Trade Secrets Directive approved by the European Council

On 27 May the European Council approved the Directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure ("Trade Secrets Directive"). The Directive harmonizes important aspects of the differing laws in Member States and will lead to important changes in the legislation of several Member States. As part of the Commission's Europe 2020 strategy to overcome the impact of the financial crisis, the Directive seeks to promote innovation and to foster competition while protecting company investments.

Once the Directive has been published in the Official Journal of the European Union and entered into force, Member States are given a term of 2 years to implement the new rules into national law.

The key features of the newly-adopted Directive are as follows:

1. Definition of trade secrets

Since not all Member States have adopted national definitions of a trade secret or unlawful acquisition, use or disclosure of a trade secret, the Directive introduces common definitions.

A trade secret is defined by three aspects:

1. it is secret in the sense that it 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. it has commercial value because it is secret;
3. it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

Companies will have to pay closer attention especially to the third aspect which is unknown to some Member State legislations. It is now necessary to take reasonable measures to protect sensitive information as well as to document these steps carefully for potential disputes.

A big change in some national legislations will be the legitimacy of the so-called reverse engineering. In this respect, the legal standards under the Directive come close to those adopted in the US. The Directive considers the acquisition of a trade secret as lawful inter alia if it is obtained by observation, study, disassembly or the testing of a product or object that has been made available to the public or that is lawfully in the possession of the acquirer of the information who is free from any legally valid duty to limit the acquisition of the trade secret. Wherever possible, companies should consider contractual limitations of this practice.

1. Mobility of workers

In public debate the concern arose that the Directive would limit workers' freedom of movement. Therefore, it was clarified that there is no intention to limit employees' use of experience and skills honestly acquired in the normal course of their employment. No additional restrictions for employment contracts are imposed.

1. Whistleblowers

Much controversy arose over the question, whether the protection of whistleblowers was sufficient under the provisions of the Directive. The acquisition, use and disclosure of a trade secret is justified for the purpose of revealing misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest. This wording should leave sufficient leeway for courts to balance the diverging interests of public and trade secret holders.

1. Measures, procedures and remedies

Following the example of the Enforcement Directive (2004/48/EC) the Trade Secrets Directive enfolds a catalogue of measures against infringers which has to be adopted, including the recall of the infringing goods from the market, their destruction or their withdrawal from the market and the award of damages. The infringer may, at the request of the applicant, be ordered to publish court decisions at own expense.

Conclusion

The Trade Secrets Directive will harmonize important aspects of substantive as well as procedural law. Harmonization will offset at least some uncertainty for companies acting within the European Single Market and make the protection of trade secrets more efficient by establishing common definitions and procedural standards. In light of the requirements the Directive sets out the legal protection of a trade secret; companies should act now and consider changes in their contracts as well as their organization and technical protective measures for trade secrets.

Further information / helpful links:

http://data.consilium.europa.eu/doc/document/PE-76-2015-INIT/en/pdf

www.know-how-protect.de