The protection of trade secrets has been on the European legislator’s agenda since 2011. It was felt that the lack of harmonisation in this field is very disadvantageous for cross-border innovation in Europe.
After the initial report requested by the Commission was submitted, a conference and a public consultation had been organised and a second report had been requested and submitted, the Commission proposed on 28 November 2013 a first draft of EC Directive (COM/2013/0813 final – 2013/0402 (COD)) (“Commission Draft”) . On 19 May 2014, the Counsel of the European Union agreed on a general approach for establishing a new legal framework for the protection of trade secrets including a new text proposal (9870/14), which was made public on 26 May 2014 (“Council Proposal”) . This was followed by a consultation by the Committee on Legal Affairs of the European Parliament, which proposed amendments to the text on 26 March 2015 (“EP Amendments”).
From the way the legislative process is developing, it seems very difficult to come to a common conclusion. This article gives an overview of the latest draft EC Directive, as reflected in the Council Proposal, and highlights some important issues that remain unclarified and are still being (heavily) debated in the legislative process.
1. The subject matter and scope of protection
Since the Commission Draft was made public, it is clear that the European legislator has no intention to provide a regime for protection of ‘trade secrets’ as such. As it stands now in the Council Proposal, Member States should provide ‘protection against the unlawful acquisition, use and disclosure of trade secrets’ (Art. 1).
What is covered by the term ‘trade secrets’?
The term ‘trade secrets’ covers undisclosed business information, technical information and know how (Recital 8 of the Council Proposal). In order to benefit from the protection such information should meet the following requirements (Art. 2 (1) of the Council Proposal):
(a) it is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
(b) it has commercial value because it is secret; and
(c) it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.
What is an ‘unlawful acquisition, use and disclosure of trade secrets’?
The different acts that are considered ‘unlawful’ enabling the trade secrets holder to take action, are described in Art. 3 of the Council Proposal and can be summarised as follows:
(a) the ‘acquisition’ of trade secrets (i.e. the unauthorised access to, copying or appropriation of any documents, objects, materials, substances or electronic files or any other conduct which, under the circumstances, is considered contrary to honest commercial practices);
(b) the unauthorised ‘use or disclosure’ of trade secrets (i.e. the use or disclosure by a person that has acquired the trade secret unlawfully or is in breach of a confidentiality agreement or any other duty to not disclose the trade secret);
(c) a subsequent ‘use or disclosure’ of trade secrets (i.e. the use or disclosure by a person, at the time of acquisition, use or disclosure, who knew or should have known in the circumstances that the trade secret was obtained directly or indirectly from another person who was using or disclosing the trade secret unlawfully within the meaning of (b) above);
(d) the production, offering or placing on the market of infringing goods, or import, export or storage of infringing goods for those purposes, provided that the person carrying out such activities knew, or should, under the circumstances, have known that the trade secret was used unlawfully within the meaning of (b) above.
Cases in which the ‘acquisition, use or disclosure’ can be considered ‘lawful’ or in which remedies should not be allowed (i.e. ‘exceptions’)
According to the Council Proposal, some acts are considered ‘lawful’, others cannot be remedied (Art. 4).
The acquisition of trade secrets is considered ‘lawful’ if obtained by:
(a) independent discovery or creation;
(b) observation, study, disassembly or test of a product or object that has been made available to the public or that it is lawfully in the possession of the acquirer of the information who is free from any legally valid duty to limit the acquisition of the trade secret (i.e. reverse engineering);
(c) any other practice which, under the circumstances, is in conformity with honest commercial practices;
The acquisition, use or disclosure of trade secrets shall also be considered ‘lawful’ to the extent such act is required or allowed by EU or national law.
Additionally, the Council Proposal provides ‘exceptions’ implying that no remedies should be allowed when the use or disclosure of a trade secret was carried out:
(a) for making legitimate use of the right to freedom of expression and information;
(b) for the purpose of revealing a misconduct, wrongdoing or illegal activity, provided that the alleged acquisition, use or disclosure of the trade secret was necessary for such revelation and that the respondent acted in the public interest (i.e. whistleblowing);
(c) by workers to their representatives as part of the legitimate exercise of their representative functions, provided that such disclosure was necessary for that exercise;
(d) for the purpose of protecting a legitimate interest recognised by EU or national law.
2. Measures, procedures and remedies
Art. 5 of the Council Proposal stipulates that Member States shall provide measures, procedures and remedies necessary to ensure the availability of civil redress against unlawful acquisition, use and disclosure of trade secrets. Such measures must be fair and equitable. They may not be unnecessarily complicated or costly, or entail unreasonable time-limits or unwarranted delays. In addition they must be effective and dissuasive.
However, some safeguards have been built in. The measures, procedures and remedies shall be proportionate, avoid the creation of barriers to legitimate trade in the internal market, and may not lead to abuse. Member States shall also be obliged to provide in their national legislation a limitation period that may not exceed 6 years. In addition Member States shall ascertain that mechanisms are put in place to ensure that, on a duly reasoned application by an interested party, the confidentiality of trade secrets is preserved in the course of legal proceedings (Art. 6 to 8 of the Council Proposal).
Which procedures and measures should be made available to the trade secret holder?
The Council Proposal provides that Member States should make available to the trade secret holder certain procedures against (alleged) infringers (i.e. any natural or legal person who has unlawfully acquired, used, or disclosed trade secrets). On the one hand, Member States should provide provisional and precautionary measures (Art. 9 of the Council Proposal). On the other hand injunctions, corrective measures and damages should be made available in a case on the merits (Art. 11 and Art. 13 of the Council Proposal). In addition, Art. 15 of the Council proposal provides that Member States shall ensure that the competent judicial authorities may impose sanctions on persons who fail or refuse to comply with any of such measures.
Provisional and precautionary measures
Provisional and precautionary measures should include: (i) the cessation (or as the case may be the prohibition) of use or disclosure of the trade secret on a provisional basis; (ii) the prohibition to produce, offer, place on the market, use, import, export, store infringing goods (i.e. goods significantly benefiting from trade secrets unlawful acquired, used or disclosed); (iii) the seizure or delivery of the alleged infringing goods (Art. 9 of the Council Proposal).
However, Member States shall ensure that the competent judicial authorities may require from the applicant for provisional and precautionary measures to provide evidence that may reasonably be considered available in order to satisfy themselves with a sufficient degree of certainty that (i) a trade secret exists; (ii) the applicant is the trade secret holder; and (ii) the trade secret has been acquired unlawfully or is being used or disclosed unlawfully, or as the case may be, that such acts are imminent (Art. 10 (1) of the Council Proposal).
The granting of provisional and precautionary measures is not automatic. The competent judicial authorities shall have the authority to assess any request for provisional and precautionary measures (Art. 10 (2) of the Council Proposal).
Member States shall also ensure that the provisional and precautionary measures may be revoked or otherwise cease (e.g. when the applicant does not institute proceedings leading to a decision on the merits of the case within a certain period) (Art. 10 (3) of the Council Proposal). They should also provide the possibility for the competent judicial authorities to make the granting of such measures subject to the lodging by the applicant of an adequate security or an equivalent insurance intended to compensate for any prejudice suffered by the respondent or other person affected by these measures (Art. 10 (4) of the Council Proposal). Appropriate compensation for any injury caused by such measures to the respondent or third party should be possible in case of (i) revocation of the measures; (ii) lapse due to an act of omission by the applicant of said measures; or (ii) when there is subsequently found that there is no unlawful acquisition, use or disclosure of the trade secret or threat of such conduct (Art. 10 (5) of the Council Proposal).
Measures in cases on the merits
In a case on the merits, the Member States should provide injunctive measures, on the one hand, and corrective measures, on the other hand (Art. 11 of the Council Proposal).
The injunctive measures to be provided are: (i) the cessation (or as the case may be the prohibition) of use or disclosure of the trade secret; and (ii) the prohibition to produce, offer, place on the market, use, import, export, store infringing goods.
The Council Proposal provides also in the following corrective measures: (i) recall of infringing goods from the market; (ii) depriving the infringing good of their infringing quality; (iii) destruction of the infringing goods (or where appropriate their withdrawal from the market); (iv) destruction of all or part of any document, object, material, etc. containing or implementing the trade secret.
Member States should also ensure that the competent judicial authorities order the infringer to pay the trade secret holder damages appropriate to the actual prejudice suffered as a result of the infringement. However, according to the text of the Council Proposal, damages can only be allowed in case the infringer knew or ought to have known that he/she was engaging in unlawful acquisition, use or disclosure of a trade secret.
Member States should also provide in the possibility to disseminate information concerning the infringement decision, including the possibility to publish the decision in full of in part.
The granting of injunctions and corrective and publication measures is not automatic. The competent judicial authorities shall have the authority to assess any request for provisional and precautionary measures (Art. 12 (1) of the Council Proposal). There should also be a possibility to revoke such measures in the event the information cannot anymore be considered as a trade secret (Art. 12 (2) of the Council Proposal). Under certain conditions the injured party should be able to request pecuniary compensation for injury caused by injunctive and corrective measures (Art. 12 (3) of the Council Proposal).
3. Criticisms on and concerns about the Council Proposal – The EP Amendments try to bring an answer, but make the discussion even more complex
The broad definition of ‘trade secrets’ and the fear that fundamental rights,such as freedom of expression and information, are not sufficiently protected in the Council Proposal which has caused a lot of opposition and concerns within several layers of society. Also the measures, procedures and remedies have given rise to many questions.
It is considered that the Council Proposal does not sufficiently guarantee the protection of whistleblowers and access to reliable (confidential) data that is in the public interest. Also health, environmental and food safety concerns were put forward. For instance, it was said that under the Council Proposal, pharmaceutical companies would be able to consider all aspects of clinical trials as a trade secret, which would prevent access to biomedical research data (such as data on efficacy and adverse drug reactions) by health authorities, doctors and/or patients. Such information could be critical to protect patient safety. Not surprisingly these criticisms and concerns have been brought to the attention of the European Parliament and resulted in many different proposals of modifications of Art. 3 and 4 of the Council Proposal, as compiled in the EP Amendments.
Another important issue concerns the provisions regarding the measures, procedures and remedies. There is no doubt that the measures, procedures and remedies are essentially based and inspired on the Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights. However, it was clearly not the aim nor the intention of the European legislator to provide a protection for trade secrets that would be equivalent or similar to the protection of intellectual property rights. Moreover, some provisions of the Council Proposal could give rise to several issues when putting them in practice. One of the major concerns under the Council Proposal is how evidence of the existence of a trade secret will be presented and how such evidence will be assessed by the court (e.g. via in camera, black box proceedings or confidentiality obligations?). It can also be questioned how judges will motivate their decision in the event they conclude to an infringement, since they must provide a sufficient clear and reasoned motivation, but cannot disclose the trade secret.
Consequently, it will be an important task for the European legislator to deal with all these criticisms and concerns and to find a good compromise that is balanced and workable. It remains to be seen how and when this will be resolved.