3 Protection of trade secrets |
+ 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 base||Article 114 TFEU; QMV; co-decision
|Document originated||28 November 2013
|Deposited in Parliament||9 December 2013
|Department||Business, Innovation and Skills
|Basis of consideration||Minister's letter of 30 April 2014
|Previous Committee Report||HC 83-xxxiii (2013-14), chapter 3 (12 February 2014)
|Discussion in Council||26-27 May 2014
|Committee's assessment||Legally important
|Committee's decision||Not cleared; further information requested; scrutiny waiver granted under paragraph 3(b) of the Scrutiny Reserve Resolution
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" 
if it is commercially valuable because it is secret, and if the
trade secret holder has taken reasonable steps to maintain its
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
3.6 Our previous Report provides an outline of the
Commission's proposal. Broadly it would establish:
· a common
definition of a "trade secret";
circumstances which the acquisition, use and disclosure of a trade
secret is unlawful; and
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
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
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.
3.14 We are grateful to the Minister for his comprehensive
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
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