Apr 14, 2016

Sssshhhh, its a Secret - But is it Confidential? New EU Trade Secrets Law

On 13 April the European Parliament voted on the proposed trade secrets directive ("Directive").

Current Laws Protecting Trade Secrets in England

Trade secrets are reasonably well protected in this country largely under the laws of confidentiality, unlike other EU countries for whom reform is essential to fill legislative voids.  Various non-statutory protections exist in relation to the protection of confidential information and it is assumed that these will remain when the Directive is implemented.

Confidential information will be protected where it has the 'necessary quality of confidence' and has provided it has been communicated in circumstances importing an obligation of confidence. It does not have to be a 'trade secret' therefore the scope of protection is wider. Examples of where confidential information protection may arise include:

Employees being under an implied duty of good faith which imports contractual obligations of confidentiality.
After their employment ends, employees must preserve 'trade secrets', and may use information having a lesser degree of confidentiality, subject to any restrictive covenants (subject to them being 'reasonable') in their employment contracts.
Copyright protection.
Contract law.
Data Protection Act.

Confidential Information

The law of confidential information is the main form of protection for commercially sensitive materials and information, which cannot be protected by intellectual property rights or which can only be so protected to a limited extent. Almost any type of information can be the subject of confidential information, and the law can be used to protect both commercial information and personal information.  The types of information which may be protected include:

Formulae.
Recipes not apparent from the final product.
Processes (for example, fermentation technology).
Business methods (until they are used in public).
Financial information.
Statistical information.
Customer lists.
Plans, sketches and drawings.
Improvements to products or processes.
New inventions while the filing of a patent application is pending.
Business plans.
Computer programs.
Discoveries, scientific theories or mathematical methods.

EU Proposals - Uncertainty?

Looking closely at the EU proposals, there are a lot of uncertainties that could arise under the EU proposals.  First, the law of breach of confidence is not limited to 'trade secrets'.  As can be seen above the protection it provides is much wider.  Adopting the EU proposals could limit and/or reduce the scope of protection in England.

The laws could also be used to bring unmeritorious claims for breach of the new laws.  The draft directive aims to avoid any uncertainty in this area.  Article 6(2) provides that any defendant should be able to ask for relief where a claim is, "manifestly unfounded and the applicant is found to have initiated the legal proceedings abusively or in bad faith".

In England abuse of process is dealt with through sanctions such as strike out or adverse costs awards. But the Directive provides that such measures may also include an award of damages which may catch out the unwary.

Further uncertainty arises from the fact that the European Court of Justice (CJEU) will have jurisdiction to determine the outcome of cases where interpretation of the Directive is unclear. English courts will have to apply CJEU decisions.  They will also have to refer issues to the CJEU.  As a result of this English law is bound to change and it is generally accepted that having to follow CJEU jurisprudence is problematical.

"Trade Secrets" Under the Directive

What is a 'Trade Secret' is defined in Article 2.1  Briefly is is defined as being,

"…secret in the sense that it is not … generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question…

…has commercial value because it is secret…

…has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret."

This very different from the current test under English law (see Faccenda Chicken guidelines), and introduces the notion of "circles that normally deal with the kind of information", and requires a direct link between secrecy and commercial value.  It appears to be narrower and more uncertain and there are bound to be questions asked as to what information is covered.  Also, since this Directive is concerned with "trade secrets", will it permit English courts to continue to protect 'confidential information' of a lesser degree and which does not meet the "trade secret" threshold?

Conclusion

As can be seen there will be a lot of uncertainty around this area of law in England when the Directive is finally implemented.  Much will depend on how the new law is implemented and the approach of both the Courts in England and CJEU.

Posted by: in: Companies, Contract, EU/International, Legal News, News

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