MEPs back changes to proposed EU trade secrets rules

Out-Law News | 18 Jun 2015 | 5:04 pm | 5 min. read

Disclosing a trade secret on public interest grounds would not be an offence under new laws backed by a committee of MEPs.

The European Parliament's Legal Affairs Committee voted to support the introduction of a new EU Trade Secrets Directive but backed wording that differs from original proposals that were published by the European Commission in 2013.

Committee members also gave their backing to the opening of negotiations on the final text of the Directive between the Parliament and national governments of the EU, represented in the Council of Ministers, the Parliament said. Both the Parliament and Council will have to vote to approve the new Directive before it can come into force. The Council outlined its approach to the proposed Trade Secrets Directive last year.

Under the Commission's original plans, information that is secret, has commercial value because of its secrecy and has been the subject of "reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret" would qualify as a trade secret. Information would be said to be 'secret' if "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", according to those proposals.

The Directive would introduce a new framework that protects against the unlawful acquisition, disclosure and use of trade secrets across the EU. The Parliament said that the rules backed by the Legal Affairs Committee "aim to better protect EU businesses against the theft or misuse of trade secrets, such as specific technology, recipes or manufacturing processes, which in turn should boost confidence and increase incentives to innovate".

However, the proposals the Committee has backed protect people or businesses acquiring, disclosing or using trade secrets belonging to others without permission in certain circumstances.

Under their proposals, "victims of trade secret theft or misuse will not have the right to redress if a trade secret was acquired, used or disclosed … to make legitimate use, in accordance with the EU Charter of Fundamental Rights, of the right to freedom of expression and information, including media freedom", the Parliament's statement said.

Similarly, if trade secrets are acquired, used or disclosed to "reveal misconduct, wrongdoing, fraud or illegal activity" then trade secret owners will have no right of redress, providing that the whistleblower has "acted in the public interest (such as public safety, consumer protection, public health or environmental protection)".

Acquiring, using or disclosing trade secrets "to protect 'a general public interest or any other legitimate interest, recognised by Union or national law and through judicial practice'" would also be a protected activity, under the Legal Affairs Committee proposals.

Expert in intellectual property and the protection of confidential information Cerys Wyn Davies of Pinsent Masons, the law firm behind, said: "It is helpful that the Committee, as well as recognising the vital importance of trade secret protection to business, is recognising that in certain limited circumstances use or disclosure should be permitted. However, it will be very important that these protected activities are very clearly defined to provide certainty, in particular in relation to freedom of expression and information including media freedom."

Intellectual property law expert Emmanuel Gougé of Pinsent Masons said: “The European Parliament has made a big noise about the fact this latest proposal would protect the freedom of expression rights of the media, however journalist groups in France have already voiced concerns that the plans would have the opposite effect."

"Earlier this year a draft law before the French parliament that was aimed at strengthening protections for trade secrets, and which is some ways anticipated the new EU directive being negotiated, was withdrawn from the parliamentary agenda after similar arguments were raised about the impact the proposals could have on free speech," he said.

The Legal Affairs Committee also voted in support of amendments to the Commission plans that will ensure there are "no unjustified barriers to workers’ mobility", the Parliament said.

According to the proposals adopted by the Legal Affairs Committee (43-page / 967KB PDF), "experience and skills honestly acquired by employees in the normal course of their employment shall not be considered a trade secret". Rights to redress for trade secret holders do not allow "trade secret holders to limit the use of experience and skills honestly acquired by employees in the normal course of their employment or to add any restriction for employees to occupy a new position, to those foreseen in their employment contract, in compliance with relevant EU and national law", the proposals said.

"UK trade secret law already recognises the importance of allowing employees freely to benefit from the experience and skills acquired in their employment as they move on to future employment or new roles," Wyn Davies said. "In practice, the difficulty that arises is the need to distinguish 'know how' acquired by employees that develops their experience and skills, which should not be protected, and the 'know how' that qualifies as confidential business information, which should be protected. It will be interesting to see as we progress to the final version of the Directive what guidance is provided as to how the distinction may be made in practice."

The Legal Affairs Committee's proposals would, if introduced into the final version of the Directive, mean that claims for infringements of the new trade secrets rules would need to be brought within three years of "the date on which the [trade secret holder] became aware, or had reason to become aware, of the last fact giving rise to the action".

However, individual EU countries would have the freedom to "determine the rules applying to the suspension and interruption of the limitation period" under the plans.

The Legal Affairs Committee proposals also specifically refer to cases of reverse engineering. It said that that whilst reverse engineering can help promote "healthy competition", it is "essential to tackle dishonest commercial practices". It said the European Commission should consider whether to change competition laws to address cases where reverse engineering can uncover trade secrets once products are "in the market".

"In some industry sectors, where creators and innovators cannot benefit from exclusive rights and where innovation has traditionally relied upon trade secrets, products can nowadays be easily reverse-engineered once in the market," a non-binding recital to the Directive that has been proposed by the Committee said.

"In those cases, those creators and innovators may be victims of practices such as parasitic copying or slavish imitations that free ride on their reputation and innovation efforts. Some national laws dealing with unfair competition are addressing those practices. While this Directive does not aim at reforming or harmonizing unfair competition law in general, it would be appropriate that the Commission should carefully examine the need for EU action in that area," it said.

Wyn Davies said: "This is a very interesting development in the area of the protection of trade secrets which has traditionally been dependent on secrecy and has disregarded the issue of unfair competition and copying of the creator's work."