EU trade secrets law moves closer to the U.S.

By Mark Owen (Taylor Wessing)

The likely final shape of the EU’s Directive on Trade Secrets (“TSD”) is becoming clearer.  The draft Directive (previously reported in Newsletter 2/2014 p. 30) has recently been amended by the EU Council and, though some further adjustment will take place, this should now be very close to being a final draft.  With the recent changes, it is notable how close the draft Directive now is to the United States’ Uniform Trade Secrets Act (“UTSA”), adopted wholly or largely by most U.S. states.  Both approaches are also close to that set out in the TRIPS agreement, and so means there is an increasing harmonisation of civil procedures and remedies around the protection of trade secrets. This short article provides an update on the changes made by the EU Council as well as highlighting some similarities with the UTSA approach.

Minimum standard

The TSD is now to provide a minimum level of protection for trade secrets, but Member States are largely free to impose stricter laws.  While welcome for rights-owners and potentially allowing greater flexibility than a completely harmonised pan EU approach, this will inevitably mean that a fragmented approach continues.

Scope of protection – what does “trade secret” mean?

The TSD applies to information which is secret, has commercial value and in respect of which reasonable steps have been taken to keep it secret.  The UTSA takes the same approach but in addition lists types of information which may be covered (“formula, pattern, compilation, program, device, method, technique, or process”), a list which while not expressed to be exhaustive notably omits business information of a less technical nature.  In contrast, the TSD refers to “undisclosed know-how and business information”, and so is potentially broader than the UTSA.

All three codes identify the same types of restricted act, namely unlawful acquisition, use or disclosure of trade secrets.  But there are differences between how each deals with the question of whether a mental element needs to be proved, such as of dishonesty or of gross negligence as to where the information came from.  The revised TSD has removed an earlier requirement that the rights-owner prove that the defendant had been acting “intentionally or with gross negligence”.  TRIPS makes it harder for rights-owners, requiring that the conduct be “contrary to honest commercial practices” or has a “gross negligence” element. The UTSA adopts different language but a similar approach, requiring knowledge that it is a trade secret, or the use of “improper means”.

Exceptions

One of the biggest areas of debate over the draft TSD has been around which acts should be permitted without the rights-owner’s consent.  A number of activities will not amount to a breach of the new trade secret right, including lawful observation or disassembly, or anything else which is in accordance with honest commercial practices.  A lot rides on what “lawful” means here; for example if you have purchased a software licence but the licence contains terms barring observation for the purposes of creating competing software does that render the activity unlawful?

The UTSA includes a partial list of “proper means” for discovering a trade secret, which includes reverse engineering provided the acquisition of the product was done by fair and honest means.  Suddenly of interest with the rise of drones is the UTSA’s view that otherwise lawful airplane overflight to take pictures should not be regarded as “lawful means”.  This provides a neat illustration of the dangers of the use in legislation (or here in the guidance notes) of technology-specific examples.  As custom, practice and the common view of what is acceptable evolves, such examples risk being overtaken.  While some technologies may become less objectionable, the recent debates around online privacy show that others may become more problematic.

Procedure and remedies

The EU has been making determind efforts to implement a common range of both procedures and remedies for IP cases across the courts of Member States, largely through the IP Enforcement Directive (2004/48/EC).  As trade secrets are not a universally recognised form of intellectual property, they were not subject to that Directive and so the TSD has its own regime. This bears close resemblance to the main features of the Enforcement Directive and includes all the usual remedies (damages, injunctions and destruction of infringing goods).  One interesting remedy is that in appropriate cases the Court shall be free to publish the information in question, if it feels the attempts to protect have been abusive, something likely to make claimants think very seriously before threatening trade secret litigation under the TSD.

In common with the UTSA, the TSD now contains provisions ensuring the confidentiality of trade secret proceedings.  The revised TSD also removes an issue of great concern to rights-owners which was a limitation period of only two years.  This has now been extended to six, in line with other IP infringements.

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