Preventing theft of trade secrets

Preventing theft of trade secrets

As part of its wider Europe 2020 strategy, the European Commission has undertaken to create an Innovation Union. It aims at achieving this by improving the conditions for innovative business activity, offering incentives to innovation, and stemming the increase in theft of trade secrets across Europe.

The Commission recently released a new proposal for a directive that seeks to do this, among other measures, by blocking imports of products arising from such theft.

Companies, large and small, use confidentiality to gain a competitive advantage. Trade secrets are used by companies in all economic sectors to protect a wide range of different information. Trade secrets can vary from the recipe for an ice cream to a customer list or the price offered in a bidding procedure. Information of this kind is kept confidential in order to preseve the company’s competitive advantage and for this reason is known as business confidential information or trade secret. Trade secrets are particularly important for smaller businesses that lack the human and financial resources to seek out, manage and enforce intellectual property rights.

Unlike patented inventions or novels protected by copyright, the holder of a trade secret such as formulas, business processes, recipes or marketing concepts, is not the owner of an exclusive right over its creation and therefore cannot claim exclusivity. Nonetheless, trade secrets are worthy of protection.

For this reason, in its proposed directive, the EU Commission seeks to protect trade secrets in an attempt to incentivise innovation by ensuring that creators are in a position to be rewarded for their efforts. Currently there are important differences between the levels of protection offered across the EU in the event of theft of trade secrets as each member state legislates in its own way. As a result, knockoffs originating from non-EU member states hit the European markets, leaving the original producer with little rights of recourse.

Trade secrets can vary from the recipe for an ice cream to a customer list

The directive reverses this situation by providing a harmonised level of protection to innovators against illegal practices that free-ride on innovative solutions without incurring any investment. The directive provides a comparable system of redress for misapppropriation of trade secrets available across the EU.

Domestic civil laws of the member states will be harmonised in three different aspects.

The definitions of trade secrets and the misappopriation of such secrets will be made applicable EU-wide. To qualify for protection, information must be secret, have commercial value because of its secrecy, and the person lawfully in control of such information must have taken reasonable steps to keep it under wraps.

The proposed directive envisages timely and effective judicial relief and uniform remedies for misuse of trade secrets. A set of civil remedies that trade secret holders can seek will ensure effective redress is available in a uniform manner in the EU in cases of unlawful acquisition, use or disclosure of a trade secret. The directive introduces forms of redress that range from interim and precautionary measures to injunctions and corrective measures. Available remedies include prohibitions on the use or disclosure of trade secrets; prohibitions on the marketing or use of goods derived from misused trade secrets; obligations on the infringer to destroy or deliver to the trade secret holder all the information relevant to the trade secrets; and product recalls and/or the destruction of goods derived from misused trade secrets. Damages can also be awarded following a decision of the merits of the case, in the form of compensation based on objective criteria while taking account of the expenses incurred by the holder of the trade secret in enforcing its rights. The proposal does not embrace punitive damages. Redress must be sought within a period of two years after trade secret holders become aware of the fact that gives rise to their claim.

In addition, the directive proposes a set of measures that courts may use in order to avoid leakage or disclosure of trade secrets that have been submitted to the court in the course of civil litigation on trade secrets misappropriation.

Safeguards to preserve confidentiality of trade secrets include restricted access to documents and hearings and the publication of non-confidential versions of any judicial decision involving trade secrets.

The proposal will now be considered by the European Parliament and the Council of the EU. The approval of this directive and its implementation into the national laws of the EU member states may take considerable time, but the proposal is a valuable move towards boosting the confidence of businesses and innovators across the internal market.

Josette Grech is adviser on EU law at Guido de Marco & Associates.

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