EU Council adopted Trade-Secret-Directive

The Trade-Secret-Directive was a long time in the making. On 27 May 2016 the EU Council unanimously adopted the Directive on “Trade Secrets”. The Directive’s aim is to protect organisations within EU member states from misappropriation of “trade secrets” and also seeks to harmonize the diverging national laws of the Member States.

What is a “trade secret”?
In short the Directive defines a “trade secret” in art. 2 para. 1 roughly as information that:

  • Is secret – in the sense that it is not generally known or readily accessible;
  • Has commercial value because it is secret; and
  • Has been subject to reasonable steps to keep it secret.

In particular the last condition of this definition raises the protective standards in Germany. The “trade secret” holder will have to demonstrate the steps taken to protect the information and to keep it confidential. “Famous trade secrets” range from the formulas for Coca-Cola and Chanel No. 5 (and many other luxury fragrances) to Continental rubber tyre compounds and even The New York Times’ “Best Seller List” rating system.

Due to the broad definition of “trade secrets” there is fear that companies may sue anyone who discloses information that the company subjectively deems “confidential”. There are only two exceptions to the unlawful disclosure rule:

  • If the trade secret was obtained lawfully, the disclosure is permissible; and
  • A disclosure will not be prohibited if a “whistleblower”, acting in the public interest, discloses a “trade secret” for the purpose of revealing misconduct, wrongdoing or illegal activity. This safeguard is not operative if the “trade secret” was acquired or passed to the “whistleblower” through the use of illicit or illegal means.

It is the whistleblower’s burden to prove that any disclosure is in the public interest and falls within the stated exception.

Impact on (former) employees?
The first article of the Directive addresses the conflict between the protection of “trade secrets” and restrictions on an employee’s ability to move jobs. The Directive shall not prevent employees from using their experience and skills honestly acquired in the normal course of their employment. But information which does not comprise an employee’s “honestly acquired” skills or experience will, it seems, be afforded “trade secret” protection under the Directive. Due to the fact that former employees are generally recognized as the largest single cause of breaches, this article is likely to be the subject of judicial scrutiny.

Rights and remedies of trade secret holders
The EU Directive (art. 10-14) grants trade secret holders a broad range of remedies that are comparable (but not identical) to those available in intellectual property cases, e.g., injunctive relief, corrective measures, and damages.

Forecast & Conclusion
Member States now have until 9 June 2018 to implement the Directive. They may define certain terms and fill gaps by selecting required and permitted options in their national laws. Perhaps long overdue, “trade secret” protection will be harmonized in the EU. However, “trade secret” protection comes with a clear instruction: You must treat your “trade secrets” as valuable and secret, and ensure you can prove you have done so.