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Want to know a secret? The EU’s Trade Secrets Directive

Want to know a secret? The EU’s Trade Secrets Directive

If we were to ask you to cast your mind back to the festive period, no doubt your immediate (and happy) recollection would be that of the long-awaited publication of the EU’s Trade Secrets Directive.

The legal protection of trade secrets across the Union has been previously described by the European Commission as “uneven”, “fragmented” and even “sub-optimal”, as a result of the 28 different systems of trade secret protection in existence across the EU.

The Directive attempts to harmonise the internal market’s protection of trade secrets, and is expected to be voted though by the European Parliament this spring. If so, it will be published in the Official Journal, and Member States will have then two years in which to incorporate the Directive into domestic law.

What is a trade secret?

According to the Directive, a trade secret is information which:

(1)   is secret in the sense that it is not generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;

(2)   has commercial value because it is secret; and

(3)   has been subject to reasonable steps by the person lawfully in control of the information to keep it  secret.

The broad scope of this definition means that lists of clients, customers and contacts, computer programs, financial information, business plans and methods, recipes, formulae, technical processes, improvements, inventions (until or unless patented) and business statistics are (amongst other things) considered to be trade secrets for the purposes of the Directive.

Under the definition, a trade secret holder (“any natural or legal person lawfully controlling any trade secret”) will have to demonstrate the steps taken to protect the information and to keep it confidential. The definition further prescribes that information must not be generally known “within the circles” that normally deal with its kind.

Commercial practices

The Directive provides that the acquisition of a trade secret without the consent of the trade secret holder may be unlawful when carried out by (amongst other things):

(1)   unauthorised access to any documents, etc. lawfully under the control of the trade secret holder, containing the trade secret or from which the trade secret can be deduced; or

(2)   any other conduct which, under the circumstances, is considered contrary to honest commercial practices.

This is another very wide definition which is likely to present challenges for businesses and lawyers until the courts have explored its interpretation.

The acquisition, use or disclosure of a trade secret by another who knew, or under the circumstances should have known, that the trade secret was obtained unlawfully, will create a secondary liability.

Employees

The Directive addresses the conflict between the protection of trade secrets and the restriction of employees’ ability to move jobs, insofar as it appears to be weighted in favour of employee mobility.

The Directive’s first Article reads:

“Nothing in this Directive shall be understood to offer any ground for restricting the mobility of employees.  In particular, in relation to the exercise of such mobility, this Directive shall not offer any ground for:

(a) limiting employees’ use of information not constituting a trade secret as defined [in the Directive];

(b) limiting employees’ use of the experience and skills honestly acquired in the normal course of employment; or

(c) imposing any additional restrictions on employees in their employment contracts other than in accordance with Union or national law.”

The literal reading of this wording suggests that enforcing the Directive against former employees will prove difficult.  The implication is that trade secrets which form part of an employee’s experience and skill set may not be limited by the Directive. But information which does not comprise employees’ “honestly acquired” skills or experience will, it seems, be afforded trade secret protection under the Directive.

This is likely to prove a difficult question of fact which is not helped by the lack of further definition for “experience and skills”.  While there is a similar concept of “stock in trade” in England and Wales, this Article is likely to be the subject of judicial scrutiny.

Exceptions

The Directive contains exclusions in respect of those who acquire, use or reveal trade secrets:

a)     for exercising the right to freedom of expression and information as set out in the Charter of Fundamental Rights of the European Union;

b)    for revealing a misconduct, wrongdoing or illegal activity, provided that it was for the purpose of protecting the general public interest;

c)     by workers to their representatives, as part of the legitimate and necessary exercise of their representative functions; or

d)    for the purpose of protecting a legitimate interest recognised by law.

The implication of (b) above is that a disclosure may be made to reveal a misconduct or wrongdoing, regardless of the extent of the disclosure or whether such a disclosure is crucial for the purposes of protecting the general public interest.

The Directive does not determine the test that should be applied to decide whether a matter is in the general public interest, nor does it limit the extent of the whistle-blower’s actions.  Once again, it is likely that these points will have to be clarified by case law.

The Directive states that the courts may allow a disclosure where it had been made in good faith.  This goes further than the current law in England and Wales, which considers the aspect of good faith to be a factor when considering damages but not liability.

Enforcement and injunctions

The previous draft of the Directive prescribed a three-year limitation period for claims, but the final text has extended this to a six-year period.

The Directive has set out a list of factors which the courts must take into account when considering applications for injunctions.  The list is far more detailed than the present approach adopted by the English courts takes following the American Cyanamid case.

Conclusion

The Directive contains a number of broad definitions and terms which leave a lot of uncertainty as to their scope.  Arguments are therefore likely to abound until the courts have the opportunity to set parameters and provide businesses with guidance regarding particular details. It will also be interesting to observe how the Directive will be transposed into UK law, and whether UK lawmakers provide clarity regarding the matters raised above.

What is apparent is that the burden on businesses has increased. Unless businesses can show the steps they have taken to protect the information and its commercial value, they are unlikely to benefit from the protection afforded by the Directive and they may have to consider relying instead on their rights under common law.

The protection for employees seems to be one of the most troubling areas for businesses.  The arguments for enforcing the Directive against employees will need to satisfy greater scrutiny than would otherwise apply.

By Kate Meagher

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