European Union: Proposed EU Directive On The Protection Of Confidential Information

Last Updated: 8 April 2014
Article by Jennifer Pierce and Christopher Birch

BACKGROUND

The EU Commission has proposed a new directive, which is intended to ensure that confidential information is adequately protected throughout the entire European Union. Previously, the Commission had paid for studies of the laws of Member States, and had ascertained that the level of protection in the vast majority of states is poor. Furthermore, the Commission heard that there was forum shopping, with companies choosing to site R&D facilities in countries where there is greater protection.

The proposal is supposed to be a harmonising measure, which means that it would most probably require the removal of national protection that goes beyond what is provided by the Directive. This is of particular significance in the UK which, in relative terms, has highly effective protection over and above that in the proposals. Whilst the intention of the Directive seems clear, it is likely that at some stage it will be necessary for the courts to clarify whether it is, indeed, a harmonising measure. We have seen similar litigation in the field of software copyright.

SPECIFICS OF THE PROPOSED LEGISLATION

What will it cover?

Trade Secrets

It will cover "Trade secrets", which will be defined as:

  1. 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;
  2. has commercial value because it is secret;
  3. has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

The proposal would cover a combination of information, where the precise combination is not in the public domain. The first limb effectively defines what the "public domain" will mean. The meaning of "precise" could well be the subject of a reference to the European court in the future.

The definition combines the words "generally known among or readily accessible to", which would suggest that reverse engineering will only be permitted to a limited extent. In fact, this wording is inconsistent with the later wording permitting reverse engineering (see below).

It becomes apparent, when reading the full directive, that it will also cover the overlap with privacy, provided that the secret has commercial value. So it should cover situations such as that in Douglas v Hello (a case involving the publication of wedding photos in breach of confidence), as well as industrial and commercial information.

Drafting agreements:

It will not therefore be necessary to include wording to:

  1. deal with combinations of published information that are secret; or
  2. describe the public domain in any way.

It will simply be a case of referring to a "trade secret" under the new law, although the subject matter of the secret should still be described with care.

What is prohibited?

Basic rule

Protection is available to "prevent or obtain redress for, the unlawful acquisition, use or disclosure of a trade secret".

Acquisition is unlawful if carried out "intentionally or with gross negligence" by unauthorised access or copying of "documents, objects, materials, substances or electronic files, lawfully under the control of the trade secret holder".

The proposal also refers to theft, bribery, deception and "breach or inducement to breach a confidentiality agreement or any other duty to maintain secrecy", as well as "conduct which, under the circumstances, is considered contrary to honest commercial practices". It is likely that the concepts of "gross negligence", "any other duty to maintain secrecy" and "honest commercial practices" will be clarified by the European Courts at some stage *1.

Use or disclosure is unlawful "whenever carried out, without the consent of the trade secret holder, intentionally or with gross negligence" if any of the following conditions are met:

  1. the trade secret has been acquired unlawfully;
  2. there has been breach of a confidentiality agreement or any other duty to maintain secrecy; or
  3. there is a breach of a contractual or any other duty to limit the use of the trade secret.

So this deals with both unlawful acquisition and the situation where confidential information has been obtained lawfully, but is used in breach of confidence. However, it is not clear as to how the basic duty of confidence may be imposed; in particular, note the wording underlined in the text above. It appears that all disclosures (i.e. voluntary ones) must be under a confidentiality undertaking in order to ensure that the use or disclosure would be unlawful.

Use or disclosure is unlawful if a "person, at the time of use or disclosure, knew or should, under the circumstances, have known that the trade secret was obtained from another person who was using or disclosing the trade secret unlawfully". This should allow a recipient of information to receive the information lawfully but if they then become aware that it was disclosed unlawfully, at that point further use or disclosure by the recipient will become unlawful.

Placing on the market

"The conscious and deliberate production, offering or placing on the market of Infringing Goods, or import, export or storage of Infringing Goods is unlawful. Infringing Goods are "goods whose design, quality, manufacturing process or marketing significantly benefits from trade secrets unlawfully, acquired, used or disclosed".

This goes further than the current English law as it introduces the concept of infringing goods, which can then be traced, whereas English law does not allow people to prevent the dissemination of material that is already in the public domain.

Lawful acquisition

There is specific exemption for:

  1. independent discovery or creation;
  2. independent study, disassembly or test of a product or object that has been made available to the public or that it is lawfully in the possession of the acquirer of the information;
  3. exercise of the right of workers representatives to information and consultation in accordance with Union and national law and/or practices; or
  4. any other practice which, under the circumstances, is in conformity with honest commercial practices.

Exception (b) clarifies the position on reverse engineering, which is permitted provided that the product is acquired lawfully. We will have to see how far the exception for "honest commercial practices" extends when the issue is tried.

In addition to the exceptions, there is to be no remedy available in the following cases:

  1. freedom of expression and information;
  2. revealing an applicant's misconduct or illegal activity to the extent necessary for that revelation, where the defendant acted in the public interest;
  3. disclosure by workers representatives in the legitimate exercise of their representative functions;
  4. for the purpose of fulfilling a non-contractual obligation; or
  5. for protecting a "legitimate interest".

The first two refer to press freedom and the interface with laws of freedom of expression. The exact remit of (d) and (e) remains to be seen as they look wide and will no doubt be clarified by the European Courts at some stage.

What can you do about Unlawful acquisition, use or disclosure or placing on the market?

There are general requirements for enforcement measures to be proportionate and to avoid the creation of barriers to trade, as well as providing safeguards against abuse of protection.

Limitation period

There is a minimum period of a year and maximum of 2 years from the date when the claimant first becomes aware of the breach, during which action can be taken. Under English law there is probably a limitation period of 6 years on all claims and it is not possible to obtain an injunction after a period of delay.

Can you use a confidentiality undertaking to provide additional protection?

Under current English law it is possible to provide additional contractual protection for confidential information, for example by setting out the exact scope of the information and the purposes for which it may be used. However, a contract cannot be used to protect information that does not fulfil the basic requirements of confidential information.

In this regard, the position under the proposed directive is uncertain, but it would make sense for the European courts to take a similar line. The intention of the directive will be to harmonise European law, so it is highly unlikely that it will be possible to contract out of the terms. However, it may well be possible to use the terms in the directive to best advantage, for example, by clarifying the subject matter of the confidence and by setting out the way in which the relationship will be managed.

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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