From Saturday 9 June 2018, trade secrets in the UK will, for the first time ever, be protected by legislation. The Trade Secrets (Enforcement etc) Regulations 2018 (“the Regulations”) will bring into the force the EU Trade Secrets Directive (2016/943).

What are trade secrets?

Trade secrets are a vital form of protection for intellectual property rights (IP). However they are often overlooked and seen as less important than registered IP such as trade marks or patents. They cost nothing to protect and can last forever if kept confidential. Classic examples of trade secrets are the Coca Cola or Irn Bru recipes. However, they can cover all sorts of commercial and technical knowhow, sensitive business information of value such as chemical formulae, engineering designs, business plans or methods and customer lists or pricing information.

New EU-wide protection

While the UK, including Scotland, already provides robust protection for trade secrets and confidential information through the common law applied by the courts over many decades, the law has evolved over time and has never been clearly set out or codified in one place. The Regulations will helpfully codify the law UK-wide and bring it in line with the rest of the EU.

First ever clear definition of trade secret?

For the first time there will be a clear definition of what amounts to trade secrets. This is information which is secret; that is, generally known to, or readily accessible by, the type of persons who would normally deal with such information and which has commercial value because of its secrecy. In addition the person lawfully in control of the trade secrets must have taken reasonable steps to keep them secret.

Orders available and protecting secrecy during a court action

The Regulations allow courts to make orders to stop the unlawful acquisition, use or disclosure of a trade secret, as well as measures to maintain the secrecy of trade secrets when they are the subject matter of a public court case. Such orders must be applied for by the trade secret holder on a ‘duly reasoned‘ application and can prevent those involved in a court action from using or disclosing trade secrets, potentially both during and after the action. That is, of course, provided the court agrees ultimately that they are protectable trade secrets and as long as they remain secret and valuable.

The court has considerable discretion to restrict access to documents, hearings and to any transcripts of hearings or to allow redaction before the information is made available. The extent of any such measures must be proportionate, with the court taking into account the need to ensure the right to an effective remedy, a fair trial and balancing the legitimate interests of the parties and any potential harm they may suffer as a result of any orders.

Infringing goods seizure

The Regulations reiterate the existing powers of the courts throughout the UK to implement interim measures to prevent or stop the unlawful use or disclosure of trade secrets – and they also specifically allow such measures to prevent the marketing or use of goods where the design, function, production process, marketing or a characteristic significantly benefits from the relevant trade secret (the infringing goods.) The Regulations also include a provision for interim powers to order the seizure or delivery of the infringing goods, including imported goods.

Key new time limit after an interim order

The Regulations contain important guidance about the type of evidence needed to obtain such interim measures. An important new provision is that the court may set a reasonable period within which the trade secret holder must take the action forward on the full merits of a case after any interim measures have been put in place.

However, even where the court does not set such a period the trade secret holder only has a period of up to 20 working days or 31 calendar days (whichever is longer) after the date the interim measure was put in place, to take forward a full action on the merits. If the full merits of a case are not pursued in time, the interim order can be revoked by the defendant, presumably with scope for legal costs to be awarded against it. Any applicant will thus need to consider its contentions seriously before embarking on such a course and applying for an interim order. With the existing provision in England for cross undertakings in damages as a condition of applying for interim injunction, there will now be even more incentive to be sure of the grounds before applying.

Corrective measures – recall, modification or destruction of goods

Where a final decision confirms there has been infringement, the courts have the power to require an infringer at his/her own expense to recall the infringing goods from the market or modify them to remove their infringing quality and/or destroy or withdraw them from sale.

Compensation instead of an interdict?

There are also somewhat unique provisions allowing for financial compensation to be awarded instead of a final injunction. Such orders can be applied for by an alleged “innocent” infringer and compensation will be limited to the cost of a hypothetical licence to use the trade secret. These provisions only apply where the infringer was neither aware at the time of use or disclosure nor ought to have known, that the trade secret was obtained from another person who was also using the trade secret unlawfully.

In contrast, where it is demonstrated that the infringer knew or ought to have known that the use or the disclosure was unlawful, the trade secret owner can request that the court must order the infringer to pay damages appropriate to the actual prejudice suffered. These include negative economic consequences, such as loss of profits or unfair profits made by the infringer, and any moral prejudice caused to the trade secret holder as a result of the unlawful acquisition.

What the future holds

While no major or significant changes are likely to occur in practice under UK (including Scots) law and procedure in relation to protection of trade secrets, the Regulations do provide welcome detail and more certainty on what constitutes an enforceable trade secret and how it can be protected in court. As with any change in the law however, there will inevitably be scope for disputes to occur and no doubt litigation will be required for real clarity to be achieved.

Harmonisation throughout the EU is welcome, but it is worth bearing in mind that the potential for a post-Brexit disapplication of the jurisdiction of the Court of Justice of the European Community in providing guidance on EU-derived legislation, may mean that there will be future divergence between relative UK and EU approaches.