EU directive proposal: trade secrets.

Author:Sosnova, Natalja
  1. INTRODUCTION A. The Purpose of the Article. B. Trade Secrets' Importance for the Manufacturing Sector II. THE COUNCIL PROPOSAL FOR THE EU TRADE SECRETS DIRECTIVE A. The Scope B. Definitions. 1. Trade Secret a. Requirement of Secrecy b. Requirement of Commercial Value. c. Requirement of Reasonable Protection. i. Requirement of Reasonable Steps ii. Requirement for Person to Have Lawful Control over the Information 2. "Infringing Goods". C. Acquisition, Use, and Disclosure. 1. Unlawful Acquisition, Use, and Disclosure a. Unlawful Acquisition b. Unlawful Use or Disclosure 2. Lawful Acquisition, Use, Disclosure and Exceptions. a. Independent Development. b. Observation or Study of Publicly Available Product or Being in Lawful Possession i. Reverse Engineering. c. Other Practices in Conformity with Honest Commercial Practices 3. Exceptions for Acquisition, Use, and the Disclosure of Trade Secrets. a. Requirements of EU or National Law of EU Member States b. Freedom of Expression, Revelation of Illegal Activity for the Public Interest, and Exercise of Employees' Representative Functions i. The Right to the Freedom of Expression and Information. ii. Revelation of Illegal Activity for the Public Interest. a. "Luxleaks" Tax Avoidance Case and Protection of Whistle-Blowers iii. Exercise of Employees' Representative Functions iv. Protection of Legitimate Interests Recognized in EU Member States National Law or EU Law v. Privilege in U.S. Law as Protection from Liability 4. Limitation Period a. Maximum Six Years for the EU b. UTSA: Statute of Limitations 5. Abusive Litigation. 6. Preservation of Confidentiality in the Course of Legal Proceedings. a. Specific Measures. b. UTSA: Preservation of Secrecy 7. Provisional and Precautionary Measures 8. Injunctions and Corrective Measures a. Injunctive Measures b. Corrective Measures c. Injunction as the Prohibition of Importing Infringing Goods in the EU. d. Duration of Injunctions. 9. Pecuniary Compensation. 10. Damages a. Employee's Liability May be Limited b. Factors for Setting Damages and Lump Sum as Alternative. c. Amount of Damages vs. Amount of Pecuniary Compensation. d. The USTA and U. S. Case Law III. FUTURE CHALLENGES. A. Handling Employees IV. CONCLUSION. I. INTRODUCTION

    Trade secrets are valuable business assets that play important roles in both economic growth and in fostering innovation, (1) as trade secrets can protect both technical (e.g. a pesticide formula, a chocolate cookie recipe, or an electronic board game scheme) and non-technical information (e.g. "customer lists, sales data, or business strategies"). (2) In the United States (U.S.), there exists widely established case law and statutory law on trade secret protection, (3) for example, the Uniform Trade Secrets Act (UTSA), (4) which has been adopted in forty-nine U.S. states, (5) and the Economic Espionage Act (EEA), (6) which protects trade secrets at the federal level. In the European Union (EU), there is no harmonized law regarding the protection of trade secrets, and the national laws of twenty-eight EU Member States offer various interpretations of trade secrets, and rather different protections for trade secrets. On November 28, 2013, the European Commission (EC) submitted a Proposal for a Directive of the European Parliament and of the Council on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure (Commission Draft). (7) After objections were raised by various industries, the Council of the European Union approved a general approach for establishing a new legal framework for the protection of trade, and a compromised text of the proposal was introduced to the public in May of 2014 (Council Proposal). (8) Later came another proposal for amendments (9) and the legislative process is not yet finished. This paper will further discuss the Council Proposal as the latest draft of the EC Directive.

    The differences in the legal protection of trade secrets provided for by the EU Member States imply that trade secrets do not enjoy an equivalent level of protection (10) in the EU, leading to "fragmentation of the internal market in this area." (11) Furthermore, current differences complicate the enforcement of protections for trade secrets in cases of cross-border infringement. (12) Thus, the Council Proposal is intended to establish and harmonize the protection against misappropriation of trade secrets within the EU. (13)

    1. The Purpose of the Article

      This article is focused on applying the Council Proposal's rules to the manufacturing industry, especially in relation to employees and business partners. This article will address the most important provisions of the Council Proposal using hypotheticals and case law from the U.S. and the EU. The vast majority of cases, however, will be U.S. cases as they are more instructive for this purpose. (14)

    2. Trade Secrets' Importance for the Manufacturing Sector

      Trade secrets are important to many different industries. (15) A majority of the available empirical evidence on trade secrets focuses on the manufacturing sector, containing "numerous surveys of firms regarding the importance of trade secrets in appropriating the returns to innovation investments." (16) Trade secrets "are ranked as better protection mechanisms than patents, in particular with regard to process innovations." (17)

      Very few empirical analyses of the use of litigation to seek remedies against trade secret theft have been published. Of the three studies identified, all relate to the trade secret litigation in the U.S. No economic or statistical analyses of trade secret litigation in [EU Member States] were identified as part of the economics literature survey. The US cases instructive in terms of the industries and types of misappropriation claims that may arise under EU member country trade secrets laws, and the role played by private parties in the protection of valuable trade secrets. (18) The bulk of "cases involve[] alleged misappropriators known by the trade secret owner," (19) along with the participation of either an employee or a business partner. (20)


    1. The Scope

      Article 1 of the Council Proposal sets out the minimum rules on the protection against the unlawful acquisition, use, and disclosure of trade secrets. The EU Member States may introduce more far-reaching protection of trade secrets than those required in the Council Proposal, provided that there is full compliance with the specific mandatory rules of the Proposal. (21) This means that the Council Proposal provides only minimum requirements, but not full harmonization regarding the protection of trade secrets within the EU. In this author's view, minimum harmonization can undermine the intended effect of the Council Proposal and "disturb the balance of the Council Proposal, the provisions of the [Proposal] must neither be undercut nor exceeded by the implementing national legislation." (22) Thus, the full harmonization of trade secret law would provide more effect and consistence within the European Union. (23)

    2. Definitions

      1. Trade Secret

        Article 2(1) of the Council Proposal provides the definition for trade secrets. (24) Recital 8 of the Council Proposal explains that this "definition should ... be constructed as to cover business information, technological information, and know-how where there is both a legitimate interest in keeping confidential and a legitimate expectation in the preservation of such confidentiality." (25) Article 2(1) of the Council Proposal states that trade secret is information that meets all of the following requirements:

        (a) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;

        (b) has commercial value because it is secret;

        (c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret. (26)

        In brief, for information to be considered a trade secret, the Council Proposal requires three elements: (i) secrecy; (ii) commercial value; and (iii) reasonable protection. (27)

        a. Requirement of Secrecy

        Article 2(l)(a) of the Council Proposal provides that the confidential information shall be "secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question." (28) In other words, secrecy shall comply with two requirements: (i) the secret shall be a body, precise configuration, or assembly of its components; and (ii) shall not be generally known among, or readily accessible to, persons within the circles that normally deal with the kind of information. An example of a body, precise configuration, or the assembly of its components could be a customer list (29) or detailed instructions of a specialty beer brewing process. An example of generally known information could be a situation where a beer brewing process in general is very well known to all brew masters from competing breweries. Information that is "not readily accessible" could occur in a case where a beer manufacturing method is not only readily accessible to competitors, but also accessible to the employees of different departments (e.g. the information is not known only to specific employees of the beer brewing department or to the brew master alone). Nonetheless, "secrecy does not need to be absolute," (30) and it will be enough if "it would be difficult or costly for others who could exploit the information to acquire it without resort to wrongful conduct." (31) However, if an interested person can find or reach "the information without a great deal of...

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