Germany implementing EU Directive to better protect business secrets

The protection of business secrets is as valuable to companies as their brands, patents and other forms of intellectual property rights. However, trade secrets do not enjoy an equivalent level of protection throughout the EU, thus leading to fragmentation of the internal market in this area and weakening the overall deterrent effect of the relevant rules. As a result, the European Parliament and the Council adopted the EU Directive 2016/943 of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure, which should have been implemented into national law by 9 June 2018.

The German legislator is still in the process of implementing the Directive. The criminal law rules in ss17 and 18 of the Act Against Unfair Competition (Gesetz gegen den unlauteren Wettbewerb, UWG) will be replaced by a special law (Gesetz zum Schutz von Geschäftsgeheimnissen, GeschGehG) that will protect secret know-how in the future. The Federal Ministry of Justice presented a ministerial draft in mid-April but, according to the professional legal magazine JUVE, a cabinet decision is not expected before the summer break. After that, the Federal Council will negotiate the new law from September, and the law may be adopted by the end of this year.

Under the new German law trade secrets will be defined as information that is secret in the sense that it is not generally known among or readily accessible to persons within the specialist circles that normally deal with the kind of information in question. For companies this information must have an economic value and they must strive to keep it secret. Thus, the law also imposes obligations on the trade secret holders, who must take and document confidentiality measures.

The acquisition of a trade secret without the consent of the trade secret holder shall be considered unlawful, whenever carried out by: (a) unauthorised access to, appropriation of, or copying of any documents, objects, materials, substances or electronic files, lawfully under the control of the trade secret holder, containing the trade secret or from which the trade secret can be deduced; (b) any other conduct which, under the circumstances, is considered contrary to honest commercial practices. The EU Directive obliges Member States to ensure that trade secret holders are entitled to apply for measures, procedures and remedies in order to prevent, or obtain redress for, the unlawful acquisition, use or disclosure of their trade secrets. Under the new law the company as the trade secret holder cannot only proceed against competitors but may proceed against everybody who infringes their rights, without the need to involve the prosecution authorities.

In the future, reverse engineering (i.e. deconstructing foreign products to obtain know-how) will be explicitly permitted. In this way, competitors will be able to learn about secret know-how and can use this information for their own purposes. A trade secret holder can only prevent this by incorporating a relevant prohibitive clause in contracts (e.g. cooperation and supply contracts) with their business partners.

Protection for whistleblowers, which can be found in Art. 5 lit. b of the Directive and in s4 no. 2 of the German ministerial draft law, is the subject of hot debate. Whistleblowers who disclose a trade secret when revealing misconduct, wrongdoing or illegal activity in relation to a business secret will be protected against measures, procedures and remedies provided for in the new law if they acted for the purpose of protecting a general public interest. The (admittedly vague) term of "general public interest" is argued to leave leeway for fair individual decisions, taking into account the whistleblower's intentions.

The second part of the draft law reflects the range of claims that the trade secret holder can apply for against the infringer, e.g. cessation or prohibition of the use or disclosure of the trade secret, recall of the infringing goods from the market, destruction, information and damages. The law sets out the factors that need to be taken into account when awarding damages and deciding on measures concerning the publication of information relating to judicial decisions in legal proceedings for breach of confidence.

The prospect of losing the confidentiality of a trade secret in the course of legal proceedings often deters legitimate trade secret holders from instituting legal proceedings to defend their trade secrets, thus jeopardising the effectiveness of the measures, procedures and remedies provided for. The new law therefore establishes specific requirements aimed at protecting the confidentiality of the litigated trade secret in the course of legal proceedings instituted for its defence. Such requirements include the possibility of restricting the circle of persons entitled to have access to evidence or hearings and of publishing only the non-confidential elements of judicial decisions. This change might make legal proceedings before national courts an attractive alternative to arbitration proceedings.

Regardless of the amount in dispute, only district courts (Landgerichte) will be competent to deal with cases of betrayal of business secrets. In addition, the Federal Ministry of Justice wants to empower the Federal States to set up special chambers for know-how protection in selected district courts. However, it is not clear at this early stage of the legislative process whether the Federal States will make use of this possibility.

OECD anti-bribery recommendations to Germany

The Organisation for Economic Cooperation and Development (OECD) has released a report making recommendations to Germany on how the country could improve its operations against foreign bribery. The report notes that Germany continues to demonstrate a high level of anti-bribery enforcement, having prosecuted and sanctioned 328 individuals since 1999. Despite this, the OECD notes that the country's enforcement efforts against individuals needs to be matched by efforts against companies, with only 18 companies prosecuted and sanctioned in foreign bribery cases since 1999. The OECD also points to inconsistent approaches to holding companies liable across the German states, noting that sanctions are not always of sufficient deterrence effect and that whistleblower protection is in need of reinforcement.