United States: Hidden Details: Thoughts On Trade Secrets From The UK

As a special feature of our blog—special guest postings by experts, clients, and other professionals—please enjoy this blog entry from Jeremy Morton, an English solicitor who advises in the areas of intellectual property and data protection law. 

As reported recently by Seyfarth Shaw's lawyers in this very blog, on 13 April the European Parliament will vote on the EU Commission's proposed trade secrets directive.  Many English legal practitioners, more or less familiar with our non-statutory protections for confidential information, will assume that nothing will change when the directive is implemented.  We already protect trade secrets pretty well, unlike other EU countries for whom reform is seen as essential in order to fill legislative voids.  But if we look more closely at the EU proposals, we find plenty of uncertainties that could arise under the EU proposals.

For starters, the English law of breach of confidence is not limited to 'trade secrets'.

Why does it matter?

This is important not only to provide certainty for business that confidential information will be protected, but to provide comfort that businesses won't be hit with a rush of unmeritorious claims.  The draft directive tackles that, in Article 6(2), providing that defendants should be able to ask the court for appropriate relief where a claim is "manifestly unfounded and the applicant is found to have initiated the legal proceedings abusively or in bad faith".  We currently deal with abuse of process through sanctions such as striking-out or adverse costs awards.  But the draft directive provides that such measures may include an award of damages.  Like the current sanctions for unjustified threats in connection with intellectual property rights in the UK, this will be a trap for the unwary.

Perhaps the biggest uncertainty arises from the role of the European Court of Justice (CJEU).  When the Directive is in force, the CJEU will have jurisdiction to determine the outcome of cases where the correct interpretation of the Directive is unclear.  That will mean that the English courts will have to apply CJEU decisions, as well as themselves referring issues to the CJEU.  Our law will change.  And trade mark practitioners know how difficult things can become when one has to follow CJEU jurisprudence.

What is a Trade Secret?

Let's look briefly at the current position in English law.  Information will be protected where it has the necessary quality of confidence and provided it has been communicated in circumstances importing an obligation of confidence.  It does not have to be a 'trade secret'.  This equitable protection for confidentiality is separate from other measures such as contract law, the Data Protection Act, the Computer Misuse Act, database right and copyright.  It has also developed into the relatively new area of privacy protection.

Employees are under an implied duty of good faith which imports contractual obligations of confidentiality under English law.  But after their employment ends they need only preserve 'trade secrets', and may use information having a lesser degree of confidentiality, subject to their restrictive covenants.  For example, customer details might be protected during employment but not after.  What is a 'trade secret'?  We may feel that we would know it when we see it.  Confidential chemical formulae sound like 'trade secrets', for example.  The well-known Faccenda Chicken case provides guidance here: for example, we should look at the nature of the employment, and whether the information can be easily isolated from other, non-confidential information.

Recital 1 of the draft directive gives several examples of potential trade secrets: technology; customers/suppliers (in contrast with Faccenda Chicken where customer details were not 'trade secrets' after employment ended); business plans; market research.  More interesting is the following cumulative definition of a "Trade Secret" in Article 2(1):

"...secret in the sense that it is not ... generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question...

...has commercial value because it is secret...

...has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret"

Alarm bells are gently tinkling.  Not only is this very different from the Faccenda Chicken guidelines, but it introduces the Euro-speak notion of "circles that normally deal with the kind of information" (how do we establish who they are?), and requires a direct link between secrecy and commercial value.  Would this cover information to which employees have access because of their employment, during the term of that employment, even if not a 'trade secret' in the English sense?  What about a famous author, who publishes a new book under a pseudonym for artistic reasons, but whose true identity is then revealed by a trusted intermediary against their wishes?  That information arguably has more commercial value once in the public domain (although less personal value).

Also, since this directive will be concerned with "trade secrets", does it permit the English courts to continue to protect 'lesser' confidential information that does not meet the "trade secret" threshold, or does it do away with such protections?  That would be surprising.  It does say (in Article 1(2a)(a) and (b)) that "in relation to the exercise of mobility of employees", nothing in the directive offers any ground for limiting employees' use of information not constituting a trade secret as defined in the directive,  or limiting their use of experience and skills honestly acquired in the normal course of their employment.  This seems to preserve the protections for employees under Faccenda Chicken.

Springboard Relief

The other aspect of the new legislation that will be fascinating to see unfold is its take on springboard relief.  This is where a defendant has gained a head-start by using confidential information, even if they are no longer using it as such or it is no longer confidential.  It's a tricky area, which the English courts have discretion to tackle via the terms of any injunctive relief granted.

Article 11 of the draft directive sets out the available measures that a court may order against a defendant.  These include "the prohibition to produce, offer, place on the market or use infringing goods".  "Infringing goods" has a special meaning here, as defined in Article 2, namely: "goods whose design, characteristics, functioning, manufacturing process or marketing significantly benefits from trade secrets unlawfully acquired, used or disclosed".  What remains unspoken here is, first, the extent to which (if any) those goods must continue to embody any aspect of the trade secrets in question; secondly, whether the information must still be a trade secret at the time relief is granted; and thirdly whether "unlawfully" means only in breach of the trade secrets laws implementing the directive, or could include other unlawful steps under national laws.  There is plenty of room for argument on this.

Summing up, many details are far from clear (unsurprisingly), and astute English lawyers will have plenty to get their teeth into with this new legislation.  Judges in other countries may be less eager to grapple forcefully with protection of trade secrets, potentially leading to forum shopping in favour of the English courts.  And let's not even talk about Brexit...

Jeremy Morton is an English solicitor who advises in the areas of intellectual property and data protection law.  www.harbottle.com/jeremy-morton

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