A Balanced Trade Secrets Protection Regime Adopted by the EU

June 1, 2016

On May 26, 2016, the Council of the EU unanimously adopted the directive on the protection of undisclosed know-how and business information (trade secrets). The directive also provides guidelines for the protection of trade secrets against disclosure in legal proceedings.

Where trade secrets cannot be protected by intellectual property rights, companies often have no choice but to rely on security measures and contractual agreements in order to preserve the confidentiality of their business methods, research and development results, legal or financial audits, etc. Such information may be assets of high value, which nondisclosure agreements, no matter how dissuasive, do not always sufficiently protect. Indeed, these agreements apply only between signatories and are governed by national contract laws, many aspects of which have not been unified within the EU. Furthermore, protection of trade secrets must be balanced with fundamental rights, such as freedom of expression and the free movement of information.

In this context, the directive provides a broad definition of trade secrets. To be considered a trade secret, information must meet three requirements:

  1. It must not be generally known among, or readily accessible to, persons who normally deal with this kind of information.
  2. The information must have commercial value because of its secrecy.
  3. Reasonable steps must have been taken to keep the information secret.

Since most companies implement human, legal and IT measures to maintain the confidentiality of their intangible assets and sensitive information, any private, previously undisclosed and valuable information could be considered a potential trade secret.

The directive provides typical circumstances where the acquisition of a trade secret would be considered lawful: It may be independently discovered or created, lawfully possessed, acquired by virtue of workers’ information rights, or acquired in compliance with honest commercial practices or under EU or national requirements. The directive then provides a list of situations where acquisition would be considered unlawful, including unauthorized access to the trade secret or access to files from which the trade secret can be deduced. Finally, the directive forbids any use or disclosure of trade secrets acquired unlawfully.

Member states would be required to enforce dissuasive remedies and precautionary measures to prevent unlawful disclosures. National courts should take into account all appropriate factors to assess the scope of injury suffered, such as potentially negative economic consequences, including lost profits, unfair profits made by the infringer and, in appropriate cases, the “moral prejudice” caused to the trade secret holder.

Some EU public figures and politicians have expressed concerns about the potential for this directive to establish a general principle of secrecy and notably hinder whistleblower rights. But such potential should be limited by exceptions set out within the directive. Indeed, those exceptions allow for disclosures that, given the above, should have been forbidden:

  1. Freedom of expression and information
  2. Revelation of misconduct, wrongdoing or illegal activity, in order to protect the general public interest
  3. Workers’ representatives disclosing information as part of the legitimate exercise of their functions
  4. Protection of legitimate interests recognized by EU or national law

Exceptions (a), (c) and (d) are welcome reminders of fundamental rights and the primary importance of certain interests. Exception (b) is more particularly tailored for the protection of whistleblowers. But the notion of “general public interest” specified in this exception may prompt various interpretations, for which the EU Court of Justice usually allows a significant degree of discretion to national authorities.

In any case, this directive should enhance the legal certainty of confidentiality programs implemented by companies to protect their sensitive information in the EU.