The European Union's New Trade Secrets Directive

• Publication year: 2016
• Author: By Emmanuelle Ragot*

The European Union's New Trade Secrets Directive

By Emmanuelle Ragot*

I. INTRODUCTION

The unlawful acquisition, use and disclosure of trade secrets is a growing concern among companies in the European Union. According to a recent European Commission study, approximately 25 percent of European companies responding to a survey regarding trade secret use and protection stated that they "ha[d] suffered at least one attempt at misappropriation" between 2003 and 2013, and 38 percent stated that they believed the risk of such misappropriation had increased during that time period.¹

Surprisingly, however, there is currently no unified EU framework for trade secret protection. Instead, trade secrets are governed by national laws, which are often outdated, unclear and contradictory. For example, trade secret laws in Germany, Finland, Greece, Denmark and Spain fail to clearly define trade secrets.² Trade secret laws in many EU member states also suffer from significant loopholes.³ Further, some states, such as Belgium, France, Ireland, Luxembourg, Malta, the Netherlands and the UK, have no specific civil legislation regarding trade secrets at all. In these states, misappropriation claims are prosecuted under a variety of different legal theories, including extra-contractual liability, traditional common law and criminal law.⁴

As a result of the uneven protection of trade secrets throughout EU member states, companies experience uncertainty and added costs when seeking to engage in cross-border innovation, collaborative research or trade secret transfers. According to the European Commission, 82 percent of European companies incur increased business risk in states with lower protections for trade secrets, 59 percent are discouraged from engaging in cross-border research and development, 40 percent view sharing trade secrets as risky and refrain from doing so and only 40 percent of victims of trade secret misappropriation seek legal redress.⁵ The current ad hoc trade secret framework thus creates an undesirable chilling effect on business.

Recognizing the need for a standardized approach to trade secret protection throughout the EU, the European Commission proposed a study in 2013 to compare the trade secret protection in EU member states with the protection offered in other countries, such as the United States, Japan and Switzerland. The study, completed in April 2013, highlighted the lack of uniformity in EU member states' trade secret laws,⁶ and led to the European Commission's proposal on November 28, 2013 of an initial draft Directive on the protection of undisclosed know-how and business information (trade secrets), against their unlawful acquisition use and disclosure.⁷ This Directive was intended to harmonize the existing and divergent national laws of EU member states as a way to remedy inadequacies in the protection against trade secret misappropriation and to enable companies to better use and share trade secrets across the EU market.⁸

After two years of debate and revision facilitated by the European Commission, the European Parliament and Council reached a preliminary agreement on the text of the Directive, which was published in December 2015.⁹ On April 14, 2016, the European Parliament approved the text and adopted the Directive with no further amendments.¹⁰ The European Council, in turn, adopted the Directive on May 27, 2016.¹¹ The Directive was published in the Official Journal of the European Union on June 15, 2016¹² and entered into force on July 5, 2016.¹³It is intended to be binding on all EU member states, requiring them to enact domestic legislation with certain minimum requirements of protection for trade secrets by June 9, 2018.¹⁴

This article discusses the goals behind the Directive, as well as the significant advances in trade secret protection offered by the Directive. Finally, this article considers key issues for practitioners to keep in mind as the Directive comes into effect.

II. MAIN GOALS OF THE DIRECTIVE

As mentioned above, the Directive was intended to harmonize trade secret protection across EU member states. Uniform trade secret protection is increasingly important as trade secrets represent a growing share of companies' information portfolios, and as more and more companies engage in cross-border transactions and partnerships.

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European companies invest a great deal of money in acquiring, developing and applying trade secrets, which include corporate plans, market research, business strategy, manufacturing processes and recipes. These trade secrets are strategically important for business growth, competition and innovative performance, and are valued as much as patents and other forms of intellectual property rights.

The misappropriation, use or disclosure of trade secrets—including theft, unauthorized copying, economic espionage or breach of confidentiality agreements—disrupts and discourages innovation and creativity. Although European companies are increasingly targeted by such dishonest practices, they have been reluctant to seek legal remedies due to the lack of standard (and effective) protections and enforcement mechanisms—or even definitions of trade secrets—across EU member states, and fears that trade secrets will be lost during court proceedings.

The Directive addresses these issues by creating a uniform definition of trade secrets, which includes know-how, business information and technical information. The Directive also acknowledges companies' legitimate interests in preserving the confidentiality of trade secrets. Additionally, it standardizes protection against the unlawful acquisition, use and disclosure of trade secrets, and attempts to do so without undermining fundamental rights and freedoms or considerations of public interest—such as public safety, consumer protection, public health, environmental protection and the mobility of workers.

The next section analyzes the specific provisions of the Directive.

III. KEY PROVISIONS OF THE DIRECTIVE

The Directive contains a number of provisions that significantly enhance trade secret protection for companies doing business in EU member states. The most important provisions are discussed below.

A. Definition of "trade secret"

First, the Directive provides a uniform definition of "trade secret" in accordance with existing internationally binding standards. Pursuant to Article 2(1) of the Directive, a "trade secret" shall mean information that meets all of the three following criteria:

Secret: it must 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";
Valuable: it must have "commercial value because it is a secret"; and
Protected: it must have "been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret."¹⁵

According to the Directive's preamble, information has "commercial value," for example, "where its unlawful acquisition, use or disclosure is likely to harm the interests of the person lawfully controlling it, in that it undermines that person's scientific and technical potential, business or financial interests, strategic positions or ability to compete."¹⁶

Thus, valuable know-how and business information, which is undisclosed and intended to remain confidential, is referred to as a "trade secret."¹⁷ Although a uniform definition of "trade secrets" is an important step, this definition leaves significant room for interpretation. It will therefore be necessary for the European Union's...