The Trade Secrets Directive

The adoption by the Council and European Parliament of Directive (EU) 2016/943 of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure (OJ 15.6.2016 L 157/1) ("the Trade Secrets Directive") seems to have been overlooked in the furore over Brexit. The directive lays down rules on the protection against the unlawful acquisition, use and disclosure of trade secrets and is due to be implemented by 9 June 2018. As the negotiation of a withdrawal agreement is likely to take some time and our incoming prime minister seems to be in no hurry to begin such negotiations there is every chance that the UK will still be in the EU by that date.

Even though we are on the way out of the EU I hope we implement the Trade Secrets Directive for two reasons. The first is that it is an opportunity to codify our trade secrets law. Something that has already been done in the USA where 47 states and several territories have enacted the Uniform Trade Secrets Act, Canada where the Uniform Law Conference of Canada has drafted its own Uniform Trade Secrets Act and the Dubai International Financial Centre (see my article DIFC Law of Confidence 27 Jan 2011 NIPC Gulf). The second is that it will bring our law closer to those of our neighbours which should at least remove one objection to continued commercial and academic collaboration between British and continental researchers that already shows signs of weakening (see Ian Sample UK scientists dropped from EU projects because of post-Brexit funding fears 12 July 2916 The Guardian).

The need for harmonization of trade secrets law is summarized in para (8) of the recitals to the directive:

"The differences in the legal protection of trade secrets provided for by the Member States imply that trade secrets do not enjoy an equivalent level of protection throughout the Union, thus leading to fragmentation of the internal market in this area and a weakening of the overall deterrent effect of the relevant rules. The internal market is affected in so far as such differences lower the incentives for businesses to undertake innovation-related cross-border economic activity, including research cooperation or production cooperation with partners, outsourcing or investment in other Member States, which depends on the use of information that enjoys protection as trade secrets. Cross-border network research and development, as well as innovation-related activities, including related production and subsequent cross-border trade, are rendered less attractive and more difficult within the Union, thus also resulting in Union-wide innovation-related inefficiencies."

The basic obligation is for member states is to ensure that those who lawfully control trade secrets ("trade secret holders") can obtain redress for any unlawful acquisition, use or disclosure of their trade secrets (see art 4 (1) of the directive).  Art 2 (1) defines a trade secret as information that meets the following three conditions:

• First, the information is secret in the sense that it is not generally known among or readily accessible to persons who normally deal with the kind of information in question.
• Secondly, the information has commercial value because it is secret.
• Thirdly, the trade secret holder takes reasonable steps to keep the information secret.

"Unlawful use or disclosure" is defined by art 4 (3) of the directive as use or disclosure of a trade secret carried out, without the consent of the trade secret holder, by a person who is found to meet any of the following conditions:

• he or she acquired the trade secret unlawfully;
• he or she was in breach of a confidentiality agreement or any other duty not to disclose the trade secret; or 
• he or she was in breach of a contractual or any other duty to limit the use of the trade secret.

For these purposes art 4 (2) defines "unlawful acquisition" as

"acquisition of a trade secret without the consent of the trade secret holder ...... whenever carried out by:

(a) unauthorised access to, appropriation of, or copying of any documents, objects, materials, substances or electronic files, lawfully under the control of the trade secret holder, containing the trade secret or from which the trade secret can be deduced;

(b) any other conduct which, under the circumstances, is considered contrary to honest commercial practices."

Art 4 (4) adds that the acquisition, use or disclosure of a trade secret should also be considered unlawful whenever a person, at the time of the acquisition, use or disclosure, knew or ought, under the circumstances, to have known, that the trade secret had been obtained directly or indirectly from another person who was using or disclosing the trade secret unlawfully within the meaning of art 4 (3). Art 4 (5) provides that the production, offering or placing on the market of goods, or the importation, export or storage of infringing goods for those purposes, shall also be considered an unlawful use of a trade secret where the person carrying out such activities knew, or ought, under the circumstances, to have known that the trade secret was being used unlawfully within the meaning of art 4 (3). "Infringing goods" are defined by art 2 (4) as "goods, the design, characteristics, functioning, production process or marketing of which significantly benefits from trade secrets unlawfully acquired, used or disclosed."

Art 6 (1) of the Trade Secrets Directive requires member states to provide for the measures, procedures and remedies necessary to ensure the availability of civil redress against the unlawful acquisition, use and disclosure of trade secrets. Such measures, procedures and remedies must be be fair and equitable, not unnecessarily complicated or costly, or entail unreasonable time-limits or unwarranted delays and be effective and dissuasive. They may include final and interim injunctions, damages and orders for delivery up. Art 14 requires damages for the unlawful acquisition, use or disclosure of a trade secret to be assessed in very much the same way as in  art 13 of the enforcement directive (Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004on the enforcement of intellectual property rights (OJ L195/16 2.6.2004)):

"1. Member States shall ensure that the competent judicial authorities, upon the request of the injured party, order an infringer who knew or ought to have known that he, she or it was engaging in unlawful acquisition, use or disclosure of a trade secret, to pay the trade secret holder damages appropriate to the actual prejudice suffered as a result of the unlawful acquisition, use or disclosure of the trade secret.

Member States may limit the liability for damages of employees towards their employers for the unlawful acquisition, use or disclosure of a trade secret of the employer where they act without intent.

2. When setting the damages referred to in paragraph 1, the competent judicial authorities shall take into account all appropriate factors, such as the negative economic consequences, including lost profits, which the injured party has suffered, any unfair profits made by the infringer and, in appropriate cases, elements other than economic factors, such as the moral prejudice caused to the trade secret holder by the unlawful acquisition, use or disclosure of the trade secret.

Alternatively, the competent judicial authorities may, in appropriate cases, set the damages as a lump sum on the basis of elements such as, at a minimum, the amount of royalties or fees which would have been due had the infringer requested authorisation to use the trade secret in question."

Although it is no doubt abundantly clear from the context ,"infringer" is defined by art 2 (3) as "any natural or legal person who has unlawfully acquired, used or disclosed a trade secret."

No action can lie against anyone acquiring, using or disclosing a trade secret lawfully. Art 3 (2) provides that the acquisition, use or disclosure of a trade secret shall be considered lawful to the extent that such acquisition, use or disclosure is required or allowed by EU or national law. Art 3 (1) adds that

"the acquisition of a trade secret shall be considered lawful when the trade secret is obtained by any of the following means:

(a) independent discovery or creation;

(b) observation, study, disassembly or 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;

(c) exercise of the right of workers or workers' representatives to information and consultation in accordance with Union law and national laws and practices;

(d) any other practice which, under the circumstances, is in conformity with honest commercial practices."
It will also be a defence under art 5 where the alleged acquisition, use or disclosure of the trade secret was carried out in any of the following cases:
(a) for exercising the right to freedom of expression and information as set out in the Charter of Fundamental Rights and Freedoms of the EU (OJ 18.12.2000 C354/1) including respect for the freedom and pluralism of the media;
(b) for revealing misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest;
(c) disclosure by workers to their representatives as part of the legitimate exercise by those representatives of their functions in accordance with Union or national law, provided that such disclosure was necessary for that exercise;
(d) for the purpose of protecting a legitimate interest recognised by EU or national law.

Member states are required by art 8 (1) to lay down rules on the limitation periods applicable to substantive claims and actions for the application of the measures, procedures and remedies provided for in this directive.  Such limitation period may not exceed 6 years.

Our trade secrecy law is governed by the law of confidence. Its basic principles were summarized by Mr Justice Megarry in Coco v AN Clark (Engineers) Ltd. [1968] F.S.R. 415 [1969] R.P.C. 41:

"In my judgment, three elements are normally required if, apart from contract, a case of breach of confidence is to succeed. First, the information itself, in the words of Lord Greene, M.R. in the Saltman case on page 215, must “have the necessary quality of confidence about it”. Secondly, that information must have been imparted in circumstances importing an obligation of confidence. Thirdly, there must be an unauthorised use of that information to the detriment of the party communicating it."

It was the opinion of the European Scrutiny Committee that "the protection of trade secrets under the UK's common and contract law is consistent with the terms of the proposed draft Directive" (see Documents considered by the Committee on 12 February 2014 - European Scrutiny Committee Protection of trade secrets).

Should anyone wish to discuss this article, the directive or trade secrets law in general, he or she should call me on 020 7404 5252 during office hours or use my contact form. I shall be discussing this directive in more detail at seminars on IP and Brexit which will take place in Liverpool on 14 Sept 2016 and London 15 Sept 2016.