Towards harmonized trade secrets protection in the European Union

By Anthony Bochon

On 28 November 2013, the European Commission published its proposal for a directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure. In EU law, directives are legislation addressed to the 28 member States which have the obligation to enforce them into their domestic legal order. Typically, the European Commission proposes to harmonize rules through directives rather than regulations – which are directly binding and do not require the member States to transpose the rules in their legal order – when it is believed that member States will accept such harmonization if they have some margin of appreciation to adapt and/or adopt the rules into their domestic legal order.

The Commission’s directive proposal on trade secrets is based on article 114 of the Treaty on the Functioning of the European Union (“TFEU”) that allows the approximation of legislations. The Commission chose to rely on this general provision rather than on provisions such as article 56 of the TFEU which served as the legal basis for several instruments protecting intellectual property rights.

The Commission’s choice is however coherent for two reasons.

  • First, trade secrets are not considered as the orphan category of intellectual property, despite their complementary role in the protection of innovation. Unlike all intellectual property rights which, in Europe, are exhausted after 70 years (for copyright), 50 years (for related rights), 20 years (for patents, with a 5-years extension possible for pharmaceutical patents) or 10 years (for trademarks and designs, if their registration is not renewed), trade secrets can be perpetual. Also, as opposed to most of the intellectual property rights – with the notable exception of copyright and related rights – trade secrets do not require any formal recognition or decision of an administrative body – a trademark or patent office – to establish the monopoly of their owner over their own use. In addition, trade secrets do not imply some form of creativeness – such as for copyright – or of distinctiveness – such as for trademarks – or of industrial application – such as for patents.
  • Second, the choice of article 114 of the TFEU is explained by the fact that the directive aims at a maximal harmonization of the rules in this domain. In other words, the member States will have to adopt national rules which cannot go below or beyond the protection thresholds established by the directive.

This proposal follows the publication of a study conducted by an international law firm on behalf of the Commission and the organization of a public consultation on this topic. Many stakeholders consider that the European Union has made significant steps towards greater protection of trade secrets with this proposal, completing thereby the record track of the current Commission which succeeded in adopting the unitary patent system during the current legislature that will terminated in mid-2014, after the European elections.

If adopted in its current form, the proposed definition of trade secrets would require the combination of three elements to be qualified as a trade secret: (1) the relative inaccessibility of the information within qualified circles; (2) the commercial value generated precisely by the secret character of the information and (3) the fact that the information has been subject to reasonable steps to keep it secret. This proposed definition corresponds to that of article 39 of the TRIPS agreement. The choice of the word “commercial” instead of “economic” could be subject to further discussions, as the commercial character would qualify the secret as a “trade” secret, while its economic character would qualify it as a “business” secret, potentially broader in terms of language meaning.

The proposal includes a set of civil action remedies, including interim measures to avoid the disclosure of protected information. Interestingly, the proposal contains a provision on the abuse of litigation procedures when the applicant has initiated action in bad faith with the purpose of delaying or causing harm to the defendant such as delaying or restricting its access to the market. This provision is uncommon as it addresses a concept (the abuse of litigation) traditionally defined by the case law.

The proposal does not address the protection of trade secrets through actions based on unfair competition. This is not surprising because the European Union currently has no harmonized legal framework for unfair business-to-business (B2B) practices. Some developments in this area are expected to occur during the next two years.

This proposal on trade secrets arrived at a critical moment of the EU-US relationships, when governmental agencies have been facing accusations of serious violations of the private life of senior politicians and businessmen. There is no doubt that trade secrets will be extensively discussed during the negotiations on the Transatlantic Trade and Investment Partnership, as both the EU and the US have a common interest in the greater protection of companies’ secrets in a digital environment where hackers and competitors can, more easily than ever, violate the integrity of a company’s IT system to obtain access to sensitive information.

No developments on this directive proposal are expected to occur before the installation of the newly elected European Parliament after the European elections of 25 May 2014.