2014/06 > The protection of business secrets: a springboard for innovation?

The Research and Development and Innovation program launched in 2010 by the European Commission aims to give companies and non-commercial research entities the legal means to protect the special knowledge they develop.

Not susceptible to ownership through intellectual property rights, this “confidential business information” or “undisclosed information” (know-how, business plans, customer lists, suppliers, market strategies …), otherwise referred to as trade secrets, nevertheless provides competitive advantages, and is often the target of espionage and theft.

Different studies conducted at European level have shown that in the different countries of the European Union legal means have been put into place to try to protect these trade secrets against their use by a third party who obtains them by illegitimate means. Depending on the Member States, this protection is provided via criminal law, civil law, through an action for unfair competition, through specific statutory provisions or simply by means of Case Law. These disparities make this protection less effective. So, the European Commission has presented a proposal for a Directive for the protection of know-how and undisclosed trade information (trade secrets) against their procurement, use and illegal disclosure (COM 813 final 2013). Once adopted, the proposed rules will have to be introduced into the legislation of each Member State of the European Union.

Four chapters make up this proposed Directive. A trade secret is defined in Chapter I via three cumulative criteria. The information must be secret (unknown and not accessible to people in circles interested by the relevant information), it must have commercial value because it is secret, and it must have been kept secret by the exercise of reasonable care by one who has control over the information, named the “holder”.

Chapter II of the draft Directive is devoted to the procurement, use and disclosure of trade secrets without the permission of the holder or as a result of negligent conduct.

Thus it will be illegal to acquire a trade secret without the consent of the holder, due to intentional behavior or as the result of gross negligence by:  theft, embezzlement, corruption, inducement to breach/ or actual breach of confidentiality, copying or access to an unauthorized information and more generally any behavior deemed contrary to honest commercial practices.

The use and disclosure of the trade secret without the consent of the holder are also prohibited if they result from the unlawful acquisition of this secret, a breach of a confidentiality agreement, a breach of an obligation to keep the information secret or use outside the limits set by a contract. A person also acts in contravention of the provisions of the Directive if they use or disclose secret information while knowing (or not being in a position to ignore), that they obtained it from a person who had acquired the same information unlawfully. In addition, the following are to be considered as unlawful uses of a trade secret: the conscious and deliberate production, offer or putting on the market of infringing products, as well as import, export and storage for these purposes.

However, the proposed Directive provides for a number of cases where obtaining the trade secret is considered lawful (independent discovery or creation; observation, study or disassembly of a product …) or the result of special circumstances (legitimate use of the right to freedom of expression and information, disclosure of misconduct or illegal activity, protection of a legitimate interest …).

Chapter III of the draft of Directive relates to  provisional and protective measures before any procedure on the merits, and to the measures resulting from a judgment on the merits. The illicit goods may be seized, or destroyed. Damages may be ordered taking into consideration the lost profits of the injured party, the unfair profits made by the infringer and non-pecuniary damage.  The amount in royalties or fees which would have been paid if the infringer had requested authorization to use the trade secrets can also be taken into account for the assessment of damages.

This chapter also includes adjustments to Court actions, so as to allow the confidentiality of the information to be preserved during and after the litigation.

The limitation period -at least one year, maximum two years from the date on which the holder has knowledge of the last event giving rise to the action or ought to have known – is short, but this is justified in the interests of legal certainty and also because a duty of care lies with the holder of the trade secret. This duration is, however, still under debate and may be extended to six years.

Finally, if passed, this text could help fulfill a threefold objective: to protect trade secrets uniformly at European level, to reduce the risk of misappropriation, and to allow companies to innovate and to share and develop their competitiveness without fear that their trade secrets will be appropriated without a possibility to react.

Nevertheless, the definition of trade secret is likely to remain a difficult concept to evaluate and therefore a difficult matter to protect in practice, despite the arrangements in this Directive, especially as the definition of the legal or illegal acquisition of this secret may also be difficult to assess in practice.