IP Cases & Articles

Trade Secrets Directive to come into force in 2016

The Trade Secrets Directive was initially proposed by the European Commission in November 2013. It followed two studies published in November 2011 and April 2013 that found a divergence in national laws, some of which inadequately protect businesses and act as a deterrent to cross-border innovation activities.

The agreed text of the directive was published in December 2015 and a provisional date of 08 March 2016 has been set for the European Parliament to vote on it. Assuming the Council and European Parliament approve, the directive will be published in the EU Official Journal and come into force 20 days later. Member states will then have two years to implement it.

The object of the directive is to "harmonise the existing diverging national laws on the protection against the misappropriation of trade secrets so that companies can exploit and share their trade secrets with privileged business partners across the Internal Market, turning their innovative ideas into growth and jobs." The directive seeks to achieve this by setting minimum standards for protection of trade secrets across Europe.

General provisions

'Trade secret' is defined in Article 2 of the directive as information that:

  • is secret ie, not generally known among or readily accessible to persons in 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, by the person lawfully in control of the information, to keep it secret.

Article 3 of the directive gives details of infringing acts including unlawful acquisition, use or disclosure and production, offering or placing on the market of infringing goods.

Remedies are detailed in Article 11 and include common remedies for IP infringements such as:

  • injunctive relief preventing the use, production or sale of the trade secret;
  • destruction or delivery of infringing articles; and
  • corrective measures including recall of the infringing goods from the market and depriving infringing goods of their infringing quality.

Current UK position

There is currently no concept of a 'trade secret' in the UK. The equivalent is the common law concept of 'confidential information'.

The leading case of Coco v AN Clark (Engineers) Ltd [1969] RPC 41 established that information is confidential if:

  • it has the "necessary quality of confidence";
  • it was imparted in circumstances importing an obligation of confidence; and
  • there has been unauthorised use of the information to the detriment of the communicating party.

Confidential information therefore appears to be a wider concept than a trade secret under the directive. This is especially so since there is no requirement for confidential information to have commercial value. The existence of commercial value was considered in Douglas v Hello! (No 3) [2008] 1 AC 1 in which the majority of the House of Lords concluded that the commercial value of the photographs in question was a contributing factor in establishing the necessary quality of confidence, though not a necessary one.

It is not currently clear whether the UK will expressly implement these provisions of the directive. The UK Parliament's European Scrutiny Committee has commented on them in previous drafts of the directive and stated that they are already given effect in national law.

Mobility of Labour

The provisions of the directive relating to labour mobility were the subject of much debate in the most recent round of negotiations involving the text of the directive. Initially they were widely drafted meaning that employees leaving a company could have been entitled to use information that was known to them in the normal course of employment regardless of its confidentiality.

The agreed Article 1(2a) provides that movement of employees shall not be restricted by the directive and in particular that the directive shall not:

  • limit employees' use of information not constituting a trade secret; or
  • limit employees' use of experience and skills honestly acquired in the normal course of their employment.

Rather than allow a blanket ban on trade secrets being enforced against former employees, this prevents enforcement in relation to information (trade secret or otherwise) that is part of the employee's "experience and skills honestly acquired". However it recognises that information can be a trade secret and not be part of the employee's experience and skills honestly acquired (the Coca Cola recipe for example) and the directive applies to such information.

Current UK position

The current UK approach developed in Faccenda Chicken Ltd v Fowler [1987] Ch 117 prevents former employees from using or disclosing information which is of a sufficiently high degree of confidentiality so as to amount to a trade secret. The obligation does not extend to all information obtained by the former employee during employment and in particular may not cover information which is only confidential in the sense that disclosure would amount to a breach of good faith.

There is an argument that "use of skills honestly acquired in the normal course of employment" implies a wider ban on enforcement than under Faccenda Chicken making it unclear whether Article 1(2a) of the directive requires implementation in the UK. In any event, references to the Court of Justice of the European Union (CJ) are to be expected in particular on the meaning of "experience and skills honestly required".

Recital 27(a) of the directive says that the directive is not "intended to affect the possibility of concluding non-competition agreements between employers and employees, in accordance with the applicable law". This leaves issues in relation to restrictive covenants and non-compete clauses up to national law and the applicability of Article 1(2a) will be subject to such restrictive convents and non-compete clauses.

Public interest defence / whistleblowing

Another hotly debated provision of the directive is Article 4 which provides exceptions to the alleged acquisition, use or disclosure of a trade secret including Article 4(b) when such disclosure was carried out "for revealing misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest".

As drafted this provision implies that there is no limit to the scope of the disclosure in question, its audience or the type of wrongdoing, provided that the disclosure is made in the public interest.

Current UK position

Currently in the UK disclosure of confidential information will be excused if it is justified in the public interest. Whilst the court does apply the maxim "there is no confidentiality in iniquity", it is generally quite narrow in construing it, especially where disclosures are made in an unnecessarily wide manner or to inappropriate audiences.

The directive therefore appears to widen the defence available when compared to the position under UK law which again is likely to require clarification by the CJ.

Confidentiality of trade secrets during and after legal proceedings

Importantly Article 8 of the directive requires that judicial authorities are provided with mechanisms to preserve the confidentiality of trade secrets disclosed for the purpose of litigation both during and after the litigation. These mechanisms are to include at least:

  • the restriction of documents containing trade secrets or alleged trade secrets to a limited number of people;
  • the restriction of access to hearings in which trade secrets or alleged trade secrets may be disclosed; and
  • the requirement to make available to any other person non-confidential versions of judicial decisions in which the passages containing trade secrets have been removed or redacted.

When applying these provisions the court must assess their proportionality taking into account the need to ensure the right to a fair trial, the need for justice to be seen to be done (ie, hearings in open court) and any potential harm resulting from the granting or rejection of such measures.

Current UK position

The UK courts currently have a wide discretion in regard to the confidentiality of proceedings and are used to dealing with confidential information in particular in respect of the concerns that the mechanisms in Article 8 of the directive seek to address.

Useful link

European Commission trade secrets webpage