On 28 November 2013 the European Commission published proposals for a Directive on Trade Secrets.[1] The Directive aims to protect trade secrets from unlawful acquisition, use and disclosure. It also seeks to harmonise the national laws of Member States by establishing common definitions, procedures and sanctions.
The Directive is currently progressing through the European legislative process and in May 2014 the Council of Ministers recommended a number of amendments. The Directive will now be negotiated by the European Parliament and the Council in early 2015. If adopted, Member States will have a further two years to implement the proposals. It is expected that the final Directive will be published by summer 2015.
This article discusses some of the key aspects of the Directive and its likely effect on businesses.
The Need for Reform
Business plans, customer lists, ideas, secret processes and know-how are all examples of trade secrets. They are undoubtedly essential to the success of almost any business. In its 2020 Strategy the Commission suggested that the protection of trade secrets could promote innovation, research and development in Europe.[2] Nevertheless, there are no harmonised measures to protect trade secrets in the EU and as a result a fragmented and uncertain regulatory framework exists. In addition, trade secrets are not typically considered by national law to have intellectual property rights in themselves but rather are complementary to intellectual property rights. The Directive seeks to address these issues and to ensure that the EU has similar protective measures in place to that adopted in the USA.[3]
Trade Secrets
The Directive defines a ‘trade secret‘ as information which:
(a) is secret in the sense that is not generally known or readily accessible;
(b) has commercial value because it is secret; and
(c) has been subject to reasonable steps to keep it secret.[4]
This definition is broad and mirrors the definition of a trade secret in the WTO Agreement on Trade Related Intellectual Property Rights (TRIPS).[5] Nevertheless, further guidance may be needed in practice as to what constitutes reasonable steps or commercial value. The Directive also defines the term ‘trade secret holder‘ as someone who legitimately holds a trade secret, which, unlike the typical definitions seen in respect of intellectual property rights, includes licensees.[6]
Unlawful Acquisition, Use and Disclosure
According to the Directive’s Explanatory Memorandum, it is important to consider if the trade secret holder has provided consent to the use of the trade secret.[7] Article 3 outlines some of the circumstances in which the acquisition, use or disclosure of a trade secret may be unlawful. An unlawful acquisition will occur if the alleged infringer accesses or copies without authorisation, bribes, steals, breaches or induces to breach a confidentiality agreement and/or engages in ‘any other conduct which, under the circumstances, is considered contrary to honest commercial practices‘.
In addition, it is unlawful to subsequently 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. It will also be an offence to offer, market, import or export goods that have benefited from the illegal use or acquisition of trade secrets.
The Directive recognises that trade secrets should be shared in certain circumstances to foster innovation, research and development. As a result it is provided that an acquisition of a trade secret will be lawful in circumstances of independent discovery, reverse engineering and if ‘honest commercial practices‘ were exercised. It also permits disclosure to protect a worker’s rights to information and consultation, to protect a legitimate interest or reveal illegal activities.[8]
Remedies
If a trade secret holder’s rights have been infringed the Directive provides for minimum measures and remedies. The right holder can apply for the cessation, seizure, destruction and prohibition of the use or disclosure of a trade secret. The Directive also provides for interim measures, procedures to preserve confidentiality during legal proceedings, injunctions and damages. Alternatively, if the trade secret was acquired, used or disclosed by a party in good faith, an injunction may not be appropriate and instead pecuniary compensation may be awarded. However, there are concerns that this provision might have unintended consequences as trade secrets could be used after selling them to innocent third parties. It is also worth noting that the Directive does not currently provide information relating to the evidentiary burden of proof in enforcing intellectual property rights.
Council of Ministers’ Amendments
In May 2014 the Council published a number of amendments to the Directive.[9] The Council made it easier to prove a case by removing the original requirement that any unlawful conduct by an alleged infringer had to be intentional or involve gross negligence. Moreover, the Council extended the limitation period to exercise rights under the Directive. The trade secret holder will now have six years, instead of two, starting from the date on which he or she became aware, or had reason to become aware, of the last fact giving rise to the rights. The Council also noted that Member States may provide greater protection than set out in the Directive. Finally, the Council have included two qualifications to the requirement of preserving confidentiality in court proceedings concerning trade secrets.[10]
Conclusion
It is uncontentious to suggest that businesses should take reasonable steps to protect their trade secrets. As the Directive intends to sit alongside existing and new corporate confidentiality agreements, it is recommended that businesses continue to negotiate these contracts when entering a transaction. Such contacts will allow for the imposition of more stringent trade secret protections if required. There are wrinkles in the draft Directive as it currently stands which, if not resolved prior to finalisation, will fall to be considered, in time honoured fashion, by national legislators and ultimately by the courts.
The Directive will contribute to the protection of trade secrets in the EU by creating a harmonious framework of standards. Moreover, it seeks to strike an appropriate balance by protecting the unlawful acquisition, use or disclosure of trade secrets, as well as recognising commercial realities by creating exceptions to foster innovation, research and development. It is hoped that the Directive will contribute to investment and innovation in Europe. However, its overall impact will be most accurately assessed when it is implemented and utilised in practice.
Pearse Ryan is Partner, Technology & Innovation Group, Arthur Cox, Dublin.
Niall Donnelly is a Trainee at Arthur Cox, Dublin.
[1] Full Text of the Proposed Directive available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2013:0813:FIN:EN:PDF. For in-depth analysis of trade secrets in the EU see: http://www.europarl.europa.eu/RegData/etudes/note/join/2014/493055/IPOL-JURI_NT%282014%29493055_EN.pdf
[2] Full Text of the 2020 Strategy available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:2020:FIN:EN:PDF
[3] Trade secrets are protected under the Uniform Trade Secrets Act 1979 and the American Invents Act 2011.
[4] Article 2.
[5] Full text of the TRIPS Agreement available at: http://www.wto.org/english/tratop_e/trips_e/t_agm0_e.htm
[6] Article 2.
[7] The text of the Explanatory Memorandum can be found at: http://eur-ex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2013:0813:FIN:EN:PDF
[8] Article 2.
[9] See summary of Council of Minister’s Amendments at: http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/intm/142780.pdf
[10] A trade secret owner must submit a ‘duly reasoned application‘ to the court, showing that its information is secret and should not be used after trial and at least one person from each party must have full access to the confidential information during the trial.
