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New Trade Secrecy Laws

New Trade Secrecy Laws

In the words of Bono, “A secret is something you tell another person”.  If that is your inclination, then you will need to reconsider, at least when the secret is a commercial one.  New trade secret laws originating from the EU are being introduced this year which will clarify and reinforce existing laws of confidentiality for business information.

Those companies which are innovating and developing ideas should be rewarded with an ability to exclusively exploit those ideas, for a period at least.  This is especially important in the Internet Age, where material can be downloaded and transferred at the push of a button, and in seconds the world can be made aware of a company's latest initiative before any first-mover advantage can be realised.

These laws are not just protecting your business information from Mission Impossible type industrial espionage or cyber-criminals hacking into your IT systems. The risk of losing confidential information is much more common-place. This will protect your business from employees who remove information on iPods or by sending it to personal email accounts, something that happens every day, innocently or otherwise.

The European Commission has recently recognised the growing importance of protecting confidential business information, in particular trade secrets. It estimates that 25% of companies reported theft of information in 2013, a 7% increase on the previous year.  I think that is a gross underestimate of the problem. This growing issue, coupled with the varied and inconsistent approach taken to trade secrets across Member States, led to the Commission's introduction of their draft Directive in November last year. 

As matters stand, trade secrets can be protected in the UK by a combination of implied and express contractual rights and by the common law of confidentiality. The Directive will raise the profile of this as a form of intellectual property and should bring consistency across the EU as to the extent to which action can be taken against the theft of trade secrets.
Fully entitled the 'Directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure', the proposals aim to implement a statutory framework which will provide an equal level of protection throughout the EU.
 
The proposed Directive creates the following uniform definition of trade secrets:

  • It must be a secret in that it is not generally known among or readily accessible to those persons that normally deal with the particular information;
  • It must have commercial value because it is secret; and
  • Those in control of it must have taken reasonable steps to keep it secret.

There is scope for interpretation on how much commercial value information must have to be afforded protection.  Similarly, what are reasonable steps to keep something secret could be vary greatly between businesses. I expect if a company has not introduced and implemented effective policies controlling when employees are permitted to take information out of the workplace, they may not meet this test. Certainly, if not something already done, businesses should identify what information they regard as a sensitive trade secret and ensure it is appropriately identified as such and kept in a secure way.

The Directive outlines which conduct will regarded as “theft” of a trade secret. Interestingly, the standard is much lower than intentional or gross negligence. The acquisition of a trade secret will be unlawful if done through unauthorised access to documents etc, or otherwise in circumstances  considered contrary to honest commercial practices. 

Some common sense exceptions to the trade secret rules will be introduced, the circumstances in which lawful use of trade secrets can be made. These include independent discovery or creation, observation of a product or test which is available to the public or in possession of the acquirer, or practice which, under the circumstances, conforms with honest commercial practices. 

There has been some debate over the time period you have to bring a trade secrets claim in court. The European Commission suggested two years in its initial draft of the Directive, but the Council considers that six years is more appropriate for greater protection. Therefore, actions may be brought up to six years after the date on which the applicant became aware, or had reason to become aware, of the last fact giving rise to the action.  This is more generous than Scotland's five-year time bar period, and it may be that the five-year rule will apply here.

A significant issue which we have when enforcing our client’s confidential information is that to do so, you often need to disclose the very information you are trying to keep secret in a public court. The European Commission has recognised that businesses across the EU may presently be deterred from bringing an action relating to trade secrets due to the accessibility or publicity of court documents and processes.  As a result, the Directive introduces mechanisms to preserve the confidentiality of trade secrets which are disclosed during the course of litigation.

Current UK law does offer some useful protection of confidentiality but enshrining rules in statute will give those of us enforcing these rights greater certainty when advising clients who have suffered a loss of confidential information.

Colin Hulme
Partner

LChalmers