Article Post on 03 August 2016

EU New Directive on the Protection of Trade Secrets

Launched in 2013 by the European Commission and after two years of debate and revision and with the participation of the Commission’s as a facilitator, the negotiating teams of the European Parliament and Council reached a preliminary agreement on the text of the directive on trade secrets (the “Directive”) and a revised version of the Directive was published in December 2015.

The Directive dated 8 June 20161, published in the Official Journal of the European Union on 15 June 20162 will entry in force on 5 July 2016.

Member States will have a maximum of two years to adopt and incorporate the new provisions into national law, i.e. until 9 June 2018 at the latest. The Directive will be binding all Member States, required to enact domestic legislation with certain minimum requirements of protection for trade secrets.

The Directive lays down common measures against the unlawful acquisition, use and disclosure of trade secrets and further aims at ensuring a smooth functioning of the internal market. The Directive provides measures preventing the disclosure of information, in order to protect the confidentiality of trade secrets.


MAIN GOAL & KEY POINTS OF THE REFORM
 

Main goal

Trade secret did not enjoy an equivalent level of protection throughout the European Union, leading to fragmentation of the internal market and to a weakening of the applicable rules.

Therefore, the Directive aims at harmonizing the diverging Member States’ laws and protecting Member States from misappropriation of trade secrets.

Having regard to the proposal from the European Commission, both European Parliament and Council considered important to establish an homogenous definition of “trade secrets”, covering know-how, business information, technological information, and the legitimate interest to keep them confidential and to preserve such confidentiality.

The Directive’s intention is also to have an effect against illegal disclosures of trade secrets, however without undermining fundamental rights and freedom or the public interest, i.e. public safety, consumer protection, public health, environmental protection and mobility of workers.

Thanks to the Directive, companies, inventors, researchers and creators will be put on equal level throughout the European Union’s internal market, through a common, clear and balanced legal framework, discouraging unfair competition, and facilitating collaborative innovation and valuable know-how sharing.

Key points
 

  • Harmonized definition of “trade secret”

Not all Member States have adopted national definitions of “trade secrets” and their “unlawful acquisition, use or disclosure”, leading to considerable divergences.

The Directive provides a uniform definition of “trade secret” in accordance with the existing internationally binding standards.

Pursuant to Article 2 (1) of the Directive, a “trade secret” shall mean information that meets all of the three following criteria:

  1. Secret: it must be 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”;
  2. Valuable: it must have “commercial value because it is a secret”; and
  3. Protected: it must have “been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret”.

Valuable know-how and business information, which are undisclosed and intended to remain confidential, are referred to as “trade secret”.
According to the preamble of the Directive, information has “commercial value” for example, “where its unlawful acquisition, use or disclosure is likely to harm the interests of the person lawfully controlling it, in that it undermines that person’s scientific and technical potential, business or financial interests, strategic positions or ability to compete” (Recital 14 of the Directive).

This definition leaves much room for interpretation and it will therefore be necessary for the European Union’s Court of Justice to consider and frame the definition, in order to avoid inconsistencies between Member States’ legislators and/or courts interpretations and to provide a higher degree of certainty to trade secret holders.
 

  • Definition of what constitutes “lawful” and “unlawful” acquisition of trade secrets

The Directive stipulates that “infringing conduct” refers to the “unlawful acquisition, disclosure or use of a trade secret”. Therefore, “infringing goods” are goods whose “design, manufacturing process or marketing significantly benefits from trade secrets unlawfully acquired, disclosed or used”.

According to the text, it is unlawful to use or disclose trade secrets if they have been obtained by breaching a confidentiality agreement and/or breaching a contractual duty to protect trade secrets.

In its Article 4, the Directive sets out what shall be considered as “unlawful”, i.e. conducts being contrary to honest commercial practices, or the fact that recipients of a trade secret knew/should have known that the information was directly or indirectly derived from an unlawful act. Therefore, the text allows actions against persons further down the supply chain, even if they had no knowledge of the confidential character of the information they obtained. 

However, acquisition of a trade secret is considered as lawful, if the information is obtained thanks to independent discovery, reverse engineering of publicly available products, discovery pursuant to a license, observation of the item in public use or on public display, or from published literature. Therefore, it would be considered as lawful to disassemble or test any product or object which is available to the public.
 

  • Impacts on the freedom of expression and the right to information

Even when a trade secret is misappropriated, Article 5 (a) of the Directive foresees a specific safeguard in order to preserve the freedom of expression, the right to information and pluralism of the media, in compliance with the Charter of Fundamental Rights of the European Union.

In addition, Article 5 (b) of the Directive expressly protects those who, acting in the public interest, disclose trade secrets for the purpose of revealing a misconduct, wrongdoing or illegal activity.
Consequently, journalists will remain free to investigate and publish news on companies’ practices and business affairs, with regards to the protection of journalistic sources. Furthermore, persons acting in good faith, revealing trade secrets for the purpose of protecting the general public interest, i.e. “whistle-blowers”, will enjoy adequate protection. It will be up to national judges to evaluate whether the disclosure of a commercial secret was necessary to denounce a misconduct, wrongdoing or illegal activity.

This protection is operative, even if the trade secret was acquired or passed to a journalist/whistle-blower through the use of illicit means, such as the breach of law or contract, creating defense to misappropriation claims.

Besides, the text will not affect companies’ legal obligations to disclose information of public interest, ensuring a high level of transparency, since the Directive does not provide any grounds for companies to hide information that they are legally obliged to submit to regulatory authorities or to the public at large.

The Directive will impose no restriction to workers’ employment contracts, which will remain governed by national law. Therefore, there will be no limitation to employees’ use of their experience and skills honestly acquired in the normal course of their employment. In addition, the autonomy of social partners and their rights to enter into collective agreements will not be affected by the implementation of the new conditions.
 

  • Legal remedies for trade secret misappropriation

It is essential to provide fair, effective and dissuasive legal remedies for the immediate termination of unlawful acquisition, use or disclosure of a trade secret while respecting the right of defense, the principle of proportionality and considering the characteristics of the case in hand.

So Member States will have to provide definitive measures, procedures and remedies, in order to ensure the availability of civil redress against and to prevent such misconducts.

Therefore, the Directive – which does not provide criminal sanctions – ensures a variety of civil remedies in case of damages caused by illegal appropriation of trade secrets. As a matter of fact, the Directive enables national courts to grant injunctions of appropriate duration, seizure and destruction of infringing goods and publicity measures, in order to restrain the use and disclosure of confidential information and to deal with infringing goods.

Furthermore, adequate compensation for the prejudice suffered, as a result of unlawful conducts, is granted by the text. Loss of earnings incurred by and moral prejudice caused to the trade secret holder as well as unfair profits made by the infringer should be taken into account, in order to evaluate the awarded damages to the injured trade secret holder.

Each Member State implementing the Directive will have the possibility to set the limitation period within which claims relating to the unlawful acquisition, use or disclosure of a trade secret would have to be lodged before courts. Pursuant to Article 8 (1) of the Directive, such limitation periods may not exceed six years. National lawmakers will further be able to determine when such limitation period begins to run and under which circumstances it would be interrupted or suspended. 

  • Courts measures to protect trade secrets from disclosure

Until now, the factor hindering enforcement of a trade secrets in court resulted from the lack of adapted measures to avoid trade secrets leakage in legal trials. As a matter of fact, Hungary, Germany and the United-Kingdom were the only Member States granting effective procedural measures to prevent disclosure in the course of civil proceedings.

The Directive requires Members States to implement minimum rules, in order to protect and preserve trade secrets during legal proceedings. Parties to the litigation and any other third parties participating to the trial will be prohibited from using or disclosing any trade secret they have become aware of during the proceeding. Courts will also have the possibility to restrict access to their documents, hearings and transcripts and to publicize non-confidential versions of their decisions.

Such protection should remain in force even after the legal proceedings have ended and for as long as the information constituting the trade secret is not in the public domain.

 

For further information on protecting trade secrets, do not hesitate to contact:

 

1 Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure, OJEU 15.06.2016, L157/1

2 OJEU L157/1 of 15 June 2016

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