Trade secrets versus whistleblower protection

A grey area between two competing concepts has been playing out in the courts the world over, explains Shaukat Ali of Dennemeyer & Associates.

Trade secrets are among a company’s most valuable assets, safeguarding competitive advantages in industries ranging from technology to manufacturing.

Krispy Kreme’s doughnut recipe, WD-40’s composition and KFC’s signature spice blend are a few examples of brand-defining specifications kept under close lock and key.

Confidential resources such as source code, technical processes and customer data can be just as crucial as patents or trademarks.

While laws impose strict penalties for employees who unlawfully disclose trade secrets, including fines and imprisonment, many jurisdictions also protect whistleblowers who expose corporate misconduct.

This creates a legal and ethical grey area where intellectual property (IP) protection and whistleblower rights collide. Courts and legislators have begun addressing this tension more directly, shaping the evolving landscape of IP and corporate accountability.

Protection for whistleblowers

Most countries protect trade secrets as long as they remain confidential and have commercial value.

In the United States, the Defend Trade Secrets Act (DTSA) of 2016 provides a federal civil remedy for trade secret theft, imposing fines of up to $5 million or three times the value of the misappropriated information alongside potential damages.

However, the DTSA also offers immunity from liability for communicating a trade secret to the government or in a court filing where the disclosure is made “in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney” and is “solely for the purpose of reporting or investigating a suspected violation of law” or “is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.”

This carve-out is limited, though. The Act states that “nothing in this subsection shall be construed to authorise, or limit liability for, an act that is otherwise prohibited by law, such as the unlawful access of material by unauthorised means.”

In the European Union, the Directive on the Protection of Trade Secrets was also passed in 2016, and EU Member States had two years to adapt their laws to comply with it.

The Directive aimed to harmonise laws to prevent the unlawful acquisition, use and disclosure of trade secrets and to provide appropriate remedies, including damages.

However, like the DTSA, the EU Directive sets out exceptions that cover whistleblowing and freedom of expression.

These include where the acquisition, use or disclosure of the concealed subject matter was for “revealing misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest.”

Tensions arise

One of the most high-profile whistleblowing cases in recent history involved Theranos, a bloodtesting startup once valued at over $9 billion.

Beginning in 2015, former employees Tyler Shultz, Erika Cheung and Adam Rosendorff alerted regulators and The Wall Street Journal to fraudulent practices at the company and the faulty nature of the equipment used to screen blood samples.

Their disclosures, alongside further investigations, led to Theranos’ collapse in September 2018. Founder Elizabeth Holmes and former president Ramesh “Sunny” Balwani were later convicted of jeopardising patient health and defrauding investors to the tune of hundreds of millions of dollars, being sentenced to prison terms of more than 11 and 12 years, respectively.

Holmes attempted to defend herself by claiming that critical aspects of Theranos’ technology were protected as proprietary information. She also sued the three whistleblowers for misappropriation, although the lawsuits were unsuccessful.

Shultz stated that he had spent approximately $500,000 in legal fees to defend himself. This situation highlights whistleblowers’ legal and financial risks, particularly in industries where companies rely heavily on confidentiality in research and internal processes.

Another notable case is that of UBS whistleblower Bradley Birkenfeld, whose disclosures exposed widespread tax evasion facilitated by the Swiss banking giant.

In 2007, Birkenfeld provided US authorities with evidence that UBS was helping wealthy US clients hide billions of dollars in offshore accounts.

His testimony led to a $780 million settlement between UBS and the US Department of Justice and forced the bank to reveal the names of thousands of account holders.

UBS initially argued that Birkenfeld had violated confidentiality agreements and misappropriated internal documents, a common tactic that may deter would-be whistleblowers.

However, his information proved instrumental in exposing financial misconduct on a massive scale. While he was sentenced to prison for withholding some details, he was later awarded a record breaking $104 million under the US whistleblower programme.

The UBS case underscores the tension between corporate secrecy and public interest, particularly in highly regulated industries such as finance.

It also demonstrates how whistleblower protections, including financial incentives, can help uncover systemic wrongdoing despite legal threats from powerful institutions.

Look at the facts

These examples aside, there are relatively few decisions on the issue of trade secrets and whistleblowing. Due to concerns about confidentiality and the loss of reputation, many such cases do not make it to court and are instead resolved by negotiation between the parties.

One prominent case, dubbed “LuxLeaks”, concerned former PricewaterhouseCoopers employee Raphaël Halet’s disclosure of sensitive documents relating to tax avoidance to a journalist.

He was fined by the Luxembourg District Court for various offences, including misappropriation of trade secrets, but appealed to the European Court of Human Rights.

In 2023, the court’s Grand Chamber found that Halet’s right to freedom of expression under Article 10 had been violated, as the interference with his choice to impart information was not necessary in a democratic society. He was awarded damages and legal fees.

In particular, the court had to balance the fact that the information disclosed by the applicant was undeniably of public interest but that it was carried out through the theft of data and a breach of the professional secrecy by which he was bound.

“In the light of its findings as to the importance, at both national and European level, of the public debate on the tax practices of multinational companies, to which the information disclosed by the applicant has made an essential contribution, the Court considers that the public interest in the disclosure of that information outweighs all of the detrimental effects.”

Interestingly, the opposite conclusion was reached in a 2024 case in the UK, which was brought by German company Payone against a former employee, Jerry Kofi Logo.

This concerned the unlawful copying and removal of confidential documents and their release to third parties, such as industry regulators and press contacts, as well as in proceedings before the Employment Tribunal.

In the Payone case, Mr Justice Saini weighed free speech and open justice against the need to protect legitimate secrets.

Although Logo claimed he was a whistleblower, the judge found in favour of Payone and concluded that an injunction was warranted.

He said Logo had acted “wrongly and unlawfully” in his mass appropriation of the confidential information.

Moreover, the underlying documents remained confidential despite parts being shared during Employment Tribunal proceedings. Given that they contained personal and sensitive details, including identification documents and financial records, the judge ruled there was “a real need” to prevent further disclosure.

Planning ahead

Court decisions indicate that judges carefully consider the specific circumstances when addressing conflicts between trade secret protection and whistleblowing.

These include the nature of the information, the extent of appropriation, its intended use and the public interest.

Companies of all stripes should have procedures in place to safeguard any trade secrets they may own and regulate access. These measures should also account for how to respond to a potential whistleblowing defence, the issues it might raise and how to address them.

Shaukat Ali is a trademark lawyer at Dennemeyer & Associates. Ali joined the Dubai office in 2019 and is now part of the trademark and legal departments as well as the agent relationship management team for the MENA region. He can be contacted at sali@dennemeyer-law.com