Protecting Trade Secrets In Russia: Lenient Criminal Sanctions Undercut Effective Protection

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[author: Bairta Mezhueva]

http://blogs.orrick.com/trade-secrets-watch/files/2014/01/shutterstock_1512787641-200x150.jpgAs the world prepares to descend on Sochi for the 2014 Winter Olympic Games, Trade Secrets Watch decided to take a look at how effective trade secret protections are in Russia.

Although Russia has fairly robust trade secret laws, Russian companies have generally been reluctant to seek legal redress for trade secret violations. According to studies conducted by market research agencies, about 90 percent of Russian companies have at some stage suffered from the theft of trade secrets. Although such theft can be a criminal offense, in most cases companies faced with this problem try to deal with it by themselves. In only 5 percent of cases do they initiate legal proceedings.

But with well developed laws in place, why do companies hesitate to use them?  Part of the problem may be that Russian courts have tended not to treat the theft of trade secrets very seriously.

In 2009, two American brothers were convicted of illegally obtaining documents marked “OJSC Gazprom trade secret” from oil and gas giant Gazprom. The defendants were not Gazprom employees, but obtained the documents by paying a $5,000 bribe to a company officer. Despite being convicted, the defendants only received a suspended sentence.

In the 2010 “bread roll case,” a former employee of a small bakery gained access to the bakery premises and, without authorization, made copies of digital files containing recipes for bread and other bakery products, and information on manufacturing costs. The court convicted her of stealing trade secrets, but only fined her the equivalent of $430.

And more recently, in 2012 an officer of major agrochemicals holding company OJSC PhosAgro was accused of illegally divulging trade secrets and thereby causing his company losses of approximately $2 million. Yet the court only sentenced him to a period of community service.

These cases illustrate the reluctance of the Russian courts to impose substantial penalties on employees or third parties who steal trade secrets, even when the resulting losses are significant. As a result, Russian companies have come to perceive the legal system as being ineffective to remedy trade secret violations, and not worth the time and expense. Until courts begin to impose penalties more commensurate with the seriousness of these crimes, Russian companies are likely to continue resorting to self-help.