By Elise Young – Edited by Kathleen McGuinness
European Proposal on Protection of Trade Secrets
European Commission, Proposal for a Directive of the European Parliament and of the Council on the Protection of Undisclosed Know-How and Business Information (Trade Secrets) Against their Unlawful Acquisition, Use and Disclosure (Nov. 28, 2013)
On November 28th, the European Commission issued a proposed directive for greater and more uniform protection of trade secrets throughout the European Union. The goal of the proposal is to increase innovation by providing better protection for EU businesses’ trade secrets. Proposed Directive at 2. The Commission identified the currently irregular protection and enforcement of trade secrets within the EU as a significant factor inhibiting cross-border research and development and general innovation. Id. at 3. The proposal is one part of the EU’s “Innovation Union” and IP strategies, adopted in May 2011. Id.
The proposal and other documents related to the directive can be found here. The Commission additionally released a memorandum summarizing trade secret law, the directive, and the reason for its proposal. The New York Times and Bloomberg provide further commentary on the proposed directive.
The directive is effectively a set of proposed regulations providing guidelines for the EU’s 28 member states. Danny Hakim, Europe Moves to Keep Its Corporate Trade Data Secret, NYTimes.com (Nov. 14, 2013), available at http://www.nytimes.com/2013/11/15/business/international/europe-moves-to-keep-its-corporate-trade-data-secret.html?_r=1&. The directive would thus replace the nation-by-nation methods of regulating and enforcing trade secret protection that currently exist in the EU. However, the proposal must survive legislative negotiations — lasting a year or more — before a final version of it goes into effect. Id.
The directive adopts a familiar legal framework. To qualify for protection as trade secret, 1) the information must be confidential, 2) the information must have commercial value because of its confidentiality, and 3) the information’s holder must have made “reasonable efforts to keep it confidential.” Proposed Directive at 7. This definition comports with the TRIPS (Trade Related Aspects of Intellectual Property Rights) definition of “undisclosed information”. Id. Trade secret protection is not considered an intellectual property right per se, but it may cover methods or products that could also be protected as intellectual property (e.g., patents). However, the real benefit of trade secret protection is the ability of a business to protect assets that cannot be patented or copyrighted, or for which such protection is not desirable. A common example of a trade secret is Coca-Cola’s iconic beverage recipe. As in the United States, reverse engineering and independent creation would be valid defenses to a trade secret misappropriation claim under the proposed directive. Id. at 8. Sanctions would include recurring penalty payments, damages, and recall and destruction of infringing goods. Hakim.
Some commentators, like the New York Times, view the Commission’s focus on intellectual property and on trade secrets in particular as a reaction to espionage, theft, and other moves — mainly by Asian countries — that have resulted in a flood of knock-offs in European markets. Hakim. The Commission acknowledged this concern in its explanatory memorandum to the proposal. Proposed Directive at 3. Examples of such misappropriation include products like Kevlar vests and tires that have been stolen and reverse engineered, with the resulting substantially cheaper replicas then sold to the EU. Hakim. The “Innovation Union” movement also corresponds to the United States’ current negotiations with Asian and South American countries regarding the Trans-Pacific Partnership Free Trade Agreement. Ultimately, the EU’s goal is to attract and retain investors and boost confidence in the competitiveness of European companies. Out-Law, EU Plans to Protect Confidential Business Know-How and Other Trade Secrets Unveiled (Nov. 29, 2013) http://www.out-law.com/en/articles/2013/november/eu-plans-to-protect-confidential-business-know-how-and-other-trade-secrets-unveiled/.