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Trade secrets and the coming EU Directive

Trade secrets and the coming EU Directive Anthony Harrington

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The European Union (EU) has given considerable thought over the last year or so to the puzzle surrounding how best to bring some EU-wide uniformity to providing legal protection for trade secrets. Recently, its efforts on this front have resulted in the publication of a report entitled Study on Trade Secrets and Confidential Business information in the Internal Market, and on 13 November 2013, a proposed draft Directive on Trade Secrets. The latter promises to be very good for Europe's small to medium sized firms.

This a sector of the economy that is hugely responsible for growth and innovation but which lacks the deep pockets to initiate and defend patents. In fact when the EU set out to do an in-depth study of how companies in the EU regarded trade secrets, and what they regarded as trade secrets, the researchers found that companies tended to rate trade secrets as more important than patents.

Much of the available literature on trade secrets, it turns out, relates to the manufacturing sector. The EU report, published in April this year, says that in this sector:

"[...] secrets are ranked as better protection mechanisms than patents, in particular with regard to process innovations [... They are also] important to service sectors, particularly business services [...] and to the wholesale and retail trade as well."

The first question the EU pondered, before advancing on the standard itself, was, naturally enough, the question of how to define what constitutes a trade secret. It turns out that describing a trade secret for the purposes of legal protection is a bit like defining a camel. You know one when you see one, but the description is tricky, which means that the committee looking into trade secrets found no consistency among member countries. There was also no consistent legal framework from one state to the next, which makes it very challenging to defend any proprietary intellectual property held as a trade secret if it gets stolen and sold or passed to a competitor.

The EU's reason for taking on the topic of trade secrets is the realization that globalization, and an increasing reliance on technology, along with a more mobile workforce and offshoring, plus the use of outside consultants, has made it necessary for the legal protection afforded to trade secrets to be strengthened. The logic is obvious. If companies become more porous, the threat of malign disclosure of secrets grows and needs to be countered. This can be partially achieved by companies tightening their own internal protections but there are many elements of the law, including contract and employment law, that could be strengthened as well. The aim of the whole process is to ensure that innovation is not stifled by new ways of working which rob the originating company of the ability to obtain the commercial rewards due to it from that innovation.

Commenting on the draft directive, Jodie Tattersall, a senior associate with the London headquartered law firm Olswang, points out that the draft directive proposes a common definition of trade secrets as information which:

"- is 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; and
- has been subject to reasonable steps under the circumstances […] to keep it secret.
"

This is good, common sense stuff and, as she points out, should help national courts as plaintiffs seek to have products that infringe their trade secrets removed from the market, and look for compensation for that infringement. Specifically, the draft sets out the level of damages claimants can expect and a list of factors that courts might wish to take into account.

From the stand point of SMEs who will want to use trade secrets legislation to defend their property, a particularly welcome measure will be the fact that the draft introduces sensible measures to keep secrets secret during litigation - by for example, proposing restricted access to hearings and documents. It also proposes recurring penalty payments if firms found guilty of infringing trade secrets do not comply with judgments, so continued infringement just becomes more and more expensive.

The next step in this process is for the Directive to go to the Council of Ministers and the European Parliament to decide if it is to be adopted in its present form. Tattersall reckons that given a fair wind, the Directive could be in force by the end of 2014.


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Further reading on patents and trademarks:




Tags: EU Directive , innovation , intellectual property , patents , trade secrets
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