Is it secret? Is it safe? The Trade Secrets Directive to come into force on 5 July 2016
On 15 June 2016, EU Directive (2016/943) “On the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure” setting out rules for the protection of trade secrets and confidential information of EU companies was published in the EU’s Official Journal. This means that the Directive will enter into force on 5 July 2016 (the 20th day following that of its publication in the Official Journal). EU Member States have to transpose the Directive into their national law by 9 June 2018, which means that there will be harmonised protection for trade secrets across the EU.
The Directive is intended to have a deterrent effect against the unlawful acquisition, use or disclosure of trade secrets and provide consistent protection for trade secrets across the EU. This will give businesses trading in the EU better cross-border protection of their trade secrets throughout the supply chain. The Directive also builds in safeguards to avoid undermining fundamental rights and freedoms or impacting on the public interest, including public safety, consumer protection, public health, environmental protection and mobility of workers.
The concept of EU-wide measures against the unlawful acquisition, use and disclosure of trade secrets, was first proposed in November 2013. The EU Commission then set out a draft directive that aimed to align existing laws against the misappropriation of trade secrets across the EU. The overarching goal was to put companies, inventors, researchers and creators on equal footing throughout the EU so that there was a common, clear and balanced legal framework that discouraged unfair competition and facilitated collaborative innovation and the sharing of valuable know-how. Following comments, the draft was heavily revised and received approval after the inclusion of safeguards for the media, workers and whistle-blowers.
What is a trade secret?
The Directive provides a definition for “trade secret”:
Article 2(1) ‘trade secret’ means information which meets all of the following requirements:
(a) it is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
(b) it has commercial value because it is secret;
(c) it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.
The Directive also makes it clear that this definition excludes information that is known and accessible to persons normally dealing with the kind of information in question. It also excludes trivial information and the experience and skills gained by employees in the normal course of their employment.
Other key definitions in the Directive include:
‘trade secret holder’ - any natural or legal person lawfully controlling a trade secret;
‘infringer’ - any natural or legal person who has unlawfully acquired, used or disclosed a trade secret;
‘infringing goods’ - goods, the design, characteristics, functioning, production process or marketing of which significantly benefits from trade secrets unlawfully acquired, used or disclosed.
Having these definitions that will be uniform throughout the EU, should make it easier for companies to identify, protect and enforce their rights in trade secrets.
Lawful and unlawful acts
Article 3 of the Directive sets out the parameters of lawful acquisition, use and disclosure of trade secrets, which includes independent discovery or creation, observations and testing of products lawfully in the position of the acquirer of the information and practices in conformity with honest commercial practices.
Article 4 requires Member States to ensure that trade secret holders have the ability to seek protection and obtain suitable remedies and compensation for the unlawful acquisition, use or disclosure of their trade secret. Unlawful acquisition includes unauthorised access to, appropriation of or copying of information containing the trade secret or from which it can be deduced, as well as acquisition by practices contrary to honest commercial practices (Article 4(2)). Once the trade secret holder has established that the alleged infringer’s acquisition was unlawful then the use or disclosure of the trade secret is also unlawful. In addition, a breach of a confidence, contractual requirement or duty to keep information confidential would be unlawful.
For secondary infringers, then the acquisition, use or disclosure of a trade secret will be unlawful if they knew or ought reasonably to have known that the trade secret had been obtained by another party who was themselves using or disclosing the trade secret unlawfully.
The production, offering, placing on the market, importation, export or storage of infringing goods shall also be considered an unlawful use if the party carrying out the activities knew or ought reasonably to have known that the trade secret was used unlawfully.
Safeguards in the Directive
After consultation on the draft Directive, there are some key protections and assurances that have been included to protect the press, workers and whistle-blowers (Article 5). These include:
- Protection of freedom of expression and freedom of the media
The measures preventing the disclosure of information to protect the confidentiality of trade secrets shall not interfere with investigative journalism, which can be exercised without any new limitations, including the protection of journalistic sources.
- Mobility of employees
In an increasingly mobile work environment, the Directive does not impose any additional restrictions on workers in their employment contracts and national law will continue to apply. Employees can use the experience and skills honestly acquired in the normal course of their employment.
A person acting in good faith who reveals a trade secret for the purpose of protecting the general public interest, i.e., “whistle-blowers”, will enjoy protection. National Courts will judge whether the disclosure of a commercial secret was necessary to reveal misconduct, wrongdoing or illegal activity.
Actions for misappropriation and misuse of trade secrets
All EU Member States will have to provide trade secret holders with measures, procedures and remedies necessary to ensure they can prevent and obtain suitable civil remedies for the unlawful acquisition, use and disclosure of trade secrets.
The claimant must demonstrate that a trade secret exists, that the claimant falls within the definition of being the trade secret holder and that the trade secret has been (or will be) unlawfully acquired, used or disclosed. The Court must also assess the value of the features of the trade secret, as well as the measures taken to protect it. The Court must also consider the conduct of the alleged infringer and the impact and likely harm to the trade secret holder of a use or disclosure without consent and balance each party’s legitimate interests. Finally the Court must also consider any third party interests, the public interest and the safeguard of fundamental rights.
Member States will have to ensure that there are procedures for the fair, proportionate and efficient dealing of such actions. The requirement for timely measures, recognises that with actions for breaches of confidence often one of the most important remedies is an injunction. The kinds of provisional measures that must be available are set out in Article 10 and include injunctions and seizures of suspected infringing goods. The applicant will have to provide appropriate cross-undertaking and the defendant can apply to revoke the Order or cease to have effect if they can either show that the information isn’t secret or if the trade secret holder doesn’t then institute legal proceedings within a reasonable period of time (whichever is longer of 20 working days or 31 calendar days). If the Court decides to allow the alleged unlawful use to continue then the alleged infringer will have to provide an appropriate guarantee until the matter is resolved.
Importantly, Article 9 of the Directive also requires all Member States ensure that the trade secret itself will remain confidential during the course of and after the legal proceedings, including in any Judgment. This is important because, unlike the English Courts, there are some jurisdictions where putting in place confidentiality regimes is difficult and hearings in camera are rare.
Successful parties will have a number of remedies available, including a final injunction, delivery up or destruction of infringing goods, damages and publication of the Judgment.
Companies wishing to take advantage of the change of law should consider regular audits to identify what information they hold constitutes a trade secret under the Directive and what measures are in place to ensure that they are kept secret.
It is important that everyone in the business treats information of this nature with respect and understands the importance of protecting trade secrets. This includes ensuring that strong confidentiality agreements are used routinely if discussing information with third parties, including business associates and franchisees. Employment contracts need to contain clear terms for those employees who will be handling confidential information and contracts should be reviewed if the employee’s role changes. Companies should also consider implementing robust security policies for the protection of trade secrets accessible in offices (e.g., a clean-desk policy and locked storage) or in electronic files (e.g., password protection and information barriers).
If these measures are undertaken then the entry into force of the Trade Secrets Directive offers companies a new opportunity to increase cross-border activities with a reduced risk of damage to the business through the unlawful use or disclosure of their trade secrets.