European Union: Proposed EU Trade Secrets Directive Crosses Another Hurdle With "Provisional Agreement" Between Council And Parliament

Last Updated: December 31 2015
Article by Daniel P. Hart

As regular readers of this blog will note, we have been tracking progress of the European Commission's proposed Directive to protect trade secrets as it has made its way through the European Union's complicated legislative process over the past several years. Last week, the proposed Directive crossed yet one more procedural hurdle with a "provisional agreement" on the Directive reached by the European Council (represented by the Luxembourg presidency) and representatives of the European Parliament.

The European Commission first proposed the Directive in November, 2013 to provide greater and more consistent protection of trade secrets throughout the EU's 28-Member States. Earlier this year, the European Parliament's Committees on Internal Market and Consumer Protection and Industry, Research, and Energy published comments and proposed amendments to the Directive. The Parliament's Committee on Legal Affairs subsequently issued a draft Legislative Resolution that adopted some (but not all) of the amendments proposed by the other committees. The provisional agreement now clears the way for a vote in the European Parliament next year.

Although the text of the provisional agreement is not currently available, a press release issued by the European Council provides a general overview of the terms. As expected, the proposed Directive will provide that EU member states must ensure that adequate civil procedures and remedies are available to redress illegal acquisition, use, and disclosure of trade secrets without undermining fundamental rights and freedoms or the public interest. Consistent with concerns raised (and amendments proposed) by the Parliamentary committees that previously reviewed the proposed Directive, the Council and representatives of the European Parliament agreed that the proposed Directive (i) will protect whistleblowers, (ii) will not place any limitations on investigative journalism, (iii) will not place any restrictions on workers in their employment contracts, and (iv) will not affect employees' rights to enter into collective bargaining agreements.

In addition, the press release suggests that the Council and representatives of the Parliament have reached an agreement about the limitations period for claims of trade secret misappropriation. The Legal Affairs Committee's draft resolution from earlier this year provided that "Member States shall ensure that actions for the application of the measures, procedures and remedies provided for in this Directive may be brought within three years after the date on which the applicant became aware, or had reason to become aware, of the last fact giving rise to the action." While this three-year limitations period is longer than the Commission's original text (which proposed a limitations period of "at least one year but not more than two years), it is still somewhat short by comparison to the existing limitations period in some EU member states. (For example, in the UK, a common law claim for breach of confidence or breach of contract is six years.) Based on the European Council's press release, it is now clear that the Council and representatives of the European Parliament have agreed on a limitations period that "will not exceed six years."

The press release is less clear on the protections that will be available to trade secrets during litigation. The Commission's original text provided that:

Member States shall also ensure that the competent judicial authorities may, on a duly reasoned application by a party, take specific measures necessary to preserve the confidentiality of any trade secret or alleged trade secret used or referred to in the course of the legal proceedings relating to the unlawful acquisition, use or disclosure of a trade secret. The measures referred to . . . shall at least include the possibility: (a) to restrict access to any document containing trade secrets submitted by the parties or third parties, in whole or in part; (b) to restrict access to hearings, when trade secrets may be disclosed, and their corresponding records or transcript. In exceptional circumstances, and subject to appropriate justification, the competent judicial authorities may restrict the parties' access to those hearings and order them to be carried out only in the presence of the legal representatives of the parties and authorised experts . . .

In other words, the original text contemplated "Attorneys' Eyes Only" protective order like those that are typically used in trade secrets cases in the U.S.

In contrast, in its draft Legislative Resolution, the Legal Affairs Committee watered down this language with the following proposed language that would appear to eliminate true ""Attorneys' Eyes Only" protective orders:

The measures referred to . . . shall at least include the possibility: (a) to restrict access to any document containing trade secrets or alleged trade secrets submitted by the parties or third parties to a limited number of persons, in whole or in part provided that at least one person from each of the parties, and, where appropriate in view of the proceedings, their respective lawyers and/or legal representatives, are given access to the document in full; (b) to restrict access to hearings, when trade secrets or alleged trade secrets may be disclosed, and their corresponding records or transcript to a limited number of persons, provided that it includes at least one person from each of the parties, and, where appropriate in view of the proceedings, their lawyers and/or legal representatives . . .

Unfortunately, the Council's press release does not explain how the provisional agreement resolves this conflict but states only that "[w]here necessary, confidentiality of trade secrets will also be preserved during the course of and after the legal proceedings."

Now that the provisional agreement has been reached, the Parliament and Council will conduct a legal-linguistic review of the text. Once that process has been completed, the proposed Directive will then be submitted to the full European Parliament for approval. Currently, the European Parliament is expected to vote on the initiative around March 2016, but the precise date for a first reading has yet to be determined. If enacted, Member States will be required to enact national law consistent with the Directive within two years.

We will continue to track progress of the proposed Directive, as well as the proposed Defend Trade Secrets Act in the U.S. Congress (which currently has 20 co-sponsors in the Senate and over 100 co-sponsors in the House). In the meantime, companies on both sides of the Atlantic should review their current procedures for protecting trade secrets to ensure that they can fully take advantage of these proposed laws if enacted next year. For practical tips on ways to maximize protection of trade secrets in the workplace, please check out the best practices highlighted in our 2014 webinar series.

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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