Trade secret Directive: the deadline for transposition is just around the corner!

Directive (EU) 2016/943, 8/6/2016

The June 9 deadline, set for the transposition of Directive (EU) 2016/943 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure, is fast approaching. Among the trade secrets covered by the Directive are, for example, information on customers and suppliers, business plans, market research and strategies, unpatented industrial processes and technologies: a precious corporate asset which has so far been protected by diverging national rules.

The aim of the Directive to harmonize national legislations thus serves a twofold purpose:

• protecting investments in acquiring, developing and applying know-how and business information;
• facilitating the exchange of knowledge in order to foster collaboration between businesses at European level.

These purposes are being pursued striking the right balance between the need to provide effective protection for the legitimate trade secret holder, and the need to avoid abuses and undue restrictions on freedom of expression and information.

The main points in the Directive are briefly described below.

Subject matter and scope of application

The definition of ‘trade secret’ covers all the information which satisfy the following requirements:

1. it is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
2. it has a commercial value because it is secret;
3. it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

Acquisition, use and disclosure of trade secrets

The acquisition of trade secrets shall be considered:

• Lawful when the trade secret is obtained by independent discovery or creation, or through observation, study, disassembly or testing of a product or object that has been made available to the public or that is lawfully in the possession of the acquirer of the information. The Directive thus considers reverse engineering a lawful mean of acquiring information, despite its lawfulness in such cases is controversial;

• Unlawful when it is carried out without the consent of the trade secret holder by unauthorized access to, appropriation of, or copying of any documents, objects, materials, substances or electronic files, lawfully under the control of the trade secret holder, as well as by any other conduct which is considered contrary to honest commercial practices.

The use or disclosure of a trade secret shall be considered unlawful when carried out by a person who:

-    knew, or ought to have known, that the trade secret had been obtained from another person who was using or disclosing the trade secret unlawfully.

In addition, the production, offering or placing on the market of infringing goods, or the importation, export or storage of infringing goods for those purposes shall be considered an unlawful use where the person carrying out such activities knew, or ought to have known, that the trade secret was unlawfully used.

Among the exceptions to the Directive are the cases where the alleged acquisition, use or disclosure of the trade secret were carried out for exercising the right to freedom of expression and information or for revealing misconduct, wrongdoing or illegal activity. This provision places emphasis on the phenomenon of whistleblowing, the disclosure of information about perceived wrongdoing.

Measures, procedures and remedies

The Directive requires Member States to provide for measures, procedures and remedies necessary to ensure the availability of civil redress that shall be fair and equitable, effective and dissuasive and not unnecessarily complicated or costly, or entail unreasonable time-limits or unwarranted delays. Member States shall also ensure the preservation of confidentiality of trade secrets in the course of legal proceedings in order to avoid the risk that the prospect of losing confidentiality deters legitimate holders from instituting legal proceedings to defend their trade secrets.

Precautionary measures and measures resulting from a decision

The Directive provides a set of provisional and precautionary measures to be applied against the alleged infringer, including:

• the cessation of or the prohibition of the use or disclosure of the trade secret on a provisional basis;
• the prohibition of the production, offering, placing on the market or use of the infringing goods;
• the seizure or delivery of the suspected infringing goods.

It also provides that where a judicial decision finds that there has been unlawful acquisition, use or disclosure of a trade secret, the competent judicial authorities may:

-    pecuniary compensation to the injured party appears reasonably satisfactory.

Furthermore, the judicial authority may order the infringer to pay the trade secret holder damages appropriate to the actual prejudice suffered as a result of the unlawful acquisition, use or disclosure of the trade secret.

Member States shall also ensure that judicial authorities may order the publication of decisions and impose pecuniary sanctions.

The Directive is therefore an important means of harmonizing the protection of trade secrets within the EU. Recent developments such as globalization and increased outsourcing in fact increasingly expose enterprises (especially SME) to dishonest practices aimed at misappropriating trade secrets.

The next article will address how the Community rules provided for in the Directive fit into the Italian legislation, which grants a high level of protection to undisclosed know-how and business information.