Proposed EU ‘Trade Secrets’ Directive

May 07, 2014

The European Commission has recently proposed a new piece of legislation which, if approved by the European Parliament and European Council, could go some way towards harmonising the protection of trade secrets across the EU member states. What does this mean in practice for innovators?

Trade secrets can be used by any innovative company – big or small – in the quest to be competitive in the modern marketplace. For instance, a mobile telecoms firm might well maintain secrecy about the details of its latest smartphone until the phone’s official launch date, so as to generate media interest and speculation. As another example, a hardware manufacturer might decide to keep the details of its manufacturing process secret rather than file a patent application protecting the process. This is an approach taken also by some chemicals companies. The companies can guard the processes they use to arrive at particular chemical products as well as the ratios of chemicals required in the processes.

But what protection do such companies have if their trade secrets are misappropriated?

Currently, the answer to that question varies across the European Union (EU), due to the different legal systems and laws implemented in the EU member states. In some states, such as Germany, trade secrets are protected under criminal law. In other jurisdictions, such as England, there is no legal definition of ‘trade secrets’, but a trade secret might fall under the protection of the more general ‘confidential information’ provided for in English common law.

Alternatively or additionally, a trade secret might be protected in England with a contract which explicitly defines information to be kept secret. These differences between member states’ laws make it complex for companies to try to take action against one infringer in multiple EU jurisdictions: different legal procedures are involved in the different jurisdictions; different burdens of proof and corresponding evidence requirements exist; and certain forms of redress may be available in some jurisdictions but not in others.

A proposed directive, which has not yet been approved by the European Parliament or the European Council, is intended to force the EU member states to adopt a common definition of the term ‘trade secret’ in their national statutes, and to provide common forms of redress including, for example, ‘prohibition of use’ orders and orders for seizure, destruction or delivery up of trade secret-infringing goods. Although the proposed directive could potentially unify trade secret holders’ protection in the future, it also illustrates the shortcomings of trade secrets and the comparative power and value of patent protection. Article 4 of the proposed directive recites “The acquisition of trade secrets shall be considered lawful when obtained by any of the following means:

a) independent discovery or creation;

b) observation, study, disassembly or test of a product or object that has been made available to the public or that it [sic] is lawfully in the possession of the acquirer of the information …” In other words, trade secret protection is non-exclusive. Someone else can derive your invention – either independently or by reverse engineering your product – and you will have no cause of action against that person if the invention is protected only with a trade secret. By contrast, a patent provides an exclusive monopoly, meaning that you can enforce your rights against a person who makes or uses your invention after you have obtained patent protection for it, even if that person came up with the invention independently. Both in the case of trade secret protection and in the case of patent protection, a claimant would need to provide sufficient evidence to a court to demonstrate that someone else is infringing the trade secret or patent. However, under the proposed directive, a claimant relying on trade secret protection could additionally have to provide sufficient evidence to demonstrate that • a trade secret exists; • the claimant is the legitimate trade secret holder; and • the trade secret has been acquired unlawfully, the trade secret is being unlawfully used or disclosed, or an unlawful acquisition, use or disclosure of the trade secret is imminent. It is not yet clear what evidence would be sufficient to demonstrate the above to the required standard, or how such evidence could be gathered. In conclusion, though the proposed directive could bring harmony to the EU member states’ national legislation on trade secrets, the limitations of trade secret protection are clear.

While trade secrets can be used as complementary tools for protecting ideas and information, they cannot provide an alternative to patents. Companies seeking to protect the new products and processes they have developed should therefore pursue patent protection. To read more about the proposed EU trade secrets directive, please follow this link to the European Commission’s website on trade secrets and confidential business information.

If you have any questions about patent protection and the interplay between patents and trade secrets, please don’t hesitate to get in touch with your usual contact at Swindell & Pearson or [email protected].