EU Trade Secrets Directive
Member States have until 9 June 2018
14 December 2018
In July 2016, the European Parliament and the Council of the European Union adopted the Trade Secrets Directive intended to harmonise the protection of trade secrets throughout the European Union.
Knowledge has become the primary resource of today's economy. As a result, the manner in which knowledge is acquired, used and disclosed has taken on a new significance. In particular, the extent to which one can safeguard the proprietary nature of information is central to the value of knowledge. The latter representing an increasing challenge in today's environment of digitisation, long supply chains and diverging national rules and standards. Despite the fact that know-how and confidential business information may be considered key business assets in today's economy, only a few jurisdictions provide for legal protection in this respect. The United States is one of the most prominent examples of a country which has extensive legislation on the protection of trade secrets. With the introduction of the EU Trade Secret Directive so too will the Member States of the European Union.
The Council of the European Union and the European Parliament adopted a new directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use, and disclosure (the "Directive") on 8 June 2016. EU Member States must bring into force the laws and administrative provisions necessary to comply with the Directive by 9 June 2018. The Directive aims to put companies, inventors, researchers and creators on equal footing throughout the internal market, and as a result the EU will have a common and clear legal framework. Individual Member States may implement more extensive protection against unlawful acquisition of trade secrets (as defined below) provided that the main principles of the Directive are complied with.
This article aims to provide an overview of the protection regime for trade secrets as stipulated in the Directive and to comment on the effects it may have from a practical point of view.
What is a "trade secret"?
The Directive requires the following three elements to establish trade secret protection: (i) secrecy in the sense that the relevant information is not generally known or readily accessible; (ii) commercial value due to the secret nature of the information; and (iii) reasonable efforts of the holder of the secret to maintain secrecy. The definition thus applies to a broad spectrum of information, including know-how, customer- and supplier lists and market strategies.
What are the infringing acts considered by the Directive?
The Directive lists the following as infringing acts: (i) the unlawful acquisition of trade secrets; (ii) the unlawful use or disclosure of a trade secret; and (iii) the commercialisation of infringing goods.
Means of unlawful acquisition are, inter alia, unauthorised access to or copy of any documents, objects or electronic files lawfully under the control of the holder, or by theft, bribery, deception, or breach of a confidentiality agreement. However, the list is not exhaustive. A catch-all clause renders other actions infringing if conduct under the circumstances is considered contrary to honest commercial practices. Due to the generic nature of this clause, it may be the subject of considerable case law in attempts to further clarify how this clause is intended to be read.
Unlawful use or disclosure
The use or disclosure of a trade secret is deemed unlawful in the event that someone (i) has acquired the trade secret unlawfully; (ii) is in breach of a confidentiality obligation or agreement; or (iii) is in breach of a duty (contractual or otherwise) to limit the use of such trade secret. In addition, use and disclosure need to be unlawful according to the abovementioned prerequisites. Indirect use or disclosure is also considered an unlawful use of trade secrets where the person, at the time of use or disclosure knew or should have, under the circumstances, known that the trade secret was obtained from a direct infringer.
In addition to the acquisition, use and disclosure of a trade secret, the Directive also extends to the commercialisation of infringing goods. Their production, offering or placing on the market (...) or import, export or storage (...) for these purposes shall be prohibited. Infringing goods means goods whose design, quality, manufacturing process or marketing significantly benefits from trade secrets unlawfully acquired, used or disclosed.
Are there exceptions?
The Directive includes a list of exceptions in which case the acquisition, use or disclosure of a trade secret is considered lawful. This includes, inter alia, acquisition through independent discovery, creation, observation, study, disassembly or test of a product or object that has been made available to the public.
In addition, no claims shall be possible if the acquisition, use or disclosure was carried out for certain purposes, e.g., for making legitimate use of the right to freedom of expression and information or where an acquisition, use or disclosure was necessary to reveal the misconduct, wrongdoing or illegal activity (for example whistle-blowing). Also, the purpose of protecting a legitimate interest is considered a justification.
What are the remedies in the event of infringements?
Remedies stipulated in the Directive to enforce trade secret rights include preliminary as well as permanent measures, including injunctions, recalls and damages. These remedies need to be implemented by the Member States.
Interim as well as precautionary measures include the seizure of infringing goods to prevent their entry into the market as well as the prohibition of the infringing action by way of interim injunctions. However, infringement needs to be ongoing or imminent.
Permanent injunctions and recalls
In proceedings on the merits, permanent injunctions as well as corrective measures can be requested. The latter include, inter alia, the recall from the market, and the cessation, destruction, or return of infringing goods to the trade secret holder.
Moreover, the Directive provides for pecuniary compensation as an alternative to injunctions or corrective measures. It shall be available at the discretion of the court, but at the request of the infringer, in cases where (i) the infringer originally acquired the knowledge of the trade secret in good faith; (ii) the execution of the measures in question would cause that person disproportionate harm; and (iii) pecuniary compensation to the injured party appears reasonably satisfactory.
In case of culpable actions (i.e., where an infringer knew or ought to have known that he or she was engaging in an infringing action) damages can be requested by the holder to compensate the injured party (for example an amount equal to an usual license fee at a minimum).
Additionally, decisions can be made public at the request of the infringed party where appropriate.
Who can sue?
The direct owner as well as any natural or legal person "lawfully controlling a trade secret" is entitled to request measures. Effectively this definition also encompasses licensees. The Member States shall make rules for the limitation periods to claims and actions on the basis of the Directive which length shall not exceed 6 years.
Are there any measures taken during litigation to avoid disclosure?
The Directive aims to ensure that trade secrets are not disclosed during court proceedings. To that end, access to documents containing trade secrets shall be restricted. Also, hearings in which trade secrets are disclosed may only be attended by lawyers of the parties as well as authorized experts that are subject to a confidentiality obligation. In certain cases a confidentiality obligation may be imposed on the lawyers towards their clients. Lastly, the issuance of court decisions in redacted form only shall be possible.
What should I do?
A key element of the definition of trade secrets is that 'reasonable steps have been taken to keep the information secret. You should therefore identify your trade secrets and assess for your trade secrets which actions have been taken to keep this information confidential. This includes the review of employment contract protections (including confidentiality clauses) and identifying the current protective measures in place (such as usage of non disclosure agreements, policies, IT systems and document management systems). Finally, you should ensure that your employees adhere to honest commercial practices and comply with the confidentiality procedures in place at your company.
A copy of the Directive can be found by clicking here.