Documents considered by the Committee on 7 May 2014 - European Scrutiny Committee Contents


3 Protection of trade secrets

(35623)

17392/13

+ ADDs 1-3 COM(13) 813

Draft Directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure

Legal baseArticle 114 TFEU; QMV; co-decision
Document originated28 November 2013
Deposited in Parliament9 December 2013
DepartmentBusiness, Innovation and Skills
Basis of considerationMinister's letter of 30 April 2014
Previous Committee ReportHC 83-xxxiii (2013-14), chapter 3 (12 February 2014)
Discussion in Council26-27 May 2014
Committee's assessmentLegally important
Committee's decisionNot cleared; further information requested; scrutiny waiver granted under paragraph 3(b) of the Scrutiny Reserve Resolution

Background

3.1 Trade secrets can cover a wide range of different types of information, such as technical innovations, recipes, business processes or customer information. Businesses use trade secrets either alongside formal intellectual property (IP) rights or as an alternative to them.

3.2 Unlike IP rights, the knowledge contained in trade secrets is not exclusive to the trade secret holder. It is possible independently to acquire and use the same knowledge, including through taking a product apart to see how it works.

3.3 Provided it can be kept secret, a trade secret can also be protected indefinitely, in contrast, for example, to the 20-year term of patent protection. For industries with long product life cycles, trade secrets can therefore be an important part of a strategy to protect and exploit intangible assets.

3.4 Trade secrets are included in the World Trade Organisation (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) which is binding on all EU Member States. The TRIPS Agreement states that trade secret holders should be able to prevent information from being disclosed to, acquired by, or used by third parties in "a manner contrary to honest commercial practices" [3] if it is commercially valuable because it is secret, and if the trade secret holder has taken reasonable steps to maintain its secrecy.

3.5 Few Member States have defined "trade secrets" in their domestic legislation and a study carried out for the European Commission suggested that this absence of a common definition could result in inconsistency, making enforcement in another Member State more difficult. The Commission argues that this increased risk to business acts as a disincentive to engage in cross-border innovation activities. In a survey, the fear of losing confidentiality was cited by 40% of respondent companies as a barrier to sharing trade secrets.[4]

3.6 Our previous Report provides an outline of the Commission's proposal. Broadly it would establish:

·  a common definition of a "trade secret";

·  the circumstances which the acquisition, use and disclosure of a trade secret is unlawful; and

·  the procedures for redress and the remedies that should be made available to the holder of a trade secret.

3.7 In our previous Report we concluded that the stated cross-border objectives of the proposal provide a sufficient basis to justify action at EU level, and noted that the protection of trade secrets under the UK's common and contract law is consistent with the terms of the proposed draft Directive, other than the shorter limitation period proposed by the Commission. We asked the Minister to indicate whether the Directive as currently drafted would require implementing legislation, even though it is already given effect in national law and, if so, to list the Articles that would require implementing legislation and to explain what form such legislation would take. Finally, we asked the Minister to report back on the responses of national stakeholders to this draft Directive.

The Minister's letter of 30 April 2014

3.8 The Minister (Viscount Younger of Leckie) reports that negotiations at the level of the Council Working Party have proceeded rapidly and encloses the Presidency compromise text that emerged from that process. There is broad support for the proposal and the Presidency now aim to agree a general approach at the Competitiveness Council on 26 -27 May.

3.9 In respect of the key issue of the limitation periods for actions the original proposal of between one and two years has been extended to a maximum period of five years, which is one year less than the period permitted in England and Wales and Northern Ireland, and the same as that in Scotland. The UK Government continues to argue that Member States should be able to maintain a period of up to six years, but he believes that five years represents a significant improvement on the original proposal.

3.10 The UK has also successfully pressed for the strengthening of confidentiality of court proceedings in line with UK law.

3.11 The UK has also secured a provision enabling the Government, in rare circumstances where national emergency circumstances so demand, to acquire, use or disclose a trade secret in circumstances where that would otherwise be unlawful.

3.12 The Minister further reports that no formal consultation of national stakeholders has taken place, but key representative bodies have been informally consulted. Broadly, industry is supportive as it sees the Directive as a means of delivering a minimum standard of protection and available remedies across the EU. Issues that have been raised in the discussions include the shortness of the limitation period, the impact on employer/employee relations, the absence of provisions to secure evidence, the importance of retaining measures to protect confidentiality in litigation, and more technical points relating to the drafting of the text.  

3.13 In response to our request concerning the implementation of the proposal in national law the Minister has provided a table which indicates that the limitation period set out in the proposal would require amendment to the Limitation Act 1980, and that new legislative provision (including changes to the Civil Procedure Rules) would be required to implement the provision enabling courts to order that infringing goods taken off the market to be delivered up to the holder of the trade secret or to a charitable organisation on condition that they do not return to the market. The Minister also identified two other instances where changes would be required to the Civil Procedure Rules.

Conclusion

3.14 We are grateful to the Minister for his comprehensive response.

3.15 We are conscious that this would be a new area for the exercise of EU competence. This in itself brings consequences, such as jurisdiction of the Court of Justice and a role for the Commission, including in relation to international agreements. We should be grateful if the Minister would provide an assessment of the implications of the Union exercising competence in this new area. We also ask him to provide an assessment of the proposal in respect of the two outstanding matters raised by national stakeholders, namely the impact on employer/employee relations and the absence of provisions to secure evidence.

3.16 In the meantime we grant a scrutiny waiver on this proposal in order to enable the UK Government to participate in the agreement of a general approach at the forthcoming Competitiveness Council of 26-27 May, should a satisfactory outcome be reached. The document, however, remains under scrutiny pending the response to these outstanding matters and the outcome of anticipated discussions with the European Parliament.


3   Article 39(2). Back

4   Baker & McKenzie, Study on Trade Secrets and Confidential Business Information in the Internal Market, 2013, p.124. Available at http://ec.europa.eu/internal_market/iprenforcement/docs/trade-secrets/130711_final-study_en.pdf. Back


 
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