Trade secret protection. Legal service for companies

Trade secrets

Investment in research aimed at the acquisition, development and application of knowledge is essential for companies in order to survive in a market as competitive as the current one. In this sense, Intellectual Property—through copyright, the granting of patents and the registration of industrial designs, trademarks and trade names—allows them to obtain recognition or profits in exchange for their creations or inventions.

As can be inferred from the website of the World Intellectual Property Organization (WIPO), Intellectual Property Law attempts to find a balance between the interest of innovators and the public interest by fostering an environment conducive to creativity and innovation.

However, when it comes to protecting research results, the existing legislation does not always provide an adequate instrument. Sometimes, in fact, it is the fundamental characteristics of the system themselves that become obstacles for its use. For example, despite the commercial or competitive value of the results of a research, they may not comply with the legal requirements established by patent law.

On the other hand, patents offer limited protection over time and require the full disclosure of the invention, regardless of whether the protection sought is finally granted or not.

In practice, when the option of patenting is not feasible, both large companies and SMEs prefer to exploit the results while restricting access to such knowledge which is valuable to them and unknown to their competitors.

In fact, some of the products we find, for example, in the supermarket have certain qualitative peculiarities (taste, appearance, consistency, etc.) thanks to specific formulae and to a jealously guarded know-how.

That is the essence of a business secret: undisclosed information of great value for a company that needs to be kept confidential.

The key point here is to keep confidentiality in order to protect a set of aspects that are not necessarily limited to technical knowledge, but that may also include commercial data (such as information on studies and market strategies, clients or suppliers) providing some competitive advantage.

Companies' trade secrets and intellectual property in UE need to be protect by expert lawyers
© Joan Meléndez Vilardell for inmentor

This is an important challenge, as companies are increasingly exposed to threats such as the breach of confidentiality requirements, industrial espionage, theft or unauthorized copying, the purpose of which is precisely the misappropriation of these commercial secrets.

On the other hand, phenomena such as globalization, the increasing outsourcing of services or the widespread use of the information and communication technologies represent further risk factors.

Despite the importance of trade secrets and the growing threats, the current legal framework is still inadequate to ensure a satisfactory protection against the unlawful acquisition, use or disclosure of trade secrets by third parties. Even if we consider the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which provides different sets of rules that are already in place, international legislation remains fragmented and has little deterrent effect.

In the European Union (EU), the protection of trade secrets is usually sought through unfair competition law or criminal law.

However, the differences between national laws give rise to discrepancies in the degrees of protection: to begin with, the scope of the protection granted differs widely, since there is no common definition of the concept “trade secret” itself nor of the acts related to the “unlawful acquisition, use or disclosure” by third parties.

There is also a lack of uniformity as regards the available legal actions against these acts. Likewise, there are differences from one state to another as to the treatment received by the person who initially acquires the trade secret in good faith and subsequently discovers that the third party had obtained it unlawfully.

Other important differences concern what the legitimate holder of a trade secret may claim for products unlawfully manufactured using a trade secret as well as the calculation of damages, which does not always take into account the intangible nature of trade secrets, thus making it difficult to set an amount.

Aware of this problem, on 8 June 2016, the European Parliament and the Council adopted Directive 2016/943 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure, precisely in order to harmonize and strengthen the protection of trade secrets in all 28 EU jurisdictions by June 2018 at the latest.

This new legislative text includes many interesting aspects that would deserve a close examination. In this article, however, we will only mention those that we consider most relevant.

First of all, we welcome the harmonization of the concept of “trade secret” pursued by the Directive 2016/943. On this occasion, the EU legislator has chosen a broad definition encompassing many types of information: on the one hand, it includes technical or technological innovations, know-how, best mode of patented inventions, negative know-how (what not to do), manufacturing processes and chemical or mathematical formulae.

On the other hand, it also includes business-related information about customers and suppliers, marketing strategies, software and consulting tools. Also, the definition would include television formats.

However, already in art. 2, the new directive limits the scope of protection by stating that, in order to obtain protection, certain requirements must be met, namely:

  • The information must be “secret” and not easily accessible, nor generally known to the members of the circles that normally deal with the kind of information in question, and
  • it must have a commercial value that is precisely the basis of its secret nature;
  • in addition, the legitimate holder must have taken “reasonable measures” in order to keep said information secret.

In other words, not all information is valid, but there must be a “legitimate interest to keep it confidential and a legitimate expectation for such confidentiality to be preserved”. Likewise, the information must be sensitive and have a value (real or potential) for the company, for example, when its use or disclosure is likely to adversely affect the interests of the company.

In addition, the legitimate holder must be diligent and must take the appropriate measures to avoid or to control the dissemination of such valuable information. It follows from the foregoing that, in order to be able to bring suit before a court in case of unfair practices, it is essential to adopt specific protocols to protect confidentiality, such as confidentiality agreements, security policies, access controls, the return of any confidential information at the end of an employment relationship, etc.

Art. 8 of the Directive 2016/943 harmonises the limitation periods for exercising the actions for the defence of a trade secret. However, it simply establishes a maximum period of six years for the whole EU, and it leaves to the discretion of each member country aspects like the duration of such periods, their starting point as well as the causes that may give rise to their interruption or suspension.

In the following article, the same Directive addresses the sensitive issue of preserving the confidentiality of trade secrets in trials, introducing an obligation for the member states to provide for specific measures that ensure the confidentiality of sensitive information revealed during the trial.

It is an important rule, the purpose of which is to overcome the deterrent effect on the legitimate holder of a trade secret, who, afraid of exposing the confidential information in the trial, prefers not to take risks, thus giving up the defence of his rights in case of unfair practices.

This article provides some specific measures like:

  • The restriction of access to documents containing the trade secret;
  • the limitation of the list of persons who can have access to the hearings where trade secrets might be disclosed (supposition);
  • the drafting of a confidential version of the resolution that does not include the passages containing the trade secret, in order to make it available to those persons who were not given access to the documents or to the hearings mentioned above.

Such measures shall remain in force even after the trial, until the information in question has become part of the public domain.

With the objective to create an effective and dissuasive regulatory framework in mind, art. 14 of the Directive 2016/943 provides that, in the event of an unlawful acquisition, use or disclosure by third parties, an appropriate compensation for damages must be set and that, in order to fix the corresponding amount, all relevant factors must be taken into account: the loss of profit of the holder, the unjust enrichment of the offender and the possible moral damage caused to the holder of the trade secret.

In those cases where the quantification of the damage suffered is difficult because of the immaterial nature of the trade secret, the amount in question may also be calculated on the basis of other specific elements such as, for example, the charges which would have been levied if the infringer had requested a license to use the trade secret in question.

By way of conclusion, and in our view, this is an important directive because, on the one hand, it specifically harmonises and improves the legal framework for the protection of trade secrets. On the other hand, in a broader sense, it implies a step forward towards the very construction of the European Union, a project that is being currently challenged but remains so important for ensuring that these 60 years of peace in Europe do not end up being just a mirage.

Alessandro Di Marco

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