Need for a change

Most companies, from the start-up to the multinational including the SME’s and from all sectors, own (knowingly or unknowingly) trade secrets. Indeed, all information that allows to obtain a competitive advantage could qualify as a trade secret! This can include business plans, manufacturing processes, designs, recipes, compilations of significant data, such as price and customer lists, etc…

This type of intangible assets may be very valuable for a business. They are however often vulnerable, in particular if no intellectual property rights are available for their protection.

Aware of their value and of the differences in the legal protection of trade secrets between the Member States, the European Commission proposed, already back in November 2013, a Trade Secret Directive. The aim is to harmonise the protection of trade secrets Europe-wide, upgrade that protection to basically the level of intellectual property and to thus create an innovation-friendly environment for businesses.

The Council formally adopted the Directive on 27 May 2016, and the Member States will have two years to implement the Directive in their national legislation.

What is a trade secret?

A trade secret is defined as information that cumulatively meets the following conditions:

  1. it is secret, meaning that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to people within the circles that normally deal with this kind of information;
  2. it has commercial value because it is secret; and
  3. it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information to keep it secret.

The recitals of the Directive further clarify that a trade secret should cover business and technological information as well as know-how where there is both a legitimate interest in keeping it confidential and a legitimate expectation in the preservation of such confidentiality. The required commercial value, may be actual or potential. It is important to note that trivial information and experience and skills gained by employees in the normal course of their employment are not covered by the definition.

Unlawful acquisition, use or disclosure

The acquisition of trade secrets will be considered as unlawful when acquired by (1) unauthorised access to, appropriation, copy of any information (material as well as electronic files) lawfully under the control of the trade secret holder and containing the trade secret or from which the trade secret can be deduced, or (2) by any other means contrary to honest commercial practices.

The use or disclosure of trade secrets will also be considered as unlawful when carried out without the consent of the trade secret holder by a person who has initially lawfully acquired it, subsequently infringes a confidentiality agreement or any other duty not to disclose or to limit the use of the trade secret at stake.

The acquisition, use or disclosure of a trade secret will moreover get an unlawful nature as soon as the person disclosing the trade secret knew or should have known that it was obtained (directly or indirectly) from a person using or disclosing the trade secret unlawfully.

It is finally important to note that the production, offering or placing on the market or the import, the export or the storage of infringing goods will also get the stamp of unlawful when the person carrying out such activities knew or should have known that a trade secret was being infringed.

Provisional and precautionary measures

The Directive provides that the Members States in the first place have to ensure that the competent judicial authorities, at the request of the trade secret holder, may order the provisional cessation of or the prohibition of the use or disclosure of the trade secrets at stake, including the provisional prohibition to produce, offer, place on the market or use allegedly infringing goods, or to import, export or store such goods. In addition, the seizure or delivery up of the suspected infringing goods in order to provisionally prevent their entry into circulation within the market must be provisionally available to the trade secret holder.

To allow the judicial authorities to balance the interests at stake, they should have the possibility to impose as an alternative measure the lodging of guarantees by the alleged infringer intended to ensure the compensation of the trade secret holder. Disclosure of a trade secret shall however never be allowed against the lodging of guarantees.

Measures resulting from a decision on the merits of the case

Apart from the provisional and precautionary measures the Member States have to ensure that the competent judicial authorities, at the request of the trade secret holder, may also order the definitive cessation, prohibition of the use or disclosure of the trade secret, including the definitive prohibition to produce, offer, place on the market, import, export, store or use actual infringing goods.

Alongside these measures the Member States also have to make claims possible (1) for the destruction of all or part of any document, object, material, substance or electronic file containing or embodying the trade secret or, where appropriate, the delivery up to the applicant of all or part of those documents, objects, materials, substances or electronic files; and (2) for appropriate corrective measures including the recall and/or the destruction of the infringing goods.

Member States shall ensure that the trade secret holder can be granted appropriate damages to compensate for the actual prejudice suffered as a result of the unlawful acquisition, use or disclosure of the trade secret. Member States may however decide to limit the liability for damages of employees towards their employers when they act without intent.

Member State legislation will finally have to provide for appropriate measures for the dissemination of the information concerning the decision including publishing it in full or in part. In deciding whether to order such measure, account will have to be taken of the value of the trade secret, the conduct of the infringer in acquiring, using, disclosing the trade secret, the impact of such disclosure, its use and the likelihood of further unlawful use or disclosure.

Proportionality and safeguards against abuse of process

The described measures, procedures and remedies must be effective and dissuasive. The Member States shall therefore ensure that the judicial authorities can impose sanctions in case of non – compliance, including the possibility to impose recurring penalty payments.

The given measures, procedures and remedies are moreover to be made available without unnecessary complexity or costs. However at the same time their application should be proportionate, avoid the creation of barriers to legitimate trade within the European market. Member State legislation must also provide for safeguards against their abuse.

The Member States will also have to lay down rules on the limitation periods applicable to the claims and actions leading to the aforementioned measures, procedures and remedies provided that the duration of the limitation periods does not exceed six years.

The Directive finally sets a framework for the preservation of confidentiality of trade secrets in the course of and subsequent to legal proceedings.

Balance of interests

Having been subject to strong criticism as a legal initiative that constitutes an impediment to the freedom of expression giving a ground to condemn both the whistle blower or the employee and the journalist for revealing, without consent of the trade secret holder, secret information that the world owes to know, the Directive tries to reconcile the interests involved by providing safeguards in the form of important exceptions. The national legislations will indeed have to ensure that no legal action can be initiated when a trade secret is acquired, used or disclosed:

  • for exercising the right to freedom of expression and information, including respect for the freedom and pluralism of the media;
  • for revealing misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest;
  • by workers to their representatives as part of the legitimate exercise by those representatives of their functions in accordance with the law, provided that such disclosure was necessary for that exercise;
  • for the purpose of protecting a legitimate interest recognised by the law.

What to do?

In order to take full advantage of this future legislative framework, companies will be well advised to in particular start:

  1. identifying information that may qualify as secret and that has actual or potential commercial value;
  2. listing the steps that are already in place to keep this information secret;
  3. assessing whether those steps are reasonably sufficient to keep the information secret;
  4. taking appropriate additional measures to safeguard the confidentiality of the information at stake by for example the execution of confidentiality agreements with employees and third-parties, the use of secured password, the structural limitation of access to secret data, the labelling of information as “confidential”, etc.