19 April 2016
No more reward for know-how theft
The European Parliament approved the Directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure. On the 14th of April EU lawmakers validated a text which defines trade secrets for the first time in EU law and provides common EU-wide remedies to companies that are victims of trade secret misappropriation.
So what exactly is a trade secret?
A trade secret is confidential know-how, a manufacturing process or a product which has been perfected over the years. It can be the composition of a perfume, blueprints for a prototype or even your marketing plans for next year. They are designed to be kept secret because they give a company a competitive advantage over its rivals. Confidentiality has always been a part of trade practices – for instance, innovative craftsmen used to keep their ‘tricks of the trade’ within very close circles. We can also think back to the specific Chinese harvesting techniques of silkworm thread or the Roman glass blowers who shared their insulated glazing know-how by word of mouth. Last week, EU lawmakers agreed to introduce protection against the theft of these trade secrets and more by harmonising rules across Europe.
Until now, the protection of such know-how has been extremely fragmented across Europe. Although Member States such as Italy and Germany have a strong legal framework, the legislation is nearly non-existent in other Member States such as Belgium or Bulgaria for example. The lack of harmonised legislation has often prevented or hindered cross border innovation. For instance, a German company might have refrained from transferring innovative technologies to its subsidiary in Bulgaria, because of the country’s poor legal protection of trade secrets. In Belgium, there is no confidentiality in legal proceedings, which means that the German company would never try to seek remedies there – its trade secrets would be exposed for all to see during court proceedings.
This new law tries to correct this by setting a minimum level of protection of know-how across Europe. It provides a common definition of trade secrets, based on the international Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). It provides remedies for companies that have been victims of trade secrets misappropriation. These include damages, but more importantly the prohibition to further use the trade secret and put a product made on the basis of stolen know how on the market. If a laptop has a chip which is made from stolen trade secrets, the final product has to be stripped from the infringing component. This new law is crucial for the competitiveness of companies operating across the EU. It ensures fair competition, and maintains incentives to innovate.
The Council agreed on an amended text swiftly, recognising the strategic importance of know-how for European innovation, competitiveness and growth, as well as the urgent need to enhance protection at the EU level. Discussions in the European Parliament though became more political in the wake of the LuxLeaks, Volkswagen and Panama leaks scandals.
Members of the European Parliament sought to refine and clarify the Commission and Council text by including safeguards to protect whistleblowers and journalists. The text now very clearly enables the disclosure of trade secrets (even when acquired unlawfully) to reveal a misconduct, a fraud or an illegal activity, if you are acting in the general public interest.
In order to not restrict worker mobility, EU legislators also clarified the distinction between the skills, and experience that workers acquire throughout their employment and trade secrets. The Directive prevents workers from bringing your household lubricant composition or pricing strategies to a competitor, but of course permits them to use the skills, knowledge and experience they honestly acquired in the job they are leaving, in their new job. This legislation steers clear from labour law and does not affect non-disclosure agreements or non-compete clauses.
Some Members of the European Parliament raised concerns about companies using this legislation to escape regulatory obligations, such as revealing the composition of chemical products or the results of clinical trials to the European Chemicals Agency or the European Medicines Agency for example. The Parliament reinforced the language to allay these fears and enshrined the transparency of regulatory data.
After being adopted in the European Parliament plenary last week, EU Ministers will need to confirm the legislation on their side too. EU Member States will then have until 2018 to transpose the text. The Directive though leaves them room for manoeuvre to provide more far-reaching protection, so it remains to be seen just how this legislation will be transposed in the national legal frameworks.
As for companies, they will have to ensure their sensitive business information satisfies the criteria set out in the definition of the text in order to qualify for protection i.e. they will have to take the necessary measures to keep this know-how secret and adequately inform and train their staff.
Employees, journalists and whistle-blowers will benefit from legal certainty: whether they are changing jobs or blowing the whistle in Spain, Belgium, Bulgaria, Italy or Germany, they will benefit from the same strong European safeguards. In the transposition of this Directive, i.e. the process Member States will need to undertake to implement the directive into local legislation, Member States will have to respect these.
Three years since the Directive was first proposed by the European Commission, as a trading bloc, the EU will now have the legal basis and the credibility it needs to convince other major trading partners – notably in Asia – to effectively protect trade secrets against their unlawful acquisition, disclosure and use.