3 Protection of trade secrets
| (35623)
17392/13
COM(13) 813
+ ADDs 1-3
| Draft Directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure
Commission staff working documents
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| Legal base | Article 114 TFEU; QMV; co-decision
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| Document originated | 28 November 2013
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| Deposited in Parliament | 9 December 2013
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| Department | Business, Innovation and Skills
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| Basis of consideration | EM of 17 December 2013
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| Previous Committee Report | None
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| Discussion in Council | No date foreseen
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| Committee's assessment | Legally important
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| Committee's decision | Not cleared; further information requested
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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 trade secret holders should be able
to prevent such information from being disclosed to, acquired
by, or used by third parties in "a manner contrary to honest
commercial practices" [10]
if that information is secret and 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.[11]
The document
3.6 Chapter I of the draft Directive concerns its
scope. Article 1 defines the subject matter: the Directive applies
to unlawful acquisition, disclosure and use of trade secrets and
the measures, procedures and remedies that should be made available
for the purpose of civil law redress.
3.7 Article 2 defines key concepts. The definition
of "trade secret" contains three elements: (i) that
the information must be confidential; (ii) that it should have
commercial value because of its confidentiality; and (iii) that
the trade secret holder should have made reasonable efforts to
keep it confidential. This definition mirrors the definition of
"undisclosed information" in the TRIPS Agreement.
3.8 The definition of "trade secret holder"
incorporates, also similarly to the TRIPS Agreement, the concept
of lawfulness of control of the trade secret as a key element.
It therefore ensures that not only the original owner of the trade
secret but also licensees can defend the trade secret.
3.9 The definition of "infringing good"
integrates a proportionality assessment. The goods which are designed,
manufactured or marketed carrying out an unlawful conduct must
benefit to a significant degree from the trade secret in question
to be considered as infringing goods. The test should be used
when considering any measures directly affecting goods manufactured
or put in the market by an infringer.
3.10 Chapter II sets the circumstances under which
the acquisition, use and disclosure of a trade secret is unlawful
(Article 3), thus entitling the trade secret holder to seek the
application of the measures and remedies foreseen in the Directive.
The key element for those acts to be unlawful is the absence of
consent of the trade secret holder. Article 3 also determines
that the use of a trade secret by a third party not directly involved
in the original unlawful acquisition, use or disclosure is also
unlawful, whenever that third party was aware, should have been
aware, or was given notice, of the original unlawful act. Article
4 expressly clarifies that independent discovery and reverse engineering
are legitimate means of acquiring information.
3.11 Chapter III sets out the measures, procedures
and remedies that should be made available to the holder of a
trade secret in case of unlawful acquisition, use or disclosure
of that trade secret by a third party.
3.12 Section 1 sets the general principles applicable
to the civil enforcement instruments in order to prevent and repress
acts of trade secret misappropriation, notably effectiveness,
fairness and proportionality (Article 5) and safeguards to prevent
abusive litigation (Article 6). Article 7 establishes a period
of limitation. Article 8 requires that Member States provide judicial
authorities with mechanisms to preserve the confidentiality of
trade secrets disclosed in court for the purpose of litigation.
The possible measures must include: restricting access to documents
submitted by the parties or third parties, in whole or in part;
restricting access to hearings and hearing records; ordering the
parties or third parties to prepare non-confidential versions
of documents containing trade secrets and also preparing non-confidential
versions of judicial decisions. These measures should be applied
in a proportionate manner so that the rights of the parties to
a fair hearing are not undermined. The confidentiality measures
must apply during litigation, but also after litigation in case
of requests of public access to documents for as long as the information
in question remains a trade secret.
3.13 Section 2 provides for provisional and precautionary
measures in the form of interlocutory injunctions or precautionary
seizure of infringing goods (Article 9). It also establishes safeguards
to ensure the equity and proportionality of those provisional
and precautionary measures (Article 10).
3.14 Section 3 provides for measures that may be
ordered with the decision of the merits of the case. Article 11
provides for the prohibition of use or disclosure of the trade
secret, the prohibition to make, offer, place on the market or
use infringing goods (or import or store infringing goods for
those purposes) and corrective measures. The corrective measures
request, inter alia, the infringer to destroy or deliver to the
original trade secret holder all the information he or she holds
with regard to the unlawfully acquired, used or disclosed trade
secret. Article 12 establishes safeguards to ensure equity and
proportionality of the measures provided for in Article 11.
3.15 The awarding of damages for the prejudice suffered
by the trade secret holder as a consequence of the unlawful acquisition,
use or disclosure of his/her trade secret is enshrined in Article
13, which calls for the taking into consideration of all the relevant
factors, including the unfair profits obtained by the defendant.
The possibility of calculating the damages on the basis of hypothetical
royalties is also made available, in line of what is foreseen
in the case of infringements of intellectual property rights.
3.16 Article 14 empowers the competent judicial authorities
to adopt publicity measures at the request of the plaintiff, including
the publication of the decision on the merits of the case —
provided that the trade secret is not disclosed and after considering
the proportionality of the measure.
3.17 The Directive does not integrate rules on the
cross-border enforcement of judicial decisions as general EU rules
on this apply, allowing the enforcement in all Member States of
a court judgment prohibiting the imports into the EU of infringing
goods.
3.18 In order to ensure that the Directive is effective,
Chapter IV sets out sanctions for non-compliance with the measures
provided for in Chapter III, as well as provisions on monitoring
and reporting.
The Government's view
3.19 In his Explanatory Memorandum of 17 December
2013, the Parliamentary Under-Secretary of State at the Department
for Business, Innovation and Skills (Viscount Younger of Leckie)
explains that UK businesses invest more in intangible assets than
they do in tangible assets. Businesses need to be able to protect
these assets. The 2010 UK Innovation Survey showed that confidentiality
agreements and secrecy were the most commonly used methods of
protection for both large firms and SMEs.
3.20 Trade secrets are protected in the UK by the
common law of confidence or by contract. There is no legislation
that specifically provides protection for trade secrets. However,
a comparative legal analysis carried out for the Commission noted
that there were no particular inadequacies with trade secrets
protection in United Kingdom.
3.21 The courts in England and Wales have developed
a definition of trade secrets that is consistent with the one
contained in the Directive and interim and final remedies are
available. In England and Wales, the courts can permit measures
to keep information confidential.
3.22 However, the limitation period proposed in the
Directive (of two years) is shorter than that available in the
jurisdictions of the United Kingdom, the Minister observes.
3.23 Under the heading of subsidiarity, he explains
that the proposal is limited to civil procedures and does not
require Member States to change their criminal law. The Commission
believes that extending the proposal into criminal law would go
further than is needed at this stage. He says the Government
agrees that action at an EU level will give business more confidence
that their innovative ideas can be protected, and that this action
should be restricted to civil law.
3.24 In terms of consultation, the Minister notes
that the Commission has undertaken wide-ranging consultation with
interested parties in the preparation of this draft Directive,
and says the Government will engage with stakeholders in advance
of and during the negotiations.
3.25 In terms of impact, the Minister concludes that
the proposal will not impose burdens on business or the third
sector, or financial burdens on the public purse.
Conclusion
3.26 We conclude that the stated cross-border
objectives of the proposal provide a sufficient basis to justify
action at EU level:
"The objective of the proposal is to
establish a sufficient and comparable level of redress across
the Internal Market in case of trade secret misappropriation (while
providing sufficient safeguards to prevent abusive behaviour).
The existing national rules offer an uneven level of protection
across the EU of trade secrets against misappropriation, which
jeopardises the smooth functioning of the Internal Market for
information and know-how."[12]
3.27 We note 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. In terms of implementing
the Directive, however, we ask the Minister to say whether the
Directive as currently drafted would require implementing legislation,
even though it is already given effect in national law. If so,
we ask him to list the Articles that would require implementing
legislation and to explain what form such legislation would take.
3.28 We also ask the Minister in due course to
report back on the responses of national stakeholders to this
draft Directive.
3.29 In the meantime, it remains under scrutiny.
10 Article 39(2). Back
11
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
12
p.6 of the Commission's explanatory memorandum. Back
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