WHY ARE TRADE SECRETS IMPORTANT?

In order to encourage businesses to invest in science and innovation, it is vital that those who invest in research and development are afforded sufficient protection for the products, processes, services and know-how that result from that investment.

As the Commission notes in the preamble to the draft directive “every IPR starts with a secret”. However, trade secrets are not protected as classical intellectual property rights ("IPR") and there is no primary legislation dealing with the protection of trade secrets. This is at odds with most other forms of IPR in the EU.

The Commission believes that a unified approach to the protection of trade secrets throughout the EU will encourage and facilitate cross-border research and development, while discouraging the theft and misuse of trade secrets, which in turn should lead to new products, processes, services and know-how.

THE CURRENT POSITION

In the UK, trade secrets are currently protected either in contract or under common law breach of confidence.

Where there has been a breach of an express confidentiality or non-disclosure agreement, it is possible for the trade secret holder to bring a claim for breach of contract. Alternatively, in cases that where there is no contract in place, it may be possible to bring a claim in breach of confidence against a third party who has misused or disclosed confidential information.

Coco v A N Clark (Engineers) Limited ([1968] FSR 415) set out the three essential elements to a claim for breach of confidence:

  • Does the information have the "necessary quality of confidence"?
  • Was the information subject to an obligation of confidence?
  • Has the information been misused by the recipient?

THE PROPOSED CHANGES

Bringing an action for breach of contract or breach of confidence can be difficult and time consuming, and the remedies can be unsatisfactory. Further, whilst the information above relates to the protection of trade secrets in the UK, the level of protection varies greatly across the European Union, and some member states have no adequate  measures in place to prevent the misuse of trade secrets.

The measures proposed by the draft directive are broadly similar to the common law causes of action already available in the UK, but will have the advantage of being clear and codified and providing for improved remedies in relation to goods whose design, quality, manufacturing process or marketing has significantly benefitted from trade secrets unlawfully acquired, used or disclosed.

TRADE SECRETS - DEFINED

For the first time, the draft directive provides a common definition of a trade secret across the European Union. A trade secret is defined as any information that has all of the following characteristics:

  • It is confidential or secret, in that it is not generally known among, or readily accessible to, persons within the circles that normally deal with this kind of information.
  • It has commercial value because it is confidential or secret.
  • It has been subject to reasonable steps to keep it confidential or secret.

The definition essentially expands upon the first requirement in Coco and includes information that is either technical (such as manufacturing processes or compounds) or commercial (such as customer lists or marketing data).

The second requirement in Coco, the obligation of confidence, is not mentioned in the draft directive, as it is assumed that any misuse of confidential information will give rise to a claim. However, the draft directive sets out a number of scenarios that constitute misuse (the third requirement in Coco).

MISUSE

The draft directive proposes to make it unlawful to intentionally or negligently acquire a trade secret without the consent of the trade secret holder by way of unauthorised access to, or making copies of, any documents or materials containing the trade secret or from which the trade secret can be deduced. It would also be an offence to obtain trade secrets by way of theft, bribery, deception, breach or inducement to breach a confidentiality agreement or any other duty to maintain secrecy or by any other conduct which, under the circumstances, is considered contrary to honest commercial practices.

It would also be unlawful to use or disclose a trade secret that has been acquired unlawfully, in breach of a confidentiality agreement or any other duty to maintain secrecy; or in breach of a contractual or any other duty to limit the use of the trade secret.

Finally and most notably, it would also be unlawful to engage in the conscious or deliberate production, offering or placing on the market, or importing, exporting or storing of  infringing goods. Infringing goods are those goods whose design, quality, manufacturing process or marketing significantly benefits from trade secrets unlawfully acquired, used or disclosed.

EXCEPTIONS

There are a number of exceptions to the proposals in the draft directive. For example, reverse engineering – the observation, study, and disassembly or testing – of publically available products and trade secrets acquired in conformity with honest commercial practices would be considered lawful.

Also, no action could be taken where trade secrets are used or disclosed in making legitimate use of the right to freedom of expression and information, to fulfil non-contractual obligations or to protect a legitimate interest.

ENFORCEMENT

Once a member state has put fair, equitable, effective, dissuasive and proportionate measures, procedures and remedies in place (whatever they may be), domestic courts will be able to grant interim relief.

These will be broadly similar to those interim remedies already available under English law. These include interim injunctions to:

  • prohibit the use or disclosure of a trade secret;
  • prohibit the sale, import, export or storage of infringing goods; and
  • allow for the seizure or delivery up of infringing goods to prevent their entry into or circulation within the market.

In addition to granting interim relief, courts shall be permitted to make orders for a declaration of infringement and for the recall or withdrawal of the infringing goods from the market. They will also be able to deprive the infringing goods of their infringing quality and to order the destruction of the infringing goods and the destruction of any document, object, material, substance or electronic file containing or implementing the trade secret.

Domestic courts can also make an order for damages commensurate to the actual prejudice suffered where the infringer knew or ought to have known that he was engaging in the unlawful acquisition, disclosure or use of a trade secret.

COMMERCIAL IMPLICATIONS

The draft directive will be implemented alongside the provisions of UK common law set out above, and as previously stated, the position will be broadly similar to that common law position. However, the one big advantage will be in cross border collaboration, whereby all parties will be able to take comfort from the fact that the same provisions will apply across the EU.

Also, any legislation that results from the draft directive should set out a clear, codified regime for the protection of trade secrets, which may deter wrongdoers and is likely to give trade secret holders a simpler cause of action to pursue than the common law remedies currently available.  The one fly in the ointment may be whether or when other member states put adequate measures, procedures and remedies in place.  The theory is sound; as ever, it is only when it comes to be put into practice that its true value will become apparent.

This article was published in Solicitors Journal in March 2014.