Every company independent from its size and business area owns secret and valuable information which is worth being protected against disclosure and misappropriation. The challenge for each business is to identify the secret information and to take appropriate steps and proactive measures for its protection.
Why is this important?
Currently, the legal situation in the various EU Member States is inconsistent.
The European Commission recognizes a need for action, because attacks on trade secrets of companies are on the rise. Further, the lack of a uniform system and appropriate mechanisms in Europe also prevents companies from sharing secret information across the borders which factor ultimately slows innovation in the EU.
The Commission is working on harmonizing the diverging national laws and, in November 2013, Commission proposed a draft Trade Secrets Directive. After the Legal Affairs Committee of the European Parliament had provided a report with numerous proposals for amendments, the negotiating teams of the European Parliament and the Council reached a preliminary agreement on the text of the draft Directive on December 15, 2015. As next step in the legislative proceedings this agreement will need to be formalized by the European Parliament and the Council.
Limitations of rights of journalists, consumer organizations and employees?
One could believe that the regulation of a new trade secrets protection in the EU would be broadly welcome. However, there are voices, especially from journalists and consumer as well as employee and workers’ rights protection organizations that have heavily criticized the directive. Journalists are concerned about the effects of the directive of investigative journalism and that they will not be hindered from revealing company insights relevant to the public, e.g, in connection with corporate scandals. There is a general fear that EU consumers, journalists, whistleblowers, researchers and workers will not have reliable access to important data in the public interest any longer.
The main points of criticism are an broad definition of “trade secrets” which is perceived as too wide and abroad protection for companies, which could bring claims against anyone who “unlawfully acquires, uses or discloses” trade secrets, irrespective of such disclosure being in the public interest or not. The European lawmakers have been trying to meet these concerns and have suggested amendments to the draft of the trade secrets directive.
Main features of the draft Trade Secrets Directive
- Minimum harmonisation of the different civil law regimes in the EU;
- Establishment of common principles and definitions and of measures, procedures and remedies available for the purpose of civil law redress;
- Unlawful use and acquisition of trade secrets whenever a person, at the time of acquisition, use or disclosure, knew or should have known that the trade secret was obtained unlawfully;
- Preservation of confidentiality in legal proceedings;
- Liability exemptions for employees.
What will change for trade secret owners?
Although the final wording of the trade secrets directive has not been agreed yet, it has become obvious that the directive will impose the clear mandate to the owners of trade secrets to take a proactive approach in all possible directions to keep their confidential information secret.
- Owners of trade secrets will have increased obligations to provide evidence that they have established adequate measures and taken reasonable and demonstrable means (including technical and contractual means) for the protection of trade secrets;
- It will not be sufficient any longer that the mere intention to keep information secret will qualify for protection, even if such intention is apparent to a third party or an average employee from the circumstances.
- In preparation for the legal framework it is recommended to introduce measures now in order to have them in place for relying upon in proceedings.
What can owners of trade secrets do?
The ex-post assessment on the effectiveness of specific measures can only be done on a case-by-case basis. However, there is a number of measures widely acknowledged as reasonable and effective in other jurisdictions (such as in the United States) – these can serve as a guideline for EU trade secret owners to prepare for the new statutory regime:
- Identify and classify trade secrets (“Trade Secrets Audit”);
- Establish a Trade Secrets Protection Policy in writing (also for later demonstration in court proceedings);
- Segregate confidential information physically and electronically;
- Review, update and enter into confidentiality agreements with business partners;
- Develop and maintain a strict computer security policy (passwords, encryption, privacy filters for monitors) – include computer professionals;
- Inform and train all employees about the policy and their confidentiality obligations;
- Have employees sign agreements containing the following clauses (if compliant with national labour law): they acknowledge that they have access to trade secrets; the company is sufficiently protecting that information; they will not and have not disclosed or misappropriated this information and they will report to the company all unauthorized disclosures or uses of the trade secrets information.
- Restrict access to trade secrets to “need to know” employees; monitor and maintain records about access to trade secrets; mark documents as “confidential”;
- Pre-approve employee speeches and publications, pay attention to secret information potentially disclosed during trade shows;
- Conduct exit interviews with employees together with a second company executive (witness), take minutes, remind employees of their ongoing obligations, let them confirm in writing (if compliant with national labour law) that they will not and have not disclosed or misappropriated secret information, they will further on keep the information secret, they acknowledge that they are not authorized to disclose such information to their new employer.
- Generally restrict access to the company from outside;
- Implement a periodic review of trade secret assets and the protection plan.
A uniform regime in Europe is a step towards a higher standard of protection of trade secrets. At the same time, it puts the onus on trade secret owners to proactively take steps for the protection of their secret know-how. The Commission recognized the conflicting interests in this area and has made clear that the Trade Secrets Directive shall not undermine other industry commitments and obligations of transparency and data sharing, e.g. in the pharmaceutical industry.