Introduction
General provisions
Legal claims for violation
Procedural aspects

Penal provisions
Comment


Introduction

With the Trade Secret Act 2019, Germany implemented the EU Know-How Directive.(1) This article summarises the requirements and important takeaways from the court rulings that are being published now that the Act has been in force for almost two-and-a-half years.

By adopting the EU Know-How Directive in a single act, the German legislature created a clearly arranged framework for trade secret matters:

  • Sections 1-5 of the Act define the requirements for trade secrets and permitted and prohibited acts.
  • Sections 6-14 contain the legal claims for violation.
  • Sections 15-22 establish specific procedural requirements.
  • Section 23 contains the penal provisions.

General provisions

Reasonable confidentiality measures
From the German perspective, the new element in sections 1-5 of the Act is that a trade secret requires reasonable confidentiality measures, which the claimant has to prove in a proceeding. The Act does not specify what constitutes reasonable protection measures, so those standards are currently being developed by the courts. According to the Court of Appeal of Düsseldorf:(2)

no "optimal protection" or "extreme security" is required, but the type of trade secret, the specific circumstances of the use, the value of the trade secret and its development costs, the nature of the information, the importance for the company, the size of the company, the usual secrecy measures in the company, the type of labelling of the information and agreed contractual arrangements with employees and business partners are to be taken into account.

The Court of Appeal of Hamm(3) clarified that minimal protective measures, in order to save costs or organisational effort, were not sufficient either. Specifically, the Court saw an obligation to "carefully follow up on any indication of circumvention of security measures and promptly adjust the security concept or take sanctions".

A ruling of the Düsseldorf Appeal Labour Court,(4) which considered "catch-all clauses", was highly criticised. It required an employee to keep all information received during work as confidential, which was too broad and therefore invalid. The criticism correctly points out that it is simply not practical to require a contract to contain a final list of potential trade secrets. Instead, a catch-all clause in connection with sample categories would be more suitable to provide necessary legal clarity. However, a catch-all clause may not be extended to limitless obligations for an employee and the knowledge that they have legitimately obtained, as this would significantly impact the former employee's future job opportunities without any compensation.

Reengineering
Another new feature of the Act is that section 3(1)(2) specifically permits reengineering, unless this is (validly) contractually prohibited. Should a potential infringer argue in respect of a computer-aided design drawing protected as a trade secret that they acquired the information by reengineering, they will have to demonstrate and prove how all elements of the drawing were obtained. It will not be sufficient to show merely that specific elements were measured.(5) As the Act does not impact provisions regulating IP rights, reengineering of software remains prohibited(6) unless specific exceptions apply. Source code is not only protected by copyright, but also regularly enjoys protection as trade secret.

Prohibited acts
Section 4 of the Act defines the prohibited acts – namely, unauthorised access, disclosure and use of a trade secret. Section 4(3) of the Act, which addresses trade secrets obtained from a third party, is noteworthy. A person can be directly liable for a trade secret infringement if they knew or should have known at the time of obtaining, using or disclosing the trade secret that the person who provided the trade secret did so without authorisation.

Legal claims for violation

Figure 1 shows the legal claims for violation of trade secrets.

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Figure 1: legal claims for violation

Procedural aspects

Another novelty for German law is section 16 of the Act, which enables the court to grant comprehensive protective orders reducing the risk that trade secrets become public during the course of the proceeding. The court can also limit access to information (eg, by allowing access only to redacted documents) and even limit the number of participants in a hearing and exclude the public (section 19 of the Act).

However, these protective orders require that claims based on the Act are asserted. It is not sufficient that trade secrets are merely affected. With the introduction of section 145(a) of the Patent Act on 18 August 2021, sections 16-20 of the Act became applicable in patent proceedings as well.

Penal provisions

Trade secret infringement continues to constitute a criminal act under German law, even if not specifically required by the EU Know-How Directive. The penal provisions mirror with minor exceptions the unauthorised acts defined in section 4 of the Act. The criminal provisions provide in general for penalties of up to two years' imprisonment or financial fines. This can increase to five years' imprisonment, where the infringer:

  • acted commercially;
  • knew that the trade secret was to be used abroad; or
  • used the trade secret abroad.

Comment

Overall, the EU Know-How Directive – in its creation of harmonised standards across the European Union – and the German implementation thereof via the Act provide helpful tools that should make enforcing trade secrets easier. However, this requires companies to do their homework. They must be able to show that they have implemented reasonable confidentiality measures to enforce their claims. The potential liability for trade secret infringement knowledge obtained (unknowingly) from third parties (eg, business partners or new employees) is also something companies need to be aware of and respond appropriately to in order to mitigate such risks as much as possible.

For further information on this topic please contact Mark Peters or Stanislav Lechzier at Grünecker by telephone (+49 89 21 23 50) or email ([email protected] or [email protected]). The Grünecker website can be accessed at grunecker.de.

Endnotes

(1) 2016/943/EU.

(2) 15 U 6/20.

(3) 4 U 177/19.

(4) 12 SaGa 4/20.

(5) Court of Appeal of Düsseldorf 15 U 6/20.

(6) Section 69e of the Copyright Act.