AIR PHILIPPINES CORPORATION, Petitioner, versus PENNSWELL, INC. Respondent.

G.R. No. 172835 | 2007-12-13

Facts:

Petitioner is a domestic corporation for air transportation services. Respondent manufactures

and sells industrial chemicals, solvents and special lubricants. Respondent delivered and sold to
petitioner such products, however petitioner refused to pay, alleging that there was
misrepresentation and fraud on the part of the respondent regarding the items. Respondent
thus filed a complaint for sum of money against the petitioner. During the pendency of the trial,
petitioner filed a motion to compel respondent to give a detailed list of the ingredients and
chemical components of its products to conduct comparative analysis on it. Respondent
contended that it cannot be compelled to disclose the chemical components sought because
the matter is confidential, and should be considered a trade secret. Respondent maintained
that if they were forced to divulge such information, their special lubricant may be easily
imitated by its competitors. RTC ruled in favor of the respondent, and found such chemical
components to be trade secret, and privileged in character. Petitioner alleged grave abuse of
discretion on appeal, however, CA denied it.

Issue:

Whether the chemical components of ingredients of respondent’s products are trade secrets or
industrial secrets that are NOT subject to compulsory disclosure

Ruling:

Yes. The Court ruled that the chemical composition, formulation, and ingredients of
respondent's special lubricants are trade secrets within the contemplation of the law. It defined
a trade secret as a plan or process, tool, mechanism or compound known only to its owner and
those of his employees to whom it is necessary to confide it. The definition also extends to a
secret formula or process not patented, but known only to certain individuals using it in
compounding some article of trade having a commercial value. A trade secret may consist of
any formula, pattern, device, or compilation of information that: (1) is used in one's business;
and (2) gives the employer an opportunity to obtain an advantage over competitors who do not
possess the information.

Generally, a trade secret is a process or device intended for continuous use in the operation of
the business, for example, a machine or formula, but can be a price list or catalogue or
specialized customer list. It is indubitable that trade secrets constitute proprietary rights. The
inventor, discoverer, or possessor of a trade secret or similar innovation has rights therein
which may be treated as property, and ordinarily an injunction will be granted to prevent the
disclosure of the trade secret by one who obtained the information "in confidence" or through
a "confidential relationship."

American jurisprudence has utilized the following factors to determine if an information is a

trade secret, to wit:

(1) the extent to which the information is known outside of the employer's business;

(2) the extent to which the information is known by employees and others involved in the
business;

(3) the extent of measures taken by the employer to guard the secrecy of the information;

(4) the value of the information to the employer and to competitors;

(5) the amount of effort or money expended by the company in developing the information;
and

(6) the extent to which the information could be easily or readily obtained through an
independent source.

Republic Act No. 6969, or the Toxic Substances and Hazardous and Nuclear Wastes Control Act
of 1990, also contains a provision that limits the right of the public to have access to records,
reports or information concerning chemical substances and mixtures including safety data
submitted and data on emission or discharge into the environment, if the matter is confidential
such that it would divulge trade secrets, production or sales figures; or methods, production or
processes unique to such manufacturer, processor or distributor; or would otherwise tend to
affect adversely the competitive position of such manufacturer, processor or distributor.

Under the same Act, the Department of Environment and Natural Resources may release
information; however, the clear import of the law is that said authority is limited by the right to
confidentiality of the manufacturer, processor or distributor, which information may be
released only to a medical research or scientific institution where the information is needed for
the purpose of medical diagnosis or treatment of a person exposed to the chemical substance
or mixture. The right to confidentiality is recognized by said Act as primordial.

The privilege is not absolute; the trial court may compel disclosure where it is indispensable for
doing justice. Trade secrets should receive greater protection from discovery, because they
derive economic value from being generally unknown and not readily ascertainable by the
public. However, the petition was DENIED because the petitioner was not able to show a
compelling reason for the Court to lift the veil of confidentiality which shields respondent's
trade secrets.