4 Protection of trade secrets
| Committee's assessment
| Legally and politically important |
| Committee's decision | Not cleared from scrutiny; further information requested
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| Document details | Draft Directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure
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| Legal base | Article 114 TFEU; QMV; ordinary legislative procedure
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| Department
Document number
| Business, Innovation and Skills
(35623), 17392/13 + ADDs 1-3, COM(13) 813
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Summary and Committee's conclusions
4.1 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.
4.2 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.
4.3 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.
4.4 Our Report of 12 February 2014 provides an outline
of the Commission's proposal. Broadly it would —
· establish a common definition of a "trade
secret";
· harmonise the circumstances which the
acquisition, use and disclosure of a trade secret is unlawful;
and
· harmonise procedures for redress and the
remedies that should be made available to the holder of a trade
secret.
4.5 We have already 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.
4.6 On 7 May 2014 we granted a scrutiny waiver to
enable the government to agree the General Approach which was
adopted at the Competitiveness Council of 26 May 2014, and addressed
the issue of limitation periods for actions in such a manner that
domestic limitation periods could be maintained. In doing so
we asked the Minister for further information on the implications
of the EU exercising competence in this area of the first time;
and on two concerns raised by national stakeholders, namely the
impact on employer/employee relations and the absence of provisions
to secure evidence.
4.7 The Minister for Intellectual Property (Baroness
Neville-Rolfe) now writes to indicate that trialogue negotiations
involving the European Parliament are likely to start in May or
June this year, and to provide a comprehensive response to the
issues we have raised and an update on the outstanding issues
emerging from the early deliberations of the European Parliament.
4.8 We are grateful for the informative update
the Minister has provided. It is an example of good scrutiny practice.
4.9 As this matter progresses to trialogue negotiations
involving the European Parliament we remain supportive of the
Council's General Approach.
4.10 We draw to the attention of the House the
Government's assessment that the exercise of competence by the
EU in this field will have limited impact given the existing EU
and international legislation.
4.11 Whilst the Minister has asked for scrutiny
clearance, we consider it appropriate to retain this matter under
scrutiny pending the outcome of the trialogue negotiations. We
ask for a further update when there are significant developments
or when the trialogue negotiations have been completed.
Full details of the documents:
Draft Directive on the protection of undisclosed know-how and
business information (trade secrets) against their unlawful acquisition,
use and disclosure: (35623), 17392/13 + ADDs 1-3, COM(13) 813.
The Minister's letter of 26 February 2015
4.12 The Minster identifies the following key issues:
· "Confidentiality provisions.
Concerns have been raised that the provisions in the Directive
jeopardise the right to a fair trial and could mean that parties
might be unaware of accusations made against them. The courts
in the UK have experience of operating similar practices without
controversy. However, the General Approach agreed by the Council
goes some way to addressing such concerns.
· "Limitation period. We were
successful in securing in the General Approach a limitation period
that is consistent with the periods currently applied in the UK
— six years in England and Wales and Northern Ireland, five
years in Scotland. The Government took the view that the period
proposed by the European Commission (one to two years) would in
many instances be too short a time in which to assemble a case
that would be worth pursuing. There has been a suggestion from
some MEPs that the period needs to be short to prevent the strategic
use of litigation for anti-competitive purposes, particularly
where an employee has joined another firm. The Directive already
contains provisions in Article 6 that would enable courts to throw
out cases or impose sanctions (in accordance with national law),
if they find that a claim is manifestly unfounded and has been
brought in bad faith.
· "Labour mobility. The Government
agrees that labour mobility is good for the economy. When employees
move to different firms or start a new business, they bring knowledge,
skills and experience that can benefit the firm and the economy
as a whole. MEPs have stressed their commitment to the ability
of workers to seek new jobs and some are concerned that the Directive
could have a negative impact in this respect. The example of Silicon
Valley has been cited, but it is important to note that California
does in fact have a trade secret law. It does not require non-compete
clauses in employment contracts, but these are not a necessary
part of trade secret protection.
"I am aware of stakeholder concerns that
the Commission's text seemed to provide lower protection for trade
secrets gained by an employee during the course of his or her
employment. This is a concern because former employees are among
the most commonly cited sources of risk of trade secret misappropriation.
Recital 8 of the Commission text said that such information would
not come within the definition of 'trade secret' if it were 'known
among or accessible to persons within the circles that normally
deal with the kind of information in question'. By contrast, the
TRIPS Agreement requires protection of confidential information
so long as it is 'not generally known among or readily accessible'
to such persons. The General Approach agreed by the Council contains
language that is consistent with the TRIPS Agreement. The Government
is keen to see that an appropriate balance is struck between the
interests of the employer and the employee."
4.13 In relation to the fact that this would be the
first exercise of competence by the EU in this particular field
the Minister provides this information:
"Article 39 of The World Trade Organisation's
Agreement on the Trade-Related Aspects of Intellectual Property
Rights (TRIPS) requires all members to protect trade secrets.
This requirement has been implemented in different ways across
the European Union.
"The EU has already exercised its internal
competence in the area of trade secrets. Directive 2004/48/EC
on the Enforcement of Intellectual Property Rights applies to
trade secrets and, insofar as it has done so, it is not therefore
open to Member States to exercise competence unless the EU ceases
to do so (see Article 2(2) TFEU).
"As regards matters relating to trade secrets
which are not covered by the Enforcement Directive, the adoption
of the proposed Directive would be an exercise of EU shared competence
in the area of trade secrets in the internal market. The responses
from business to pre-legislative studies indicate that the differences
in treatment can distort the internal market, with 38% of respondents
saying that they reduce the incentives to collaborate with companies
or research organisations in other Member States.
"The Government thinks that it is appropriate
for the EU to exercise its competence in this area, based on Article
114 of the TFEU, allowing for the adoption of EU rules harmonising
national legislation if they are necessary for the smooth functioning
of the internal market. Member States have adopted different definitions
of trade secrets and unlawful behaviour, so that it can be difficult
for businesses to understand the scope of protection. There are
also significant differences in available remedies and in the
ability to maintain confidentiality during legal proceedings.
Weaker protection means that trade secret holders have to accept
the greater risk of misappropriation or invest more in security
measures, and makes it more likely that infringing goods enter
the internal market.
"The proposed Directive would provide innovative
businesses that operate across the EU with greater clarity. The
text, as it currently stands, would not prevent Member States
from applying more far-reaching protection, provided that this
is consistent with the safeguards contained in the Directive.
"I will now turn to the question of external
competence. While the Union has exclusive competence for the conclusion
of an international agreement in so far as its conclusion may
affect common rules or alter their scope, in so far as the Directive
would contain minimum standards, the EU would not have exclusive
competence where the international agreement also contains minimum
standards.
"The Committee remarked on the role of the
Court of Justice of the EU, which would have jurisdiction to interpret
the provisions of the Directive, once adopted. As I have explained
above, the difference in treatment between Member States decreases
businesses' confidence in sharing knowledge across borders. Applying
the same minimum standards across the European Union will reduce
such barriers to knowledge and technology transfer.
"Even if the Directive is not adopted, the
Court of Justice of the EU has jurisdiction to interpret the provisions
of Article 39 of the TRIPS Agreement by virtue of this being considered
to be within exclusive EU competence. This follows from the Court's
ruling in (C-414/11)."
4.14 Finally the Minister raises a new issue:
"Stakeholders have noted the absence of
provisions for obtaining evidence. Such provisions are available
in the IP Enforcement Directive (Directive 2004/48/EC). Recital
13 of that Directive states that 'It is necessary to define the
scope of this Directive as widely as possible in order to encompass
all the intellectual property rights covered by Community provisions
in this field and/or by the national law of the Member States
concerned'. The Recitals of the proposed Trade Secrets Directive
acknowledge that the IP Enforcement Directive applies to trade
secrets: '... where the scope of application of Directive 2004/48/EC
of the European Parliament and of the Council and the scope of
this Directive overlap, this Directive takes precedence as lex
specialis' (Recital 28). In practice, the preliminary study by
Baker & McKenzie indicates that measures to secure evidence
are available in all but three of the then 27 Member States."[10]
Previous Committee Reports
Forty-eighth Report HC 83-xliii (2013-14), chapter
3 (7 May 2014), Thirty-sixth Report HC 83-xxxiii (2013-14), chapter
3 (12 February 2014).
10 See Table, p.32. Back
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