nicoelnino / iStockphoto.com
“Trade secrets” is a broad category. They may encompass technical information (such as technical drawings, pharmaceutical recipes, or chemical formulae) or business information (such as customer lists, or profit calculations).
In Germany, the proprietor of trade secrets is protected against unlawful misappropriation of trade secrets under the regime of unfair competition laws: certain acts of misappropriation of trade secrets are prohibited as criminal offences. Prohibited acts include the so-called betrayal of secrets (ie, when an employee discloses trade secrets to third persons with the intent to harm or profit from that act) or industrial espionage (ie, when trade secrets are unlawfully acquired through copying or other technical means).
Proprietors of trade secrets may not only request criminal prosecution of such offences. They may also assert civil claims for a restraining order directed against all acts of unlawful use of the trade secrets, and for damages. In this context, the question arises whether plaintiffs could also ask the courts to prohibit indirect consequences of such misappropriation.
An example is a case that was decided by Germany’s Federal Supreme Court in November 2017. In a first lawsuit, the plaintiff had successfully claimed that the defendant (his former distributor of bone cement for medical uses) unlawfully used his trade secrets after the plaintiff had dispensed with the defendant’s services. The bone cement had been manufactured according to the same technical specifications as the ones the defendant had previously received from the plaintiff.
After that first judgment became final, the same defendant began to sell bone cement that was different, ie, which did not use the plaintiff’s trade secrets, but which the defendant sold to the same customers he had previously supplied with the unlawful bone cement. In a second lawsuit, the plaintiff sought a new court order prohibiting the defendant from supplying the new bone cement to these customers because, in doing so, the defendant unlawfully profited from having sold the unlawful first version of the bone cement.
German courts had repeatedly ruled that claims may be directed not only against all direct acts of unfair competition, but in certain cases also against related consequences. For instance, if a defendant deceived customers about whether a contract had been concluded with him, that same defendant was not allowed to reap the profits from the performance of such alleged contracts.
However, that rule may not be generalised. If a defendant induced customers into concluding a contract with him, with means that constituted unfair competition (eg, with misleading factual statements), the reaping of profits from the performance of such contracts could not be prohibited per se, but only if reaping the profits itself could be regarded as a “disruption of lawful competition”.
The exploitation of an earlier unfair competition act can, therefore, be prohibited only if that exploitation is closely connected with the earlier act and is itself unlawful.
In its judgment of November 2017, the Federal Supreme Court dismissed the plaintiff’s case. The court argued that the distribution of different bone cement (which did not make use of the trade secrets) was not itself an unlawful act. Furthermore, it was not so closely connected with the earlier unlawful act that it could be regarded as an instance where the consequences of the earlier acts could be prohibited. In the court’s opinion, the plaintiff ultimately sought to enjoin the defendant from profiting from the market position obtained by his distribution of the unlawful version of bone cement.
"Any prohibition of that market access with lawful products would infringe the defendant’s constitutional right to do business."
However, that market position could not have resulted solely from the distribution of the unlawful bone cement. In addition, a general balancing of the interests of the parties neither warranted nor justified a restraining order. Any business has the basic right to have access to the market concerned. Any prohibition of that market access with lawful products would infringe the defendant’s constitutional right to do business. The court also said that enjoining the defendant from selling the lawful products would have the dire consequence that the plaintiff’s market share for bone cement would increase sharply.
The Federal Supreme Court correctly reaffirmed the rule that a plaintiff does not have a remedy against any and all indirect consequences of a defendant’s unlawful act such as misappropriation of trade secrets. The required “close connection” to the earlier unlawful acts remains an important and quite strict requirement for such a claim.
Jens Künzel is a partner at Krieger Mes & Graf v. der Groeben. He can be contacted at: firstname.lastname@example.org
Jens Künzel, Krieger Mes & Graf v. der Groeben, trade secrets, confidential information, unlawful competition, industrial espionage