European Union: New Protection For Trade Secrets: Amendment To The Unfair Competition Act To Implement The EU Know-How Directive

Last Updated: 13 December 2018
Article by Rainer Herzig

The European Union Directive on the protection of undisclosed knowhow and business information (trade secrets) against their unlawful acquisition, use and disclosure should have been implemented in Austria by 9 June 2018. On 13 June 2018, the Federal Ministry for Digital and Economic Affairs presented a draft bill to amend the Federal Act Against Unfair Competition and the Code of Civil Procedure (2018 Amendment to the Unfair Competition Act). The government bill was presented to Parliament on 22 November 2018.

Current legal situation

Rules governing trade secrets are provided in the criminal law sections of the Unfair Competition Act (UWG) and the Criminal Code. Under Section 11 UWG, employees commit an offence when they disclose, without authorisation, business information entrusted or accessible to them due to their employment status to obtain a competitive advantage. Under Section 12 UWG, an individual who, without authorisation, utilises or discloses technical documents or regulations in order to obtain a competitive advantages commits an offence. Section 13 UWG grants the right under civil law to obtain an injunction and claim damages.

There is no definition of trade secrets in any law. According to the prevailing view, trade secrets are:

  • enterprise-related facts of a commercial or technical nature,
  • which are known only to a defined and limited number of individuals or are difficult to access, and " which the authorised individual does not wish to spread beyond those in the know,
  • and with regard to which the owner of the enterprise has an economic interest in not disclosing them.

New protection The EU Directive 2016/943 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure defines what is meant by trade secrets.

According to Article 2 of the Directive, "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; and
  • it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret;

These requirements, while overlapping existing criteria, still are not fully identical. They are to be implemented in the new Section 26b UWG. In order to claim the new type of protection, each of the three criteria must be met, with particular attention to be given by enterprises to proving the commercial value and the taking of reasonable secrecy measures.

The commercial value of a trade secret may be evidenced by the cost of purchase or development.

Evidence of having taken reasonable security steps is more difficult to furnish. Their sufficiency will likely depend on the scope and industry concerned as much as on the type of secret involved.

Examples for documenting reasonable steps are listed in the explanatory remarks of the bill, including:

  • recording the trade secrets,
  • identifying the trade secret holders,
  • restricting disclosure to selected trusted individuals (those who "need to know"),
  • an "in-house policy for trade secrets and their comprehensible documentation", and
  • ongoing efforts to keep the secret confidential.

To the extent that such measures have not already been put in place, attention in the future will have to focus on documenting trade secrets, restricting knowledge of them to a small group of initiates, the routine inclusion of non-disclosure clauses in employment contracts, and the conclusion of confidentiality agreements for technical or commercial cooperations and negotiations on the sale of businesses.

Sanctions

The criminal law provisions of Sections 11 and 12 UWG and their penalties remain intact. The civil law rights of injunction, remedy and damages are moved to the new Section 26c UWG. The subsequent Sections 26d ff UWG regulate unlawful acquisition, unlawful use and disclosure of trade secrets, lawful acquisition, lawful use and disclosure of trade secrets, and the details of applications for injunctions and remedy. Newly introduced features are the right to request surrender of "unfairly obtained profits" and liquidated damages pursuant to Section 26c UWG, an extension of the right to have items (products, documents, materials, data files) recalled under Section 26g UWG and the introduction of an adequate compensation when a person originally acting in good faith finds out facts from which s/he knows or must know that s/he has gained knowledge of a trade secret, whether directly or indirectly, through another person who has unlawfully used or disclosed such secret ("subsequent bad faith").

Section 26i UWG offers several new tools for injunctions (prohibition to use or disclose the trade secret, prohibition to make, offer, market or use infringing products, seizure (!) of infringing products). In the event that an injunction is subsequently lifted, Section 26j (5) UWG provides that third parties may also claim damages regardless of who is at fault; previously only the adversary was entitled to such a claim.

Safeguarding trade secrets in court

One problem when prosecuting a claim of infringement of trade secrets has so far been the need to disclose the secret during proceedings. The bill provides that the trade secret has to be disclosed initially only insofar as it is necessary to plausibly submit the existence of a trade secret and its infringement. It is sufficient to submit the existence of a trade secret and to substantiate the submission to an extent that the trade secret and the asserted claim to such extent that it allows conclusively deriving the asserted claim.

Upon application or ex officio the court has to take such measures that the opponent and third parties do not receive information beyond their existing knowledge. The measures may comprise disclosure of the alleged trade secret to a court-appointed expert. The court may instruct the expert to provide the court with a summary which does not contain confidential information on the trade secret. The court may designate parts of the documents and the expertise as secret and may exclude these parts from access to the records (in-camera-proceedings).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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