EU Trade Secrets Directive - Trade Secrets

The Trade Secrets Directive has been adopted by the European Parliament and is en route to publication in the Official Journal.

What's the issue?

The EC proposed legislation to protect trade secrets after identifying that companies, particularly SMEs and start-ups, value trade secrets at least as much as other forms of IP, not least because they often lack the specialised human resources and financial strength to pursue, manage and enforce IP. Within this context, the Commission is concerned that the exposure of trade secrets to theft, espionage or other misappropriation techniques has and continues to increase. According to the Commission, this is accompanied by the increasing risk that stolen trade secrets are used in third party countries to produce goods that are then imported back into the EU, thus competing with the proprietor of the stolen information. The weakness of the EU in the face of these threats has been the lack of uniform protection of trade secrets. Uneven levels of protection and remedies between the various Member States have placed some at a disadvantage to other countries both within and outside the EU.

What's the development?

The Trade Secrets Directive (TSD) has been adopted by the European Parliament. The Council is now expected to adopt it at its next meeting, following which it will be published in the Official Journal, after which there will be a two year implementation period.

What does this mean for you?

The TSD is likely to have less of an impact in the UK than in some other Member States. This is because the UK's common and contract law is largely consistent with the Directive.

The picture across the EU is wildly divergent with some countries having trade secret laws as part of their Civil Codes, and others having little if any law around them. What the TSD does is to introduce minimum harmonised standards. Member States do, however, have the option, in compliance with the TFEU, to provide for "more far-reaching protection against the unlawful acquisition, use or disclosure of trade secrets", provided they comply with specified obligations.

This means that we are not going to see a completely harmonised picture in the EU and we may have to wait some time before the nature of any differences becomes apparent.

What is a trade secret?

While the TSD has not yet been published in the Official Journal, it is in more or less final form (it is possible some minor changes may be made before the final version is published). The TSD defines a trade secret as information which meets all the following requirements:

"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;
it has commercial value because it is secret; and
it has been subject to reasonable steps under the circumstances by the person lawfully in control of the information, to keep it secret."

Unlawful acquisition

It will be unlawful for anyone to acquire a trade secret without the permission of the owner (subject to specified exceptions), whenever it is carried out by unauthorised access to, appropriation of or copying of any materials lawfully under the control of the trade secret holder, containing the trade secret or from which the trade secret can be deduced, or from any other conduct which in the circumstances is considered contrary to honest commercial practices.

Unauthorised use or disclosure of trade secrets will be unlawful if the trade secret was unlawfully acquired and then used or disclosed in breach of a confidentiality agreement or other duty not to disclose, or of a contractual requirement or other duty limiting use of the information.

It will be unlawful for businesses to acquire, use or disclose a trade secret if they knew or ought to have known at the time that it had been obtained directly or indirectly from someone else who was using or disclosing it unlawfully.

It is also considered unlawful use of a trade secret to produce, offer, market, import or export infringing goods where the person doing so knew or ought under the circumstances to have known that the trade secret was used unlawfully.

Lawful acquisition

There are specified circumstances in which it is lawful under the TSD to acquire a trade secret. These include where it is obtained by:

independent discovery or creation;
observation, study, disassembly of a product or object publicly available, lawfully in the possession of the enquirer, where the enquirer has no duty to limit acquisition; and
any other practice which in the circumstances is in conformity with honest commercial practices.

Protections

Protections are given to the media and whistleblowers, including where the acquisition of a trade secret or its disclosure exercises the right to freedom of expression, or is to reveal misconduct, wrongdoing or illegal activity in order to protect the public interest.

Protections are also given to employees to ensure the TSD is not used to restrict their movement or the use of experience and skills honestly acquired.

Limitation periods for claims

Each Member State will have discretion to set the limitation period (and when the time starts running) on claims for breach of trade secrets up to a maximum period of six years.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.