Trade secrets and the European Union

trade secretsA trade secret is a valuable piece of information for an enterprise that is treated as confidential and that gives that enterprise a competitive advantage. European companies are increasingly exposed to the misappropriation of trade secrets. The European Commission is working to harmonise the existing diverging national laws on the protection against the misappropriation of trade secrets so that companies can exploit and share their trade secrets with privileged business partners across the Internal Market, turning their innovative ideas into growth and jobs.

Whether through laborious and costly research, decades of experience, or a sudden burst of creativity, companies constantly develop information which can help them to perform better, faster or at lower cost. Such knowledge can include new manufacturing processes, improved recipes, or information on whom to buy from and whom to sell to. Information protected through a trade secret can be strategic for decades (for example, a recipe or a chemical compound), or ephemeral (for example, the results of a marketing study, the name, price and launch date of a new product, or the price offered in a bidding procedure).

Information, knowledge, inventiveness and creativity are the raw materials of the new economy, and trade secrets are important for companies both large or small, in all economic sectors. However, while large companies have the resources to manage a large portfolio of intellectual property rights, such as patents, smaller companies often cannot afford to do this – therefore their reliance on trade secrets is greater.

In November 2013, the Commission proposed a draft directive that will align existing laws against the misappropriation of trade secrets across the EU.

The relevant laws of some Member States do not provide for a legal definition of what a trade secret is. The existing remedies available are also inconsistent, and at times ineffective.

The proposal harmonises the definition of trade secrets in accordance with existing internationally binding standards. It also defines the relevant forms of misappropriation and clarifies that reverse engineering and parallel innovation must be guaranteed, given that trade secrets are not a form of exclusive intellectual property right.

Without establishing criminal sanctions, the proposal harmonises the civil means through which victims of trade secret misappropriation can seek protection, such as:

  • stopping the unlawful use and further disclosure of misappropriated trade secrets;
  • the removal from the market of goods that have been manufactured on the basis of a trade secret that has been illegally acquired;
  • the right to compensation for the damages caused by the unlawful use or diclosure of the misappropriated trade secret.

The proposal, and the impact assessment that drew on desk research, surveys and a public consultation, have been welcome by the Council of the European Union that reached a Common Approach agreement on the text on 26 May 2014. The proposal has also been the subject of a favourable report by the European Economic and Social Committee – where representatives from consumer and environmental organisations, trade unions, small and medium-sized companies, cooperatives, and social NGOs are all represented.

Companies, inventors, researchers and creators will be put on equal footing throughout the Internal Market, and the EU will have a common, clear and balanced legal framework which will discourage unfair competition, and facilitate collaborative innovation and the sharing of valuable know-how to make the EU a stronger and more competitive economic region.

Impact on the freedom of expression and the right to information

Journalists will remain free to investigate and publish news on companies’ practices and business affairs, as they are today. The draft directive only deals with unlawful conduct by which someone acquires or discloses, without authorisation and through illicit means, information with commercial value that companies treat as confidential in order to keep a competitive advantage over their competitors. If no unlawful conduct takes place, the relevant disclosure of the trade secret is out of scope of the draft directive and therefore not affected by it.

Even when a trade secret is misappropriated, the draft directive foresees a specific safeguard in order to preserve the freedom of expression and right to information (including a free press) as protected by the Charter of Fundamental Rights of the European Union. The safeguard is operative if the divulgation of the trade secret that was acquired by, or passed to the journalist, was through the use of illicit means such as the breach of law or contract.

The draft directive does not alter the current legal obligations on companies to divulge information for such public policy objectives. The public interest prevails over private interest in such matters. Companies are subject to legal obligations to disclose information of public interest, for example, in the chemical and pharmaceutical sectors. Such regulations, which ensure a high level of transparency, will not be affected. The draft directive does not provide any grounds for companies to hide information that they are obliged to submit to regulatory authorities or to the public at large.

Moreover, the draft directive does not alter and does not have any impact on the regulations that foresee the right of citizens to access documents in the possession of public authorities, including documents submitted by third parties such as companies and business organisations.

In addition, the draft directive expressly safeguards those who, acting in the public interest, disclose a trade secret for the purpose of revealing a misconduct, wrongdoing or illegal activity. This safeguard is operative if the trade secret was acquired or passed to the whistle-blower through the use of illicit means such as the breach of law or contract. If no unlawful conduct takes place the disclosure of the trade secret is out of the scope of the proposed directive and therefore no safeguards are necessary.

Source: European Commission