Five years on: Implementation of the Trade Secrets Directive | Trade secrets enforcement in the Member States

The first article outlined that the changes to the national laws helped to create a more uniform legal framework for trade secrets, but the task is not yet completed (Five years on: Implementation of the Trade Secrets Directive - Harmonisation of substantive concepts and definitions). In this second article, we will see how trade secret holders and courts from different jurisdictions are handling the trade secret enforcement.

Indeed, case law is set to play a crucial role in the expected harmonization. Trade secrets are unregistered rights, therefore, their existence and the unlawfulness of their acquisition, use, or disclosure highly depend on the courts’ factual evaluation and on their interpretation of the still undefined legal terms concerning the trade secrets. Local judges can help fill the gaps.

This process should be eased in those Member States where trade secrets litigation falls under the jurisdiction of Intellectual Property (IP) courts. This was already the case in different countries, while in others (as Poland), it has been a consequence of the implementation of the TSD. Such exclusive competence is expected to contribute to further improving the level of the courts’ expertise and harmonization. Finland has adopted an interesting approach, in which both IP court (Market Court) and General Court have jurisdiction.

In any case, for the time being, the number of legal proceedings involving trade secrets has not significantly increased in the majority of Member States, while some of them (reportedly France, Italy, and Spain) confirmed or increased already significant figures in trade secrets litigation.

We will see if this trend will change and whether the Member States’ courts will keep working to establish a harmonized case law.

1. Remedies

The courts of several Member States are already implementing all remedies set forth by the TSD.

When deciding on the granting of injunctive or corrective measures, courts now generally perform a proportionality assessment, taking into account the specific circumstances of the case, particularly the legitimate interests of third parties and the public interest (Belgium, Denmark, Italy, Slovakia, Spain).

In some countries (Slovakia), after the implementation of the TSD, the law provides for specific measures for trade secrets rather than making reference to general remedies, thus bringing more certainty to trade secret holders. In Germany, trade secret holders now have specific legal protection options against infringement, whereas under the old legal situation they could only assert claims indirectly based on infringements of competition or the civil code.

The measures granted by Member States’ courts after the implementation of the TSD include:

injunction to manufacture, commercialize, or use infringing goods (Spain); destruction or recall of the infringing goods and materials (France, Germany and Slovakia); seizure of the goods and production means (Spain); injunctions, orders to destroy or return certain information (Belgium and Germany); delivery of the documents and files which contain trade secrets (Spain); orders to identify parties to whom the infringer has disclosed the trade secret (Belgium); communication of the sensitive elements also in other national or foreign proceedings (France); penalties on the defendant and warranties on the claimant (France).

In order to strike the balance of interests and find the most effective way to effectively put an end to the breach, some courts have also imposed a time-limited non-compete order (Belgium) or granted a ‘grace period’ before making the measures fully effective (Italy).

Under certain circumstances, courts can now also order the payment of pecuniary compensation in place of protective measures for ‘innocent’ third parties (in proceedings on the merits) and reasonably satisfactory guarantees for the continuation of the use of trade secrets (in precautionary proceedings). In several Member States (Denmark, France, Italy, Poland, and Slovakia) this is a new option. It is unclear how often these measures may be granted, as they do not appear fully in line with the nature of the trade secrets and shall be ordered under specific conditions: once disclosed, trade secrets are lost. Moreover, in countries (such Slovakia) where it is not common practice to execute a license or other agreement granting the right to use trade secrets subject to payment of a fee, it would be difficult to assess an appropriate compensation or fee.

Mechanisms for awarding damages for trade secrets infringement (loss of profits; profits made by the infringer; moral prejudice; alternatively, a lump sum reflecting a ‘reasonable royalty’) are now aligned to those applicable to IP rights infringement in several Member States (this happened in France and Poland, while other countries, as Italy, already used the same criteria as trade secrets are considered IP rights). This appears to have increased the possibility of receiving compensation as, instead of just considering the loss of profits also the infringer’s unjust enrichment must be considered. Moreover, it is now also possible to award compensation to the trade secret holder for non-economic damage (Denmark).

In some Member States (e.g., Belgium, Italy), the law now explicitly provides that the holder can be requested to compensate the damage caused by measures obtained to protect trade secrets where these measures are revoked because, inter alia, it is subsequently found that there has been no unlawful acquisition use, or disclosure of trade secrets. In the Czech Republic, after the granting of precautionary measures, it is necessary to bring the case to a successful conclusion to prevent any potential damages claims being made by the counterparty.

2. Evidence regime

The general principle is still that trade secret holders carry the burden of proof when claiming unauthorized acquisition, use, or disclosure of trade secrets.

In trade secret litigation, the claimant is usually required to provide evidence that the asserted information meets all the legal requirements to be considered as a trade secret.

Among them, showing that the reasonable steps to maintain secrecy have been taken seems to be the most decisive and debated requirement in courts. On some occasions, courts partially reverse the burden of proof, shifting it to the defendant or alleged infringer. In particular, where a claimant convincingly asserts that the information is a secret, courts may require that the defendant should show that it is in fact generally known (Belgium).

Gathering evidence of a breach of trade secrets is traditionally difficult, as the claimant typically suffers from a lack of knowledge in these cases, which heavily depend on facts. Extending unlawful conduct to cases of non-gross negligence further impacted the burden of proof and required the highest level of care from parties handling trade secrets. Indeed, proving that the person ought to have known that the acquisition, use, and disclosure were unlawful could often be done only by means of presumptions of law. Courts sometimes require that actual proof of misappropriation should be provided by the claimant, when the product could easily be developed by reverse engineering (the Netherlands). On the other hand, the defendant might be requested to prove that they actually reached the trade secrets via reverse engineering (Italy).

Some useful and specific tools to collect evidence of the breach (as ‘saisie contrefaçon’) are only available for IP rights in many Member States. Therefore, they cannot be used for trade secrets where the latter are not IP rights (as in Belgium), while they are commonly used in jurisdictions where trade secrets are IP rights (as in the ‘descrizione’ in Italy; the seizure of evidence is also quite common in the Netherlands). Alternative means to safeguard evidence of the breach are ex parte seizure of evidence, possibly followed by (inter partes) expert examination (Belgium). A request for disclosure of specific documents is also possible in the Netherlands, but that requires that the claimant be specific enough. Spanish courts allow trade secret holders to request pre-trial inquiries to gather the evidence required to bring trade secret infringement proceedings.

Court and/or party-appointed Technical Experts are often involved in trade secrets litigation (especially in Italy and Spain). Dutch courts do not appoint experts that often, but this can be requested in trade secrets litigation, to enable an expert to compare the invoked trade secrets with the alleged infringement.

3. Confidentiality regime during proceedings

Many Member States have introduced a series of measures to protect confidential information in the course of legal proceedings. Some courts were already familiar with them (as in Belgium, Finland, and Italy), while in other countries they were not regularly ordered until the implementation of the TSD (as in France).

Basic provisions include a general duty of confidentiality for the court staff, parties’ lawyers and consultants, restricted access to court documents and hearings, redaction of documents and judgements, setting of so called ‘confidentiality clubs’ (e.g. only appointed people from each party and the court-appointed expert can access the whole file or certain document); and in-camera hearings.

French judges are ordering quite detailed and tailored measures. On one occasion, the Paris pre-trial judge ordered the delivery of specific documents, the redaction of certain information, and access to these documents be limited to the strict necessities of the dispute. Moreover, the judge allowed access only to appointed attorneys for each party, as well as foreign attorneys and to individual representing an entity not party to the litigation (provided that they were informed of the obligations arising from the provisions relating to trade secrets protection).

The Commercial Courts of Barcelona published Guidelines on the Protection of Trade Secrets during court proceedings. Such a protocol covers not only proceedings concerning trade secrets but also all other civil proceedings in which, whatever their subject matter, it is declared that certain information in the file constitutes trade secrets. These guidelines are also being applied by other Spanish Courts. Consequently, virtual data rooms, confidentiality clubs, and NDAs have become common in Spanish judicial procedures.

Indeed, confidentiality measures originally set for trade secrets are being granted quite regularly by many national courts, even when trade secrets are not the subject-matter of the proceedings but only an ancillary aspect of the case. The same procedural secrecy measures set forth under the German Trade Secrets Act have been extended by law to court proceedings concerning patents, utility models, and semiconductors. The Dutch Trade Secrets Act has introduced the possibility of a confidentiality club in statutory law, not only in cases on enforcement of trade secrets, but in all matters where confidential information is involved. Italian judges order the same confidentiality measures also during proceedings concerning other IP rights (this regularly happens in cases involving Standard Essential Patents and during Court-appointed Technical Expert phases involving parties’ technical or commercial/accounting confidential information).

The legislators of some other Member States decided that the amendment of the local law was not necessary to implement TSD’s rules. Therefore, national laws (as in the Czech Republic and Slovakia) set out in a very general manner that courts shall take necessary measures to ensure protection of a trade secret, but this protection appears vague and brings uncertainty as to whether courts will limit access to documents because it might be deemed in contradiction with the public nature of judicial proceedings or the right of each party to access the file.

Breaches of court-ordered confidentiality measures are now punished in several Member States with fines (up to EUR 25.000 in addition to a recurring penalty payment obligation per violation in Belgium; up to EUR 1.032 in Italy for anyone breaching confidentiality measures set by courts during proceedings concerning IP rights, including trade secrets) and also imprisonment (up to 3 years in Italy).