27 August 2015

Trade Secrets Directive: a hidden agenda?

Imagine you discover a product, which appears on the EU market with the exact same specifications as your own. You realise that your blueprints were stolen and your production processes were copied down to the very last detail by a competitor, who has not invested any time or money into developing this know-how. Unfortunately, studies confirm that these situations occur more and more to the detriment of innovative companies, usually the smaller ones with limited human and financial means to seek remedies(1).

Differences in EU Member State legislation mean that levels of protection of trade secrets(2) vary considerably from one European country to another. The proposal therefore aims to harmonise EU Member State laws by setting a common definition of what constitutes a trade secret and by providing a framework for victims of trade secret theft to claim reparations. This will enable companies of all sizes to effectively protect themselves against dishonest practices. One coherent EU-wide legislation will also discourage misappropriation attempts and efforts to place goods produced from stolen know-how on the market. A common EU approach will also create a secure environment conducive to innovation, where valuable know-how can be exchanged between companies(3).
Throughout discussions in the European Parliament though, a campaign was launched to bring down this legislation on the basis that it would reinforce the corporate diktat on information, undermining our health and environment standards, worker mobility and free speech. Ahead of the final negotiations starting this September, the campaign’s instigators have transformed a very technical debate into an emotional one. Yet so far they have failed to sway decision-makers as the amended European Parliament text contains robust language to assuage their fears.
Firstly, the draft proposal now explicitly states upfront that it does not affect the application of EU or national rules requiring trade secret holders to disclose trade secrets for reasons of public interest. This means that industries required to disclose information to EU or national regulatory authorities (e.g. European Medicines Agency / Chemicals Agency) will continue to be subject to the existing regime. Pharmaceutical and chemical companies will therefore not be able to use this Directive to hide dangerous side effects revealed by clinical studies or conceal the nature of chemicals they release into the nature.
Secondly, the draft proposal will not prevent workers from moving to competitors. They remain protected by national labour law prescriptions, which the Directive does not affect in any shape of form. The affirmation that the limitation period will lock-in workers in their current jobs is also bad faith: the 3 years proposed only sets the time-lapse during which a company may take legal action after a trade secret misappropriation. It would not prevent an employee from moving to a competing firm even if he or she had stolen your prototype or the formula of one of your perfumes. In fact in most cases where employees were involved in the theft, they had already joined another company before any legal action was taken! One positive addition in the Parliament text though is the explicit confirmation that experience and skills acquired by employees shall not be considered as trade secrets. This know how belongs to workers and is very different from a laptop containing your marketing plans for next year.
Finally, the European Parliament draft proposal equally protects freedom of expression and information, as well as whistleblowing activities. It clarifies that journalists will be exempt from the application of the measures in the Directive even if they have been led to detain and illegally disclose a trade secret during an investigation. Similarly, sources will have the opportunity to benefit from this exemption even if they report a misconduct, wrongdoing, fraud or illegal activity, in order to defend the public interest. A catch-all clause enables the acquisition, use and disclosure of confidential know-how for protecting a general public interest or any other legitimate interest. In that sense, this piece of legislation would never have prevented the revelations in the Luxleaks scandals as detractors often claim. On the contrary, it would have confirmed that the disclosure of trade secrets by journalist Edouard Perrin was lawful.
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The European legislators still have to come to a final agreement on this proposal, in order to set up rules that encourage innovation, investment as well as fair and honest competition across European borders. So far, the absence of clear EU rules has too often enabled misappropriations of confidential business information to go unpunished. Products based on stolen trade secrets should not be allowed to compete with other legitimate creations resulting from laborious and costly research. EU legislators know this and should adopt this Directive swiftly.

(1) In 2012, 18% of European companies reported theft of their trade secrets; in 2013, this figure rose to one in four.

(2) A trade secret is a valuable piece of information which is treated as confidential. It gives the enterprise who developed it through often laborious and costly research a competitive advantage over its rivals. Such knowledge can include new manufacturing processes, improved recipes, or information on whom to buy from and whom to sell to.

(3) In the current jigsaw of EU legislation, surveys highlight that businesses refrain from developing partnerships across borders or funding start-ups in markets with little or no protection for trade secrets.

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