In November 2013 the European Commission published proposals for a Trade Secrets Directive with the intention of improving the protection of information that is fundamental to the success of many businesses. The final draft of the Directive is expected to be published mid-2015 with each member state required to implement the Directive into national law within two years.

Currently trade secret laws are inconsistent across Europe and where the legislature has built in protection for commercially sensitive business information, it is often unconsolidated and complex: In Germany trade secrets are protected by scattered provisions in different laws and regulations and in the UK trade secrets can only be protected under the umbrella of the tort of breach of confidence in common law. In pursuit of the EU's 2020 vision to create a community-wide freedom to innovate and to exploit trade secrets, the European Commission aims to consolidate trade secret law across all members states. The Directive introduces a multitude of harmonisation provisions, which includes a basic description of what constitutes a trade secret. The creation of a legally enforceable right to protect confidential business information, which already plays a pivotal role across many industries, could result in a major shift in the way intangible asset portfolios are valued.

Proposed changes
The draft Directive:

  • Defines a "trade secret" as any information that is secret, has commercial value because it is secret, and has been subject to reasonable steps to keep it secret;
  • Establishes a set of circumstances in which conduct could be considered unlawful, particularly the acquisition, use, or disclosure of a trade secret;
  • Preserves the confidentiality of trade secrets during litigation proceedings. This includes restricting access and references to the trade secret in hearings and documents and the making available of non-confidential versions of judicial decisions;
  • Allows those who wish to exercise their rights in relation to their trade secrets two years to initiate legal proceedings. This two year period will start on the date on which he or she became aware, or had reason to become aware, that the last fact giving rise to the action occurred;
  • The remedies available to someone who has had their trade secret unlawfully acquired, used or disclosed include damages, cessation, destruction and prohibition of the use or disclosure of the trade secret.

How does this differ from the current UK law on trade secrets?
There is currently no trade secrets legislation in the UK. Actions relating to trade secrets must be brought under the tort of breach of confidence, and whilst the protections afforded at common law are similar to those proposed in the draft Directive, it should be easier for trade secret holders to take action against infringers under the draft Directive than under UK common law. For example, the sale of infringing goods, i.e. those created using a trade secret, should be much easier to stop under the Directive than can be currently achieved under the common law.

The proposed definition of a trade secret is very broad. Whilst it is similar to the definition of a trade secret in the WTO Agreement on Trade Related Intellectual Property Rights, further clarification is needed on what constitutes "commercial value" and "reasonable steps". Currently, the definition arguably includes any commercially sensitive information held by an organisation, meaning that it will be very difficult in practice to guarantee that the use of information doesn't infringe someone else's rights.

Following the implementation of the Directive, there may be an increased number of disputes between businesses in the same sector over an organisation's right to utilise what might otherwise be described as the general knowledge accumulated by employees who have changed jobs. A company could assert that a former employee knows a particular trade secret and that a new employer cannot take advantage of that information. With such a broad definition of trade secrets, transferring jobs within the same sector could become difficult for employees. An employee may not be able to use his or her particular skill set or competencies without exposing themselves to an action brought by their previous employer for breach of trade secrets legislation.

Finally, the importation of products into the EU that have been produced legally outside the EU may be affected by the Directive. Under the current draft of the Directive, an organisation will be able to bring a claim in the EU to have such products destroyed on the basis that the products infringe its rights despite being legitimately produced outside the EU. To overcome this risk, importers will need assurances from manufacturers that they have not acquired any trade secrets, which in practice will be very difficult to obtain.