13 Feb 2018 | Unfair Competition

Implementation of the EU Trade Secret Directive – companies need to anticipate new developments

The EU Trade Secret Directive (2016/943) must be implemented in national law. The publication of the draft bill by the German legislator is expected for the beginning of 2018. Companies active in Germany should already anticipate the new developments and take measures in order to ensure the protection of their trade secrets and other confidential information.

Current Situation

The German legislator is required to implement the EU Trade Secrets Directive in national law until 9 June 2018. The concept of the Directive significantly exceeds the current scope of legal protection of trade secrets in Germany (competition law and non-disclosure-agreements only). Most importantly, trade secrets under the Directive now enjoy legal protection comparable to the legal protection and enforcement of intellectual property rights. However, this might also cause difficulties as a trade secret may be even less concrete than intellectual property rights and the scope of protection remains uncertain, also for an infringer. At the same time, the EU Trade Secrets Directive increases the legal requirements of a protection of trade secrets by focusing on effective and reasonable steps to ensure secrecy. Therefore, companies in Germany should anticipate the new requirements of the Directive and check the secrecy measures they have in place.

It still remains to be seen exactly how the German legislator will implement the requirements of the Directive in German law. Due to the use of abstract legal terms in the Directive, the Member States will enjoy considerable leeway with regard to implementation. We are currently observing the legislative process and would like to point to the fact that statements from industry might still influence German implementation within the next months. Because of the parliamentary elections in September 2017, the draft bill is expected for the first half of 2018 providing only a short period for comments.

Definition of trade secrets and corresponding non-disclosure measures

The Trade Secrets Directive introduces an EU-wide definition of ‘trade secret’ (Art. 2 Nr. 2). Trade secret means information which 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, which 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. Contrary to the current legal situation in Germany, the intention to keep the knowledge secret appears to be no longer sufficient. Instead, the Directive focuses on effective and reasonable steps to ensure secrecy.

As a consequence, the Directive – and therefore also the future national implementation – requires to comply with these regulations as the owner of the trade secret has to prove during infringement litigation that their claims are substantiated because non-disclosure measures had been taken in the past to protect confidential information. Therefore, companies should analyze existing non-disclosure agreements but also make sure that secrecy concepts and structures meet the standard of the Directive. In any case, contractual agreements should be concluded and effective measures should be taken such as implementing access restrictions to trade secrets and other confidential information.

Reverse Engineering

Under the existing law, reverse engineering (gathering information by dismantling and examining goods) was prohibited. The new regulations will change this. Reverse engineering will be permitted if the examined objects are acquired in a legal way or have been publicly made available. In the future, reverse engineering could only be prevented by contractual agreements. However, this does not keep those that legally acquire the respective object from a third person from using the method of reverse engineering. Consequently, reverse engineering will be something companies will have to – even more than already today – expect and deal with.

Conclusion

In view of the upcoming substantial changes of the German regulations regarding trade secrets and the possibly broad interpretation of the Trade Secret Directive to be implemented, companies may want to closely observe the legislative process and use the opportunity to influence the discussion by taking part in the legislative process via statements. We will gladly assist you in this matter.

Furthermore, companies should check whether their organizational and legal measures are sufficient to meet the new standards of protection of trade secrets.
A lack of a “trade secret strategy” might lead to the loss of important rights.