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Top 3 Predictions for Trade Secrets in 2019

by Laura Gastaldi, Fulvia Cosattini, Micaela Jerusalmi

Striking the balance between opposite demands

In order to harmonize the different legislations adopted by each EU Member State and strengthen the protection of know-how and trade secrets, on the June 8, 2016, the EU Parliament and the Council of the EU enacted EU Directive No. 943/2016 (“the Directive“), implemented in Italy in June 2018 by the Legislative Decree No. 63/2018 (“the Legislative Decree“).

The Directive creates a baseline level of protection to be applied by each EU Member State. Importantly, among the rest, it sets out a uniform definition of a trade secret, as follows: any information that is secret (not generally known among or readily accessible to persons within the relevant circles of trade), that has commercial value because it is secret and that has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret. The definition thus extends beyond more classic trade secrets like construction drawings or recipes, and may include negative information like known product defects or company codes of conduct.

Now the question is: will the European and Italian landscape, as far as trade secrets are concerned, substantially change with the intervention of the Directive and the related implementation measures in each country, or are the principles contained therein already generally applied by the local courts? Will companies in Italy and in the rest of the EU need to act in order to make sure that their trade secrets will be deemed protectable, if necessary? What should we expect from 2019?

 1. New protection measures will be necessary but don’t forget to keep an eye on transparency too

At the EU level, one of the main changes concerns the minimum level of trade secrets protective measures required by the Directive. The intent to protect information is no longer sufficient in order to be granted legal protection. As a matter of fact, it will be necessary to prove to have actively implemented measures to protect trade secrets and the more effective are the measures, the more extensive will be the protection granted. In this respect, Italy stands out in having preceded the times: before the new Directive came into force, Italian legislation already required the burden of proof to be built this way.

However, switching to daily business life, this means regulating in more and more detail the circulation of trade secrets both within the company (e.g. among employees – it will be interesting to see how the new regime will coordinate with that on whistleblowing) and outside the company (e.g. with collaborators, consultants, and other companies). We will also witness a highly significant increase in the use of information “tagging” systems aimed at ensuring that the information that circulates is marked by its level of secrecy and confidentiality.

The necessity to adopt the utmost diligence in this context increases even more in light of another provision introduced by the Directive, namely the one envisaging the relevance of the conduct of who “neither knew nor ought (..) to have known” the secrecy of the information (Article 13, paragraph 3, of the Directive). Attributing relevance to conducts of this kind, on the one hand enhances the scope of protection for trade secrets, while on the other hand, makes it even more fundamental to demonstrate that one has adopted adequate protection tools.

The enhanced protection of trade secretes must be balanced with transparency and the strive for it. The issue has already been pointed out by one of the members of the Italian Communications Authority (AGCOM), who condemned the lack of transparency dwelling at companies that make use of profiling mechanisms on the web to show and offer to users certain pieces of news (instead of others). The algorithms behind these activities may fall under the definition of trade secrets and so enjoy the protection of the Directive. In these situations, however, the protection of trade secrets must undoubtedly be balanced with transparency, so to avoid a scenario in which the legal protection offered results in a violation of constitutional values and principles, ​​such as freedom of information. We will see what steps the companies concerned will take in response to these requests, or, for the case they decide not to take any, what the consequences will be.

 

 2. A new dawn for reverse engineering

The Directive expressly lists, among other cases in which the acquisition of a trade secret is considered lawful, the observation, study, or disassembly of a product that has been made available to the public or that is lawfully in the possession of the acquirer of the information (reverse engineering). On the contrary, the Legislative Decree does not introduce a similar provision in Article 99 of the Italian Intellectual Property Code (“IPC“). The choice of the Legislative Decree not to expressly mention the reverse engineering as a lawful way to acquire a confidential information is due to the fact that Italian major case law has always considered reverse engineering as a lawful practice, even before the intervention of the Directive. Indeed, according to the first paragraph of Article 99 IPC – which remains without substantial changes – the holder of a trade secret has “(…) the right to prohibit third parties, without his consent, to acquire, disclose a judgment or use in an abusive manner, such secrets except for where they have been achieved independently“. Therefore, even if the Legislative Decree does not include an explicit list of exceptions to the protection of the know-how, as the Directive does, the final tense of the aforementioned provision allows – and has always allowed – the reverse engineering to be considered lawful by the case law, as an autonomous achievement of technical-commercial works.

No major changes are therefore expected in Italy; however the EU-wide admissibility of reverse engineering could easily change the overall level of investments on the study of competitor’s solutions, on the one side, and on making them more and more sophisticated, on the other side.

 

3. How will the Italian Courts deal with the enforcement of the Directive?

From the judicial standpoint, as far as the domestic scenario is concerned, the Legislative Decree introduced significant changes to the IPC, providing specific procedural regulations aimed at increasing the protection of trade secrets.

First and foremost, the Legislative Decree introduced art. 121-ter of the IPC, which provides for a specific regulation aimed at protecting the confidentiality of the trade secrets in the course of legal proceedings. This will for sure have an impact on the domestic trials relating to trade secrets, involving all the parties in the proceedings, including lawyers.

According to this provision, indeed, the judicial authority must take specific measures to preserve the confidentiality of the trade secrets subject matter of the proceedings. In detail – upon the party’s request – the court can prohibit to any third party who can access the court file (such as consultants, lawyers, experts, witnesses, administrative staff, etc.) to acquire, use and disclose trade secrets, also after the legal proceedings have ended.

Furthermore, in order to protect the confidentiality, the judge is also entitled to restrict access to any document containing trade secrets or alleged trade secrets submitted by the parties as well as to prevent someone to attend a hearing when trade secrets or alleged trade secrets may be disclosed, and even to redact some passages of any judicial decision containing trade secrets.

Therefore, in all the proceedings concerning trade secrets, the competent authority must deal very carefully with the matter in order not to jeopardize their confidentiality, assuring to take all the necessary measures provided by law to this aim.

But there’s more: in the assessment of the proceedings relating to the unlawful acquisition, use or disclosure of a trade secret, the competent authority shall also assure a balance between the interests at stake and, in particular, shall consider certain interests, the protection of which may interfere with the confidentiality of the trade secrets.

In detail, according to Article 124 par. 6-bis and Article 132 par. 5-ter of the IPC, as modified by the Legislative Decree, the judge – in deciding to grant or reject the provisional and precautionary measures – must consider, among the others, all the following circumstances: the value and the specific features of the trade secrets; the measures implemented by the owner to protect them properly; the conduct of the alleged infringer; the impact of the use and disclosure of the trade secrets; the legitimate interests of the parties and the impact that the rejection or granting of the claimant’s request may have on them; third parties’ legitimate interests; the general public interest and the safeguard of fundamental rights.

All the above-mentioned elements shall also be taken into account in order to evaluate the proportionality between the alleged infringement and the granted measures.

In the light of the foregoing, the protection of trade secrets has been strengthened, providing certain measures to preserve their confidentiality in the course of the legal proceedings as well as a specific regulation about precautionary and provisional measures.

In this framework, from a domestic perspective, it will be interesting to note how the Italian courts will respond to these changes and will implement these measures.

For sure, one of the most interesting challenges the courts will deal with in 2019 is the balance between the protection of the confidentiality of trade secrets and the need to ensure a competitive market.

 

If you would like to receive more information please contact the authors laura.gastaldi@dlapiper.com, fulvia.cosattini@dlapiper.com, micaela.jerusalmi@dlapiper.com.