Publication of the European directive on trade secrets

Under French law, companies generally use the provisions of the Criminal Code, the Intellectual Property Code and the Civil Code (notably in regards to unfair competition and trademark infringement) to protect their sensitive and confidential information.

These provisions, often restrictive and/or incomplete, offer only partial legal protection to the rightsholders and do not cover a number of strategic information, albeit crucial in a highly competitive business environment. For instance, under existing patent laws, the legal protection solely covers the invention itself, and only if the patent was granted. Any confidential information used to devise the patented invention (such as drawings, commercial studies, and business plans) do not benefit from any legal protection.

Directive 2016/943 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure (the « Directive »), passed by the European Parliament on April 14, 2016, aims to remedy such deficiencies.

The purpose of the Directive is to ensure that European companies enjoy appropriate legal protection and to limit the commercial risk resulting from any unauthorized disclosure of confidential information. By granting such protection, the EU Parliament also hopes to encourage companies to innovate and to invest in R&D.

Article 2 of the Directive defines a “trade secret” as any information that meets all of the following criteria:

• It is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
• It has commercial value because it is secret;
• It has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

In other words and for the Directive’s purposes, any information with an intrinsic commercial value, not broadly circulated, and which is being protected by its owner, constitutes a trade secret. This generic and relatively extensive definition could include any action plan, business plan, clients list, suppliers list, commercial project, partnership project, sell-off project, marketing, advertising or commercial study, sales statistic, and financial information, etc.

However, the Directive sets out a few exceptions and provides that its application be dismissed where the alleged acquisition, use or disclosure of trade secrets was carried out in any of the following cases:

• For exercising the right to freedom of expression and information, including respect for the freedom and pluralism of the media
• For revealing a misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest;
• Disclosure by workers to their representatives as part of the legitimate exercise by those representatives of their functions in accordance with Union or national law, provided that such disclosure was necessary for that exercise; and
• For the purpose of protecting a legitimate interest recognized by Union or national law.

The European Parliament thereby intends to protect freedom of speech and of the press, as well as to grant protection to whistle-blowers who denounce unlawful activities within the companies in which they work.

In accordance with the Directive, alleged “infringers” may be subject to provisional and protective measures pending trial. Courts may also permanently order them to cease using or producing trade secrets. They may also prohibit the importation into the European Union of goods which contain or materialize trade secrets, and/or order the destruction thereof. Infringers may also be liable for damages, which are determined with consideration of any “negative economic consequences suffered by the injured party (including any foregone earnings), any undue profits made by the infringer and, where applicable, any other non-economic factors, such as moral damages”. That being said, the preamble of the Directive does specify that no punitive damages may be awarded on this ground (recital 30).

In addition, the Directive defines an “infringer” as any natural or legal person who has unlawfully acquired, used or disclosed a trade secret. The mere use of a trade secret shall thus fall under the scope of the Directive. A greater vigilance is therefore expected from the people tasked with handling any information which may be considered confidential or construed as a trade secret.

The transposition of the Directive into national law – set to happen on June 9, 2018 – will allow EU companies to benefit from a legal tool to protect their confidential data as a whole, such as is the case in the United States and other jurisdictions which have implemented a proper system to protect trade secrets.

April 16, 2016 | Commercial Law, Corporate Law