Dr. Frank Jungfleisch, GesellschaftsrechtSebastian Hoegl, Gesellschaftsrecht

Adoption of the Directive on the Protection of Know-how and Trade Secrets

On 14 April 2016, the EU Parliament adopted the Directive “on the protection of confidential know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure” (2013/0402 (COD)). Attempts have been made since 2013 to introduce a uniform minimum standard for the protection afforded to business and trade secrets throughout Europe. While these new provisions are largely in line with the current legal situation in Germany, they also comprise a number of interesting and noteworthy innovative elements from the perspective of German law.

The definition of “trade secrets” is accorded major significance in the context of these harmonisation measures. Pursuant to the “Know-How Directive”, a piece of information constitutes a trade secret only if three criteria are met: (i) The information must be confidential, (ii) it must be of commercial value as a result, and (iii) it must be protected against disclosure by means of suitable measures for the maintenance of the confidentiality thereof undertaken by the owner of the information. The third criterion, in particular, could have the effect of greatly raising the requirements imposed on companies in this regard. It remains to be seen what specific minimum standards will be established in this context.

The Directive furthermore describes the circumstances under which the acquisition or use of trade secrets will be considered unlawful. One notable development is that so-called “reverse engineering”, i.e. breaking down products into their component parts in order to extract information, is now explicitly considered permissible. Previously, this practice was in certain cases deemed to be a criminal offence pursuant to Section 17 of the German Act Against Unfair Competition (Gesetz gegen den unlauteren Wettbewerb – “UWG”). The German legislator is now required to issue clarifying national legislation in this regard. On the other hand, companies could consider protecting themselves against reverse engineering by contractual means, to the extent that the national legislature grants leeway for such an approach.

In terms of the legal implications of the new provisions, companies incurring damage in this connection will in the future have further courses of action at their disposal, for example interim injunctions and recall and destruction claims. Intellectual property claims may provide helpful precedents for the extension of the scope of the protection afforded to the owner of trade secrets in this regard. Thus, the three options for calculating the amount of damage incurred (the “licence analogy” method, absorption of the profits realised by the infringing party and consideration of the actual loss incurred) should also fall within the scope of the Directive.

The ultimate goal is to maintain the confidentiality of the information in question during the proceedings for the enforcement of claims and thus to further strengthen the position of the owner of the trade secrets, to which end the Directive even provides for restriction of access to hearings and documents. However, the transposition of these provisions into national law is likely to prove problematic. To date, the owner of trade secrets had to take into account the disclosure of those secrets during the proceedings. The implementation of the new provisions calls for extensive amendment of the corresponding provisions of the German Code of Civil Procedure (Zivilprozessordnung – “ZPO”) and the German Courts Constitution Act (Gerichtsverfassungsgesetz – “GVG”).

One provision which exceptionally does not fall within the scope of application of the Directive is that relating to whistleblowing. The disclosure of trade secrets continues to be justified on existing public policy grounds. The previous German case law addressing this issue will therefore remain largely unaffected.

The national legislature is now required to implement the Directive within the next two years. Currently, there is no telling what form this implementation is likely to take. In the meantime, companies are advised to at least adapt their practices to comply with the minimum standard imposed by the Directive. In particular, companies should (or commission third parties to) review their measures for the maintenance of the confidentiality of their trade secrets and make these transparent. Only then will they fall within the scope of the protection afforded by the Directive. This could thus provide a basis for the development of clear rules for the allocation of responsibility for the protection of trade secrets, measures for increasing awareness by employees, as well as physical and electronic security measures. The conclusion of appropriate confidentiality agreements and non-disclosure clauses with contractual partners and employees is also strongly recommended.

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