1 Jun 2016 | Unfair Competition

Uniform protection for trade secrets in the EU is in the offing

The upcoming EU directive on trade secrets will provide enhanced protection for trade secrets almost on a par with intellectual property rights.

For some three years now there has been discussion among the parties affected of a proposed EU Commission directive concerning the protection of confidential know-how and confidential business information (trade secrets) against unlawful acquisition, use and disclosure (COM (2013) 813 final dated 28 November 2013). In December 2015 the EU Council, together with representatives from the EU Parliament, came to a provisional agreement on this Directive. On 14 April 2016 the EU Parliament returned the Directive to the trilogue process with only minor changes so that its adoption may be anticipated shortly. It is likely to be implemented in national law within two years at the most.

1. German law has long recognized the protection of trade secrets in civil law. While the relevant standards in the Act Against Unfair Competition (Secs. 17, 18) are criminal law standards, it has long been acknowledged that violations of these standards may also be subject to civil law action. However, this protection under civil law contains some gaps and is not easy to enforce. In addition to these unfair competition law provisions, there are also the usual non-disclosure agreements / confidentiality agreements customary in international dealings, which can also be enforced under civil law in the event of violations, even if violations are often difficult to prove.

2. The concept of the EU directive extends far beyond this; it places trade secrets and their protection on the same level as intellectual property rights and their enforcement. This is not without problems, since trade secrets are even less tangible than intellectual property rights, and often there is inadequate definition of the scope of protection, which may be unclear to the infringer. It remains to be seen how the lawmakers in the European countries will implement the corresponding standards of the directive. For instance, it is not clear whether the German lawmaker will pursue the path of a separate complex of standards, since as criminal standards, Secs. 17, 18 of the Act against Unfair Competition are not covered by Reason 9c of the directive.

The definition of infringing acts goes significantly beyond the existing scope of Secs. 17, 18 and encompasses the illegal acquisition, use and disclosure of business secrets, including the infringement of a confidentiality agreement.

3. First, the definition of a business secret (Art. 2 I of the Directive) is important. It must be information that is confidential in that it is not known or easily accessible, in whole or in its exact structure, to persons that usually handle this type of information. Furthermore, the information must have a commercial value and be subject to appropriate confidentiality measures.

The other feature, known from the Technology Transfer Group Exemption Regulation, i.e. that the information can be identified, for example, that they are set forth in an Annex, is not required at first sight. However, for proof of any infringement it is advisable, that written identification be undertaken. Finally, it is noteworthy that the Directive (as opposed to existing German law) does not require an explicit wish for secrecy; however, the requirement for confidentiality measures should ultimately be attainable easier than before.

4. The Directive contains several restrictions to protection, of which only an overview can be presented here. As long as the business secrets were acquired in a way that is “consistent with good business practice,” there will be no infringement. Also, the customary regulations known from confidentiality agreements, such as disclosure without infringement, disclosure for legitimate interest, as well as for media interest or to cope with labour law requirements, are excluded. It is interesting that the exception for reverse engineering, for example the disclosure of a single product design, which the previous draft version did not contain, has been deleted. That is appropriate, for it is possible to have contractual obligations that preclude reverse engineering. However, they have no absolute effect, which means that in the chain of agreements and when products are passed on, the party that is not contractually bound to these restrictions does not have to comply with this regulation.

Other exceptions are provided to protect the freedom of the press, the mobility of workers, and whistle blowers.

5. Along with the usual claims in the event of infringement (cease-and-desist), the Directive also contains further regulations that will impact products and compensation provisions.

6. In practice it will be important to examine existing contractual regulations not only in confidentiality agreements, but also especially in know-how agreements, as to whether they still comply with the Directive’s requirements, especially with regard to the definition of what is a business secret and how its existence can be proven in a given case. Only then will it be possible to pursue infringement also with the help of the Directive and the requirements contained therein.