Documents considered by the Committee on 12 February 2014 - European Scrutiny Committee Contents

3 Protection of trade secrets



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

Legal baseArticle 114 TFEU; QMV; co-decision
Document originated28 November 2013
Deposited in Parliament9 December 2013
DepartmentBusiness, Innovation and Skills
Basis of considerationEM of 17 December 2013
Previous Committee ReportNone
Discussion in CouncilNo date foreseen
Committee's assessmentLegally important
Committee's decisionNot cleared; further information requested


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.


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 Back

12   p.6 of the Commission's explanatory memorandum. Back

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Prepared 19 February 2014