Who: European Parliament
When: 16 June 2015
Law stated as at: 2 July 2015
On 16 June 2015, more than a year and a half after it was first announced by the European Commission, a new directive on trade secrets and confidential information (the “Directive”) moved a step closer towards being implemented across the European Union (“EU”).
The vote by members of the European Parliament’s Legal Affairs Committee also backed the opening of negotiations on the final text of the Directive between the European Parliament and national governments of the EU, represented in the Council of Ministers.
The need for reform
All businesses, irrespective of their size, rely on trade secrets to obtain and maintain a competitive advantage. Trade secrets can be particularly valuable to small and medium-sized enterprises and start-ups, which often lack the specialist resources and financial wherewithal to prosecute, manage and enforce traditional intellectual property rights.
Recognising the commercial importance of trade secrets, the European Commission’s 2020 Strategy (Link to: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:2020:FIN:EN:PDF) emphasises that the protection of trade secrets is essential to the goals of making Europe a more attractive place for innovation and promoting higher levels of investment in research and development.
These objectives are currently hampered by the existing patchwork of separate national trade secret laws. Protection of trade secrets is markedly uneven, with some Member States offering very little in the way of protection. The remedies available for the misappropriation of trade secrets are also inconsistent across different jurisdictions.
For these reasons, cross-border activities within the EU can be a minefield for businesses in terms of ensuring that their trade secrets are protected. This can often contribute to unnecessary costs and create barriers to cross-border investment or know-how transfers. This combines to put many EU companies at a distinct disadvantage to (for example) US businesses, which enjoy better levels of protection for trade secrets.
What might change?
The proposed Directive would introduce an EU-wide definition of “trade secrets” with the aim of providing a clear and uniform level of trade secret protection across the EU. The draft Directive defines a trade secret as “know-how and business information” that:
(a) is secret, in the sense that it is not generally known among, or readily accessible to, relevant persons within the circles that normally deal with the kind of information in question;
(b) has commercial value because it is secret; and
(c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of it, to keep it secret.
Trade secrets, within the meaning of the Directive, will therefore include technical know-how (such as marketing methods, manufacturing processes and recipes) as well as commercial information (such as client/customer/supplier lists and marketing data).
The person lawfully in control of a trade secret is the “trade secret holder“, a definition which is intended to include recipients of trade secrets, such as licensees. The draft Directive defines an “infringer” as any person who has unlawfully acquired, used or disclosed a trade secret.
Circumstances in which acquisition of a trade secret will be unlawful and lawful defined
The acquisition of a trade secret will be unlawful in a range of circumstances, including where the acquisition results from the breach of a confidentiality obligation or is otherwise “contrary to honest commercial practices”. In addition, it will also be unlawful to subsequently use or disclose trade secrets that have previously been acquired unlawfully. The Directive will also make it an offence to deal in goods whose “design, quality, manufacturing process or marketing” has benefited significantly from trade secrets acquired, used or disclosed unlawfully.
Conversely, the draft Directive also provides for a number of situations in which the acquisition of a trade secret will be lawful. Some of these are relatively familiar concepts, such as independent discovery or reverse engineering. More broadly, the Directive also permits the acquisition of trade secrets “in conformity with honest commercial practices“. Unhelpfully, however, the draft Directive does not define what is meant by “honest commercial practices” and it is likely that this will be a focal point of future litigation regarding the misappropriation of trade secrets.
Finally, trade secret holders will be afforded a minimum set of remedies and protective measures. These include the availability of interim measures, injunctions and damages and the preservation of confidentiality during legal proceedings. The draft Directive also introduces a limitation period requiring any claim for infringement to be brought within three years of “the date on which the [trade secret holder] became aware, or had reason to become aware” of the facts giving rise to the action. This is opposed to the six-year limitation period typically available under English law.
Why this matters:
From an English law perspective, the proposed Directive represents a significant change in form and, to perhaps a lesser extent, substance. The UK does not currently have a statutory framework for the protection of trade secrets, which are instead safeguarded by contract and the laws of equity.
Whilst the protections afforded at common law are similar to those proposed in the draft Directive, it should be easier for trade secret holders to take action against infringers under the draft Directive than under existing common law avenues.
Also, the uniform protection contemplated by the Directive will be a particular boon for businesses which rely heavily on trade secrets. Advertising and marketing service suppliers exploit “assets” that do not necessarily qualify for protection as traditional intellectual property – marketing techniques, customer lists and increasingly valuable marketing data are all capable of protection under the harmonised trade secrets regime. As such, harmonisation will allow organisations that commoditise trade secrets to conduct their commercial activities across national boundaries with greater certainty.
It should be noted that the anticipated changes will not eliminate the need for confidentiality agreements. It is likely that the negotiation of non-disclosure arrangements will continue to be a pre-requisite to any exchange of valuable information. An agreement can be drafted to impose more tightly-defined obligations, and will also provide a parallel claim for breach of contract in the event that its terms are breached.
As things stand, there is still a significant degree of uncertainty around the final drafting of the Directive, which may continue to change as it progresses through the European legislative process. In any event, it will be difficult to assess the overall impact of the Directive until we see it in action. Following final approval of the Directive, Member States will have two years to implement it into national law – so there is still a way to go.