Articles | New rules about Trade Secrets

Terri Alam, in FSP’s Commercial & Technology team, looks at the new Trade Secrets Directive. 

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Terri Alam

Terri Alam

What is a trade secret?

Trade secrets are valuable tools for any business as they help create competition and improve productivity. Trade secrets can be very diverse - and can include anything from chemical compounds to supplier and client lists. A classic example is Coca-Cola’s recipe.

However, the way in which ‘trade secrets’ are defined and treated varies considerably between EU member states and less than half of all member states have a clear legal definition.

To improve consistency and make it easier to do business, and thereby foster competition and innovation, the EU has passed the Trade Secrets Directive. The Directive also deals with the increasing threat of trade secret theft which poses a huge risk to businesses in terms of discrediting their reputation and loss of profits.

Key provisions of the Trade Secrets Directive

Member States have until 9 June 2018 to assess their own national laws and implement any parts of the Directive, where necessary.

The Directive introduces a definition of ‘trade secrets’ in which all 3 requirements must be met:

1. It is a secret in the sense that it is not…generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;

2. It has commercial value because it is secret; and

3. It has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

The Directive prohibits the unlawful acquisition, use and disclosure of trade secrets, i.e. the acquisition or disclosure of a trade secret without authorisation and through illicit means.

It also introduces so-called “secondary liability”, i.e. it will be unlawful to:

acquire, use or disclose a trade secret if the person knew or ought to have known that the trade secret was obtained from someone using or disclosing the trade secret unlawfully.

offer, sell or import goods benefitting from the trade secret when the person knew or ought to have known the trade secret was used unlawfully.

Other provisions

The Directive also:

• Deals with preserving confidentiality during and after court proceedings.

• Provides clarity as to when trade secrets are acquired lawfully and so are outside the scope of the Directive (independent discovery or creation; observation and study; disassembling or testing of a publicly available product: information which has been lawfully obtained or is “in conformity with honest practices (a catch-all provision)).

• Provides a range of remedies for non-compliance (including injunctions, damages, destruction of material/infringing goods and product recalls).

Impact on the UK and Brexit

It is unlikely that the UK will need to create significant secondary legislation to give the Directive effect as the UK already has a well-developed and relatively sophisticated framework for the handling of trade secrets (in the form of confidentiality agreements or NDAs).

However the Directive will codify existing UK rules and thereby ensure a more level-playing field across the EU.

Action businesses should be taking

Although the Directive is unlikely to mean any significant changes from a UK perspective it is a timely reminder to look at the procedures within your business for protecting both your own trade secrets and those which are disclosed to you by third parties. For example, you should:

• Consider which information is essential to your business and ensure appropriate safeguards are in place, e.g. password protection, marking files as confidential, updating firm policies, etc.
• Ensure your employees are aware of their confidentiality obligations and review your employment contracts to ensure trade secrets are sufficiently covered.
• Review your IT and security systems to maximise security.
• Review any confidentiality agreements NDAs in place with third parties to ensure you are adequately protected and continue to monitor these closely.

If you require further information please contact FSP’s Commercial & Technology team.