Can you keep a secret?

In Jonathan Franzen’s 1992 novel “Strong Motion”, the protagonist Renée Seitchek attempts to obtain photographic evidence that a petrochemical plant is deliberately inducing earthquakes in the Boston area.

Franzen’s scenario has similarities with the dispute between DuPont and Rolfe and Gary Christopher. In 1970, the US Court of Appeals for the Fifth Circuit found the photographers liable for the theft of the company’s trade secrets in taking pictures of DuPont’s plant.

While this form of industrial espionage was a US matter, the theft of trade secrets is just as much a big concern for European businesses. A report published by the European Commission in 2013 noted that of the companies it surveyed, 75% attached a medium or high importance to trade secrets.

This concern has not translated into a clear legal framework. Helen Conlan, partner at law firm Bird & Bird, calls the current state of trade secrets law across Europe a “patchwork” with no harmonised definition across the 28 member states. Penalties differ as well: some countries consider the theft of confidential information a criminal matter, while others see it as a civil issue.

In November 2013 the commission published a draft directive designed to tackle the gap between the popularity of trade secrets protection and the lack of legal remedy for businesses across Europe.

Sign the petition

Fundamentally, the commission saw it as an important task to establish a harmonised definition of the term trade secret and the appropriate penalty. Ever since the commission published its draft directive, it has been the task of Constance Le Grip, a member of parliament for the European People’s Party, to establish such a legal framework.

Her first draft report, published earlier this year, has faced criticism from various corners that it breaches rights enshrined in European law such as workers’ mobility and freedom of expression.

A petition set up in France had at the time of writing attracted 450,000 signatures from people who are opposed to the directive. The petition is primarily concerned with a restriction for whistleblowers and journalists who may seek to uncover issues in the public interest.

Notwithstanding the pressure, Le Grip came out on top in June having persuaded a majority on the European Parliament’s Committee on Legal Affairs to pass the report. According to the draft of the directive, a trade secret is defined as such if it “has commercial value because it is secret” and the information “has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information to keep it secret”.

Having passed the draft proposals with amendments concerning media expression and workers’ mobility, the draft directive heads to the three European bodies—the parliament, commission and the European Council—which now enter into what is called ‘trilogue’ discussions on the proposals.

While amendments covering media expression passed the legal affairs committee, the number of signatures on the petition increased.

“I think there is a misunderstanding,” says Le Grip. “We really want to create an efficient tool to protect businesses and companies, which has nothing to do with a tool that could weaken media exercise and the right of whistleblowers to continue their mission.

“For the moment, we didn’t try to convince everybody, but I think we still have time and now we’ll see what the views of the big associations and council will be.”

She adds: “The legal affairs committee is not the whole parliament. We succeeded in building very strong support from left to right in order to progress with the legislation—the support is coming from all political groups, even from political groups who put a lot of amendments trying to protect workers’ mobility.”

Workers’ mobility, which has proved to be a contentious issue, is enshrined in article 45 of the Treaty on the Functioning of the European Union, which protects workers’ ability to move between jobs.

How a company demonstrates that it has taken reasonable steps to keep its workers’ information confidential may result in clauses in employees’ contracts asking them not to join a competitor. While such a practice is common in the US, employment clauses like this may raise concerns with workers’ rights to move jobs.

Julia Reda, an MEP for the Pirate Party, voted against the directive at the committee stage because she says it is in breach of such a fundamental right. On her political blog, she wrote that “while the commission’s proposal does not aim at creating new IP rights, it should strive to set a balance between all fundamental rights being involved. Yet such a balance is precisely missing”.

"A petition set up in France had at the time of writing attracted 450,000 signatures from people who are opposed to the directive."

Conlan says the issue of workers’ mobility comes down to the “usual balance of encouraging innovation and stifling it ... between enabling free movement of workers and being seen to protect trade secrets”.

“A trade secret is something that has been acquired during a period of employment, and so much has been debated about what is considered to be an appropriate restrictive covenant,” she adds.

The fact that “more and more people are moving on” and companies operate with “different models of outsourcing” complicates this balance, says Conlan.

Lack of harmony

Andrew Moir, partner at law firm Herbert Smith Freehills, says the directive still fails to harmonise the penalties for the misappropriation of trade secrets. He cites an example in the US where if a trader at a bank walked off with the trading algorithm used to buy and sell stocks then that would be considered a criminal action.

“Under UK laws that would be a civil matter, but in other parts of Europe there can be criminal liability,” he says. While the directive is looking to harmonise the differences in penalties for infringers, it doesn’t mandate what is going to happen in relation to criminal sanctions, he says.

Ireland, Italy, Slovakia and Malta, like the UK, have no specific criminal sanctions for trade secrets theft, unlike Germany, the Netherlands and France, which do. It can mean that businesses attempting to protect their ideas inside the EU are unsure of what remedies are available in European courts for the misappropriation of their trade secrets.

“As currently drafted, the directive does not harmonise the criminal side of it—member states can impose criminal liability if they want to, but it is not compulsory. The directive will improve harmonisation to some extent, but it won’t answer all the questions of my clients,” Moir says.

In 2011 Vincenzo Denicolo and Luigi Franzoni from the University of Bologna published a report stating that while patents provide a strong form of protection since they grant an exclusive right to use patented technology, trade secret law, on the other hand, “provides weak and non-exclusive protection, prohibiting misappropriation of knowledge and know-how by unlawful means but not duplication through reverse engineering or parallel development”.

Their conclusion suggests that both forms of protection should complement each other in addressing business needs.

“Where strong exclusive protection of IP rights is ostensibly intended to ensure a large reward for the innovator, weak protection aims to foster imitation and competition. Policy, then, must solve a difficult trade-off between incentives and innovation and the need to encourage diffusion,” say Denicolo and Franzoni.

“Trade secrets are an essential part of any IP strategy,” says Conlan, “especially for small and medium enterprises (SMEs).” Comparing the cost of obtaining a patent with that of introducing security measures is how businesses decide what form of protection they look for, says Conlan. But, she adds, trade secrets are “quite often on the minds at the board level, but not often on their ‘to do’ list”.

Trade secrets rather than patents are arguably an important tool for SMEs compared to their bigger counterparts. In 2010, an IPO study titled “The Impact of the Patent System on SMEs” showed that just 6% of SMEs in the UK filed patents compared to 13% of their bigger counterparts. This may suggest that SMEs instead rely heavily on protecting confidential information under a ‘patchwork’ of European laws.

In June 2015, the Oxford English Dictionary added the phrase ‘dog whistle’ to its official records. Defined as a “subtly aimed political message which is intended for, and can only be understood by, a particular demographic group”, the phrase is commonly used in the US to describe politicians who preach messages only to their already converted supporters.

Le Grip’s challenge is precisely the opposite: her job is to convince those 450,000 sceptics that the directive is about creating a framework that balances IP protection and individuals’ rights.

She explains this could be difficult because a lot of people signing the petition “probably from the beginning didn’t want any European tool” and have “no reasonable explanation” for their opposition.

Winning public support is a long-term game, which she has acknowledged and has the patience for, saying: “I think we still have time and now we’ll see what the views of the big associations and council will be.”

While there has been a lot of misunderstanding in the message behind the directive so far, Le Grip is resolute that, once it has passed, businesses both big and small, European and international, will know that there is a political will of the European institutions to “identify where the threats are and to protect IP owners’ interests”.