Protection of trade secrets and know-how in the European Union: the EU Trade Secrets Directive (EU) 2019/943

by Gert Würtenberger

Introduction

Each enterprise owns business data, know-how or other information to its commercial activities. They are the basis to be successful on the market and thus should remain in its domain and be protected against unauthorized use and revelation. Know-how and information are the currency of the knowledge economy providing a competitive advantage.[1] The Commission had recognized that

“Trade secrets are one of the most commonly used forms of protection of intellectual creation and innovative know-how by businesses, yet at the same time are the least protected by the existing Union legal framework against their unlawful acquisition, use or disclosure by other parties.” [2]

In a study commissioned by the EU Commission in 2013[3] the fragmented trade secrets protection throughout the European Union was identified as a point of weakness of European industry. This fragmentation was found to be the result of lack of uniform definition of trade secrets and know-how and of harmonized legal protection of trade secrets in the European Union:

“There are important differences in the Member States` legislation as regards to the protection of trade secrets … The differences in the legal protection of trade secrets imply that trade secrets do not enjoy an equivalent level of protection throughout the Union, thus … weakening the overall deterrent effect of the relevant rules. The internal market is affected in so far as such differences lower business incentives to undertake innovation-related cross-border economic activity.” [4]

As a result of the European-wide discussions on the need for a better and in particular harmonized protection system for trade secrets, the EU Directive No 2016/943 on “the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure” (Directive) was passed and came into force on 5 July 2016 allowing the EU Member States a two-year period to incorporate the Directive into national law. This two-year period expired on 9 June 2018. With the expiration of the transition period the national authorities of the Member States are obliged to interpret national laws in light of the Directive or directly apply certain rules of the same as long as they are binding the national legislator[5], regardless whether the obligatory rules of the Directive have been transformed under national law within that period.[6]

The Directive aims at a coherent protection of trade secrets throughout the European Union. This follows from consideration 10 of the Directive and Article 1 No (2) second sentence. In consideration 10 it is emphasized that it was

“appropriate to provide for rules at Union level to approximate the laws of the Member States so as to ensure that there is a sufficient and consistent level of civil redress in the internal market in the event of unlawful acquisition, use or disclosure of a trade secret. Those rules should be without prejudice to the possibility for Member States of providing for more far-reaching protection … as long as the safeguards explicitly provided for in this Directive for protecting the interests of other parties are respected.”

For this reason, Article 1 para. 1 second sentence allows Member States to

“… provide for more far-reaching protection against the unlawful acquisition, use or disclosure of trade secrets than that required by this Directive …”

if compliance with specifically mentioned articles of the Directive is ensured. Some of the articles mentioned do not allow protection going beyond what is provided in those provisions[7] as otherwise the harmonization intention could be frustrated.

This contribution intends to give an outline of the provisions of the Directive and some practical advice as to how entrepreneurs and inventors may protect their trade secrets with the help of this EU Directive.

Background of Directive (EU) 2016/943

In the executive summary of the Study on Trade Secrets and Confidential Business Information in the Internal Market the crucial function of trade secrets and information is emphasized. The protection of trade secrets is a well accepted concept which has been developed since the evolution of the economy and industrial revolution in the 19^th century. It is undoubted that information and know-how resulting from R&D investments, creativity and business initiatives are key factors for survival in a competitive environment. For this reason, it is imperative that an efficient protection system is provided to maintain enterprises’ competitiveness based on trade secrets and other confidential business information.

With this Directive, neither the application of competition law rules, in particular as provided in Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), nor the application of any relevant law in other areas, including intellectual property, unfair competition behaviors or the law of contract, should be affected. This includes also Directive 2004/48/EC of the European Parliament and of the Council on the enforcement of intellectual property rights (Enforcement Directive).[8] In relation to this Directive, the Trade Secrets Directive shall take precedence as lex specialis over the Enforcement Directive, as far as the two overlap.[9]

Overview

The concept of the Directive is to aim at a protection system for trade secrets as comparable to the protection of other IP objects, such as inventions or trade marks[10], but does not, however, regard trade secrets as an object which grants exclusive rights.[11]

Article 1 defines subject, matter and scope. Article 2 provides definitions of certain terms, in particular what has to be understood by a “trade secret”. Article 3 deals with lawful acquisition, use and disclosure of trade secrets, whereas Article 4 determines the scope of unlawful acquisition, use and disclosure of trade secrets. Specifications for committing unlawful acts as defined in Article 4 are listed in Article 5. Article 6 and the subsequent articles deal with measures, procedures and remedies as well as procedural aspects including provisional and precautionary measures. Finally, Articles 11 ff. deal with the basic principles for injunction, removal and damage compensation claims.

Objectives of the Directive

Apart from an international obligation for the creation of a protection mechanism arising out of Article 33 TRIPS, three objectives had been identified through the study commissioned by the Commission and subsequent discussions:

Protection of know-how and information serves, according to the Union legislator, the protection of investments, innovation and intellectual capital. While use of intellectual property rights, such as patents, design rights or copyrights are predominant means of protection of such investments, of equal importance to appropriate the result of innovation is to protect access to, and exploitation of knowledge valuable for an enterprise and not known by the public.[12] While irrespective of the size of the business, trade secrets as much as patents and other forms of intellectual property rights are of high importance, small and medium-sized enterprises (SMEs) value and rely on trade secrets in particular.[13] They require a protection system which on the one hand is effective, but, on the other hand, does not require expenditures which go beyond what a SME can afford.

Protection of trade secrets contributes to the competitiveness of an economy. Intellectual creation and innovation should encourage investments in innovative processes, services and products.[14]

As already mentioned, the Union legislator had identified important differences in the Member States` legislation as regards to the protection against their unlawful acquisition, use or disclosure by other persons.[15] Consequently, the need to harmonize is a further important aspect. It follows from an increased dangerous situation caused by globalization, confirming outsourcing, longer supply chains, and the growing use of information and communication technology.[16]

Subject matter and scope

The Directive lays down rules on the protection against the unlawful acquisition, use and disclosure of trade secrets.[17] It does not protect the secret as such, but provides access protection.[18]

What are trade secrets in the meaning of the Directive?

Article 2 No (1) provides a definition of trade secrets closely related to the definition in Article 39 para. 2 of TRIPS.

“‘Trade secret’ means information which meets all of the following requirements:

– it 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;

– it has commercial value because it is secret;

– it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret;”

From this definition it follows that the term “trade secret” is far-reaching. It encompasses any know-how, business information and technological information with regard to which there is a legitimate interest in keeping them confidential and a legitimate expectation that such confidentiality will be preserved.[19] Only information and the experience and skills gained by employees in the normal course of their employment, and also information which is generally known among, or is readily accessible to, person within the circles that normally deal with the kind of information in question is excluded.[20]

Commercial Value

Any secret has commercial value as long as it is secret. A causal connection between the secret nature and the commercial value is required. In Recital 14 of the Directive it is stated that information will have either potential or actual commercial value

“… where its unlawful acquisition, use or disclosure is likely to harm the interest of the person lawfully controlling it, in that it undermines his or hers scientific and technical potential, business or financial interests, strategic positions or ability to compete.”

This means that not only such information is protected which already have a determinable market price, but also information which may turn out to have a commercial value in the future. The Directive safeguards that trade secret protection is given in the forefront of achievements ready to be marketed.[21] On the other hand, trivial information hardly represents commercial value and thus does not deserve protection.[22]

Reasonable protective measures

No definition or indication what has to be understood under “reasonable protective measures” is provided in the Directive, neither in the recitals nor in the legal text. Consequently it has to be awaited until national courts and the Court of Justice of the European Union (CJEU) will have had an opportunity to rule on the interpretation of this term.[23] At this stage, it is justified to presume, however, that the circumstances of the individual case will be relevant.[24] This requires that infrastructure and size of the enterprise concerned have to be taken into account as well as the commercial possibilities connected with the protected secret. Some guidance which factors may determine the reasonableness of protective measures may be found in statements of reasons of the German legislator in relation to the German law, concerning the implementation of Directive (EU) 2016/943[25] in order to comply with the Directive. The German legislator indicates seven factors:

value of the secret and the costs for its development;

nature of the information;

importance for the enterprise;

size of the enterprise;

general measures to keep business information secret within the enterprise;

the nature of the marking of the information; and

contractual obligations agreed upon with the employees and business partners.[26]

Trade secret holder

Article 2 (2) defines the owner of any business relevant, non-disclosed information as “trade secret holder”. According to that provision, any natural or legal person lawfully controlling a trade secret has to be regarded as “trade secret holder” in the sense of the Directive. This means that any person, independent of its size and organizational structure, developing or owning a trade secret in the sense of Article 2 (1) has to be regarded as “trade secret holder”. This includes licensees, even if the trade secret is related to the business of the licensor, if such business information is equally of commercial value for the licensee. This conclusion may be derived from the passage

“… any … person lawfully controlling”.

For the interpretation who has to be regarded as “trade secret holder”, Article 3 is of equal relevance. It defines the circumstances according to which the acquisition of a trade secret shall be considered lawful. Besides independent discovery or creation, trade secrets obtained through

observations, study, disassembly or testing of a product or object that has been made available to the public or that is lawfully in the possession of the acquirer of the information who is free from any legally valid duty to limit the acquisition of the trade secret,

the exercise of the right of workers or workers’ representatives to information and consultation in accordance with Union law and national laws and practices, as well as

any other practice which, under the circumstances, is in conformity with honest commercial practices,

are regarded as lawful trade secrets. Thus, persons involved in such activities, are trade secret holders. With regard to such person being obliged to fulfill or perform certain task or services, such person will become the legitimate trade secrets holder with regard to which such task or services have to be performed.

Lawful acquisition through disassembling as mentioned in Article 3 (1) (b) is of particular practical interest as the same refers to the admissibility of reverse engineering. The holder of the trade secret, however, may restrict the possibility of reverse engineering, partially or totally by contractual agreements which, however, may again be limited by law.[27]

The term “honest commercial practices” in Article 3 (1) (d) refers to activities which

“under the circumstances, are in conformity with honest commercial practices.”

The term “honest commercial practices” cannot be understood as a general reference to the national unfair competition laws as this would be clearly detrimental to the harmonization intentions to be achieved through the Directive. So far there has been no harmonization of the national laws on unfair competition. Thus, application of national laws and court decisions defining “honest commercial practices” would be detrimental to the harmonization goal to be achieved through the Directive. For this reason, this term has to be regarded as an autonomous term of the Union law, the content of which the CJEU finally has to clarify.[28] Some guidance for interpreting this term may be given by a look at Article 39 (2) TRIPS and Article 10^bis of the Paris Convention on which the Directive is based upon.[29] In the official notes to this provision the following is emphasized:

“For the purpose of this provision, “a manner contrary to honest commercial practices” shall mean at least practices such as breach of contract, breach of confidence and inducement to breach, and includes the acquisition of undisclosed information by third parties who knew, or were grossly negligent in failing to know, that such practices were involved in the acquisition.”

In its case law the CJEU has consistently held in relation to Article 6 (1) of the Directive 89/104[30] that the condition of “honest use” constitutes in substance the expression of a duty to act fairly in relation to the legitimate interest of the trade mark owner.[31] It is justified to rely on this interpretation as trade marks are of equal value for an enterprise as trade secrets are.

Additionally, according to Article 3 (2) of the Directive such behavior is lawful which is required or allowed by Union or national law. However, such treatment of the acquisition of a trade secret as lawful should be without prejudice to any obligation of confidentiality as regards the trade secret or any limitation as to its use that Union or national law imposes on the recipient or acquirer of the information.[32]

Unlawful acquisition, use and disclosure of trade secret

Article 4 differentiates between three unlawful acts – the acquisition, use or disclosure of trade secrets and indirect infringement. As a prerequisite of all three areas an acquisition of a trade secret without the consent of the trade secret holder is required. It encompasses any activities against the will of the owner of the trade secret, unless such activities are regarded as justified, e.g., because the unlawful activities can be justified by certain circumstances. Otherwise unauthorized access to, appropriation of, or copying of any documents, objects, materials, substances or electronic files, lawfully under the control of the trade secret holder, containing a trade secret or from which a trade secret can be deduced, is regarded as acquisition without the consent of the trade secret holder, therefore regarded as misappropriation of a trade secrets. The following factors need to be considered in the qualification of the activities:

relationship between the parties;

nature of the information;

is there an agreement obliging the party not to reveal information which it had obtained the trade secret holder’s?

other circumstances under which the information has been disclosed and which oblige the other party to keep the information secret and

by which measures was the information kept secret and how easy or difficult was it to acquire or duplicate the secret information.[33]

Exceptions

Article 5 of the Directive lists the exceptions when remedies provided by the Directive must be rejected although a trade secret has been unlawfully acquired, used or disclosed, namely in cases

for exercising the right to freedom of expression and information as set out in the Charter of Fundamental Rights of the European Union, including respect for the freedom and pluralism of the media;

for revealing misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest;

disclosure by workers to their representatives as part of the legitimate exercise by those representatives of their functions in accordance with Union or national law, provided that such disclosure was necessary for that exercise; and

for the purpose of protecting a legitimate interest recognised by Union or national law.

In relation to the first exception, Recital 19 emphasizes, while the

“… Directive provides for measures and remedies which can consist of preventing the disclosure of information in order to protect the confidentiality of trade secrets, it is essential that the exercise of the right to freedom of expression and information which encompasses media freedom and pluralism, as reflected in Article 11 of the Charter of Fundamental Rights of the European Union (‘the Charter’), not be restricted, in particular with regard to investigative journalism and the protection of journalistic sources.”

This intends to accommodate concerns that the Directive may have potential negative impacts on the freedom of press and free speech as well as on investigative journalism.

The second exception refers to the right of whistleblowers. Again, concerns were raised that the Directive may have negative impact on the rights of whistleblowers. For this reason, Recital 20 makes it clear:

“The measures, procedures and remedies provided for in this Directive should not restrict whistleblowing activity. Therefore, the protection of trade secrets should not extend to cases in which disclosure of a trade secret serves the public interest, insofar as directly relevant misconduct, wrongdoing or illegal activity is revealed. This should not be seen as preventing the competent judicial authorities from allowing an exception to the application of measures, procedures and remedies in a case where the respondent had every reason to believe in good faith that his or her conduct satisfied the appropriate criteria set out in this Directive.”

The third exception takes into account that the Directive does not restrict mobility of employees, as emphasized in Article 1 (3).

Finally, a catch-all-provision considers all legitimate interests which are acknowledged by Union or national laws of the Member States.

Trade secrets in legal disputes

Preservation of confidentiality of trade secrets in the course of legal proceedings

Chapter III provides rules on measures, procedures and remedies for cases in which trade secrets are infringed or there is a serious danger that they will be infringed.

The Directive imposes on Member States the general obligation to provide a system with measures, procedures and remedies necessary to ensure the availability of civil redress against the unlawful acquisition, use and disclosure of trade secrets. These measures, procedures and remedies must

be fair and equitable;

not be unnecessarily complicated or costly, or entail unreasonable time-limits or unwarranted delays; and

be effective and dissuasive (Article 6 (2)).

Moreover, it is imperative that the measures, procedures and remedies to be provided by national laws in accordance with the Directive will be applied in a manner that:

is proportionate;

avoids the creation of barriers to legitimate trade in the internal market; and

provides for safeguards against their abuse (Article 7 (1)).

In sum, one may summarize this request to the national legislator as the task to provide a system of effective protection versus fair trail.[34]

As the applicant submitting a motion to the court to order certain measures must substantiate this request, such need encompasses evidently the danger that a trade secret as a consequence to be revealed looses its secret character. Collision between an effective enforcement collides with the necessity to aim at an effective enforcement is obvious.[35]

Moreover, since the protection of trade secrets is not formed as an absolute right, but as a protection against general availability of trade secrets, the enforcement of the right in a trade secret requires its continues existence. For this reason, the procedure must guarantee a frame which will not force the right’s owner to reveal the secret and thus losing the same. This is intended to be achieved by rules in Article 9 which cover the preservation of confidentiality of trade secrets in the course of legal proceedings.

According to Article 9, it is to ensure that the parties and other persons involved, namely lawyers and other representatives, court officials, witnesses, expert and any person participating in legal proceedings relating to the unlawful acquisition, are not permitted to use or disclosure of a trade secret, or any party who has access to documents which form part of those legal proceedings. Thus, the mechanism to be provided by the national law of Member States must aim at preservation of the confidentiality of trade secrets necessary to disclosed in court for the purpose of legal proceedings to substantiate the case of defense.

Article 9 suggests a bundle of such measures, namely

restricting access to any document containing trade secrets or alleged trade secrets submitted by the parties or third parties, in whole or in part, to a limited number of persons (Article 9 (2)(a)),
restriction of access to hearings, when trade secrets or alleged trade secrets may be disclosed, and the corresponding records or transcripts of those hearings to a limited number of persons (Article 9 (2)(b)),
making available to any person other than those comprised in the limited number of persons referred to in points (a) and (b) a non-confidential version of any judicial decision, in which the passages containing trade secrets have been removed or redacted (Article 9 (2)(c)),
the number of persons in regard to which trade secrets may be revealed within legal proceedings be limited to the necessary extent, whereas efficiency on the side and fair trail on the other side are aspects under which the persons have to be determined who may have had knowledge of the trade secrets or parts thereof.

Finally, the legitimate interests of the parties and, where appropriate, of third parties, and any potential harm for either of the parties, resulting from the granting or rejection of such measures have to be taken into account by a court.

Remedies against infringement of trade secrets

Articles 10 to 15 refer to the remedies against infringement of trade secrets. It is to be differentiated between preliminary measures, which courts may – upon request – order and those consequences of a confirmed injunction claim. Above all, it has to be observed that confidentially of trade secrets in the course of legal proceedings is preserved. Article 10 covers all cases in which provisional or precautionary measures are necessary in order to avoid that trade secrets will be infringed or the infringement will cause additional damage.

Provisional measures

Interlocutory/interim injunction or precautionary procedures to prevent a third party to infringe a trade secret is provided for in Article 10. Member States are asked to provide that, where a judicial decision taken on the merits of the case finds that there has been unlawful acquisition, use or disclosure of a trade secret, the competent judicial authorities may, at the request of the applicant, order such measures, namely

the cessation of or, as the case may be, the prohibition of the use or disclosure of the trade secret;

the prohibition of the production, offering, placing on the market or use of infringing goods, or the importation, export or storage of infringing goods for those purposes;

the adoption of the appropriate corrective measures with regard to the infringing goods; and

the destruction of all or part of any document, object, material, substance or electronic file containing or embodying the trade secret or, where appropriate, the delivery up to the applicant of all or part of those documents, objects, materials, substances or electronic files.

The adoption of appropriate corrective measures shall include

recall of the infringing goods from the market;

depriving the infringing goods of their infringing quality;

and

destruction of the infringing goods or, where appropriate, their withdrawal from the market, provided that the withdrawal does not undermine the protection of the trade secret in question.

As it made turned that an application concerning the unlawful acquisition use or disclosure of a trade secret may be manifesting unfounded, there must be a deterrent for Applicants not to misuse the arsenal of measures provided. For this reason, national laws must provide the awarding of damages to the Respondent opposing sanctions on the Applicant or ordering the dissemination of information concerning a decision. Moreover, in cases measures according to Article 10 are revoked because the Applicant does not institute legal proceedings leading to a decision on the merits within a reasonable period to be determined by the judicial authority ordering the measures as far as the law of the Member State so permits ( Article 11 (3) a)). Appropriate compensation for any injury caused by those measures has to be provided (Article 10 (2)). The same is the case in subsequent proceedings it has been found that there has been no unlawful acquisition use or disclosure or threat of such conduct.

Conditions of application of the rules of the Directive and safeguards

Article 11 provides rules which require the national procedure to allow a court to consider whether the application allows qualifying what is to be protected as a trade secret. For this reason, the competent national judicial authority must be given the power to require the applicant to provide evidence that may reasonably be considered available to satisfy themselves with a sufficient degree of certainty that:

a trade secret exists;

the applicant is the trade secret holder; and

the trade secret has been acquired unlawfully, is being unlawfully used or disclosed, or unlawful acquisition, use or disclosure of the trade secret is imminent (Article 11 (1)).

In order to take into account the specific circumstances of the case, in particular to safeguard that all measures are proportionate, it has to be ensured that:

the value and other specific features of the trade secret;

the measures taken to protect the trade secret;

the conduct of the respondent in acquiring, using or disclosing the trade secret;

the impact of the unlawful use or disclosure of the trade secret;

the legitimate interests of the parties and the impact which the granting or rejection of the measures could have on the parties;

the legitimate interests of third parties;

the public interest; and

the safeguard of fundamental rights (Article 11 (2)).

Section 3 of Article 11 provides conditions under which the measures referred to in Article 10 may be revoked. Section 4 ensures the possibility to request from an applicant adequate security or equivalent assurances intended to ensure compensation or any prejudice suffered by the respondent or any other person affected by the measures.

Damages

The aim of the applicant to initiate procedures because of the infringement of a trade secret is to obtain damages which are addressed by Article 14.

In the assessment to determine damages, all facts of the individual case have to be taken into account, in particular the unfair profits obtained by the defendant.

Publication of judicial decisions

Article 15 stipulates the publication of judicial decisions at the request of the applicant and at the expense of the infringer, appropriate measures for the dissemination of the information concerning the decision, including publishing it in full or in part.

Such publication or other measures must, of course, preserve the confidentiality of the trade secret. When assessing the proportionality of the publication to be decided upon, the court must take into account, inter alia, the value of the trade secret, the conduct of the infringer in acquiring, using or disclosing the same, the impact of the unlawful use or disclosure of the trade secret, and the likelihood of further unlawful use or disclosure of the trade secret by the infringer. The decision whether to which extent the judicial decision should be published must also take into account whether the information on the infringer will be such as to allow a natural person to be identified and, if so, whether publication of that information would be justified, in particular in the light of the possible harm that such measure may cause to the privacy and reputation of the infringer.

Consequences to be drawn out of this Directive

The trade secret holder must prove that there has been an unlawful act against the object of which was a trade secret, the trade secret holder must become active to protect it. The trade secret protection is first and foremost access protection which is dependent on the secrecy and requires access restrictions.[36] He must become active. In order to fulfil the obligation to establish proof that there is an unlawful act in relation to a trade secret, the trade secret holder must take reasonable steps to protect his trade secrets and these steps must be documented in order to give evidence in a litigation what he regards as a trade secret and be qualified as such in light of definitions provided by the Directive.

These active steps should encompass the following activities:

Identifying and defining information of the enterprise which should be treated as secret

Assessment of the risk in how far there is a danger that information identified as a secret might drain away

Establishing precise an encompassing protection concept for the introduction of necessary measures on the technical, organizational and legal level to contribute that the relevant information will be kept secret

Implementing such a concept

Control and actualization of the protection concept in certain intervals.

Identification of trade secrets

As outlined above, any information of an enterprise taking influence on how to run, to develop it further and to market its goods and/or services may be of value for such enterprise and, thus, be qualified as trade secrets. Qualification as trade secret does not require, however, that the same already has a market value. It is sufficient that in future it might obtain a certain value. Any information which may be commercially and/or strategically helpful can be a trade secret. In contrast “unproductive” features and facts about the commercial activity of the enterprise might not be qualified as trade secrets.

All those information the enterprise has qualified as trade secrets should be documented in order to not only prove what the enterprise regards as trade secret but also to prove ownership of rights and interests in such information. Moreover, it may serve to show the persons to whom such information must be disclosed that the company considers this to be a trade secret. Setting up an inventory about trade secrets forces the management of an enterprise to consider which information is or might be of commercial value for it. A qualification of information as trade secrets also requires that a trade secret owner differentiates between own trade secrets and trade secrets it has obtained from third parties because of business contacts such as a licensing relationship. As know-how and other useful business information provided by a licensor is of commercial value for the licensee, such information may be qualified as trade secrets of the licensee as well.

Specific problems arise with regard to sensor generated information as the same might be generally known or easily accessible.[37] As such data at the outset may be regarded as trade secrets, it would be required to keep them secret. However, such data can realize their commercial value very often only if shared in network environments as such data realizes its potential and its use by entering it into the supply chain and beyond supply chains, in complex and dynamic value networks which regard data as a main asset.[38]

In order to reconcile the conflict to keep such data confidential, but to use the same in such networks which requires access by third parties, access to a limited number of people is a prerequisite to qualify such data as trade secret. According to the Directive, secrecy needs not to be absolute.[39] It is decisive that access to such data is under the control of the secrecy holder. For this reason, non-disclosure agreements on one the hand, and organizational means and technical control options on the other hand, seem to be imperative to ensure secrecy.[40]

Risk Assessment

The identified information to be treated as a trade secret has to be assessed with regard to risk of misappropriation of such information. This is necessary as there is an interdependency between the value of the information, the risk assessment and the protective measures to be implemented with regard to each and every trade secret.

Protection Concept

Defining what has to be regarded as a trade concept is not sufficient to enjoy protection as a trade secret. It requires from the trade secret holder to implement contractual, physical and organizational measures appropriate to prevent unauthorized access, disclosure, use and loss of trade secrets. Such measures will also communicate to the staff members as well as to third parties outside the business organization with whom sensible business information will be shared that certain information has to be treated as confidential. In that regard, “need to know” considerations are important. Need to know means that certain information will only be revealed to such employees or third parties which require the information to fulfil their obligations vis-à-vis the trade secret holder. A confidential notice on documents which have to be regarded as sensitive is equally important as physical or technical safeguards, such as passwords, firewalls and authentication measures.

The measures to be implemented depend on the secret involved. The same again is depending on the relevant business activities the trade secret holder develops and needs for its position to be successful in the relevant branch of industry. With regard to the central position of IT, not only a company’s infrastructure has to be analyzed from time to time with regard to actual or potential deficiencies. It is equally essential to limit access to a limited number of people of a company and bind them by contractual provisions (non-disclosure and confidentiality) combined with restricted access depending on the relevance of the information to be obtained through the IT infrastructure of a company for the performance of obligations of the employees.

Action plan in cases of misappropriation

Once the trade secret holder becomes aware of a (threatened) misappropriation of a trade secret, a concept should be available according to which the trade secret holder sufficiently acts to prevent (further) dissemination of the trade secret and, thus, will avoid or diminish harm. According to the ranking of the importance of the trade secret as suggested above, appropriate steps relative to the importance of the trade secret concerned and the type of breach should be defined:

steps to terminate or limit access to the relevant information,
who has to be informed in case of a (threatened) misappropriation?
defining the remedies, such as interlocutory injunction, which should be sought,
defining who is responsible for which step,
initiating criminal proceedings where appropriate.

As already indicated above, all these measures depend on the nature of the trade secret and its importance for the enterprise as well as on the size of the enterprise concerned.

Deficiencies of the Directive

A most recent decision of the Court of First Instance in Munich[41] reveals the problems of trade secret protection in enforcement situations. In a patent infringement case between Qualcomm and Apple the Court had to decide whether integrated circuits produced by the supplier Qorvo and implemented in certain iPhone models of Apple infringed a patent of Qualcomm. Obviously, the Court could not clarify even until the end of proceedings how the computer chip of Qorvo actually works. Nevertheless, the Court confirmed the claimed patent infringement as Apple was not in a position to substantiate its defense against Qualcomm’s argumentation based on various engineering. Apple failed to provide information and proof to the relevant abilities of the attacked computer chip. In particular, it omitted to introduce into proceedings the circuit diagrams. It argued, otherwise it would infringe the trade secret interest of Qorvo.

According to Article 9 (1) which provides how to preserve confidentiality of trade secrets in a course of legal proceedings, such rules are only applicable

“… in legal proceedings relating to the unlawful acquisition, use or disclosure of trade secret …“.

It does not cover for obvious reasons court proceedings such as patent infringements in which trade secrets play an important role because otherwise the plaintiff or the defendant cannot substantiate their claims or (counter)defenses. This is supported by Recital 24 which expressively refers to

“… the confidentiality of a trade secret“

which affords

“… specific requirements and a protecting confidentiality of litigated trade secret in the course of legal proceedings instituted for its defense“.[42]

This indicates that the Directive does not provide an encompassing protection of trade secrets as originally intended but only a protection concept in cases in which misappropriation of trade secrets is the core issue.

In the above-referred case the dispute did not arise because of infringement of trade secret interests but because of an infringement of a patent. Thus, the rules of the Directive, as far as the same would have been applicable in spite of their transformation into national law, could not be considered by the national court.

[1] Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure; L 157/1, Recital 1.

[2] Directive (EU) 2016/943, Recital 3.

[3] Study on Trade Secrets and Confidential Business Information in the Internal Market [here]

[4] Council of the EU – Proposal 9870/14, 19 May 2014.

[5] CJEU of 04.07.2006 – C-212/04, ECLI:EU:C:2006:443, Recital 115; CJEU of 26.10.2016 – C-611/14, ECLI:EU:C:2016:800, Recital 35.

[6] While Regulations have general application and are binding in its entirety and directly applicable in all Member States, a Directive is binding, as to the result to be achieved, upon each Member States to which it is addressed, but shall leave to the national authorities the choice of form and methods (Article 288, Treaty on the Functioning of the European Union (TFEU)). Prior to expiration of the transition period, there is no duty of the Member States to observe the obligations arising out of the directive. Nevertheless, the Member States must ensure during the transition period that the result prescribed by the Directive is achieved at the end of that period (CJEU of 18.12.1997 – C-129/96, ECLI:EU:C:1997:628, Recital 44.

[7] E.g. Article 3 determines which activities have to be regarded as lawful. In light of the sections of Article 1 second sentence it is not allowed for Member States to provide further activities which will be regarded as lawful.

[8] Official Journal L 157, 30.04.2004, p.45.

[9] Directive (EU) 2016/943, Recitals 38 and 39.

[10] McGuire, Der Schutz von Know-how im System des Immaterialgüterrechts, Sonderausgabe EU Geschäftsgeheimnis-Richtlinie 2016, pp. 32, 37.

[11] Directive (EU) 2016/943, Recital 16.

[12] Directive (EU) 2016/943, Recital 1.

[13] Directive (EU) 2016/943, Recital 2.

[14] Directive (EU) 2016/943, Recital 3.

[15] Directive (EU) 2016/943, Recital 6.

[16] Directive (EU) 2016/943, Recital 4.

[17] Article 1 para. 1.

[18] Wiebe/Schur: Protection of Trade Secrets in a Data-driven, Networked Environment – Is the update already out-dated?, GRUR Int 2019, 746, with reference to Recital 1 of the Directive.

[19] Directive (EU) 2016/943, Recital 14.

[20] Directive (EU) 2016/943, Recital 14 third sentence.

[21] Alexander, Der Schutz von Geschäftsgeheimnissen nach der RL (EU) 2016/943, WRP 2017, p.1034 Recital 84.

[22] Directive (EU) 2016/943, Recital 14.

[23] At the very end, it is the CJEU giving guidance in the interpretation of “reasonable protective measures” in proceedings according to Article 267 of the Treaty on the Functioning of the European Union (TFEU). It obliges the national court to refer questions of interpretation of European Union law arising in proceedings before the national court to the CJEU; for further reference see Würtenberger, “References to the European Court of Justice for a Preliminary Ruling in Trademark Matters” in The Trademark Reporter (INTA) Vol. 86, March/April 1996.

[24] Max-Planck-Institute for Innovation and Competition had proposed in its study to provide further explanation of the term “reasonable protective measures” in GRURInt 2014, 554, 556.

[25] The law concerning the implementation of Directive (EU) 2016/943 was passed by the German parliament on 26 March 2019 and entered into force on 26 April 2019 only.

[26] Bundestagsdrucksache (BT-Drs.) 19/4724, 24 f.

[27] Directive (EU) 2016/943, Recital 16.

[28] Alexander, fn. 20, Recital 84.

[29] Harte-Bavendamm, in: Festschrift Köhler, 2014, p. 235, 248.

[30] First Council Directive 89/104/EEC of 21.12.1988 to approximate the laws of the Member States relating to trade marks, OJ 1989 L 40, p.1.

[31] CJEU of 17.03.2005 – C-228/03, ECLI:EU:C:2005:177, Recital 41.

[32] Directive (EU) 2016/943, Recital 18.

[33] Niebel/de Martinis/Clark, The EU Trade Secrets Directive: all change for tradesecret protection in Europe?, Journal of Intellectual Property Law & Practice, 2018, Vol. 13, No. 6, 445 at 450.

[34] McGuire, Know-how: Stiefkind, Störenfried oder Sorgenkind? GRUR 2015, p. 424, 427.

[35] Hauck, Geheimnisschutz im Zivilprozess – was bringt die neue EU-Richtlinie für das deutsche Recht?, NJW 2016, p. 2218, 2221.

[36] Wiebe/Schur, see foot note 18.

[37] Drexl, JIPITEC 2017, 257, para. 54.

[38] Drexl, JIPITEC 2017, 257, para. 34; Zech, GRUR 2015, 1151, 1152.

[39] Wiebe/Schur, Protection of Trade Secrets in a Data-driven, Networked Environment – Is the update already out-dated?, GRUR Int 2019, 746, 747, with reference to further sources.

[40] Wiebe/Schur, see above, 746, 747.

[41] Landgericht (County Court) Munich I, Decision of 20.12.2018 – re 7 O 10495/7.

[42] R. Hauck, Geheimnisschutz im Zivilprozess – was bringt die neue EU-Richtlinie für das deutsche Recht?, NJW 31/2016, 2218, 2222 f.

Dr. jur. Gert Würtenberger – Lawyer at Würtenberger RA

Foto: Karin Grau-Kuntz

ISSN 2509-5692