Background
Secrecy lies at the core of most intellectual property rights in a “first to file” environment. The only IP right that protects abstract ideas (rather than the expression of the ideas in 2 or 3 dimensions) are patents, but then only subject to strict and often complex and highly technical legal conditions. Patents are further only limited to ideas (or inventions) which are capable of “industrial exploitation”. They are further restricted in that they only give a 20 year protection, and even then the last five years of that protection being subject to a licence of right. This regime would not, for instance, have protected the recipe for Coca Cola and Vimto to the present day. Trade secrets, however, do not expire.
The Problem
UK domestic law has over the years formulated its own version of a trade secrecy law but being part of our domestic law, it could not protect trade secrets abroad, and particularly in the EU (even though we are about to leave it). This area of law has become increasingly important as industrial espionage becomes ever more sophisticated and the ability and readiness of organisations to hack into the IT systems if other becomes increasingly a problem for the market. The problem is that the law has been differently defined and applied in different States, and, indeed in some, if at all!
Further, although registered IP rights can be protected for a limited period (save for trade marks which can be renewed) registration means they have to be published to the world which is then afforded the opportunity of working round the registered rights. The registered rights are further always vulnerable to application to revoke or to be declared invalid thereby creating a risk of “open season”.
The Directive
The Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure, known more commonly as the Trade Secrets Directive (or here, as we are amongst friends, just simply “the Directive”), having been agreed by Member states of the EU in 2016, must be implemented by legislation in Member States by 8 June 2018, that is prior to the UK’s departure in March 2019.
As with all EU legislation, the lengthy Preamble is at least as important as the terms of the Directive itself being the basis upon which it is to be interpreted.
The Preamble makes it clear that it is intended to protect SMEs as much as large businesses and is intended to extend beyond technical data to purely commercial information, such as customers, suppliers, market research and commercial strategies, none of which are adequately protected by conventional IP rights and, as recognised in the Preamble, are “particularly important for business competitiveness as well as for research and development”.
So far as the UK is concerned, it brings trade secrets out from under the wing of Employment Law into Intellectual Property Law.
What is protected?
The Directive, in its own words, defines a trade secret as meeting all of the following requirements:
- it is secret in the sense that it is not generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
- it has commercial value because it is secret;
- it has been subject to reasonable steps, under the circumstances, by the person lawfully in control of the information, to keep it secret.
- it must have been independently discovered or crested;
- it must have been lawfully acquired in conformity with honest commercial practices.
What does the Directive make unlawful?
The Directive provides that use or disclosure of a trade secret is unlawful whenever carried out, without the consent of the trade secret holder, by a person who is found to meet any of the following conditions:
- had acquired the trade secret unlawfully;
- was in breach of a confidentiality agreement or any other duty not to disclose the trade secret;
- was in breach of a contractual or any other duty to limit the use of the trade secret;
- who at the time that they acquired or disclosed the trade secrets knew or ought to have known (in the sense that in all the circumstances turned a blind eye to the fact) that the person from whom they obtained the trade secrets had themselves obtained them illegally;
It is also unlawful to produce; offer or place on the market, import, export or store goods embodying the trade secrets where one knows or ought to have known the trade secrets had originally been obtained illegally.
Exceptions
The Directive provides a number of exceptions, in particular where the Directive might have the effect of preventing or be inconsistent with –
- independent discovery by creating an effective monopoly of the information (this is not the case in respect of registrable IP rights);
- legitimate whistle-blowing, where the whistle-blowing is in the general public interest;
- freedom of speech under the Charter of Fundamental Rights of the European Union;
- disclosure required under National law;
- discovery of the information by reverse engineering (unless forbidden by contract);
- barriers to legitimate trade within the EU.
Remedies of trade secret holder
The Directive gives the remedy holder, in effect, all the rights to remedies currently available from the English courts, including the right to an injunction, damages for all loss caused by the illegal use or disclosure of the information and a right to have any judgment of the court (from which the information would be removed!) publicised. The damages net is cast very wide, the court being entitled to take into account negative economic consequences, including lost profits, which the injured party has suffered, any unfair profits made by the infringer and, in appropriate cases, elements other than economic factors, such as the moral prejudice caused to the trade secret holder by the unlawful acquisition, use or disclosure of the trade secret.
The Directive provides that the court must “ take into account factors such as the value of a trade secret, the seriousness of the conduct resulting in the unlawful acquisition, use or disclosure of the trade secret and the impact of such conduct …. as well as the interests of third parties including, where appropriate, consumers.”
Protection of trade secrets in litigation
Comfort is provided to trade secret holders by the provision of safeguards to prevent the trade secrets being made public during the course of litigation so far as is compatible with a fair trial. The Directive provides that the information only be disclosed to a limited number of individuals – a named person for the Defendants and legal advisors or otherwise on a strict need-to-know basis and that, if necessary, there be restricted access to hearings.
What should you be doing now?
There is no doubt that steps should be put in place as soon as possible to –
- identify the trade secrets of the business;
- identify how they were created and by whom;
- what is its commercial value to the business?
- limit access within the business to those who need it by passwords on the IT system;
- ensure relevant secret documents are clearly and conspicuously marked as such;
- review contracts of employment for all staff to ensure that the importance to the business of trade secrets if highlighted and setting out the disciplinary consequences of misuse;
- identify what third parties have access to them – either terminate access or ensure that the third parties enter into appropriate Non Disclosure Agreements (“NDAs”);
- consider whether any training is necessary internally.
Effect of Brexit?
We can’t be sure what will happen after Brexit, although it is likely that the legislation the UK government puts in place to give effect to the Directive will remain, at least substantially, in place. We will have to wait and see.
Related posts
The application of Protected Designations of Origin (PDOs) to sparkling wines in a post-Brexit landscape
The Greenshoots Podcast by Appleyard Lees – episode 37 – 3D printing: innovation and IP risks, with Professor Jason Laing
Lessons to be learnt from Dragons’ Den: a practical guide for brand owners
