European Union Directive on the Protection of Trade Secrets
Author: Archit Uniyal,
BBA LLB (Hons) 3rd-year student,
O.P Jindal Global University.
What is a Trade Secret?
“Any confidential business information which provides an enterprise a competitive edge may be considered a trade secret.”[1] Trade secrets are a considerable part of the business world. Businesses will guard and protect their trade secrets zealously, as it gives each company their unique selling points. Examples of this include the Coca-Cola recipe which is an age-old trade secret.
The new European Union (EU) directive on the protection of trade secrets against their unlawful acquisition, use and disclosure (the “Directive”) was adopted on 8 June 2016 and Member States were required to comply with the Directive by 9 June 2018. Laws relating to trade secrets have varied across the EU in the past and hence the new Directive aims at changing this and introduce a more uniform approach across the EU.
What is New?
The new directive sets out a uniform definition of a trade secret. Under the new definition, information is considered a trade secret if:
- A Trade Secret is secret in such a way that it is not, as a whole or in part, generally known or readily accessible to persons within the usual business circles;
- it has commercial value because it is a secret;
- it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.
This Trade Secrets Directive creates a basic minimum level of protection which every member state must institute. Under this, a company will have to show that they have actively taken “reasonable steps” to identify and protect their trade secrets because intent will no longer be suffice. They should also be able to prove this in the court. A company failing to take such steps, or unable to prove it did so, could lose its trade secret protection. This is a huge change for jurisdictions like Germany, where until now the mere intent of the trade secret owner to keep the information secret was sufficient.
What are Reasonable Steps?
The directive doesn’t clearly define what constitutes reasonable steps, but some national courts have considered the issue in assessing trade secret violations under their national laws as to what would constitute reasonable steps under the Directive.
For example, in a Spanish case on 19 December 2016, the courts found that the “confidential information should not be considered secret. In reaching this conclusion, the court assessed whether the necessary measures had been taken to maintain the secrecy of the information. The court suggested that the steps to avoid disclosure should be “adequate and reasonable” and should be taken both externally and internally. The external steps should prevent third parties from accessing the information and the internal steps should limit access to “employees and collaborators” who know or handle the information.”[2]
A case in Austria on 25 October 2016, also provides some assistance with understanding the scope of the concept of “reasonable steps”. “This case concerned a security breach and the Austrian court found that under national law the trade secret holder had adequately demonstrated their intention to keep the information secret. Their efforts included maintaining a logging system with a username and password and ensuring that only a limited number of identified people knew the information. This was the case even though there had been a security breach. The court referred to the Directive and concluded that their interpretation aligned with the third element of the new definition. This case demonstrates that the Directive does not require that the owner of the trade secret must successfully keep the confidential information secret, but rather states that they must be able to demonstrate that they had taken reasonable action to try maintain its secrecy.” [3]
What else is there in the Directive?
The Directive also sets out what would be considered a lawful acquisition, use and disclosure of a trade secret and what would be unlawful. It also clarifies the remedies available to trade secret holders, both in terms of interim and final relief. There are also penalties for those who leak trade secrets should a business wish to sue an individual for revealing trade. The person will be liable to pay the trade secret holder damages to the appropriate level of the prejudice suffered. The Directive will also bring changes to the way trade secrets can be enforced in court proceedings. Another change this law brings forth is that it introduces the limitation period within a suit against trade secret infringement has to be brought to the court.
Conclusion:
Overall, the new Directive aligns the laws of the Member States and will enhance the protection of trade secrets across the EU. If applied correctly, trade secret protection can be a cost-efficient way to protect a company’s intellectual property. In doing so, however, it does put an extra burden on companies to take active steps to protect their trade secrets. The Trade Secrets Directive will influence market practice and align the protection of trade secrets across multiple jurisdictions, which eases the compliance and enforcement burden on different types of businesses.
[1] https://www.wipo.int/sme/en/ip_business/trade_secrets/trade_secrets.htm
[2] Civil Judgment No 441/2016, Provincial Court of Madrid, Section 28, Rec 11/2015
[3] Austrian Supreme Court, Decision No 4 Ob 165/16t
