Summary: The recent implementation in the UK of the EU Trade Secrets Directive (the “Directive”) has prompted organisations to consider whether they are properly protecting and commercialising their valuable trade secrets. Trade secrets include anything from secret formulae and recipes, to algorithms and customer lists.

Prior to the Directive, each EU Member State offered very different levels of protection for trade secrets.  The aim of the Directive was to create a level playing field across Europe by introducing a minimum standard of protection.  Member States remain free to give greater protection to trade secrets if they wish, and this will inevitably mean that trade secrets will continue to be protected differently from Member State to Member State.

The Directive was implemented in the UK on 9 June 2018 by the Trade Secrets (Enforcement, etc.) Regulations 2018 (the “Regulations”).  Trade Secrets were already protected in the UK by the common law of confidence  and the UK was seen as something of an exemplar in terms of that protection.  The Regulations do not, therefore, change the substantive legal position in the UK significantly, introducing mainly procedural changes to breach of confidence actions.  The law of confidence remains and the Regulations will sit parallel to it.

A new definition of “trade secret”

One significant change to note is that the Regulations introduce a statutory definition of “trade secret”. In essence, a trade secret is information which:

  1. Is secret and not generally known or readily accessible to those who normally deal with the information;
  2. Has commercial value because it is secret; and
  3. Has been subject to reasonable steps to keep it secret.

This definition has narrower requirements than the existing common law tests  in the UK.  Perhaps the most noteworthy aspect is the focus on whether steps have been taken to keep the information secret. As the existing law of confidence and this new definition of trade secret will run in parallel, information which has the ‘necessary quality of confidence’, but which has not been subject to specific steps to keep it secret, will still be protected in the UK.  However, in light of this new aspect of trade secrets protection, organisations should ensure that they have in place documented measures to keep confidential information secret.

What reasonable steps should be taken to keep the information secret?

Suggested best practice steps include the following:

  • Trade secrets should only ever be disclosed under strict contractual obligations of confidence. Use a well-drafted NDA;
  • Conduct an audit and keep an accurate register of your trade secrets and any that are licensed in to you (but keep the detail to a minimum); 
  • Introduce and implement policies within your organisation setting out how trade secrets should be handled and managed; and
  • Keep your IT security systems and technology up-to-date.

How can trade secrets be exploited most effectively?

A well drafted NDA will allow for more in-depth and exploratory discussions with potential commercial partners.  This may well lead to a more clearly scoped, and ultimately more successful, collaboration in which your trade secrets are commercialised to maximum advantage. Below are some key issues to consider when looking to exploit your trade secrets:

  • Whether your trade secrets relate to a unique element of new technology, a technical teaching, or are essential to the operation or use of particular plant, machinery or equipment, consider whether you can license out the use of the trade secret under a know-how licence in exchange for receiving licence fees and/or royalties.
  • Where your trade secrets are linked to patent rights, consider the merits of including a licence to use (and/or develop) the related know-how with a licence to the related patents under a blended patent and know-how licence. For long term arrangements, using a blended licence, if structured and drafted correctly, can also ensure that you continue to benefit from partial royalty payments which can stretch beyond the life of the applicable patents.
  • Once the trade secret has been licensed it is also useful to consider if any key teachings, experience or other demonstrational knowledge is required for practical implementation. In such circumstances it may be advantageous to put in place a “show-how” agreement, to determine the level of technical teachings and continued advisory services that you are willing to supply in relation to the licensee’s use of the trade secret. These agreements will typically be subject to a much shorter term than the applicable know-how licence and will include a variety of terms to address payment of the required key personnel, availability and service levels, and even accommodation and transportation if site visits are required.
  • Trade secrets may also be sold as assets, however it should be noted that a standard IP assignment deed will not be sufficient to ensure that an absolute transfer of rights has been achieved. You will need to put in place a specific transfer agreement which includes non-disclosure obligations and strict duties to maintain confidentiality.

Key takeaways

  1. Trade secrets can cover a variety of technologies, methodologies and sensitive commercial information.
  2. The information or material must have the necessary quality of confidence and be subject to an obligation to keep it secret.
  3. The holder of the trade secret must take reasonable steps to keep it secret.
  4. Trade secrets can be exploited under a variety of licences.
  5. For exploitation to be effective, the confidentiality of trade secrets must be appropriately protected and maintained.