The European Parliament has recently approved a new Trade Secrets Directive, which is expected to come into force following approval by the European Council when they vote in May.
The rationale behind the new Directive is that current protection of trade secrets varies widely across the EU and this poses a risk to cross border investment. In a consultation on the proposed Directive in 2013, it was found that companies considered trade secrets highly important for development and competitiveness and a significant majority had concerns about current protections, such as the risks of operating in Member States with weaker protection and the costs of preventative measures. The EU press release regarding the Directive states that 1 out of 5 companies is a victim of theft of trade secrets every year.
This Directive therefore may be of interest to employers, particularly if they are concerned about disclosure of trade secrets.
The new Directive provides a definition of a trade secret, which is:
- Information which is secret (in the sense that it is not generally known or readily accessible to people in the relevant circles);
- It has commercial value because of the fact that it is secret;
- It has been subject to reasonable steps by the holder to keep it secret.
This is a more restrictive definition than what may constitute confidential information, so that many pieces of information which would be considered confidential would not necessarily amount to a trade secret.
The Directive provides that acquisition of a trade secret is unlawful if carried out by unauthorised access, theft, bribery, deception, breach of a confidentiality agreement or any other conduct which is contrary to ‘honest commercial practices’. This term is not defined, so may prove to require clarification by the European Court.
It also provides that the use or disclosure of a trade secret without consent of the holder will be unlawful where:
- the information was unlawfully acquired
- it is done where it is in breach of a confidentiality agreement or other duty to maintain secrecy
- it is done in breach of a contractual or other duty to limit use of the trade secret.
This includes circumstances where the person using or disclosing the trade secret knew or should have known that it was obtained from another person who was disclosing it to them unlawfully.
The Directive will further provide that unlawful use of a trade secret will include deliberate production and the marketing, sale, import, export or storage of goods produced using a trade secret where the user knew or ought to have known it was acquired unlawfully.
In circumstances where such unlawful acquisition or disclosure has occurred, the holder of the trade secret will be able to apply to the courts for measures against the perpetrator. Each Member State will have to provide measures when implementing the Directive, which may include provision for interdicts, damages or destruction of goods produced using trade secrets.
There are some exceptions where acquisition of a trade secret will be lawful which includes where a person makes an independent discovery of the trade secret, ascertains it by reverse engineering, the use of such information for lawful trade union activities or any other practice which falls within what is considered ‘honest commercial practices’.
The Directive will provide for ‘defences’ available to a person who could otherwise have action taken against them for an apparent breach of the Directive. One of these is the right to freedom of expression, which is intended to protect journalists and the freedom of the press.
A second exception is to protect whistleblowers. This may be of concern to employers worried that employees could leak trade secrets on the basis of whistle blowing. However, the disclosure must tend to show misconduct, wrongdoing or illegal activity on the part of the owner of the trade secret, it must be necessary to make the disclosure to show such wrongdoing and be in the public interest. There will therefore be a high hurdle for employees to clear so as to rely on this defence.
Further, the Directive does not prevent restrictive covenants being agreed between employers and employees requiring non-disclosure of trade secrets and other confidential information. So, while new UK legislation implementing the Directive will come into force, employers would be well advised to continue to obtain protection through contractual restrictive covenants.