Brexit and the Trade Secrets Directive - the Clock is Ticking

By Will Smith, Robert Williams


In July 2017 the UK Government published the "European Union (Withdrawal) Bill" (more dramatically, but perhaps also more confusingly, known as the "Great Repeal Bill"). Following the summer recess, Parliamentary debate of the Bill began in earnest last month. As well as repealing the European Communities Act 1972 (the Act which established the UK's membership of the EU), the Great Repeal Bill also includes provisions to preserve existing EU-derived legislation which is in force on 'exit day'. Exit day is not named, but it is presumed to be the date of expiry of the UK's two years' notice under Article 50 TEU of its intention to leave, i.e. 29 March 2019. However, this could be extended by agreement as part of the ongoing Brexit negotiations.

This has raised the question as to whether or not the UK will have implemented the Trade Secrets Directive before 'exit day'. The deadline to implement the Trade Secrets Directive is 9 June 2018, at which point the UK will still be a member of the EU and therefore under an obligation to implement the Directive. Discussions regarding the implementation of the Trade Secrets Directive are ongoing at the UKIPO, however, it has been suggested that, given the legislative agenda the UK is likely to have to contend with over the next 18 months (and beyond), the Trade Secrets Directive could now slide down the list of priorities. However, since the UK is already broadly compliant with the minimum standards of the Trade Secrets Directive, it may be deemed that ensuring (full) compliance with the Trade Secrets Directive can be left to judicial interpretation rather than requiring the passing of specific implementing legislation.[1]

If the Directive is transposed into UK law before Brexit (i.e. before 'exit day') by means of primary legislation, then it will be in force independently of the Great Repeal Bill.  If it is implemented by statutory instrument under the European Communities Act 1972, then it will be retained in UK domestic law under the Great Repeal Bill (assuming that the Bill is enacted in its current form).  Beyond that it would be up to the UK courts to determine how the law on trade secrets will develop in the UK in the future (subject of course to the outcome of the Brexit negotiations).  However, decisions of the CJEU interpreting the Trade Secrets Directive may still be influential for the UK Courts, even after Brexit date. Indeed, regardless of the status of the CJEU in the UK following the Brexit negotiations, clause 6(2) of the Great Repeal Bill provides that a UK court or tribunal may have regard to decisions of the CJEU if it considers it appropriate to do so.

Of course, the Trade Secrets Directive will continue to form part of EU law for the remaining Member States following Brexit, regardless of its status in the UK and will therefore substantially harmonise the way in which EU businesses will expect confidential information to be protected. This means that UK businesses who operate in the EU, or even share confidential information with EU entities, should continue to prepare for the Trade Secrets Directive, regardless of the impact of Brexit.

Article 2(1) of the Trade Secrets Directive states that a 'trade secret' means information which meets all of the following requirements:

"(a) it 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) it has a commercial value because it is secret;

(c) it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret;"

Currently under UK law for information to be considered confidential it must have the necessary 'quality of confidence'. Taking steps to preserve confidentiality and commercial value may be evidence that certain information has the necessary quality of confidence, but they are not prerequisites. The definition of a trade secret under the Trade Secrets Directive is therefore narrower than that of 'confidential information' under UK law. In order to prepare for the introduction of the Directive, UK businesses should be mindful of the requirement for "reasonable steps" to be taken and consider introducing a strategy to ensure that this is met.

Other changes to UK law may arise from the description of unlawful actions in relation to trade secrets under Article 4 of the Trade Secrets Directive. In particular, Article 4(2) makes it unlawful to acquire trade secrets through conduct which is "contrary to honest commercial practices". This concept does not feature in English law and therefore, pending clarification from the CJEU, businesses may initially need to look to other European jurisdictions for examples of the types of conduct which may fall within this provision.

In addition, Article 4(5) concerns activities carried out with "infringing goods". This arguably strengthens the position of trade secrets owners in relation to the actions of third parties and could therefore give more enforcement options for a business seeking to protect trade secrets under the new regime.

A recent report into the use of trade secrets and patents published by the EUIPO concluded that: "The use of trade secrets for protecting innovations is higher than the use of patents by most types of companies, in most economic sectors, and across all Member States". This emphasizes the importance to businesses of having strong protections for trade secrets together with an effective enforcement mechanism which is able to preserve those secrets.

Even though the changes to UK law as a result of the Directive may only be subtle, a harmonised European framework for protecting trade secrets is to be welcomed and therefore the UK implementation of the Directive remains important even if after Brexit the UK may no longer be formally bound to retain it. Steps taken by UK businesses to comply with the Directive will not be wasted as they will assist in enabling enforcement of trade secrets in the rest of the EU as well as domestically.

[1] An analogy could be made with the IP Enforcement Directive where the UK considered that it was already broadly compliant with that Directive's requirements so implementation by statutory instrument was limited to a small number of discrete points.

This article is part of our Brexit series