1 ADVANCES IN THE PROTECTION OF TRADE SECRETS Paris, 19 July 2016 On 8 June 2016 the European Union adopted Directive 2016/943 on "the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure". This Directive is the result of several observations: the alarming growth of undue appropriations of trade secrets, the multiplied risks of disclosure and illegal use of secret information, which is the result of the upsurge in open and collaborative innovation in a cross-border context of increased use of information and communication systems. Added to these risk factors the wide disparity in national legislations relating to the protection of trade secrets within the European Union creates a legal uncertainty. Trade secrets are protected under certain conditions The title of the Directive tells us that "trade secrets" are the undisclosed know-how and business information. More specifically, they are know-how of a technical, scientific or commercial nature, such as technological information, manufacturing and production methods, processes, plans, drawings, specifications, formulations, unpatented inventions, software, as well as all information of a commercial nature, for example, lists of suppliers and customers, commercialisation projects, business strategies, marketing plans which have not been disclosed and which provide their holder with a competitive advantage. The holder is the physical person or legal entity that produced the trade secret or who obtained it lawfully, for example, under a technology transfer contract or commercial franchise agreement. By Isabelle PINAUD French and European Trademark and Design Attorney REGIMBEAU 2 To be considered as a trade secret within the scope of the Directive, the information must: (i) Be secret i.e. not generally known or readily accessible to persons within circles that normally deal with the kind of information in question; (ii) Have a commercial value because it is secret; (iii) Have been subject to reasonable steps, under the circumstances, by the person lawfully in control of the information, to keep it secret. This definition, given in article 2 of the Directive, repeats verbatim the definition of Article 39.2 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Article 2 of the Directive calls for the following observations: (a) It is not required that the secret is absolute. For information to be considered secret it needs only be difficult to access by the group of people that normally deal with the kind of information in question. This definition raises certain questions, including: how to distinguish ‘relevant persons’, how to recognise the difficulty of access, and how to prove it? (b) The secret must impart a value to the information and, as specified by the Directive, have commercial value. Referring to the preamble of the Directive, trade secrets have this commercial value, actual or potential, if illicitly obtaining, disclosing or using them prejudices the holder, is detrimental to innovative capabilities, undermines economic interests and diminishes competitive advantage. (c) The holder wishing to obtain compensation must prove that "reasonable" measures, unavoidable by offender, had been taken to prevent the misappropriation or the improper use of the trade secret. The reasonableness of the protective measures will be assessed according to the nature and value of the information, what it is being used for, the holder’s internal organisation and their available means. In practice, it means taking measures that are sufficiently protective without them being binding to the point of restricting use by the holder in connection with their industrial and commercial activities. There is a clear risk that this last condition may be problematic for holders who have not sufficiently organised and formalised the protection measures of their technical and commercial know-how. More than ever the companies must work to identify the know-how 3 and secret information which presents a strategic interest, and consider establishing concrete preservation measures. These measures may consist of affixing confidentiality obligations on tangible media, establishing computer encryptions or restricted access to certain computer files classified according to their purpose, their nature and their content, and instituting internal rules for the transfer of information and the access to it. These measures should be taken depending on the nature of the know-how and secret information and their strategic value, the “need to know" basis of employees, their status (permanent and non-permanent personal) and their hierarchical position. Above all, companies must educate and involve their staff in the preservation of their undisclosed intangible capital and ensure that work contracts and internal regulations contain confidentiality clauses or guidelines, all without hindering professional mobility. Permitted and illicit acts Chapter II of the Directive begins by clarifying the lawful acquisition, use or disclosure of trade secrets. We note, among others, the “independent discovery or creation”, an exemption traditionally provided for in intellectual property law, and also “observation, study, disassembly or testing of a product or object that has been made available to the public or that is lawfully in the possession of the acquirer of the information”. The counterpart to this latter definition is the research exception found in Article 613-5 of the French Intellectual Property Code; however it should not impede the prohibition of reverse-engineering clauses, particularly in confidentiality agreements and MTA’s. Under Article 4 of the Directive, any intentional, unauthorised access to media that contains trade secrets resulting from a crime (theft, corruption, breach of trust, …), a contractual fault (beach of a confidentiality agreement, …) and “any other conduct which, under the circumstances, is considered contrary to honest commercial practices” are considered as unlawful acquisitions. Acquisition, use or disclosure are also considered unlawful when carried out intentionally by a person who has unlawfully obtained the trade secret, or by a person who knew or ought, under the circumstances, to have known, that said secret has been obtained from another person who was using or disclosing it in an illicit manner. Certain unlawful acts in Article 4 of the Directive are close to infringement acts and, in all cases, require that the offender acts knowingly: whether it be in “the production, offering or placing on the market of infringing goods, or the importation, export or storage of 4 infringing goods for those purposes” i.e. products whose design or model, quality, manufacturing process or commercialisation benefit significantly from a trade secret obtained, used or disclosed illicitly when “the person carrying out such activities knew, or ought, under the circumstances, to have known that the trade secret was used unlawfully”. Finally, in certain cases the committing of unlawful acts may escape the application of the procedures, measures and remedies provided for in the Directive. Such is the case if the defendant has committed an unlawful act in order to exercise their right to freedom of expression, or to reveal misconduct or illegal activity in order to protect the general interest, or in legitimately exercising their function as a workers representative. This article has been subject to animated debates, with some of the very people it seeks to protect, namely the investigative journalists, whistle-blowers and union representatives, criticising and judging it as insufficient. Litigation procedures close to infringement procedures The measures, procedures and remedies that the European Directive asks Member States to transfer to their national legislation by 9 June 2018 are reminiscent of the French litigation procedures for patent infringement. The competent national courts must take provisional or definitive measures to limit the damage suffered by the infringed holder and prevent introduction or movement on the market. In deciding these measures, the judge must assess their proportionality in relation to the damage, actual or potential, suffered by the holder, examine the circumstances of the case, the value of the trade secret and the measures that the holder has taken to protect the trade secrets in question – this condition is essential for the success of an action before the courts. Thus, from the commencement of proceedings, the judge must be able to determine temporary measures to stop the allegedly illicit use or disclosure of trade secrets, to prohibit manufacturing, commercialisation or use, importing or storing the infringing goods, or even request the seizure of said products. After the trial, the national judge must be permitted to pronounce the final cessation injunctions for the misconduct and to decide definitive measures - recall or destruction of the infringing goods, destruction of media that contains or substantiates the secret, or removal of the infringing characteristic of the product in question. Note that these 5 injunctions and corrective measures can be replaced by monetary compensation when the trade secret was originally obtained in good faith. The damages the offender has to pay the injured party must repair the damage actually suffered and, when fixed, take into consideration the negative economic consequences of the unlawful act, including loss of profits to the holder, unfair profits gained by the infringer and “where appropriate” moral damage. The judge nevertheless remains free to allocate a lump sum for damages, calculated based on the fees that would have been due if the infringer had requested an authorisation of use. Therefore the holder of a trade secret benefits from legal means that are very similar to those available to industrial property right holders in order to enforce their rights. However, the means made available to trade secret holders to stop illicit acts and obtain damage compensation are unlikely to be used very often if legal proceedings relating to trade secrets present the risk of adverse publicity and disclosure of confidential information sensitive to all those involved in the proceedings, or even the general public. To mitigate these risks, the Directive proposes concrete solutions that must be transposed into the Member States national laws. This is one of the merits of this text. Under Article 9 of the Directive, upon request by the party concerned, the judge should take protective measures such as restricted access to all or part of the procedural documents to certain individuals, restricted access to hearings and their transcripts, and the provision of a non-confidential version of the decision in which the passages containing trade secrets are deleted. Conclusion The Directive 2016/943 offers a quasi-intellectual property right status of to trade secrets; litigation procedures available to the holder are close to infringement procedures, which have proved their effectiveness; additionally, the procedures envisaged by the Directive allow the judge to preserve the confidentiality of undisclosed information. However, for it to be effective before the courts, the holder must prove the substance and value of the trade secret, demonstrate that reasonable steps were taken to preserve its confidentiality and that the offender could not ignore its confidential nature. These evidence requirements will undoubtedly be the pitfalls in contentious procedures which otherwise present numerous advantages. 6 REGIMBEAU’s teams are ready to carry out audits for their clients and recommend measures to improve the protection of their trade secrets. Isabelle Pinaud (email@example.com) Conseil en Propriété Industrielle Conseil Européen en Marques, Dessins et Modèles About REGIMBEAU: REGIMBEAU, a French IP law firm, has been assisting companies and private and public project developers to protect, enhance and defend their innovations (patents, trademarks, designs) for more than 80 years. Fifteen partners head a team of more than 200 people whose skills are put into practice in every strategic aspect of Intellectual Property - business intelligence and information search, license agreements, IP portfolio audits, partnership negotiations, acquisition of industrial property rights, litigation. Thanks to its wide-ranging expertise, REGIMBEAU (present in Paris, Munich, Lyon Rennes, Grenoble, Montpellier, Toulouse and Caen) can meet its clients' needs for international strategic consulting while preserving personalized relations of the highest quality.