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Air Philippines Corporation vs. Pennswell, Inc.


● Trade secrets are privileged information and thus may not be the subject of mode of discovery under Rule 27, Section 1 of the Rules of Court.

Facts:

Pennswell sold and delivered to Air Philippines Corporation industrial chemicals, solvents, and special lubricants amounting to P450,000.00. When Air Philippines refused to pay the obligation, Pensswell filed a collection case before RTC Makati. In its Answer, Air Philippines alleged that: it refused to pay because it was defrauded in the amount of P600,000.00 by Pennswell for its previous sale of 4 items; said items were misrepresented by Pennswell as belonging to a new line, but were in truth and in fact, identical with products it had previously purchased from Pennswell; and, Pennswell merely altered the names and labels of such goods. During the trial, Air Philippines filed a motion to compel Pennswell to give a detailed list of the chemical components and the ingredients used for the products that were sold. Pennswell opposed the motion for production, contending that the requested information was a trade secret that it could not be forced to disclose.

Issue:

May Pennswell be compelled to disclose the chemical components and the ingredients used for its products through a motion for production?

Held:

No. Rule 27 of the Rules of Court provides:

Sec. 1. Motion for production or inspection order. Upon motion of any party showing good cause therefore, the court in which an action is pending may (a) order any party to produce and permit the inspection and copying or photographing, by or on behalf of the moving party, of any designated documents, papers, books, accounts, letters, photographs, objects or tangible things, not privileged, which constitute or contain evidence material to any matter involved in the action and which are in his possession, custody or control; or (b) order any party to permit entry upon designated land or other property in his possession or control for the purpose of inspecting, measuring, surveying, or photographing the property or any designated relevant object or operation thereon. The order shall specify the time, place and manner of making the inspection and taking copies and photographs, and may prescribe such terms and conditions as are just.

Rule 27 sets an unequivocal proviso that the documents, papers, books, accounts, letters, photographs, objects or tangible things that may be produced and inspected should not be privileged. Section 24 of Rule 130 draws the types of disqualification by reason of privileged communication, to wit: (a) communication between husband and wife; (b) communication between attorney and client; (c) communication between physician and patient; (d) communication between priest and penitent; and (e) public officers and public interest. There are, however, other privileged matters that are not mentioned by Rule 130. Among them are the following: (a) editors may not be compelled to disclose the source of published news; (b) voters may not be compelled to disclose for whom they voted; (c) trade secrets; (d) information contained in tax census returns; and (d) bank deposits.

A trade secret is defined 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. 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.

The chemical composition, formulation, and ingredients of respondents special lubricants are trade secrets within the contemplation of the law. Respondent was established to engage in the business of general manufacturing and selling of, and to deal in, distribute, sell or otherwise dispose of goods, wares, merchandise, products, including but not limited to industrial chemicals, solvents, lubricants, acids, alkalies, salts, paints, oils, varnishes, colors, pigments and similar preparations, among others. It is unmistakable to our minds that the manufacture and production of respondents products proceed from a formulation of a secret list of ingredients. In the creation of its lubricants, respondent expended efforts, skills, research, and resources. What it had achieved by virtue of its investments may not be wrested from respondent on the mere pretext that it is necessary for petitioners defense against a collection for a sum of money. By and large, the value of the information to respondent is crystal clear. The ingredients constitute the very fabric of respondents production and business. No doubt, the information is also valuable to respondents competitors. To compel its disclosure is to cripple respondents business, and to place it at an undue disadvantage. If the chemical composition of respondents lubricants are opened to public scrutiny, it will stand to lose the backbone on which its business is founded. This would result in nothing less than the probable demise of respondents business. Respondents proprietary interest over the ingredients which it had developed and expended money and effort on is incontrovertible.

The chemical composition, formulation, and ingredients of special lubricants requested by Air Philippines formed part of the trade secrets of Pennswell. Because of public policy, trade secrets are privileged and the rules providing for the production and inspection of books and papers do not authorize their production in a court of law. (Air Philippines Corporation vs. Pennswell, Inc., G.R. No. 172835, December 13, 2007)

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