This morning the European Commission adopted a proposal for a Directive to protect trade secrets and confidential business information against misuse by third parties. The Directive will dramatically reform the law of trade secrets across the European Union. It is designed to harmonize the law and how it is enforced across all 28 Member States.

The proposal is the result of several years of evaluation of this area of the law by the Commission. In 2011, Hogan Lovells was commissioned to produce a study for the Commission which analyzed how trade secrets were protected under the national laws of each of the then 27 Member States. This study, published in January 2012 and referred to in today's proposal, was the first of its kind. Our research revealed major differences across the EU in what can be protected and what the courts will do to enforce rights. Until now countries have adopted widely differing approaches to trade secrets. For example:

  • In some countries the misuse of a trade secret is treated as a criminal act punishable by a prison sentence or a fine. The level of applicable fine demonstrates how differently individual States view the importance of trade secrets; fines can vary from as little as €50 to €30,000 or more.
  • In other countries only civil remedies are available and in some cases the court procedures mean that they provide only limited relief. And in one or two countries there is simply no basis for any effective remedy.

The differences in protection have meant that businesses trading in Europe have been in danger of losing significant revenue to their competitors and opportunists. Investors, particularly those interested in innovation and technology, are more willing to invest in countries where they believe that their secrets are adequately protected by law. Inadequate protection for trade secrets therefore puts at risk investment in research and development (R&D) within the European Union.

Hopefully this attempt to harmonize the law will mean that Europe is in a better place to compete with countries such as the US and Japan where trade secrets are recognized as an important business asset and protected by the law accordingly.

The main changes proposed by the draft Directive are:

  1. Introduction of a uniform definition of a "trade secret". Currently the term is not defined in most countries' law.
  2. A two year limitation period in which to bring claims, running from the date on which the claimant became aware (or should have been aware) of the last fact giving rise to the action. This is a much shorter period than is currently enjoyed in many Member States.
  3. Introduction of a common set of remedies for trade secret misuse including:
    • interim and permanent injunctions;
    • seizure of suspected infringing goods and their destruction if trade secret misuse is proved;
    • destruction of documents or other materials containing the trade secret if misuse is proved; and
    • compensatory (but not punitive) damages which reflect the actual loss suffered.
  4. Introduction of procedures to preserve the confidentiality of the secrets in dispute during legal proceedings.

These proposed changes to the law are welcome and appear to tie in with the Commission's general desire to ensure respect for intellectual property and related rights. However, there are still some noticeable gaps in the proposal. Trade secret holders often face considerable difficulties in obtaining evidence of misuse and damage. If the necessary evidence cannot be obtained then legal action may not get off the ground. The current proposal does not introduce procedures to address this issue. For example, it does not include means to compel defendants to provide information or documents or for a claimant to seek "search and seize" orders without notice to the defendant in order to preserve evidence if there are serious grounds to believe the defendant would otherwise destroy it.

The Directive will now enter the normal legislative process involving the European Parliament and the Council before it is adopted.