The European Commission Trade Secrets Directive: a Danish perspective

27 February 2014

In November 2013 the European Commission published a proposal to harmonise legislation governing trade secret protection in the EU.  The legislation will provide a uniform regulatory environment in the EU and give businesses equal opportunities for trade secret protection across the EU wherever their business operates.


The proposal from the European Commission will ensure that there is a common European understanding of the concept of "Trade Secrets". The new Directive aims to harmonize the definition and scope of protection of trade secrets, as well as establishing what constitutes an infringement of trade secrets, and what sanctions the offending party face.

European companies are facing an increasing amount of trade secret theft or attempted theft. From 2012 to 2013, the percentage of companies that experienced trade secret theft increased from 18% to 25% (source: 2013/14 Global Fraud Report, Kroll). The challenge companies are facing is that there are large differences in each EU country's governing legislation on how it defines and manages trade secrets in that jurisdiction.

By harmonizing the regulation of trade secrets, the Commission hopes to increase competition within the EU as well as making it easier for businesses, especially SMEs, to work with the best stakeholders across Europe. Simultaneously, the Directive will make it easier for key employees to change jobs and be more mobile within the European labour market. The Directive will not change the legal status of employees within Europe.

According to the Commission's proposal, the following criteria must be met in order to constitute as a trade secret: the information a) is a secret in the sense that the specific information and assembly of components is not generally known and available to those who would normally work with this type of information; b ) has a commercial value precisely because it is kept secret; and c ) has been subject to reasonable inspection by the legal owner of the information to ensure that the information remained a secret.

Trade secrets are only protected if the knowledge of the information/data is obtained illegally, i.e. by espionage, theft, bribery, or other misappropriation. This means for example that if a company, by using technical methods, finds out how a competitor makes or does something – so-called reverse engineering – this would be legal.  It would also be legal for a company, through its own discovery or creation, to gain knowledge of the same information/data. There is therefore no question of an objective data protection, only protection where others unlawfully obtain knowledge of company information characterized as trade secrets.

Trade Secrets and Danish Law

The new Directive will harmonise what qualifies as unlawful acquisition, use and disclosure of trade secrets.  These new laws are broadly in line with s.19 of the Danish Marketing Practices Act concerning business secrets. The term "business secrets" in s.19 corresponds to the definition of "trade secrets" in the proposed Directive. In this area, the Directive provides nothing new in relation to the interpretation of the Danish Marketing Practices Act and will therefore not change the existing Danish legal position.

Trade secrets must be seen in conjunction with the rules of good marketing practice. Trade secrets can be disclosed or used legally but still violate §1 of the Marketing Practice Act.  The proposed Directive does not address the rules about good marketing practices and therefore will not change the present Danish law.

Both the Directive and the Danish marketing laws impose a duty of good faith in relation to use of someone else's trade secrets. Where there is a dispute, the Danish courts will assess the offending party's good faith. It is expected that the party should have acted in reasonably good faith. This is somewhat similar to the test of good faith which is used to assess infringement of intellectual property rights.

The Directive proposes a limitation period on claims that is different from the current Danish law which has a limitation period of 3 years. The draft Directive proposes a limitation after a maximum of 2 years. If this is implemented, this change in limitation period will require either an exception in Denmark to the current law, or a modification to the limitation periods in Danish law.

The draft Directive requires Member States to ensure that it is possible in litigation to keep trade secrets exempt from disclosure. It must be possible to exclude documents from such public disclosure if it is important to maintain that the trade secrets remain confidential.  These laws would also ensure that SMEs will have the ability to enforce their rights in court without running the risk that their trade secrets will become known.

Denmark already has, by virtue of Judicial Code § 29 paragraph 1, number 3, the possibility of private hearings in civil proceedings when a hearing in a public court will expose someone to unnecessary offence. This includes where statements are to be given about trade secrets. In these situations the decision to have a private hearing occurs at the request of one of the parties or by the court's own decision. 

The draft Directive requires the court to restrict access to any document that contains trade secrets. In Denmark there is generally no right of access to the documents that are used in a case. If the judgment itself reproduces documents that contain a description of a company secret, then Judicial Code 41b, para 3, number 3 allows access to the documents to be restricted if anonymizing them is not sufficient protection.

The proposed Directive's most radical proposal is to be able to limit the parties' access to court hearings in special cases. The proposal will mean that in certain cases only the parties' lawyers and authorized experts can have access to the hearing. This is not something that is possible under Danish law today. If the Directive is implemented in its current form, it will mean that the Danish law regarding court hearings must change.

Sanctions

The draft Directive also requires Member States to impose sanctions, both in connection with an interim court order (injunction) and with a (later) final judgment. The proposal requires that a party whose trade secrets are violated shall have the following possible claims against the alleged offender:

At preliminary court rulings:

a) temporary suspension or, where appropriate, temporary ban on the use or disclosure of trade secrets (i.e. an injunction);

b ) prohibiting the manufacture, offer for sale, marketing or use of the infringing goods, or the import, export or storage of infringing goods for that purpose;

c ) the seizure or delivery up of the suspected infringing goods (including imported goods) in order to prevent them being marketed or sold in the market.

 

At final court rulings:

a)    the discontinuation of any injunction, or where appropriate, a continuing injunction on the use or disclosure of trade secrets;

b)    prohibiting the manufacture, offer for sale, marketing or use of the infringing goods or the import, export or storage of infringing goods for that purpose;

c)    appropriate corrective measures in respect of the infringing goods.

The proposal's requirement for sanctions in its current form will largely accord with the provisions of the Judicial Code Chapter 40 and 57 and will not require substantial legislative change.

The Directive is still far from being agreed upon, and at the moment, the scene is set for an implementation period of 24 months from the moment of enactment.  It is therefore a long way to go until we see the harmonisation of laws on business/trade secrets in the EU.

The proposed Directive can be read here.

If you have any questions about this article or the protection of trade secrets in Denmark please contact Peter Lind Nielsen, Partner, Bird & Bird LLP or Soren Pedersen Narv, Partner, Bird & Bird LLP.