Transposing the Trade Secrets Directive into English Law: Confidentiality Agreements

Chartreuse
Author Jarv
Licence Free Art Licence 

Source Wikimedia Commons





















Jane Lambert

Patents subsist for 20 years, copyrights for the life of the author plus 70 years but the obligation neither to disclose nor make use of business or technical information that is disclosed in confidence can last indefinitely.  The recipe for Chartreuse is a case in point.  That distinctive liqueur has been emulated and occasionally counterfeited but never replicated.

All members of the World Trade Organization are obliged to protect undisclosed information from unauthorized use and disclosure by art 39 of the Agreement on Trade-Related Aspects of Intellectual Property Rights ("TRIPS") but different countries including different EU member states discharge that obligation in different ways. Such differences affect the functioning of the internal market.  To minimize those differences the European Council adopted the trade secrets directive (Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure OJ L 157, 15.6.2016, pages 1–18).

Art 19 (1) of that directive requires member states to bring into force the laws, regulations and administrative provisions necessary to comply with it by 9 June 2018.  Save for an informal meeting to discuss the directive at the Intellectual Property Office's London premises on 27 July 2017 which was attended by 26 individuals some of whom were lawyers at which there was no agenda and of which no minutes were taken, there has been no indications as to how HM government will discharge its obligation under art 19 (1).

As it is thought that our law of confidence is already largely compliant with the directive it is possible that there will be no additional legislation of any kind. Alternatively, regulations may be made under s.2 (2) of the European Communities Act 1972 where English law is not entirely aligned as was the case with the Enforcement Directive. That certainly seems to be the approach favoured by the Irish government in respect of the transposition of the trade secrets directive into Irish law (see the  Consultation on Transposition of EU Directive 2016/943 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure of June 2017 by the Department of Jobs, Enterprise and Innovation of the Republic of Ireland).

Regardless of whether or not our government implements it by statutory instrument, judges will have regard to the trade secrets directive from the 9 June 2018 until 29 March 2019 and probably well beyond.  It is therefore advisable for businesses and their legal advisers to review
  • their non-disclosure agreements 
  • the confidentiality provisions of their other contracts and 
  • the steps that they take to keep their technical and commercial information secret 
before the 9 June 2018, The directive consists of 21 articles and 40 recitals which I outlined in The Trade Secrets Directive 7 July 2016.  At this stage businesses should be particularly aware of the definition of "trade secret" in art 2 (1) and the provisions relating to employment in art 1 (3).

At present "trade secret holders" (who are usually referred to as "confiders" at common law) are free to define the information that is disclosed in confidence by a provision in their non-disclosure or other agreement,  Art 2 (1) of the directive, which is identical to art 39 (1) TRIPS, provides that a trade secret must meet all the following requirements:
(a) it must be secret in the sense that it is not generally known among, or readily accessible to, persons within the circles that normally deal with the kind of information in question;
(b) it has commercial value because it is secret; and
(c) it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

Judges are likely to require trade secret holders to prove that those conditions subsist before granting relief. It would therefore be prudent to ensure that they do before entering a non-disclosure or other confidentiality agreement with a confidante. Also, it would not hurt to state that the information is not generally known or accessible, the reasons for its value and the steps that are taken to keep it secret in the recitals to the agreement. It is fortuitous that the directive takes effect a few days after the General Data Protection Regulation ("the GDPR") comes into force. Although there is no formal link between the two, it is unlikely that steps that fail to comply with art 5 (1) (f) of the GDPR would satisfy art 2 (1) (c) of the directive.

Employers should also review any restrictive covenants in the contracts of employment of their managers and employees working in research and development and marketing because art 1 (3) of the directive declares that nothing in the directive shall be understood to offer any ground for restricting the mobility of employees. In particular, nothing in the directive may limit employees' use of information that does not constitute a trade secret as defined by art 2 (1). Consequently, the Court of Appeal's decision in Faccenda Chicken Ltd v Fowler [1987] Ch 117, [1986] 1 All ER 625 and Ocular Sciences Ltd v Aspect Vision Care Ltd. [1997] RPC 289, (1997) 20(3) IPD 20022, [1996] EWHC Patents 1 may have to be reconsidered.  Art 1 (3) may also affect consultancy, licensing, franchise and joint venture agreements.

Anyone wishing to discuss this article should call me on 020 7404 5252 during office hours or send me a message through my contact form.

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