As a special feature of our blog –special guest postings by experts, clients, and other professionals –please enjoy this blog entry by Bartosz Sujecki, an attorney from Bavelaar Advocaten in the Netherlands, on the European Commission’s proposed Directive to provide harmonized trade secret protections in Europe.

-Robert Milligan, Editor of Trading Secrets

The protection of trade secrets is very important for every company. At the beginning of a patent, a design or a copyright, there is an idea. The idea must be kept secret in order to enjoy the later protection. Therefore, the protection of know-how is as well essential for the protection of intellectual property rights. In the European Union, the protection level of know-how differs in the Member States. Some Member States do not have any rules regarding the protection of know-how. In only few Member States, the national laws define the term trade secrets or protect trade secrets. Additionally, the national laws of all Member States do not have the opportunity to file for a cease and desist order against infringers of trade secrets. Besides that, the rules on the calculation of damages for the infringement of intellectual property rights are inadequate for the infringement of trade secrets. In addition, the national rules do not have criminal sanctions in cases of infringement or even theft of trade secrets. Another problem of the national laws of the Member States is that they do not have any rules regarding the protections of trade secrets during litigation.

Due to the divergences in protection of trade secrets in the different national laws of the Member States, companies in the European Union have called for the introduction of harmonized rules for the protection of trade secrets within the European Union. The absence of rules regarding the protection of trade secrets is having negative effect of the Internal Market in the European Union.

On 28th November 2013, the European Commission has therefore introduced a Proposal for a Directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure, COM (2013), 813 final. With the introduction of these measures, the European Commission aims to improve the effectiveness of legal protection of trade secrets in the European Union and ensure the competitiveness of European business and research bodies.

In its first Chapter, the proposal defines the scope of application as well as the meaning of trade secrets. According to article 2 of the proposal, trade secrets must have three elements in order to gain protection: First, the information must be confidential. Second, the information must be of commercial value due to the confidential character. Third, the trade secret holder should have made reasonable efforts to keep the information secret. The definition is based on the definition of “undisclosed information” as laid down in the TRIPS Agreement.

In Chapter II, the circumstances and requirements are set out under which the acquisition, the use and the disclosure of trade secrets is considered to be unlawful, see article 3 of the proposal. If these requirements are fulfilled, the holder of the trade secrets is entitled to seek the application of the measures and remedies as laid down in the proposed directive. The key requirement in this context is the absence of consent of the trade secret holder. In addition, article 3 of the proposal also determines that the use of trade secrets by a third party is as well unlawful, if that third party was aware, should have been aware, or was given notice of the unlawful act.

Chapter III of the proposal establishes the measures, procedures and remedies that the Member States shall make available to the holder of trade secrets in case of unlawful acquisition, use and disclosure of these trade secrets by a third party. Section 1 of Chapter III contains the general principles applicable to the civil enforcement instruments in order to prevent and repress acts of trade secret misappropriation, namely effectiveness, fairness and proportionality, see article 5. Article 6 of the proposal safeguards to prevent abusive litigation. An interesting provision is article 7 of the proposal, which introduces a period of limitation according to which actions for the application of the measures, procedure and remedies must be brought within at least one year but no more than two years after the date on which the applicant became aware, or had reasons to become aware, of the last fact giving rise to the action. Article 8 of the proposal aims to safeguard confidentiality of trade secrets in case of discloser within court proceedings. Section 2 provides for provisional and precautionary measures in the form of interlocutory injunctions or precautionary seizures of infringing goods.

Finally, Sections 3 of Chapter III (articles 11-14 of the proposal) provides for the measures that may be ordered with the decision of the merits of the case. Article 11 of the proposal provides for the prohibition of the use or the disclosure of the trade secrets, the prohibition to make, offer, place on the market or use infringing goods and corrective measure. The corrective measures request the infringer to destroy or deliver to the holder of the trade secrets all information he holds with regard to the unlawfully acquired, used or disclosed trade secrets. The rules regarding the compensation of damages are set out in article 13 of the proposal. The calculation of the damages is based on all the relevant factors, such as the negative economic consequences, which the injured party has suffered. However, in certain cases other than economic factors, such as the moral prejudice caused to the trade secret holder, can be taken into consideration in the calculation of the damage.

With these proposed rules, the European Commission introduced a new framework of protection of trade secrets. In general, these new instruments can be seen as an appropriate solution for the protection of trade secrets in the European Union. On aspect of the proposal needs, however, still to be adjusted. One of the key issues of the enforcement of intellectual property rights as well as trade secrets is evidence. This proposal does not contain any rules with respect to the facilitation of the burden of proof. Therefore, this proposal should be adjusted on this point.

Bartosz Sujecki, PhD, partner Bavelaar Advocaten, Amsterdam, the Netherlands.

As previously reported here, the EU Council issued its position on the directive in the spring of 2014. In general, the Council supports the Directive with some minor changes: a) the Council proposes a six–year limitation period on suing over trade secrets compared to the two years proposed by the Commission; b) the Council’s version clarifies that national laws may provide greater protection for trade secrets than that set out in the directive; and c) and the Commission’s draft required a trade secret holder to show that an alleged infringer had acted ‘intentionally’ or with ‘gross negligence’ and the Council has removed this requirement. The Council has also requested changes to allow the restricted disclosures of trade secrets during and after trade secret litigation which are broader than permitted in the Commission’s proposal.

The Directive is currently being reviewed by the EU Parliament’s Legal Affairs, Internal Market, and Industry Committees and their decisions have not been released yet. While the Parliament has not yet voted on the proposal, it is expected that the matter will be scheduled for a first reading in the Parliament during the first half of 2015.

Bartosz Sujecki, Guest Author