With information theft on the rise within companies in the EU, protecting trade secrets is more important than ever. Thanks to technological advancements, digitalised information storage and the rise of social media, the irreversible dissemination of information is often just a click away. Despite their commercial value, information such as client lists, business plans, technical know-how and secret recipes cannot be adequately protected by traditional intellectual property rights. The incoming EU Trade Secrets Directive, due to come into force early this year, will attempt to harmonise national laws of Member States and protect the results of innovative business activity from unlawful use.
Following meetings late last year, surprise provisional agreement was reached between the European Parliament and the EU Council on 15 December regarding the text of the proposed Directive on Trade Secrets (“the Directive”). The lack of harmonisation measures to protect trade secrets and innovative ideas within the EU has been cause for concern for some time, and the proposed Directive seeks to bring some clarity between Member States.
On 8 March 2016, the European Parliament is tentatively scheduled to vote on the draft Directive, with the Council expected to follow suit shortly after. Once approved, Member States will be given a two-year window in which to implement the Directive’s minimum standards of protection for trade secrets and ensure they are incorporated into national law.
Whilst the text of the most recent draft followed largely the same format and substance as previous iterations, three areas are particularly notable:
- the meaning of “trade secrets”;
- the potential impact of the Directive on employees; and
- the potential scope of the Directive’s whistleblowing defence.
1. What are ‘trade secrets’?
In order to fall within the protection of the Directive, the information must be a ‘trade secret’ as defined under Article 2(1):
- it must be 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;
- it has commercial value because it is secret; and
- it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.
Clients may be able to demonstrate that they took “reasonable steps” to keep the information secret by restricting access to the information, labelling the relevant documents as confidential, monitoring activity in relation to the information and putting in place appropriate non-disclosure agreements where necessary. The wording of Articles 2(1)(a) and (c) mirrors elements of the common law of confidence (which protects information that is confidential in nature, was imparted in circumstances in which an obligation of confidence arises and where its unauthorised use would be to the detriment of the person to whom it relates).
It is important to note that under the proposed wording in the Directive, it is not only direct use or disclosure of trade secrets that is captured. Dealing in infringing goods where such goods significantly benefit from unlawfully acquired trade secrets will also be considered unlawful. Ultimately, this may have a powerful and onerous impact on downstream players who have no knowledge of the unlawful act itself, but knew or should have known that the goods they are dealing with benefitted from a trade secret in some way. It is therefore important to make reasonable investigations into the source of any potentially infringing goods, as lack of actual knowledge may not be a sufficient excuse.
2. Employee knowledge, experience and skills
The previous draft of the Trade Secrets Directive caused some consternation amongst employers and commentators alike. Its wording stated that the Directive would: “…not affect…the use of information, knowledge, experience and skills honestly acquired by employees in the normal course of their previous employment…”. At first glance, this had potential ramifications for employers and their protection of trade secrets. Read broadly, the provision essentially provided that anyinformation employees acquired honestly in the normal course of their duties would be open to use by them in their subsequent jobs, regardless of whether the information was confidential or not.
The most recent iteration of the Directive has now been amended to contain the following:
“Nothing in this Directive shall be understood to offer any ground for restricting the mobility of employees. In particular, in relation to the exercise of such mobility, this Directive shall not offer any ground for:
a) limiting employees’ use of information not constituting a trade secret as defined in point (1) of Article 2;
b) limiting employees’ use of the experience and skills honestly acquired in the normal course of their employment; and
c) imposing any additional restrictions on employees in their employment contracts other than in accordance with Union or national law” (Article 1(2a)).
The updated wording balances the importance of companies protecting trade secrets from information theft, whilst allowing employees to move freely between jobs without being unduly restrained. The Directive refers to a class of information which could otherwise be constituted as confidential but is also part of an employer’s experience and skills (Article 1(2a)(b)). A former employee will be free to utilise such information as long as it was acquired honestly during the normal course of their employment. The wording therefore leaves room for a class of information which falls outside of this: that which is confidential and yet is not the employee’s “experience and skills honestly acquired”. For example, such information may have been dishonestly acquired in their role, or may go above and beyond the skill and experience acquired in the employee’s “normal” course of employment. The Directive would enable companies to restrain former employees from making unauthorised use of such information.
Practically speaking, Article 1(2)(a) brings trade secret protection roughly in line with current English law. The well-established case of Faccenda Chicken outlined that trade secrets may be protected indefinitely, but confidential information that subsequently becomes part of an employee's skill and experience loses such protection other than by appropriate restrictive covenants and non-compete clauses in an employment contract. Nevertheless, the open-ended nature of the wording in the Directive provisions will almost inevitably need to be clarified by the CJEU.
3. The whistleblowing defence
Journalists and the media were vocal in their desire to ensure that the finalised wording of the Trade Secrets Directive would not unduly restrain their freedom to disclose confidential information in the public interest. Under English law, current protection for public interest disclosures is relatively muddied and unclear, but nevertheless, any such disclosures must be proportionate and justified. Against this backdrop, the finalised text of Article 4(a) and (b) provides a defence whenever a trade secret is acquired, used or disclosed:
- “for exercising the right to freedom of expression and information set out in the Charter of Fundamental Rights of the European Union, including respect for freedom and pluralism of the media”; or
- "…for revealing a misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest".
Once again, the wording of the provision is very broad. Article 4(a) appears to be so general as to be of little practical value in discerning the kinds of uses that will be permissible under this provision. Furthermore, Article 4(b) appears to state that any disclosure made with the subjective purpose of revealing wrongdoing will be permissible under the Directive. The Directive contains no specific wording limiting such disclosures to those which are necessary and proportionate to the nature of the information acquired. On this reading, this provision appears to significantly widen the public interest defence under English law. As with other provisions of the Directive, it is likely that its interpretation will need to be considered by the CJEU before we receive sufficient clarification on the precise scope of the public interest defence.
As set out in the recitals to the Directive, information theft, corporate espionage and breach of confidentiality requirements are on the rise. According to a ‘Global Fraud Report 2015/2016’prepared by Kroll, 15% of 768 company executives surveyed reported that their companies had suffered some kind of information theft in 2015. The Directive will give a further option to businesses in England seeking to protect their trade secrets beyond the existing law of confidence, but it remains to be seen how its provisions will be interpreted and applied into English law.