AIR PHILS CORP V PENNSWELL

FACTS:

Petitioner is a domestic corporation engaged in the business of air transportation services. Respondent
Pennswell Inc was organized to engage in the business of manufacturing and selling industrial chemicals,
solvents and special lubricants.

Respondent delivered and sold to petitioner sundry goods in trade. Under the contracts, petitioner’s
obligation amounted to P 449,864.98 until the amount would be fully paid. For failure to pay comply with
its obligations unders said contract.

Respondent then filed a complaint against the petitioner. Petitioner then filed an ANSWER alleging that
the respondent defrauded the former for its previous sale of four items. Said items were misrepresented
by respondent as belonging to a new line, but were in truth and in fact, identical with products petitioner
had previously purchased from respondent.

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 the following products, to wit: (a) Contact Grease and
Connector Grease; (b) Thixohtropic Grease and Di-Electric Strength Protective Coating; and (c) Dry
Lubricant and Anti-Seize Compound.

RTC: Granted the motion then reversed its prior decision. Ruled infavor of the respondent

CA: Affirmed

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

RULING:
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.