European Union: EU Trade Secrets Directive 2016: A Safeguard For Non-Compliance Of Disclosure?

Last Updated: 13 May 2016
Article by Legasis  

Trade secret is an important driver for innovation and growth in any industry. Large companies are often in a position to maintain their portfolios of intellectual property rights to protect their patents. However, when it concerns the small businesses, they mostly have to rely on trade secrets as they may not afford to patent their inventions and strategies as easily. In view of this, on the one hand, the recent enactment of the long-awaited EU Directive on trade secrets by the EU Parliament ("the Directive") would prove to be an effective metamorphosis in the domain of IP, on the other hand, it is essential to analyse whether the Directive would act as a shield for companies from performing their legal compliances related to disclosing the business information when required by public authorities.

The European Commission in its Report about the Directives on Trade Secrets ("The EC Report") simply defines trade secret as an undisclosed know-how and business information. Such secrets may include any strategic information right from manufacturing processes to any such information that may help a business perform in its unique commercial manner and retain its position in the market. Until November 2013 when European Commission proposed a draft directive against the misappropriation of trade secrets across the EU, the term 'trade secrets' had been defined very flexibly by the Member States of the EU.  There had not been any harmonised legal definition of what constitutes the misappropriation of trade secrets either. The Directive, however, now harmonises the definition of trade secrets as any information which is secret, has commercial value because it is secret and has been subject to reasonable steps to keep it secret. This definition would be aligned with the national laws of the EU Member States and thus, would be adopted all across the EU. Misappropriation of trade secrets may attract civil as well as criminal sanctions in some of the jurisdictions such as in the United States of America. However, in the EU, the Directive has made available largely civil means to seek protection for misappropriation of trade secrets. As per The EC Report", these civil means are as follows: "a) stopping the unlawful use and further disclosure of misappropriated trade secrets; b) the removal from the market of goods that have been manufactured on the basis of a trade secret that has been illegally acquired; c) the right to compensation for the damages caused by the unlawful use or disclosure of the misappropriated trade secret."

The abovementioned civil actions under the Directive will certainly ensure better protection to the victims of misuse of trade secrets. However, at the same time, it's essential to understand whether this Directive could be used as a loophole by the victim companies in terms of escaping legal compliances. To elaborate further, a question arises whether these victim companies may use the provisions of the Directive as a safeguard for their legal obligations to reveal information if required by the public authorities in public interest. It also becomes important to ascertain the position of whistle-blowers when such civil actions are now made available to victims under the Directive. The companies may take the shelter of provisions of the Directive when they do not wish to disclose the confidential information and may also sue any person who does so without their consent.  The draft form of the Directive was being criticised and questioned by many domain experts deliberating over the possibility of the Directive restricting access to its employees, whistle-blowers, journalists, consumers of its confidential information.

The EC Report clarifies that the act of obtaining such information in itself by employees, whistle-blowers or consumers is not restricted. The Directive merely forbids the unlawful conduct of obtaining such information without authorisation or through any illicit means. Any legal means used to obtain such information are out of the purview of the Directive. Similarly, the Directive does not alter any legal obligations of the companies to divulge such information when required by the public authorities. The EC Report states that "... the draft directive expressly safeguards those who, acting in the public interest, disclose a trade secret for the purpose of revealing a misconduct, wrongdoing or illegal activity. This safeguard is operative if the trade secret was acquired or passed to the whistle-blower through the use of illicit means such as the breach of law or contract. If no unlawful conduct takes place the disclosure of the trade secret is out of the scope of the proposed directive and therefore no safeguards are necessary."

Thus, the said Directive does not allow companies to do away with the legal compliances under any of the disclosure related provisions of the EU laws, nor does it take away the right of employees, whistle-blowers or consumers to access such confidential information provided such access is obtained through legitimate and lawful means. It is true that the current definition of 'trade secrets' may give much liberty to companies to deem any information as confidential which in turn might assist companies to avoid disclosure related compliances. However, the EU-wide uniform definition of trade secrets and more harmonised legal redress mechanisms against misappropriation of trade secrets would prove to be the greater advantages coming out from the Directive.

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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