Harmonization of Europe’s Trade Secret Laws – What You Need to Know About the European Trade Secrets Directive

By, Peter C. Lando and Thomas P. McNulty

Much has been written about the recently implemented General Data Protection Regulations in Europe – rightly so, given the impact of the regulations. This has led to other significant activity regarding intellectual property receiving less notice. The Directive on the Protection of Trade Secrets was adopted by the European Union in 2016 to harmonize national laws on the protection against misappropriation of trade secrets, which the Directive recognized as critical to growth and economic activity in the 21st Century. Given the varied landscape of trade secret laws throughout Europe, there is much activity to align laws and procedures prior to the June 9, 2018 deadline to be in compliance with the Directive. In light of this reform, companies doing business in Europe or with European entities should understand the new protections afforded trade secrets in Europe, as well as which countries are in compliance and which have not yet made the necessary changes.

The Directive provides minimal levels of protection that must be afforded to trade secrets, defined as information that is not generally known or readily ascertainable to those in the field, has commercial value because of its secrecy, and has been subject to reasonable steps under the circumstances to keep it secret. Under these standards, European countries must prohibit of the unlawful acquisition, use, and disclosure of trade secrets including both the secrets themselves and information from which the trade secrets can be deduced. Such unlawful activity includes conduct which is “contrary to honest commercial practices under the circumstances.” In an expansion over much prior European law, acquisition and use by a party are unlawful where the party knew or ought to have known that the information had been obtained directly or indirectly from a third party who had unlawfully obtained or used the information.

The Directive requires measures to preserve the confidentiality of trade secrets throughout legal proceedings, until such time as the information is deemed by a final decision not to meet the definition of a trade secret or has otherwise become known or readily ascertainable. This is broader than the protection typically afforded in America, where the right of public access to court records often trumps any interest the secret-holder has in maintaining secrecy while in litigation. Preliminary measures to maintain secrecy must be available, including injunctions and seizure of accused goods to prevent their entry into the market even when such would not result in the disclosure of the trade secret. This provision is broader than the ex parte seizure provision found in the Defend Trade Secrets Act, which is only available to prevent the disclosure or propagation of the secret itself. The Directive also requires the availability of permanent injunctive relief upon consideration of a number of factors, including the value of the information and the measures taken to protect it, suggesting that there is some measure of protection sufficient to qualify the information as a trade secret but not support an injunction against its dissemination or use.

Under the Directive, acquisition of a trade secret is lawful when it is obtained through independent discovery or creation or through reverse engineering of a product made publically available or legally acquired with no contractual restrictions prohibiting the same. Similar to United States law, the Directive specifically allows for employees’ use of experience and skills honestly acquired in the normal course of their employment, as well as information disclosed in the exercise of the right of workers and their representatives in accordance with Union and national law. Also legal is “any other practice which, under the circumstances, is in conformity with honest commercial practices,” a phrase that appears throughout the Directive. This last phrase leaves room for both ambiguity and different treatment among the various member-states of the European Union, many of whom had previously taken divergent views on trade secret protection and will thus likely have differing views on what constitutes honest commercial practices. Moreover, the Directive provides for exceptions to misappropriation for the exercise of the right to freedom of expression and information as set out in the European Charter, for whistleblowers, or for protecting a legitimate interest recognized by Union or national law, again opening up room for different treatment by different countries.

The Directive’s requirements will lead to big changes in some countries, few of which have yet implemented the necessary changes to their laws. France and Belgium, for example, currently have no specific trade secret protection beyond criminal statutes protecting “manufacturing secrets,” and the French version applies only to employees and ex-employees. Beyond that, protection of trade secrets currently can only be brought as contract or unfair competition claims. German law likewise does not meet the new standards, and with the political turmoil in Germany over the last year or so, progress towards achieving compliance has been slow. The laws of countries that fail to implement necessary changes on time are to be interpreted in view of the Directive; the way that this plays out, however, remains to be seen.

The required standards are merely minimums – member states are free to enact more expansive protections than those specified by the EU. Italy is planning to include criminal sanctions and increased penalties for acquiring trade secrets through hacking, while Finland intends to define circumstances under which company directors, employees, auditors and parties to a confidential business relationship will have an obligation of secrecy that would support a misappropriation claim. While having a broader definition of what can constitute a trade secret, the United Kingdom’s laws are considered to be generally compliant with the new directive, obviating concerns with whether its exit from the European Union will impact its response to the Directive.

Reprinted with permission from the June 12, 2018 edition of the Corporate Counsel © 2018 ALM Media Properties, LLC. All rights reserved.

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