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After a legislative process which commenced in November 2013, the European Council has just published the final agreed text of the draft Trade Secrets Directive. The draft agreed text now awaits its first reading before the European Parliament, with the expectation that there will be a vote in March 2016. After its entry into force, Member States will have a maximum of two years to incorporate the Directive’s requirements into domestic law.

The Trade Secrets Directive is a minimum harmonisation instrument which aims to improve the effectiveness of the legal protection of trade secrets against misappropriation within the internal market. As such, Member States may provide in national law for more far-reaching protection than the Directive requires. The ability of employers to conclude non-competition agreements with employees is not affected (Recital 27a). The Directive is not intended to affect the application of intellectual property rights and the law of contract but where the application of Directive 2004/48/EC (enforcement of intellectual property rights) and this Directive overlap, this Directive takes precedence as lex specialis (Recital 28).  

With minimum harmonisation in mind, it is worth noting the principal differences between the Directive and the protection of trade secrets under English law and the differences between this agreed text and earlier drafts.

Definition

Firstly, Article 2 defines ‘trade secret’ more widely than English case law though not more widely than the categories of confidential information which the English courts have been willing to protect. To qualify as a ‘trade secret’, information 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 in question; have commercial value because it is secret and has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret. This mirrors Article 39 of the Trade Related Aspects of Intellectual Property Rights Agreement (TRIPS). Notably, the ‘commercial value’ requirement is likely to remove claims for the secrecy of private life, save, perhaps, where a celebrity could claim commercial value in aspects of their private life which they have marketed.  

'Honest commercial practices'

Secondly, Article 3(2) defines the unlawful acquisition of a trade secret by reference to ‘conduct which is considered contrary to honest commercial practices.’ That is a very opentextured definition (borrowed again from the TRIPS Agreement) to be elevated to the status of a legislative definition and is almost guaranteed to provide a steady stream of national litigation and references to the ECJ. Article 3(4) also provides for secondary liability for those acquiring, using or disclosing a trade secret by those who knew or should have known that the trade secret was obtained from someone who was using or disclosing it unlawfully.  

Whistleblowing exception

Thirdly, Article 4 provides for exemptions from the obligations in Article 3. The new agreed draft Directive inserts (at Article 4(b)) an exclusion for whistleblowers who acquire, use or disclose a trade secret in the course of revealing a misconduct, wrong or illegal activity as long as they act for the purpose of protecting the general public interest. That is a row-back from the previous text which provided that the disclosure had to have been necessary in order to make the public interest disclosure. The new agreed text appears to permit the disclosure of the trade secret merely to have been accidental, or incidental because the requirement for ‘necessity’ has been removed. Recital 12a further states that the protection of trade secrets should not prevent the competent judicial authorities from allowing an exception to the application of the protection of trade secrets where a respondent had all the reasons to believe in good faith that his conduct met the appropriate criteria for the whistleblowing exemption. In comparison, English public interest disclosure law has now relegated ‘good faith’ to a factor sounding solely in damages rather than a factor determining liability.  

Enforcement

Fourthly, Article 8 provides that Member States must ensure trade secrets revealed to parties and their representatives during judicial proceedings must not be used or disclosed outside those proceedings. However, that obligation expires where, over time, the information in question becomes generally known among or readily accessible to persons ‘within the circles that normally deal with that kind of information.’ Whilst English courts already offer that protection to those bringing misuse of confidential information claims, the radius of those circles in the Directive’s long-stop provision is likely again to present definitional challenges. There is a six year limitation period (Article 7), compared to the original three year limitation period provided for in the original draft.  

Injunctive relief

Article 10(1) and 12(1) set out a list of factors which courts must take into account when assessing applications for interim relief which are more detailed than the approach in American Cyanamid and which do not emphasise the status quo nor the adequacy of damages.  

Implementation

Given the number of open-textured definitions, we might well expect Member States to implement the Directive by imposing more rigorous protection for trade secrets than it requires, simply to remove some of the ambiguities in the text. But how to tighten up ‘honest commercial practices’ without adding further ambiguity? Good faith? Wrangling over these definitions may have interesting effects for contract law more generally. The full text of the Presidential announcement and agreed draft text can be found here


Clerks

Staff