Five years on: Implementation of the Trade Secrets Directive - Harmonisation of substantive concepts and definitions

This step was much anticipated as the importance of trade secrets for the innovation is widely acknowledged, but the vulnerability of some national legislations in this regard was suitable to jeopardize the protection of trade secrets in all Member States, whose economies are highly integrated on the internal market.

Even if some Member States did not use the full potential of the TSD or only implemented the necessary minimum, the changes to the national rules:

1. created a more uniform legal framework in the EU;
2. underscored the importance of trade secrets, leading to more attention amongst European businesses and practitioners.

These results were due to a mix of minor or major changes, some of which are already showing positive results, while others need more time to prove their effectiveness.

This is the first of two articles describing the status of play in the European Union after these five years.

This article will provide an overview of some substantive concepts and definitions which have been implemented in the Member States as a significant part of the harmonisation process.

In the second article we will focus on the enforcement of trade secrets, looking at how trade secret holders and national courts are using the options provided by the TSD, so performing another crucial part of the harmonisation process.

1. What is a trade secret

Trade secrets are considered IP rights only in a few Member States. This means that trade secrets can access the judicial remedies provided for patents, trademarks, designs, etc. where they are considered IP rights. However, this does not have a major impact on the protection, as TSD provides in many aspects the same protection for trade secrets as traditional IP rights.

However, after the implementation of the TSD, a definition of ‘trade secret’ has been included in many legislations for the first time (this is the case for Denmark, Germany, and France). This helps courts, practitioners, and business operators clearly identify and better protect trade secrets.

Identifying the ‘reasonable’ steps to maintain secrecy, i.e. one of the three requirements to be met by an information to be considered a trade secret, is still a significant issue.

This assessment is always performed on a case-by-case basis as the same measures cannot fit all situations.

The most appropriate measures to effectively protect a trade secret can be identified depending on, inter alia, the value of the information at issue (e.g., a unique chemical formula is expected to be protected with the strictest means), the common practice in the concerned field (which might require a certain standard), the enhancement of the technology in the security measures (the most up-to-date measures should be used).

In order to perform such evaluation, many Member States are opting for a flexible factual criterion based on a proportionality assessment. There shall not be precautions leading to absolute security, while the decisive factor is whether the trade secret’s holder took reasonable and efficient measures in advance to protect the information.

In this context, the application of the need-to-know principle seems to be a minimum requirement or at least sufficient for appropriate confidentiality measures (Germany).

In other countries (Poland), trade secret holders should now ‘act with due diligence to keep it secret’. This sets a higher standard, as holders are required to demonstrate not only that they acted with due diligence to keep the secret but also that such actions were diligently performed considering the standards of a particular industry. The holders can be required to describe the measures they have taken to ensure that given information is kept secret and, if necessary, also provide evidence of the implementation of the confidentiality system.

2. What is unlawful

In many Member States, it is now clearer which acts constitute unlawful acquisition, use and disclosure.

However, indirect forms of unlawful acts (i.e. by a person who knew or have known that the trade secret had been obtained from another person who was using or disclosing the trade secret unlawfully) are rather new in some legislation (Slovakia). In other countries, the extension of the infringer’s liability to cases of non-gross negligence made a broader range of conducts unlawful (as in Italy).

The new legal definition of trade secrets and the role of secrecy measures have brought changes to employment law in some countries.

In Germany, even though employees already had the ancillary contractual obligation to protect the employer’s trade secrets, employers are now required to be proactive and take ‘reasonable non-disclosure measures’. The employer needs to have a sufficient but specific confidentiality clause in the employment contract to efficiently protect its secrets.

In Finland, the legislator established an automatic confidentiality obligation for information gained from a confidential business relationship. This could be an advantage, as NDAs will not be a compulsory first step in all confidential business relationships to ensure confidentiality. However, it should be noted that it also requires companies to be cautious when receiving information from outsiders. If the prerequisite for a confidential business relationship is fulfilled, the recipient shall not use it for any other purposes or disclose the trade secret to anyone.

The definition of infringing goods was introduced for the first time or was changed in several national laws. In some Member States (Finland, Italy, and Spain), it also covers services.

In other countries, the new law introduced explicit protection against the use of goods benefiting from someone’s trade secret (Poland), as before the implementation of the TSD, the law only provided protection against goods infringing copyrights or other registered IP rights (Slovakia).

3. Criminal offences

In several Member States (Belgium, Germany, Italy, and Finland), the law qualifies certain trade secrets-related acts as criminal offenses. Examples thereof are the act of disclosing so-called ‘factory secrets’, cybercrime, or other offenses that make come into play in this context (e.g., fraud, abuse of trust, etc.).

In Slovakia, the most serious cases of violation of trade secrets can be prosecuted under the criminal law. The basis for this offense is the manifestation of the perpetrator’s intention to disclose a trade secret to an unauthorized person. Therefore, negligent disclosure of the subject matter of a trade secret does not constitute a criminal offense. In Spain, some trade secrets infringements (e.g., those infringing conducts made by employees who previously signed NDAs with their company) could be considered criminal conduct and lead to fines, imprisonment, and damages awards. In Finland, most intentional trade secret infringements are considered criminal acts. These can be handled in the same court and, in some situations, even in the same proceedings as civil claims.

As per sanctions, in Denmark, the unlawful acquisition, use, and disclosure of trade secrets are punishable by a fine or imprisonment of up to 18 months, unless the breach of the law has been severe. If that is the case, a maximum penalty of up to 6 years may be imposed. In Italy and Finland, trade secrets-related crimes are punished with imprisonment of up to 2 years. The punishment is increased in Italy for crimes committed using ‘computerized means’, which could result in an increase in criminal punishments as the acquisition, use and disclosure of trade secrets nearly always involve the use of IT tools nowadays.

German courts already applied the TSD’s ‘whistleblowing exception’ in a decision dating back to 2019. The defendant called on employees of a pharmaceutical company with flyers to disclose confidential information about the company’s supply of toxic substances used to carry out the death penalty in the USA. The court ruled that this does not fall within the criminal provisions because the ‘whistleblowing exception’ applies. The court argued that the alleged export of toxic substances, which are also used there to carry out the death penalty, constitutes an ethically disprovable conduct that the defendant permissibly wanted to disclose.

In some Member States (France, the Netherlands, and Finland), the new system following the implementation of the TSD did not amend criminal liability with respect to trade secrets. However, in Finland, most trade secret cases have been and are still criminal cases, as this provides much better protection to the trade secret holder and effective coercive measures to gather evidence.