EU Afghanistan Cooperation Agreement on Partnership and Development - European Scrutiny Contents

11 Protection of trade secrets

Committee's assessment Legally and politically important
Committee's decisionCleared from scrutiny; drawn to the attention of the Business, Innovation and Skills Committee
Document detailsDraft 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; ordinary legislative procedure
DepartmentBusiness, Innovation and Skills
Document Numbers(35623), 17392/13 + ADDs 1-3, COM(13) 813

Summary and Committee's conclusions

11.1 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.

11.2 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.

11.3 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.

11.4 Broadly this proposal 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.

11.5 On 7 May 2014 our predecessor Committee granted a scrutiny waiver to enable the Government to agree the General Approach which was adopted at the Competitiveness Council of 26 May that year. The Minister for Intellectual Property (Baroness Neville-Rolfe) now writes to update the Committee on the outcome of trilogue negotiations with the European Parliament and to inform the Committee that it and the Council are likely to adopt the text in April.

11.6 We thank the Minister for continuing to provide full and helpful information on this proposal. Her letter, quoted below, clearly identifies the compromises made to reach agreement. We note that she assesses the resultant text to be "a balanced one and will give businesses greater confidence in collaborating in the Single Market".

11.7 We now clear this proposal and draw it to the attention of the Business, Innovation and Skills Committee as the final outcome of new legislation in the field of Intellectual Property. In doing so we note that the Directive, once adopted, would need to be transposed into UK law within two years; and recall our Report of 7 May 2014 which recorded that only limited amendment to UK law would be required to do so.

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 29 January 2016

11.8 The Minister indicates that the proposal as it has evolved will enable confidentiality of trade secrets to be maintained during legal proceedings, as happens already in the UK but in few other Member States.

11.9 She indicates the areas of compromise:

    "The text also contains important safeguards for protection of the media and whistleblowers. Together with the impact on employees moving jobs, these were the key issues for the EP. Concessions by the Council in these areas have resulted in the EP provisionally moving on minimum harmonisation, limitation periods and Government use of trade secrets."

11.10 She then provides details of the previously sensitive issues:

·  "Minimum harmonisation. Harmonisation should not go beyond what is necessary for the smooth functioning of the Internal Market. The Council was firmly of the view that Member States should be able to apply higher standards, provided that these did not undermine the safeguards contained in the Directive, such as the one protecting whistleblowers. The text now includes the language from the Council's General Approach.

·  Limitation period. The EP had been pressing for a shorter limitation period than the one applicable in the jurisdictions of the UK (5 years in Scotland, 6 years in England and Wales and Northern Ireland). The text now states that the limitation period can be up to 6 years, which will mean that businesses will continue to have enough time to develop a case that is worth pursuing in court.

·  Employees changing jobs. Concern was expressed during the EP debates that the protection of trade secrets could act as a barrier to job moves. The agreed text states that the Directive does not prevent employees from using information that is not a trade secret or the experience and skills that he or she has honestly acquired in the normal course of employment; nor does it enable employers to impose any restrictions in employment contracts beyond those permitted by national or EU law. This text clarifies the position that the Government understood was implicit in the Directive and would still enable employers to pursue a former employee for unlawful acquisition, use or disclosure of a trade secret.

·  Freedom of expression and the media. The UK pushed back on the references to the Charter of Fundamental Rights within the Articles of the Directive. The Government's view is that because all EU legislation must respect the rights and observe the principles of the Charter in any event, such language is redundant. The UK succeeded in securing drafting changes to ensure greater legal clarity so that the text directly cites the Charter. As these references have no impact on the substance of the Directive, when it came to offering compromises to the European Parliament, the Council preferred to concede on this point in exchange for retaining General Approach language on several substantive issues. The European Parliament see these references as safeguards for the protection of the media.

·  Whistleblowing. The Government's aim in this area has been to strike a balance between the interests of trade secret holders and whistleblowers, to enable disclosures to be made in the public interest but to protect trade secrets that are not relevant to the misconduct, wrongdoing or illegal activity. This is why the Commission text and the General Approach required that the acquisition, use or disclosure of the trade secret should be 'necessary' for revealing the misconduct. The European Parliament was firm in its support for its proposed text, which would provide an exception 'for revealing a misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest'. The Government's view is that this text establishes a sufficient link between the revelation of the misconduct, wrongdoing or illegal activity, on the one hand, and the acquisition, use and disclosure of the trade secret on the other. If the disclosure of the trade secret is immaterial to the whistleblowing, then the disclosure of the trade secret cannot be said to be carried out 'for revealing a misconduct, wrongdoing or illegal activity'. Furthermore, the provision will be interpreted in the light of Recital 12a which makes clear that the whistleblower must have 'all the reasons to believe in good faith that his conduct met the appropriate criteria set out in this Directive'. I am therefore satisfied that the text gives the balance that was our objective.

·  Government use of trade secrets. The agreed text preserves the additional language that the UK secured in the General Approach, on a key issue for the Government, enabling Parliament to legislate for the Government to acquire, use and/or disclose trade secrets in specific circumstances.

·  Criminal law. The European Parliament accepted the removal of the references to criminal law offences.

·  Charitable use of infringing goods. The European Parliament had proposed that courts should be able to order infringing goods to be delivered to a charitable organisation under conditions aimed at ensuring that the goods do not re-enter the market. Such a measure would have implications for the enforcement authorities and the Government thought that this should remain an option for Member States to implement if they wished. The text is now consistent with this position."

Previous Committee Reports

Thirty-sixth Report HC 219-xxxv, chapter 4, (11 March 2015), 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).

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Prepared 2 March 2016