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The proposed directive on trade secrets

Print publication

29/05/2014

Trade secret protection varies across EU member states, with some member states notably offering little by way of protection. Accordingly, the European Commission has published a draft directive on the protection of trade secrets with the aim of providing a clear and uniform level of protection across the EU. This will have implications for English law and for businesses in the UK and throughout the European Union.

Unlike most types of intellectual property right, trade secrets are not subject to their own protective regime, as is the case with, for example, copyright or patents. Instead, in English law, trade secrets are dealt with under the common law rules regarding breach of contract and confidence, rather than by reference to a statute.

Key of course is the definition of “trade secret”. The draft Directive defines a trade secret as information that meets each of the following requirements:

  • it is secret, i.e. it is not generally known among, or readily accessible to, persons within circles that normally deal with this kind of information;
  • it has commercial value because it is secret; and
  • it has been subject to reasonable steps under the circumstances to keep it secret.

This would include both technical information (e.g. recipes, processes) and commercial information (e.g. customer lists).

This may be compared with the position under English common law, established in the leading case of Coco v AN Clark (Engineers) Ltd [1]:

  • Does the information have the “necessary quality of confidence”?
  • Was the information subject to an obligation of confidence?
  • Has the information been misused by the recipient?

The draft Directive will make it unlawful to:

  • acquire a trade secret intentionally or with gross negligence by unauthorised access to, or copying of, any documents or materials that contain the trade secret or from which it could be deduced, or obtaining these by theft, bribery, deception, breach or inducement to breach confidentiality agreements or other duties of secrecy or by any other conduct contrary to honest commercial practices;
  • use or disclose a trade secret acquired, if unlawfully, in breach of a confidentiality obligation, or in breach of a contractual or other duty to limit the use of the trade secret;
  • use or disclose a trade secret if the disclosing person knew, or should have known under the circumstances, that it was obtained from a third party that was using or disclosing the trade secret unlawfully; and
  • consciously or deliberately put on the market, import or export or store infringing goods.

Exceptions will be available, notably that of independent study or observation and “honest commercial practices”. Also, no action will be capable of being taken where trade secrets are used or disclosed in making legitimate use of the right to freedom of expression and information, to fulfil non-contractual obligations and to protect a legitimate interest.

The draft Directive contains enforcement provisions including the power of the courts to grant interim relief, such as injunctions, and the power to seize or order the delivery up of infringing goods. The courts will also be permitted to make orders for a declaration of infringement and for the recall or withdrawal of the infringing goods from the market and to order their destruction. The courts will be able to award damages commensurate to the actual prejudice suffered where the infringer knew or ought to have known that he was engaging in the unlawful acquisition, disclosure or use of a trade secret.

Under the draft Directive, claimants will have just two years in which to bring an action, as opposed to the six-year limitation period available under English law.

The draft Directive will run alongside the existing common law and the relationship between the two will need to be worked out in the courts. For example, will employers seek to bolster their definition of “Confidential Information” in contracts of employment by including reference to “trade secrets” as defined in the draft Directive?

It is possible that the draft Directive will become law this year, but 2015 is perhaps more realistic.

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[1] [1968] FSR 415