As a special feature of our blog—guest postings by experts, clients, and other professionals—please enjoy this blog entry from Jeremy Morton, Partner at Harbottle & Lewis LLP, London, UK.
For the first time ever, we have UK-wide legislation that concerns the protection of confidential information. Modifying its approach in light of a recent consultation exercise, the UK government introduced The Trade Secrets (Enforcement, etc.) Regulations 2018 on June 9, to implement the EU Trade Secrets Directive 2016/943.
Much debate had arisen over the extent to which the UK would need specific legislation, given that we already offer one of the stronger European regimes protecting confidential information, both under contract and at common law. In the end, the government has sought to clarify the relationship between the new law and the general common law protections, which remain in place, as well as expressly adopting the Directive’s provisions protecting confidentiality in the course of proceedings, setting out the criteria for protective measures, and specifying the basis for calculating damages.
The new UK legislation states that the acquisition, use, or disclosure of a trade secret is unlawful where it “constitutes a breach of confidence in confidential information,” i.e., according to English common law. This does not replace the wider common law protection of confidential information. It is also worth remembering that English common law already has a concept of “trade secrets,” being the extra-valuable material which employees can be restrained from using even after they leave their employer. The new, statutory definition has some elements in common with such concepts, but adds new requirements found in the Directive, such as that reasonable steps must have been taken to keep the information secret and that it has commercial value because it is secret. It is possible that employees accused of misusing information might seek to rely on the statutory definition to argue that the information in question is “not secret enough…” However, the courts are likely to continue to approve of previous case law when it comes to deciding what should be protected in such circumstances.
When it comes to remedies, the Regulation emphasizes that the court must undertake a balancing exercise in relation to the proportionality of any proposed injunction and allows for alleged innocent defendants, who have been involved in misuse of trade secrets, to ask that the remedies be limited to financial compensation. Arguably these new provisions have a greater emphasis away from injunctions as the usual remedy.
Confidential Document Disclosure in Litigation
English courts have traditionally approved of “confidentiality clubs” for limited disclosure of documents, and, where necessary, hearings in private. The new UK Regulation makes it clear that in trade secret infringement proceedings, where the court makes an order restricting access to documents that contain trade secrets, or hearings, to a limited number of persons, those persons must include at least “one individual from each party” as well as their lawyers. It is not clear, however, whether for example an expert witness counts as an “individual from a party.” Litigants have been known to agree “external eyes only” confidentiality clubs, and these have also occasionally been ordered by the English court in intellectual property cases; the usual practice, however, is to ensure that at least one representative of each client has access, save for specific documents meriting a higher degree of protection in exceptional circumstances. This was emphasized by the English court in the recent patent litigation decision of TQ Delta LLC –v- Zyxel Communications UK Limited  EWHC 1515 (Ch), where the judge stressed that if the parties could not see documents relied on, then a fair trial might be impossible, and if lawyers cannot discuss documents with their clients then they cannot carry out their professional duties. (The judgment, which related to disclosure of prior licences granted to third parties by the claimant, a patent licensing entity, makes no reference to the new Regulations, because the case related to patent infringement rather than breach of confidence.)
Businesses should review any standard English law contractual clauses that deal with confidentiality to determine whether these new laws point towards the need for a revised approach. Depending on the circumstances, it may or may not be beneficial for information to fall under the statutory definition of “trade secret.”