By Dan P. Hart, Razia Begum, Andrew J. Masak
Later this month, voters in the European Union’s 28 Member States will cast their votes for representatives in the European Parliament. Regardless of the makeup of the European Parliament following the election, trade secret regulation is one of the many issues that members are likely to take up when the European Parliament reconvenes later this year following the election.
On November 28, 2013, the European Commission announced a proposal for a Directive on trade secrets. If passed by the European Parliament, the Directive will increase the trade secrets protections afforded to companies with operations in the EU and may greatly enhance cross-border certainty and uniformity across Europe.
A Patchwork of Protection
Currently, there is no uniform protection of trade secrets across the EU. Instead, a patchwork of uneven levels of protection and remedies exist among EU Member States. As detailed in a study prepared for the European Commission, Austria, Bulgaria, the Czech Republic, Estonia, Germany, Finland, Greece, Hungary, Italy, Latvia, Lithuania, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden have legislation on misappropriation of trade secrets, although some of them do not define trade secrets. In contrast, Belgium, France, Ireland, Luxembourg, Malta, the Netherlands, and the UK have no specific statutory provisions regarding protection of trade secrets but rely on judicial interpretation of general provisions on extra-contractual liability or (in common law countries) on traditional common law. In Cyprus, trade secrets are only protected by contract. In France, misappropriation by employees of certain types of trade secrets (namely, manufacturing secrets) are criminally punished.
Highlights of the Proposed Directive
At this stage in the legislative process, the Directive remains merely a proposal. However, several aspects of the Directive, if adopted, would substantially alter the existing legal landscape and create a more harmonized trade secret regime throughout the EU.
Three features of the Directive are particularly noteworthy.
First, the Directive provides a common definition of “trade secrets” and uniform rules about the acquisition, use, and disclosure of trade secrets. For example, in language that is similar to the definition of “trade secrets” in the Uniform Trade Secrets Act (which the vast majority of U.S. states have adopted), the proposed Directive defines a trade secret as “information which meets all the following requirements”:
- “is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question”;
- “has commercial value because it is a secret”; and
- “has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.”
The proposed Directive also provides that acquisition of a trade secret is unlawful “whenever carried out intentionally or with gross negligence by”:
- unauthorized access to or copy of any documents, objects, materials, substances or electronic files, lawfully under the control of the trade secret holder, containing the trade secret or from which the trade secret can be deduced;
- breach or inducement to breach a confidentiality agreement or any other duty to maintain secrecy; or
- any other conduct which, under the circumstances, is considered contrary to honest commercial practices.
Second, the Directive establishes a common set of procedures and remedies for trade secret holders where there is unlawful acquisition, use, or disclosure of that trade secret, including a two-year statute of limitations for bringing claims for trade secret misappropriation. The Directive also includes rules on the preservation of trade secrets during litigation.
Third, the Directive provides for uniform remedies for civil law redress for trade secrets misappropriation across Member States, including injunctive and declaratory relief, damages, and sanctions for non-compliance. The Directive also includes various reporting provisions.
The Road Ahead
Because the proposed Directive was only recently published, and the parliamentary process is unlikely to start in earnest until at least until Autumn, 2014, it is unclear whether the Directive as currently written will be implemented, if at all. Certain groups – for example, the IP Federation (representing a number of major innovative UK companies) – have welcomed the Directive. Businesses have applauded there being greater certainty of protection consistently across all Member States, especially given the continuous rise in the misuse of trade secrets, which is escalated by growing technological advances. In contrast, others have been critical of the breadth of protection that the proposed Directive would afford trade secrets. For instance, the EU at this stage has decided not to harmonize criminal sanctions. In addition, as with countless other attempts to transcend European boundaries with international law and norms, some political parties and movements within Member States may oppose any Directive that could be viewed as taking away autonomy and sovereignty from Member States.
If the Directive does come into force, Member States will still need to implement the Directive within two years from the date of adoption of the Directive into their own national law. EU directives lay down certain end results that must be achieved in every Member State by a specific date. Individual Member States must adapt their laws to meet these goals, but are free to decide how to do so. For example, the European Scrutiny Committee in the UK Parliament has already indicated that existing common law and contract law in the UK adequately protects trade secrets consistent with the Directive. However, the Committee is considering whether the Directive nonetheless would require the UK to pass implementing legislation.
We will continue to monitor this proposed Directive as it is considered by the Council of Ministers and members of the European Parliament for adoption under the ordinary legislative procedure in the months ahead. Dan Hart will also be leading a discussion on this topic at the ITechLaw World Technology Conference next week in New York.