18 Jul 2016

The EU Trade Secrets Directive has recently been introduced, which will aim to harmonise the protection of commercially sensitive business information across all EU member states.

The EU Trade Secrets Directive has recently been introduced, which will aim to harmonise the protection of commercially sensitive business information across all EU member states.

Background

The definition of a ‘trade secret’ and the way in which employers are able to protect them currently varies widely across Europe. The Trade Secrets Directive (‘the Directive’) aims to address these inconsistencies and to impose minimum levels of protection in all member states. It is hoped that harmonisation in this area will encourage cross-border investment by reducing the risks for multi-national corporations that are inherent when different standards of protection apply across individual EU jurisdictions.

The Directive came into force on 15 June 2016 and individual member states will have two years to pass national legislation which implements the minimum requirements set by the Directive. Member states may, however, decide to implement protections which go further than those required by the Directive.

Common definition of ‘trade secret’

Under the Directive, a ‘trade secret’ is information that:

  • is secret;
  • has commercial value because it is secret; and
  • has been subject to reasonable steps by the holder of the information to keep it secret.

This definition is, on the face of it, somewhat wider than that which has been developed in our domestic courts. However, in practice, employers with UK operations may find that some information they currently regard as secret is not protected under the Directive (for example if they have not taken reasonable steps to keep it secret). The meaning of ‘reasonable steps’ is not specified in the legislation and this will no doubt be the subject of future litigation.

Acquisition, use and disclosure of trade secrets

The Directive sets out the circumstances in which the acquisition, use and disclosure of trade secrets will (and will not) be lawful. Generally speaking, any unauthorised or dishonest acquisition of trade secrets will be unlawful. Disclosure of unlawfully obtained trade secrets will, as one might expect, be unlawful, and so will disclosure of any trade secret in breach of any contractual obligation not to do so.

Importantly, an individual would only be found to be in breach of the Directive (or, more accurately, the national legislation which implements the requirements of the Directive) if it can be proved that they knew the information was secret and they intended to use/disclose it with the benefit of that knowledge.

In addition, the use or disclosure of information which constitutes an employee’s ‘experience and skills honestly acquired in the normal course of their employment’ will not be unlawful. The term ‘honestly acquired’ is not defined in the legislation. It is likely that in many cases employees will seek to rely on this defence to absolve them of liability for what would otherwise amount to unlawful use of a trade secret.

Remedies

The provisions of the Directive require member states to ensure that appropriate remedies are available in the event of a breach. Such remedies may include orders for the destruction of confidential information (and materials derived from it), damages and injunctions.

Comment

While there are many similarities between the Directive and the existing UK approach, there are also a few subtle but important differences. For example, the current definition of ‘confidential information’ developed in the English courts does not fit perfectly with the new ‘trade secret’ definition in the Directive, and the Directive envisages different tests for a court to apply when deciding whether or not to grant an injunction.

The precise impact of the Directive (if any) will be unclear until Parliament brings forward the relevant national legislation to implement its requirements. It is fortunate that our current regime is already well developed by the courts, so it may be that any new legislation does not change materially the current approach adopted by employers.

However, there are some steps that can be taken now in order to prepare. In particular, for employers to gain protection under the Directive they will have to take ‘reasonable steps’ to keep their trade secrets secret. Now is an apt time for employers to review the extent of confidential information held within its business, who has access to it, the measures currently in place to protect it and what additional measures may be required going forward.