Employers need to be aware that the Trade Secrets Directive (TSD) was approved yesterday by the European Council, marking the end of its legislative journey in Europe. We can now expect to see its swift publication in the Official Journal, with entry into force 20 days later, with the impact that implementing legislation is likely to be introduced in each Member State by summer 2018. The aim of the TSD is to harmonise the protection of trade secrets across Europe and to make it easier for employers to adopt uniform business policies so that innovation and economic growth can be promoted. It will introduce a minimum level of protections, which can be supplemented by local laws. Time will tell how each Member State will address this and employers should ensure they monitor progress to stay on top of the implications for their business.
The approval of the TSD comes at the same time as the US has brought into law the Defend Trade Secrets Act. This implements a federal basis for claims relating to misappropriation of trade secrets (for more on this, see our article, ‘Federal Trade Secret Bill signed into law‘). With the protection of trade secrets riding high in the international arena, directing attention onto this area, and gaining a full understanding of the implications of these new laws, has never been more important for multi-national employers.
For employers in the UK (any Brexit aside) the imminent arrival of the TSD should serve as impetus to carry out a full review of how business assets, and confidential information in particular, are currently protected, with a particular focus on ensuring the requirements of the TSD are met. Whilst the TSD is potentially helpful in widening the scope of the commercial information which can be protected, failing to understand how to achieve this protection in practice, could instead lead to it being lost, with potentially devastating consequences for the business.
Here are the key issues for employers:
Meaning of trade secret
Under the TSD, a trade secret is information which is secret (in the sense that it is not readily known amongst the relevant circles); has commercial value; and, crucially, for which reasonable steps have been taken to keep it secret. The TSD’s specific focus on the reasonable steps which have been taken to protect the information is a change to the current UK regime, and should be a red flag to employers; unless employers can demonstrate those steps, protection of the trade secret may not be available.
Unlawful acquisition, use or disclosure of trade secrets
Trade secrets will be acquired unlawfully if obtained through unauthorised access to, or appropriation of, materials containing the trade secret, or through any conduct which is contrary to honest commercial practices. It seems likely that the meaning of ‘honest commercial practices’ will attract litigation. Use or disclosure of trade secrets will be unlawful if a person has acquired the trade secret unlawfully, or it is in breach of a confidentiality agreement, a contractual duty, or any other duty not to disclose the trade secret.
The TSD does not protect trade secrets where the disclosure of the information serves the public interest and reveals misconduct, wrongdoing or illegal activity. There are some differences to the current UK whistleblowing regime. Some potentially impact favourably on employers (eg it appears that actual misconduct etc has to be disclosed, rather than the worker simply having a reasonable belief that it exists); others less favourably (eg it appears there is no restriction with regards to whom the worker can disclose the information). However, the provisions lack clarity and it seems likely that they will be the source of litigation and references to the ECJ. This lack of clarity has also prompted the the Greens/EFA group in the European Parliament to launch a draft whistleblower protection directive, which has received cross-party support and is awaiting approval and proposal by the European Commission. As currently drafted, the draft whistleblower protection directive would set a minimum standard for whistleblower protection which affords more protection than many stand-alone whistleblower laws. However, this is only the beginning of a very long legislative process.
The UK will need to introduce provisions to provide remedies for unlawful acquisition, use or disclosure of trade secrets. The remedies must include interim injunctions, permanent injunctions and damages. It is also obliged to include sanctions, including the possibility of recurring penalties, for any person who fails to comply with an interim or permanent injunction.
In the lead up to the implementation of the TSD, employers should take the opportunity to carry out a thorough audit of the information which the business wishes to protect, and assess whether it meets, or could potentially meet, ‘trade secret’ status, in particular by reviewing the steps which are in place to protect it. Employers should carry out a review not only of existing contractual provisions and policy documents, but also the current tangible, physical protections of confidential information, and the training which staff have had in this regard.
Also, with the launch this week by the Government of its call for evidence into the impact of non-compete restrictions, protection of business assets looks set to be a key issue for employers throughout 2016 and beyond.