In May this year, the Council of the European Union agreed in principle with the proposal for a directive on trade secrets (the "Directive"). A draft has been sent to the EU Parliament to begin the lengthy back and forth negotiations that take place at that point in the EU legislative process.

The Directive

The Commission initiated the Directive because it believes that the current fragmented system for protection of trade secrets across the EU presents businesses with a lack of certainty as to whether and how their trade secrets will be protected.

Some of the key features of the Directive, in its current form, include:

  • trade secrets are defined as information that:
  1. is secret in the sense that 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; 
  2. has commercial value because it is secret; and 
  3. has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.
  • a minimum level of protection against the unlawful acquisition, disclosure or use of trade secrets;
  • a broad allowance for situations in which trade secrets can be acquired lawfully, such as where it is done in “conformity with honest commercial practices”;
  • common procedures to preserve the confidentiality of the secrets in dispute during legal proceedings;
  • a limitation period of six years within which actions against an unlawful acquisition, disclosure or use of a trade secret must be brought; and
  • a common set of remedies where there has been an unlawful acquisition, disclosure or use of trade secrets including the usual injunctions and damages, but also requiring remedies such as seizure and destruction of goods.

The effect of the Directive in Ireland

Although the stated aim of the Directive is to reduce complexity and risk and thereby encourage investment, there is a concern that particularly in common law countries such as Ireland and the UK it could have precisely the opposite effect. In both jurisdictions information that is truly confidential is protected by the law of equity, whether it is commercial in nature or not. Any implementing regulations are likely to make that system more complex.

The decision as to whether implementing regulations are required, will largely depend on the final form the Directive takes. It may be decided that the existing system is consistent with the Directive. The UK European Scrutiny Committee of the UK Parliament has suggested that this will be the case based on the current draft. However, significant changes to the Directive may trigger a requirement for implementing regulations.

If a decision is made by the Government that legislation transposing the Directive is required then there will effectively be a system for the protection of commercial trade secrets sitting side-by-side with the existing law on the protection of confidential information. This is likely to lead to overlap in the systems, which will present business with an unwelcome extra layer of complexity.

Additionally, while US undertakings doing business in Ireland will be familiar with the well-defined concept of trade secrets in the US, the proposed system under the Directive will only be equivalent if the definition of “trade secret” under US law is the same.

A new property right?

Another aspect of the Directive that will cause uncertainty is whether it makes a trade secret a property right or not? There is no express provision in the Directive to this effect, nor is there any confirmation that trade secrets will be assignable or licensable in the nature of other types of personal property rights. As one of the main aims of the Directive is to encourage technology transfer between member states this is a real gap. To the extent that the Directive creates an exclusive right to use and disclose trade secrets by preventing others from doing so, member states could individually dictate the manner of trade secret exploitation in transposing legislation. However, permitting such a discretion is unlikely to harmonise technology transfer across the EU between the different systems.

A poor trade-off for Ireland

The goal of raising the minimum standard of protection of confidential information and providing for harmonisation across the EU is laudable, but the inherent difficulty in reconciling very different legal systems is politically and practically problematic. It seems that for Ireland this could be a case of change for change’s sake. Unless the Directive meets with opposition and is amended accordingly we could end up with a more complex regime for protecting confidential information, but with little corresponding improvement in the manner of technology transfer between member states.