In brief

  • The Trans-Pacific Partnership Agreement (TPP) – a treaty in the final rounds of negotiation that will create a trading bloc second only to the European Union – is expected to be signed early this year.
  • One controversial proposal by the United States, Mexico, Canada, New Zealand and Japan, is a provision that would require signatory countries to impose criminal penalties for misappropriating or disclosing, wilfully and without authority, trade secrets relating to a product in national or international commerce for purposes of commercial advantage or financial gain, and with the intent to injure the owner of such trade secrets.
  • Currently, Australian law does not directly criminalise the disclosure of trade secrets. If successful, this proposal is likely to have wide-reaching and important consequences for industries which rely heavily on trade secrets to protect commercially valuable confidential information.
  • Expanding the protections available to these industries may also impact upon the level of foreign direct investment into Australia and other TPP countries that do not currently impose criminal sanctions on the disclosure of trade secrets.

Trans-Pacific Partnership

After more than three years of closed-door negotiations, it is expected that the TPP will be signed early this year. Once concluded, the TPP will expand free trade in the Asia-Pacific and create a trading bloc second only to the European Union. Although no draft texts of the TPP have been officially released, drafts of the Investments, Environmental Regulation and Intellectual Property chapters have been leaked.  For more information about the proposed Agreement, please see our E-Bulletin.1

Proposal to criminalise trade secret disclosure

One particularly controversial provision from the leaked Intellectual Property chapter concerns enhancing protections for trade secrets. Proposed by the United States, Mexico, Canada, New Zealand and Japan, the provision would require signatory countries to impose criminal penalties for misappropriating or disclosing, wilfully and without authority, trade secrets relating to a product in national or international commerce for purposes of commercial advantage or financial gain, and with the intent to injure the owner of such trade secrets. Australia, Singapore, Malaysia, Peru, Vietnam, Chile and Brunei Darussalam have all opposed the provision.

Under Australian law some conduct relating to trade secrets is already covered by offences such as fraud and unauthorised access to computer data. Disclosure of trade secrets may also amount to a breach of contract or breach of equitable obligations. However, no criminal law directly criminalising the disclosure of trade secrets currently exists.

Impact on Australian business

If successful, this proposal is likely to have wide-reaching and important consequences for a variety of industries. Businesses in the financial services, pharmaceuticals,  manufacturing, information technology and food/beverage production sectors, which rely heavily on trade secrets to protect commercially valuable confidential information, are likely to be particularly affected.

Expanding these protections may also impact upon the level of foreign direct investment into Australia. A recent report2 published by the United States Chamber of Commerce found a positive correlation between the strength of Intellectual Property protections in a country and the level of investment, research and development expenditures and technology transfer to the country. Stronger protection for trade secrets is also likely to make companies more willing to enter into joint ventures involving commercially-sensitive or confidential information. Protection for trade secrets or confidential know-how is usually high upon the agenda in any cross-border deal, with parties insisting upon contractual protection through extensive non-disclosure agreements, as well as limiting physical access to “black-box” information.

European developments

Interestingly, other developments are presently afoot in Europe. With the aim of counteracting a growing problem of trade secret theft and providing a clear and uniform level of protection across the EU, the European Commission has approved a proposal for a Directive ‘on protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure’. This proposal is particularly timely given that in 2013, 25% of all European companies reported experiencing at least one case of information theft (compared to 18% in 2012). Criminal sanctions have not been included in the EU proposal, although they were part of an earlier draft.

The proposal is part of a comprehensive strategy adopted by the Commission in May 2011 to optimise Intellectual Property infrastructure in Europe (‘A Single Market for Intellectual Property Rights Boosting creativity and innovation to provide economic growth, high quality jobs and first class products and services in Europe’ - COM(2011)287) which included an undertaking to examine the protection of trade secrets. For more information on these European developments, Herbert Smith Freehills has compiled a comprehensive E-Bulletin.3