On 15 December 2015, the EU Commission, the Council and the Parliament agreed on a final compromise text of a “Directive of the European Parliament and of the Council on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure” (“Directive”).

Background

The Commission’s original proposal of November 2013 was part of the “Europe 2020 Flagship Initiative Innovation Union”. Its purpose is to harmonize trade secret legislation across the EU by setting minimum standards and to thereby increase the level of protection. Harmonization is supposed to facilitate the cross-border transfer of know-how and foster competition and innovation (the Commission’s proposal was discussed here).

Reports on the Commission’s proposal, submitted by the Council and the Parliament in the summer of 2015, proposed a number of provisional changes concerning, among other aspects, the right to information, the freedom of expression and workers’ mobility, reflecting political debate.

Agreement

Following a series of trilogue discussions and a postponement until March 2016 of the first reading of the Directive, which had been scheduled for November 2015, an agreement was reached at the fourth trilogue meeting of the Parliament, the Council and the Commission. The Council issued the final compromise text on 18 December 2015.

Important modifications against the Commission’s initial proposal include the following:

  • It is now clarified that the Directive aims for minimum harmonization, allowing Member States to implement or maintain higher levels of protection, except where the Directive imposes maximum limits.
  • Employees shall be entitled to carry on to another employer and take advantage of experience and skills honestly acquired in the normal course of their former employment, which yet fall within the trade secret definition. The Parliament’s proposal to exempt from the trade secret definition any kind of information which became known to employees within the course of their duties was not adopted.
  • The legal position of whistleblowers is strengthened in that the Directive’s instruments shall not apply if the trade secret was acquired, used or disclosed to reveal a misconduct, wrongdoing or illegal activity, and the person acted to protect the general public interest.
  • Also exempt from the application of the Directive’s instruments shall be exercising the right to freedom of expression and information, including the freedom and pluralism of the media. It is the view of the Parliament, the Council and the Commission that interests in trade secrets protection on the one hand and fundamental freedoms, including investigative journalism, on the other hand have thus been adequately balanced.
  • Reverse engineering shall remain permitted, as originally proposed by the Commission. The Parliament’s proposal to allow to contractually restrict that right was not adopted. As the Directive intends to set minimum standards only, individual Member States remain entitled to introduce such an option. Germany where, unlike in many other jurisdictions, reverse engineering is regarded illegal in most cases, may decide to do so.
  • Unlike originally proposed by the Commission, intent or negligence on the part of the infringer shall not be requirements for the unlawfulness of the acquisition, use or disclosure of a trade secret.
  • The limitation period shall be up to six years, leaving it to national legislators to determine when and for how long within the six year limit the limitation period shall begin to run, and under which circumstances it shall be suspended. The Commission originally proposed a period of two years only which was widely criticized.
  • To preserve the confidentiality of a trade secret in the course of legal proceedings, judicial authorities shall be able to take necessary measures not only upon an application by a party, but also at their own motion. On the other hand, in the interest of upholding principles of fair trial, at least one natural person of each party and the respective lawyers or other representatives shall have access to the proceedings.

It is expected that the Directive be voted on and take effect in the further course of 2016. Subsequently the Member States will have two years to implement its provisions into national law.