The European Commission is close to harmonising EU law regarding the protection of trade secrets having recently obtained preliminary agreement on the draft Trade Secrets Directive.
Trade secrets are highly valuable assets in business and data collated by the Commission suggests that the misappropriation of trade secrets is on the rise across Europe. The Commission estimates that 20 per cent of EU companies have suffered actual or attempted trade secret misappropriation over the past decade. This increase is attributable to factors such as global competition, outsourcing and use of IT, which will only continue to affect EU business in the coming years.
Despite the importance of trade secrets to EU businesses, EU law regarding trade secrets has never been harmonised. A Commission-sponsored study published in 2012 looked into the legal protection for trade secrets in the EU and found the existing regime to be fragmented and diversified across the Member States. For example, some member states, such as Austria, Italy, Portugal and Sweden, have national legislation that specifically targets trade secret misappropriation. However, the level of protection afforded to companies varies widely – for example, some of these member states, amongst them Germany, Denmark and Spain, do not have a legal definition of trade secret. Others, including Belgium, France, the Netherlands and the UK, have no specific legislation to deal with trade secret misappropriation and instead rely on other legal channels, such as unfair competition or tort law. The UK, for instance, relies on a combination of contract law and actions for breach of confidence to handle disputes over trade secret misappropriation and has developed a relatively robust and clear common law approach to the misappropriation of trade secrets.
According to the Commission, these different national rules prejudice the proper functioning of the internal market. The uncertainty generated by this uneven and fragmented system means that companies from different member states are likely to be more reticent to collaborate or transfer know-how or confidential information. The proposed Directive aims to tackle the problems caused by the current system and, in particular, to encourage the exchange of knowledge and cross-border research and development by putting in place common rules to protect trade secrets.
Amongst other things, the draft Directive provides definitions of trade secrets and infringing goods, defines what may amount to lawful or unlawful acquisition, use and disclosure of trade secrets and sets out the (minimum) civil remedies that should be available to businesses who suffer trade secret misappropriation. The draft acknowledges that a key problem facing owners of misappropriated confidential information is foreign manufacturers using trade secrets obtained unlawfully to create infringing products abroad, which are then imported and sold in the EU, often entering via weaker entry points. The draft Directive proposes to overcome this problem by introducing a common, broad definition of infringing goods to include any product which “significantly benefits” from unlawfully obtained trade secrets and providing that the import or sale of such goods will be unlawful if the importer or seller had actual or constructive knowledge of the misuse of trade secrets in the manufacture of the product.
The draft also provides a number of safeguards to protect those who acquire or disclose trade secrets in order to expose misconduct, wrongdoing or unlawful activity (ie whistle-blowers) and to ensure that investigative journalism is not restricted and that companies remain legally obliged to reveal information that pertains to matters of public interest. Importantly, the draft states that its provisions should not restrict employee mobility, allowing employees to use information that does not amount to a trade secret alongside their experience and skills honestly acquired at work.
The Commission considers that the Directive will give Member States “a common, clear and balanced legal framework, which will discourage unfair competition, and facilitate collaborative innovation and the sharing of valuable know-how to make the EU a stronger and more competitive economic region”.
A preliminarily agreement on the draft Directive was reached on 15 December 2015. It is still awaiting formalisation by the European Parliament and Council, but this is expected within the coming months (an indicative plenary sitting date for first reading has been set for 12 April 2016). If agreed, member states will have up to two years to make their domestic law compliant with the new provisions.
What will change for the UK?
As it is currently drafted, the Directive approaches the law of trade secrets in a broadly similar way to the existing body of UK law. Therefore, if applied in the UK (dependent on the UK remaining a member of the EU), the proposed Directive (in its current form) is unlikely to radically change UK law regarding the treatment of and protection available for trade secrets.
One area to watch is the extent to which the definitions of infringing goods and unlawful use of trade secrets will make it easier for UK companies to take action in respect of goods made using unlawfully obtained trade secrets, in particular, goods made abroad and subsequently imported into the EU.
At a general level, the Directive should positively impact UK business in terms of cross-border commercial relations with EU companies. The Directive should reassure UK businesses that their trade secrets will be afforded the same degree of protection across the rest of the EU. UK businesses may in turn be more willing to engage with companies in member states whose pre-Directive law regarding trade secrets and the protection of confidential commercial information was either unclear or non-existent.