Steve McDaniel and Jon Hurt, Technology Litigators03.25.15
Just in time for the European Coatings Show, we finally get around to focusing on protecting your “crown jewels” trade secrets in the EU.
So here goes...
In the continuing efforts to harmonize trade secret laws and regulations across national boundaries, the European Parliament is at this minute considering a trade secret directive (the “Directive”) that will affect all 28 European Union states (assuming Greece and some others don’t leave the EU, but that’s a different story). This is a big change, as about one third of the EU countries don’t have laws specifically governing trade secret misappropriation, and even more lack a specific definition of what constitutes a trade secret. If passed, probably sometime this Spring, the EU nations will have two years to pass local laws that meet the Directive’s standards.
So, what are the new rules likely to look like going forward?
The first change is to standardize the definition of “trade secret.” The draft definition contains three components:
1. “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;”
2. “has commercial value because it is secret;”
3. “has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.”
Though lawyers love to split hairs when it comes to legal language, this is really quiet similar to the United States uniform trade secret act’s trade secret definition of:
1. “derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use,” and
2. “is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”
So European markets and the U.S. are moving toward playing in the same ballpark (at last agreeing what a trade secret is). This is not surprising as both definitions seek to conform to the language of the World Trade Organization’s Agreement of Trade-Related Aspects of Intellectual Property Rights (let all multinational corporations around the world now hold hands and sing Kumbaya).
Functionally, when doing business in the EU if / when the new laws take effect, you will do well to apply the skills you learned here in the iPaint series to maintain the secrecy of your information. This way you and all your business partners in Europe should be able to lay claim to the trade secret definition above by establishing that you took “reasonable steps … to keep it secret.”
However, the current draft has some specific soft spots to which you will need to pay particular attention. The EU is apparently hesitating to include language that would override individual state’s employment laws so that it is likely that your employer – employee agreements will be relied upon as the basis to make an employee return trade secret information. The Directive may be so worded that an employer would need to show intent by the employee to misappropriate your trade secret before you could recover damages. Some opposition by health care industry and patient groups via the European Public Health Alliance oppose the trade secret definition itself as being too broad and likely to discourage access to data in the public interest by various interested parties (e.g., researchers, consumers, journalists, etc.). An example often trotted out by these groups would be concerns related to keeping information on toxic chemicals in products undisclosed under the “trade secret” umbrella.
Bottom line, your business contracts (e.g., with employees, contractors, partners, franchisees, etc.) and documented procedures will likely need to be very stringently worded to have a leg-up in Europe. It would be wise to slip your legal team some extra billable hours to get all your contract and non-disclosure agreements buttoned up tight, before adoption of the Directive.
Trade secret misappropriation under the EU Directive would occur by breach of these types of contracts or agreements, or just plain “unlawful acquisition.” Unlawful acquisition would include intentional actions or gross negligence resulting in unauthorized access to the trade secret or materials from which it can be deduced; theft, bribery, deception, conduct considered “contrary to honest commercial practices;” and, of course, breach or inducement to breach a duty to maintain secrecy or a confidentiality agreement. Use or disclosure of a trade secret will also be unlawful when a person knew or should have known that the trade secret was obtained unlawfully.
What will be the penalties for someone in the EU found to have misappropriate a trade secret? A whole bunch of pain and embarrassment. When you allege infringement, a court may order as an interim measure: prohibit the use or disclosure of your trade secret; prohibit the import, export, production, marketing, sale, or storage of goods that infringe your trade secret; provide for seizure or prevent delivery of such goods whether domestically produced or imported. Upon determining that infringement has indeed occurred, a court may also; force product recalls; force alterations to infringing products (including software and data type products) to remove the trade secret violating features; force the destruction of infringing good / removal from market, unless such action would undermine the trade secret’s protection; deliver to the trade secret holder and/or destroy of any or all parts of electronic files, documents, substances, materials, or objects containing or implementing the trade secret; and publish the courts declaration of infringement. In other words, you can really drop the hammer once you establish misappropriation. But to qualify as an “infringing good” “design, quality, manufacturing process or marketing” must “significantly benefit” from the trade secret. That undefined term “significantly benefit” raises an eyebrow, as its meaning seems open to much interpretation. Your authors suggest that this is a problem that will raise its head more than once in the current form of the Directive.
Another noticeable difference relative to U.S. trade secret laws (i.e., the Economic Espionage Act) is the lack of criminalization of trade secret theft. However, similar to the U.S. where some states (e.g., Texas, California) have done so, a few EU member states (e.g., Germany) presently have criminal statues for this behavior. A recent amendment to a bill in France to criminalize trade secret theft to discourage corporate espionage was quickly withdrawn due to outcry from political, civil and journalist groups as impeding investigative journalism and freedom of information.
Which brings us to additional pitfalls that may be put into play by the Directive. In particular, there are exceptions made in the Directive for the quote/unquote lawful disclosure of trade secrets. Given the backlash in France and other opposition groups, this may even be reworded to be broader before the new law is voted on. These exceptions include:
1. “independent discovery or creation;”
2. “observation, study, disassembly or test of a product or object that has been made available to the public or that it is lawfully in the possession of the acquirer of the information;”
3. “exercise of the right of workers representatives to information and consultation in accordance with Union and national law and/or practices;”
4. “any other practice which, under the circumstances, is in conformity with honest commercial practices.”
The first two are pretty straightforward, and don’t seem out of line with how things work in the U.S. But the last two seem ripe for individual member states to draft local law loopholes that could cause big headaches for a trade secret holder. Moreover, the Directive also include exclusions that are a broadly worded invitation to create nightmarish loopholes. Specifically, “that there shall be no entitlement to the application for the measures, procedures and remedies provided for in this Directive … in any of the following cases:”
1) “for making legitimate use of the right to freedom of expression and information;”
2) “for the purpose of revealing an applicant’s misconduct, wrongdoing or illegal activity, provided that the alleged acquisition, use or disclosure of the trade secret was necessary for such revelation and that the respondent acted in the public interest;”
3) “the trade secret was disclosed by workers to their representatives as part of the legitimate exercise of their representative functions;”
4) “for the purpose of fulfilling a non-contractual obligation;”
5) “for the purpose of protecting a legitimate interest.”
Yeah, terms like “right to freedom of expression and information,” “revealing misconduct, wrongdoing,” “public interest,” “a non-contractual obligation,” a “legitimate interest” sound upright and positive, but what the hell do they mean? Talk about broad, subjectively vague and open to interpretation. And what will those terms mean, say in Germany’s laws vs. France’s vs. Italy’s and so forth.
Last month’s iPaint article clarified that in the U.S., going to court can be dangerous to your trade secret’s health. And though the pending Directive has clauses to restrict access to documents, hearings, transcripts, and parts of decisions that may disclose trade secrets, how this is implemented in each member state and the effectiveness of court proceedings in protecting your secrets is still to be evaluated. Litigant beware!
So, if we’re around when it is finally passed, we will do a review of how things are turning out given the strengths and weaknesses of the Directive – in about 10+ years from now. Until then, que sera, sera (Whatever will be, will be . . . thanks Doris!).
So here goes...
In the continuing efforts to harmonize trade secret laws and regulations across national boundaries, the European Parliament is at this minute considering a trade secret directive (the “Directive”) that will affect all 28 European Union states (assuming Greece and some others don’t leave the EU, but that’s a different story). This is a big change, as about one third of the EU countries don’t have laws specifically governing trade secret misappropriation, and even more lack a specific definition of what constitutes a trade secret. If passed, probably sometime this Spring, the EU nations will have two years to pass local laws that meet the Directive’s standards.
So, what are the new rules likely to look like going forward?
The first change is to standardize the definition of “trade secret.” The draft definition contains three components:
1. “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;”
2. “has commercial value because it is secret;”
3. “has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.”
Though lawyers love to split hairs when it comes to legal language, this is really quiet similar to the United States uniform trade secret act’s trade secret definition of:
1. “derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use,” and
2. “is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”
So European markets and the U.S. are moving toward playing in the same ballpark (at last agreeing what a trade secret is). This is not surprising as both definitions seek to conform to the language of the World Trade Organization’s Agreement of Trade-Related Aspects of Intellectual Property Rights (let all multinational corporations around the world now hold hands and sing Kumbaya).
Functionally, when doing business in the EU if / when the new laws take effect, you will do well to apply the skills you learned here in the iPaint series to maintain the secrecy of your information. This way you and all your business partners in Europe should be able to lay claim to the trade secret definition above by establishing that you took “reasonable steps … to keep it secret.”
However, the current draft has some specific soft spots to which you will need to pay particular attention. The EU is apparently hesitating to include language that would override individual state’s employment laws so that it is likely that your employer – employee agreements will be relied upon as the basis to make an employee return trade secret information. The Directive may be so worded that an employer would need to show intent by the employee to misappropriate your trade secret before you could recover damages. Some opposition by health care industry and patient groups via the European Public Health Alliance oppose the trade secret definition itself as being too broad and likely to discourage access to data in the public interest by various interested parties (e.g., researchers, consumers, journalists, etc.). An example often trotted out by these groups would be concerns related to keeping information on toxic chemicals in products undisclosed under the “trade secret” umbrella.
Bottom line, your business contracts (e.g., with employees, contractors, partners, franchisees, etc.) and documented procedures will likely need to be very stringently worded to have a leg-up in Europe. It would be wise to slip your legal team some extra billable hours to get all your contract and non-disclosure agreements buttoned up tight, before adoption of the Directive.
Trade secret misappropriation under the EU Directive would occur by breach of these types of contracts or agreements, or just plain “unlawful acquisition.” Unlawful acquisition would include intentional actions or gross negligence resulting in unauthorized access to the trade secret or materials from which it can be deduced; theft, bribery, deception, conduct considered “contrary to honest commercial practices;” and, of course, breach or inducement to breach a duty to maintain secrecy or a confidentiality agreement. Use or disclosure of a trade secret will also be unlawful when a person knew or should have known that the trade secret was obtained unlawfully.
What will be the penalties for someone in the EU found to have misappropriate a trade secret? A whole bunch of pain and embarrassment. When you allege infringement, a court may order as an interim measure: prohibit the use or disclosure of your trade secret; prohibit the import, export, production, marketing, sale, or storage of goods that infringe your trade secret; provide for seizure or prevent delivery of such goods whether domestically produced or imported. Upon determining that infringement has indeed occurred, a court may also; force product recalls; force alterations to infringing products (including software and data type products) to remove the trade secret violating features; force the destruction of infringing good / removal from market, unless such action would undermine the trade secret’s protection; deliver to the trade secret holder and/or destroy of any or all parts of electronic files, documents, substances, materials, or objects containing or implementing the trade secret; and publish the courts declaration of infringement. In other words, you can really drop the hammer once you establish misappropriation. But to qualify as an “infringing good” “design, quality, manufacturing process or marketing” must “significantly benefit” from the trade secret. That undefined term “significantly benefit” raises an eyebrow, as its meaning seems open to much interpretation. Your authors suggest that this is a problem that will raise its head more than once in the current form of the Directive.
Another noticeable difference relative to U.S. trade secret laws (i.e., the Economic Espionage Act) is the lack of criminalization of trade secret theft. However, similar to the U.S. where some states (e.g., Texas, California) have done so, a few EU member states (e.g., Germany) presently have criminal statues for this behavior. A recent amendment to a bill in France to criminalize trade secret theft to discourage corporate espionage was quickly withdrawn due to outcry from political, civil and journalist groups as impeding investigative journalism and freedom of information.
Which brings us to additional pitfalls that may be put into play by the Directive. In particular, there are exceptions made in the Directive for the quote/unquote lawful disclosure of trade secrets. Given the backlash in France and other opposition groups, this may even be reworded to be broader before the new law is voted on. These exceptions include:
1. “independent discovery or creation;”
2. “observation, study, disassembly or test of a product or object that has been made available to the public or that it is lawfully in the possession of the acquirer of the information;”
3. “exercise of the right of workers representatives to information and consultation in accordance with Union and national law and/or practices;”
4. “any other practice which, under the circumstances, is in conformity with honest commercial practices.”
The first two are pretty straightforward, and don’t seem out of line with how things work in the U.S. But the last two seem ripe for individual member states to draft local law loopholes that could cause big headaches for a trade secret holder. Moreover, the Directive also include exclusions that are a broadly worded invitation to create nightmarish loopholes. Specifically, “that there shall be no entitlement to the application for the measures, procedures and remedies provided for in this Directive … in any of the following cases:”
1) “for making legitimate use of the right to freedom of expression and information;”
2) “for the purpose of revealing an applicant’s misconduct, wrongdoing or illegal activity, provided that the alleged acquisition, use or disclosure of the trade secret was necessary for such revelation and that the respondent acted in the public interest;”
3) “the trade secret was disclosed by workers to their representatives as part of the legitimate exercise of their representative functions;”
4) “for the purpose of fulfilling a non-contractual obligation;”
5) “for the purpose of protecting a legitimate interest.”
Yeah, terms like “right to freedom of expression and information,” “revealing misconduct, wrongdoing,” “public interest,” “a non-contractual obligation,” a “legitimate interest” sound upright and positive, but what the hell do they mean? Talk about broad, subjectively vague and open to interpretation. And what will those terms mean, say in Germany’s laws vs. France’s vs. Italy’s and so forth.
Last month’s iPaint article clarified that in the U.S., going to court can be dangerous to your trade secret’s health. And though the pending Directive has clauses to restrict access to documents, hearings, transcripts, and parts of decisions that may disclose trade secrets, how this is implemented in each member state and the effectiveness of court proceedings in protecting your secrets is still to be evaluated. Litigant beware!
So, if we’re around when it is finally passed, we will do a review of how things are turning out given the strengths and weaknesses of the Directive – in about 10+ years from now. Until then, que sera, sera (Whatever will be, will be . . . thanks Doris!).
