and 14.
• The MA affirms that trade secret violations may occur through unauthorized disclosure, use, or control of confidential information, whether by former employees or third parties (Articles 4, 13, and 14).
• In its decisions, the MA may uphold civil sanctions such as damages and/or cessation of infringing acts (Article 11(1)), as well as criminal sanctions if intentional and unauthorized use or disclosure is proven (Article 17(1)).
• The MA also considers the principle of freedom of contract (Article 1338 of the Civil Code) in assessing the validity and fairness of NDA clauses, including their scope, duration, and geographic limitations, and ensures the absence of coercion.
• In cases involving former employees and companies, the MA has confirmed that NDA violations resulting in trade secret disclosure may be subject to both civil and criminal sanctions, as reflected in final and binding court decisions (e.g., PT Foom Lab Global case).
• The MA may order closed hearings to protect confidentiality during proceedings (Article 18).
• In summary, the Supreme Court consistently enforces legal protection for trade secret owners, strictly assesses the elements of trade secrets, and imposes proportionate sanctions for violations, in accordance with Law Number 30 of 2000.

CONCLUSION

Based on the analysis above, it is concluded that NDAs are contractual instruments to protect trade secrets, not trade secrets themselves. Employees remain bound by NDAs and trade secret obligations even after moving to competitors, with violations potentially resulting in civil and criminal sanctions. Trade secret owners are afforded comprehensive legal protection and enforcement mechanisms under Indonesian law, provided the information meets the statutory requirements. The Supreme Court consistently upholds these protections, ensuring fairness and legal certainty. It is recommended that:

1. Companies ensure that NDAs are clearly drafted, reasonable in scope, and properly executed to maximize enforceability.
2. Trade secret owners implement robust confidentiality measures and promptly pursue legal remedies in the event of violations, utilizing both civil and criminal avenues as appropriate.