European Commission proposes rules on protecting trade secrets

On November 28 the European Commission proposed new rules on how to protect trade secrets against their unlawful acquisition, use and disclosure.

Trade secrets are defined as commercially valuable information developed through a company’s business activities. They are different from IP as their holders do not have exclusive rights over them and cannot prevent others from copying them if they become public. The commission said they are particularly important to small- and medium-sized enterprises (SMEs) and startup companies.

Currently there is a patchwork of different national rules governing trade secrets in Europe, with some countries having no laws to protect against trade secret misappropriation at all. This creates uncertainty in companies and hinders cross-border interactions and know-how transfer which the commission says has a negative impact on innovation and economic growth in the EU.

The draft directive introduces a uniform definition of trade secrets and suggests how victims of trade secret misappropriation may obtain redress. The new rules are hoped to make it easier for national courts for deal with the misappropriation of confidential business information and for victims to receive damages.

It said in the proposal:

For the purposes of this Directive, the following definitions shall apply:

(1) ‘trade secret’ means information which meets all of the following requirements:
    (a) 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;
    (b) has commercial value because it is secret;
    (c) has been subject to reasonable steps under the circumstances, by the person lawfully in           control of the information, to keep it secret.

The directive introduces a common set of remedies for trade secret misuse including interim and permanent injunctions, seizure of suspected infringing goods and compensatory damages. It also recommends introducing procedures that will preserve the confidentiality of secrets in dispute during legal proceedings.

A statement from the commission cites a recent survey that found one in five companies has suffered at least one attempt to steal its trade secrets in the last 10 years. It added that another study suggests the problem is getting worse with 25 percent of companies reporting theft of information in 2013, up from 18 percent in 2012.

Commissioner for Internal Market and Services Michel Barnier said: “Cybercrime and industrial espionage are unfortunately part of the reality that businesses in Europe face every day. We have to make sure our laws move with the times and that the strategic assets of our companies are adequately protected against theft and misuse.”

He added that the proposal is a further step in the commission’s efforts to shape a legal framework “that is conducive to innovation and smart growth.”

Vice president of the directorate Antonio Tajani added: “[Smaller, less established firms] employ trade secrecy more intensively than larger companies – in part because of the cost of patenting and protection against infringement.

“The loss of a trade secret and disclosure of a key invention to competitors means a catastrophic drop in value and future performance for an SME. With this legislation, the commission will protect EU businesses’ livelihood and the trade secrets that form a vital part of it.”

Sarah Turner, partner at Hogan Lovells and co-author of a 2012 study on trade secrets for the commission, said that the proposal is definitely a step in the right direction but there are still some “noticeable gaps”.

“For example, trade secret holders often face considerable difficulties in obtaining evidence of misuse and damage. If the necessary evidence cannot be obtained then legal action may not get off the ground. The current proposal does not introduce procedures to address this issue,” she said.

“Nonetheless these proposed changes are very welcome and appear to support the commission’s general desire to ensure respect for intellectual property and related rights.”