What You Need to Know About: Trade Secrets and the EU Trade Secrets Directive (EUTSD)
The EU Trade Secrets Directive was adopted on the 8th of June 2016 and was designed to bring European law in line with stronger provisions in the US and China that came in the form of the Defend Trade Secrets Act (DTSA) in 2016 and Anti-Unfair Competition Law, respectively.
As such, the EU directive gave all member states 2 years to bring into force laws and administrative provisions to adhere with the directive by the 9th of June 2018. Therefore, all signatories’ laws will have to adhere to the baseline parameters of the directive (though it is important to note that domestic laws in themselves may differ from each other).
The UK government completed a consultation noting several changes its law would have to include to meet the provisions required in the directive.
As a result, there is quite a lot of renewed discussion around:
- what trade secrets are
- how they should be implemented within a business
- changes that new laws under this directive will bring.
Donal has a pedigree in innovation as the former VP of R&D and Director of IP at Nokia – operating in these roles from 1997 to 2009. As Managing Director of Chawton Innovation Services, Donal is now a world-leading advocate of trade secrets and IP management. We thank Donal for his contributions to this piece.
What is a Trade Secret?
A trade secret is a piece of information within a business or enterprise that is kept secret – and that as a result gives that entity a competitive advantage.
It can take the form of: formulas, processes, designs, instruments, patterns, commercial methods or compilations of information.
It’s important to note that trade secrets can, but do not have to, be technical information (e.g. an invention which may instead be protected like a patent).
Thus, things like: sales methods, distribution methods, consumer profiles, marketing plans, supplier lists, client details, and manufacturing processes – can all be protected as trade secrets in a business.
Famous examples of trade secrets include: the formula to Coca-Cola, the 11 herbs and spices in KFC’s secret blend and the formula to WD40 spray. Each of these trade secrets are well held and underpin some incredibly successful businesses.
The new EU directive provides a clear definition of what a trade secret is than was given previously. This definition is as follows:
“trade secret” means information which—
(a) 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,
(b) has commercial value because it is secret, and
(c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret;
This definition now formalises exactly what a trade secret is, and in particular provides a status in which it must be held.
Each point places new challenges on businesses looking to protect their intangible assets through classifying them as trade secrets. To successfully achieve protection businesses are required to: 1) identify them (and keep them secret), 2) prove that they have value because they’re a secret and: 3) appropriately document action that has been undertaken to keep them secret.
This increased responsibility on the part of the trade secret owner is matched by increased protection, as trade secrets are to be protected by a range of stronger remedies and forms of relief.
Interim injunction and seizure and delivery of suspected goods infringing the trade secret
Corrective measures including recall and/or destruction of products containing or embodying the trade secret
Damages for the loss of earnings incurred by the trade secret holder or profits made by the infringer
In addition to these measures:
Where before victims of misappropriation may have found themselves exposing their trade secrets during the process of litigation – new provisions also determine that the confidentiality of trade secrets is now to be protected before during and after trial.
This goes some way into alleviating the reluctance some may have had before in enforcing their trade secrets – as doing so prior inherently risked exposing them to the wider public.
Bearing these new attributes in mind, how do you protect trade secrets?
Protecting trade secrets
Step 1: Identification
The first thing to do is identify what trade secrets exist (or should exist) within the business.
This requires a scoping out exercise to be undertaken to identify and define business critical information – and ringfence the most critical as trade secrets.
Note: during this process you may realise that you are privy to trade secrets from 3rd parties (e.g. collaborators and partners). As such, you’re likely to identify that your obligations around trade secrets are not only critical to yourself – but furthermore to your peers or partners.
Confidential information or trade secret?
Not all confidential information are trade secrets. But all trade secrets are confidential information.
To be more specific, trade secrets are the highest form of intellectual property held within a business.
Crucially, the remedies for breach of confidentiality and trade secret misappropriation differ. As such, trade secrets need to be held to the highest standard of care to be effectively enforced for what they are.
Patent or trade secret?
Additionally, some technical kinds of information may be protected by either trade secrets or patents. It should be noted that whilst a patent provides a monopoly right – it does come at the cost of public disclosure of the invention.
In some circumstances it may be more suitable to protect this invention as a trade secret. This not only allows for it to be kept under wraps rather than placing it in the public domain; but if effectively protected, means that the trade secret can be protected in perpetuity.
Step 2: Description (Metadata)
Once you have identified what this information is, and that it should be protected as a trade secret – you should then look to clearly define it.
This is achieved by collating a range of metadata surrounding the trade secret. Metadata should include things like:
- Name and title of the trade secret
- Date of creation
- Person/persons who created it
- Physical location where it is held
- The legal owner
- The manager responsible for it
- Type (technological, operational, procedural, financial)
- Persons with authorised access
- It’s value to the business
- Protections in place
- With whom it is shared
- Expiration date (if relevant)
In this way, metadata tells as much about the trade secret as possible – without describing what it is.
By completing this exercise (and accurately maintaining your system), you will gain a comprehensive view of trade secrets in your business and actions you need to take moving forward.
Step 3: Management
Once this is in place you simply need to administer and foster a trade secret culture in your business.
It is advisable that you do not attempt to encapsulate the entirety of your operations to begin with.
Rather you should begin with individual departments that have an exposure to trade secrets within your business (e.g. R+D or manufacturing).
Then, within these businesses you should take the following steps:
- Complete an audit within the department potential trade secrets
- Create a database of metadata concerning these trade secrets
- Train and educate staff and those who come into contact with the trade secrets so they are aware that enforcement is in place
- Put security, adherence and legal measures in place where required to protect the trade secrets
By doing the above, and undertaking other reasonable measures, you ensure that your trade secrets are held effectively.
This is important – as something can only be classified as a trade secret whilst it fulfils the three key criteria set out in the law. Once any of these attributes are no longer valid through mismanagement – you lose the ability to defend misappropriation effectively.
Whilst domestic laws in line with the EU directive come into force on June the 9th – we are unlikely to see serious casualties in the short term. This much was seen with the precursor law in the US.
What was seen however, was an overall sea change in the trade secrets environment – which has now resulted in an climate of litigation emerging that was not present before. Such can be expected in Europe as well, as in-house counsel begins to dip their toes in to test the water.
Now is as good a time as ever to ensure that your trade secrets strategy begins on the front foot.
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What You Need to Know About: Trade Secrets and the EU Trade Secrets Directive (EUTSD) was written by Lakmal Walawage and Donal O’Connell