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Trade secrets – the EU’s controversial new directive comes into force


15th Jul 2016

While welcomed by many, the new EU Trade Secrets Directive (2016/943) has faced much opposition, with more than half a million people across Europe reportedly signing a petition to reject the Directive.

In this article we look at the content of the Directive and at some of the issues causing controversy.

Background

Back in early 2014 we wrote about the European Commission’s proposal for a new directive to harmonise the protection of trade secrets across the EU, with the aim of allowing companies to benefit more from their investment in research and innovation. More than two years later and amid much controversy, the new EU Trade Secrets Directive (2016/943) was officially published on 15 June 2016 and came into force on 5th July 2016. This publication comes three weeks after the Directive was unanimously adopted by the EU Council.

Member States have two years to implement the Directive into national law. Following the UK’s vote to leave the EU, it is not yet known whether or not the UK will implement the Directive and this may depend on the exit strategy adopted. It seems likely that the UK will come under pressure to bring its laws protecting trade secrets into line with those of the EU.

The directive

Article 2 of the Directive defines a trade secret as information that meets all of the following requirements:

  • Is secret in the sense that it is not generally known among or readily accessible to persons within the circles that normally deal with this kind of information;
  • Has commercial value because it is secret; and
  • Has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

Article 4 of the Directive states that the acquisition of a trade secret will be considered unlawful whenever carried out by unauthorised access to materials or any other conduct which is considered contrary to “honest commercial practices”, or where the trade secret was acquired from a third party and the acquirer knew or should have known that the third party was acting unlawfully. The use or disclosure of a trade secret will be considered unlawful where it is in breach of a confidentiality agreement or any other duty not to disclose the trade secret, or to limit the use of the trade secret.

The remedies are provided in Article 11 and include common remedies for IP enforcement, such as damages, interim and final injunctive relief and destruction of infringing goods. Contrary to what has been reported in the headlines, the Directive does not directly introduce any criminal acts in respect of trade secrets, although this is not precluded at a member state level.

The controversy

The Directive has attracted a lot of negative attention, with the strongest critics branding it “a threat to public interest and democracy”. Much of the controversy has surrounded the scope of the exceptions provided in the Directive and in particular, the potential impact of the Directive on whistleblowers and the press. The protection of whistleblowers became a particularly hot topic following the Panama Papers scandal earlier in the year. Under the definition of trade secrets provided in the new Directive, the leaking of such revelations would potentially be unlawful, leading to concerns that the whistleblowers could face prosecution. Critics also believe that the Directive poses a major threat to press freedom.

On the other side, supporters of the bill believe that the Directive provides adequate protection for whistle-blowers and journalists. Article 5 provides exceptions for cases where disclosure of a trade secret is carried out for:

  • Exercising the right to freedom of expression and information as set out in the [European] Charter [for Fundamental rights], including the respect for freedom and pluralism of the media;
  • For revealing misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest.
  • In one of the recitals of the Directive it is stated that “the measures, procedures and remedies provided for in this Directive should not restrict whistleblowing activity. Therefore, the protection of trade secrets should not extend to cases in which disclosure of a trade secret serves the public interest insofar as directly relevant misconduct, wrongdoing of illegal activity is revealed.”

However, critics remain wary, arguing that although these exceptions have been provided, it will be the burden of the whistle-blower (or journalist) to prove that any disclosure is in the public interest and therefore falls within the stated exceptions. Calls are now being made for a further EU Directive to specifically protect whistle-blowers.

How would the directive change things in england?

There is currently no specific protection for trade secrets in England and trade secrets are instead protected under the common law concept of confidential information, which extends to any information which:

  • Has the necessary quality of confidence.
  • Was imparted in circumstances importing an obligation of confidence.
  • Is used within the consent of, and to the detriment of, the holder.

The current protection of confidential information appears on the face of it to be broader than that provided for by the EU Trade Secrets Directive, in particular since there is no requirement for the confidential information to have commercial value. On the other hand, the exceptions currently provided in England for whistle-blowers are considered to be narrower than those set out in the Directive. Some changes to the English legislation would therefore probably be necessary if the UK decides to implement the Directive, although, in practice, it is believed that we will not see significant change.

The future

It remains to be seen how the EU Member States will implement the new Directive and how the new Directive could change the protection of confidential information in the UK, in particular following the Brexit vote. In the first instance, it is expected that some of the definitions provided in the Directive will require clarification as to their scope by the Court of Justice of the EU.

Despite the focus on the negative aspects of the new EU Directive, it is worth remembering that trade secrets can be important business assets to protect commercially valuable information that is not otherwise protected by IP rights such as patents. If you would like more information on how to protect your trade secrets, please contact us.

This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking any action in reliance on it.

Author
Gillian Taylor
Partner
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Would you like to know more? You can talk to Gillian Taylor who will be able to help. Call +44 (0)20 7242 0901

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