Osaka High Court, 26 December 1994;

Osaka District Court, 10 September 1998

Trade secrets are valuable property to a company, yet handling them is often more difficult than handling intellectual property rights. Once made public, trade secrets are no longer protectable. Thus, it is vital for a company to make sure that its trade secrets are not leaked, particularly not through employees. Secrecy obligations during and after actual employment would seem an obvious step to ensure the proper maintenance of trade secrets. The two decisions introduced here deal with two different aspects of post-employment secrecy obligations: the first (Osaka High Court, 26 December 1994, 1553 Hanrei Jihô 133 [1996] – "Foaming Method") with the question of whether a post-contractual secrecy obligation has been expressly agreed upon between the parties, or can also be implied. The second (Osaka District Court, 10 September 1998, 1656 Hanrei Jihô 137 [1999] – "Water Purifying Device") concerns the question of whether an (expressly agreed) post-contractual secrecy obligation can be interpreted as a restrictive covenant, in other words, a post-employment obligation not to compete.

II. Osaka High Court, 26 December 1994

a) The trade secret in question concerned a foaming method of polyolefin which had been developed by a Japanese company, whose 100% subsidiary was the plaintiff in the present proceedings. The defendant began employment with the mother company and was transferred to the plaintiff once he had reached the position of second in charge in the research and development department, where the original foaming method was invented. While working for the plaintiff, the defendant was made executive director and head of the research and development department, which was responsible for improving the above foaming method. Indeed, a number of improvements were made not by him, but by his department under his supervision. Specifically, an improved two-tier process called "PE" was invented. These improvements were not made public or applied for as patents, but rather were kept secret.

Upon retirement, the defendant set up his own company and sold the above foaming technology to a Chinese company. The plaintiff apparently got wind of this and now claimed damages in the form of lost profits.