The Trade Secrets Directive - Has Harmonisation Been Achieved?

The 9 June 2018 deadline for EU Member States to implement EU Directive 2016/934 on Trade Secrets has been and gone, but it is not clear if its aim of harmonisation has been achieved yet…

The EU Directive defines a trade secret as being information with commercial value that is actively kept secret. It describes what the lawful acquisition and use of trade secrets can be, as well as unlawful; lawful uses are “honest commercial practices” such as independent discovery and disassembly; unlawful use is any conduct contrary to this honest practice. 

How have things changed since the EU Directive? 

A quick overview of trade secrets across Europe.

Before the EU Directive, trade secret protection varied across the EU. The Netherlands relied on tort law, Malta relied on contract. Only 11 countries including Italy and Bulgaria had a definition of a trade secret. Sweden has had an Act on Protection of Trade Secrets since 1990 which protects against the unlawful acquisition, use or disclosure of trade secrets and this Act already met most of the requirements in the EU Directive. 

However not all Member States had these clear rules. In the UK, the common law of confidence based on principles of equity protected trade secrets. It was made up almost entirely of case law; no statute defined a trade secret and no single Act dealt with safeguards and remedies. English confidentiality law allowed for a broad definition since it didn’t require the information to be commercially valuable. To bring an infringement to a court in the UK, the claimant had to show a serious question needed to be tried, and the judge would consider this on the balance of convenience. 

The French legal system protected “manufacturing secrets” (secrets de fabrique) under the Intellectual Property Code, but again rules were fragmented.Trade secrets were not afforded any sort of proprietary right, they were protected through criminal law- for example fines or jail time could be issued to a director sharing company information. Other ways of protecting secrets de fabrique were under general tort and civil law- obtaining knowledge fraudulently was an act of unfair competition and damages could be claimed, and contracts could contain confidentiality clauses. In France, before the new law was introduced, in an attempt to clearly regulate trade secrets the Macron Bill was presented to, but rejected by, the French National Assembly. It attempted to put obligations on the owners of trade secrets to keep them confidential and was rejected on the basis that it gave too much arbitrary power to judges to decide what information should or shouldn’t be protected by freedoms of expression. Laws remained unorganised. 

In Belgium, Article 309 of the Belgian Criminal Code protected manufacturing secrets, and it might have been possible to find protection also under tort in the Belgian Civil Code, commercially in the Belgian Code of Economic Law and perhaps under contract. Depending on the circumstances, a violation of an employment contract could be invoked, or unfair competition could be claimed. But there was no specific legal framework for the protection of trade secrets and again the rules were scattered.

Are things clearer now?

The UK was one of the first member states to transpose the EU Directive with the Trade Secrets (Enforcement etc.) Regulations Act which came into force on the same date as the deadline. While technically different to tests set out in the the new law, the factors a court will now be able to consider are quite similar to those considered on previous the balance of convenience test. 

The UK Intellectual Property Office conducted a study for one month and found that many affected felt transposition of the new law was not actually necessary, as the current system worked well. English judges already used a similar approach to the new law approaching “fairness” as a legal issue, and English courts were generally already good at protecting private information.

Sweden was not far behind and the Riksdag passed the Act on the Protection of Trade Secrets on 1 July 2018, which replaced the previous 1990 Act. The definition of trade secrets remains similar, with more of an emphasis on the information being kept activelysecret. The minimum sentence for trade espionage has increased from a fine to up to 6 months of imprisonment. Although more types of attacks on trade secrets can be considered unlawful and result in liability to pay damages, in practice protections remain much the same. 

In France, after the National Assembly rejecting The Macron Bill in 2015 with worries that exemptions from liability for disclosure were too wide, the directive now offers even more exemptions. On 1 August 2018 the Law on the Protection of Trade Secrets implementing the new law first came into force, subject to the adoption of implementation decrees. 

Whilst harmonising definitions in the French Commercial Code with the rest of the EU, French legislature has chosen not to criminalise breaches of trade secrets. The crime of misuse of protected economic information for exclusively economic purposes already exists and there is feeling that this is adequate - however it fails to take into account data which is essentially not physical. 

The Belgian Act on the Protection of Trade Secrets was due to enter into force 24 August 2018. In addition to the minimal protections set out by the Directive, the Bill alters the Code of Economic Law, the judicial code and the act on employment contract. However here, the situation still remains very vague. 

Why are the rules still so fragmented?

Unfortunately for business owners operating across the EU, the EU Directive is only a minimal harmonising legislation, so Member States had the option to offer higher levels of protection for trade secrets as long as the minimum standards in the new law are offered to trade secret holders.

Why, then, is there an apparent reluctance from some member states to implement the new law at all?

Perhaps one reason could be that in practice a lot of the rules that the Eu Directive sets out practically already exist. The definition of a trade secret in the new law is the same as the definition in the TRIPS (Trade Related Aspects of Intellectual Property Rights) Agreement, an international agreement administered by the WTO in 1994. It is also very similar to the definition in the US Uniform Trade Secrets Act. 

The new General Data Protection Regulation (GDPR) also came into force in May 2018 and businesses have been caught up in ensuring the private data they hold on individuals in EU countries is lawful. There are hefty fines for not complying with this legislation and so maybe it has seemed more urgent. On top of this, a lot of the practicalities - ensuring information is kept separate, ensuring the right protection measures are in place - correspond with the requirements of this new trade secrets legislation. 

Ignoring political factors, the degree of implementation required by each state is different; for some countries substantive change to the law is minimal, for others there is a lot of work to be done.

The issue of insufficient safeguards has also been raised; perhaps the new law allows for excessive secrecy and information control rights for businesses. While it might be in the public interest for some information to be reviewed, whistle blowers may not call out now for fear of breaking the law. An industry survey commissioned by the European Union to the law firm Baker & McKenzie found that 79.5% of companies had not suffered any attempts or acts of misappropriation of trade secrets in the last 10 years. 

While the Trade Secrets Directive, is a useful and necessary tool to harmonise a minimum level of protection for commercially valuable information, it remains to be seen how successful this harmonisation will be in practice. 

If you have any queries about how the new law applies to your trade secrets across Europe, contact us!

Authors:

Lily Morrison, Legal Consultant at Gerrish Legal, October 2018

Charlotte Gerrish, Founding Lawyer at Gerrish Legal, October 2018