The Proposed Directive on Trade Secrets in the EU

by White & Case LLP
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Companies irrelevant of their individual size and across all business sectors use trade secrets in order to gain and build advantages in the global economy. Nevertheless, the laws of the EU member countries are far from harmonized when it comes to handling the protection of such trade secrets. Therefore, on 28 November 2013, the European Commission announced a proposal for a directive on the protection of undisclosed know-how and business information (trade secrets)1 with an ambitious but necessary goal in mind: A harmonization of the national laws of the member countries by way of establishing common definitions, procedures and sanctions with respect to trade secrets.

According to a recent survey2, 75% of the companies questioned, mentioned trade secrets as being important for competitiveness as well as for innovative performance. However, as there currently is no uniform EU framework for the protection of such trade secrets, companies from different member states are faced with substantial differences in national laws, important gaps and unwanted shortcomings. This current state of uneven protection leads to a non-existing inter-operability and gives rise to uncertainty, as well as to unnecessary costs and barriers regarding cross-border innovation activities and know-how transfers – all a possible disadvantage in comparison to e.g. US or Japanese companies, which enjoy better levels of protection for trade secrets than companies in most other countries.

Trying to reference or even apply the principles for the protection of intellectual property rights does not solve the issue at hand either: Trade secrets are not considered an intellectual property right themselves but are rather complementary to such intellectual property rights. Trade secrets are generally used in the creation of intellectual property rights and can therefore be best described as forming the origin of patents, copyrights, trademarks, and designs, without being considered such an intellectual property right themselves.

In order to establish a sufficient and comparable level of civil remedy against the unlawful acquisition, use or disclosure of trade secrets by third parties, while simultaneously providing safeguards to prevent abusive litigation, the proposed directive lays down respective rules.3 Some of the highlights of the directive include:

  • Article 2 and 3: By defining a "trade secret" (i.e., any information that is secret, has commercial value because it is secret and has been subject to reasonable steps to keep it secret) and by establishing the conduct (acquisition, use, disclosure) which is to be considered unlawful, the scope of protection shall be determined.
  • Article 9 to 14: The measures (including interim and precautionary measures and measures on the merits of the case), procedures and remedies shall include e.g. cessation, destruction and prohibition of the use or disclosure of the trade secret. In addition, alternative measures such as pecuniary compensation shall be applied in case the acquisition of the trade secret took place in good faith, the execution of other measures would cause a disproportionate harm and such pecuniary compensation is reasonable satisfactory to the injured person. Last but not least, damages adequate to the prejudice suffered can be awarded to the trade secret holder.
  • Article 7: There shall be a two (2) year limitation period for the trade secret holder to execute his or her rights starting from the date on which he or she became aware, or had reason to become aware, of the last fact giving rise to the rights.
  • Article 8: Also during the process of litigation, the preservation of trade secrets shall be ensured.   

As a next step, the Commission's proposal will be transmitted to the Council of Ministers and the European Parliament for adoption under the ordinary legislative procedure. If approved, it could enter into force by the end of this year. There is now doubt, that it may still take a while until all member countries will have implemented the directive into national law and it is still unclear which shape such national law will take eventually. However, the Commission's recent proposal forms a first and very important step towards a more effective protection of trade secrets in the future thus strengthening the competitiveness of European companies and the European economy in general.


1 - For the full text of the proposed directive see: COM(2013) 813 final (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2013:0813:FIN:EN:PDF).
2 - See: Study on trade secrets and confidential business information in the internal market, April 2013, page 123.
3 - For the full text of the proposed directive see: COM(2013) 813 final (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2013:0813:FIN:EN:PDF).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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