Who cares about Directives? Why UK companies will benefit from the harmonisation of trade secret law

Anette Gaertner of Reed Smith explains how the Trade Secrets Directive of 2018 will have a two-fold effect on UK firms

Trade secrets and other confidential information can be very valuable assets. Some of these assets, such as business methods, may not be patentable. Others such as manufacturing processes may constitute patentable matter, but the owners refrain from applying for patent protection to avoid disclosure to the public.

Companies that appreciate the value of know-how will take practical measures to make sure that it stays confidential. For example, access may be granted on a 'need to know' basis. Also, before any trade secrets are disclosed to third parties, confidentiality arrangements will be put in place. If these steps are taken, confidential information may potentially be protected for an indefinite period of time. In contrast to this, patents merely grant protection for a period of twenty years.

However, what happens if, for example, a rogue employee 'steals' confidential information and discloses it to a competitor? Under English law, equitable remedies are available so the owner can apply for an injunction barring third parties from using or disclosing confidential information. The main drawback is that a duty of confidence will not be imposed on a recipient of information who does not know, and is not someone who ought to know, that it is to be treated as confidential. Further, English law takes a balanced approach to dealing with confidentiality issues during court proceedings. On the one hand, the duty of disclosure implies that parties are required to disclose not only those documents that they rely on, but also documents that support the other party. On the other hand, so-called "confidentiality clubs" can be set up to make sure that confidential information will only be disclosed to a limited number of persons, such as solicitors and independent experts.

Under the Civil Procedure Rules, the court may even order that confidentiality be maintained after the case has ended.

So why should UK companies care about the Trade Secrets Directive and its implementation in 2018? The reason is two-fold.

First, it would be naïve to assume that companies based in the UK only have to face trade secret theft, or use of stolen trade secrets, in their home country. The misappropriation of know-how is a global phenomenon, so they may well find themselves in a situation where they need to take action outside the UK. Second, the legal protection afforded to trade secrets differs from EU member state to member state, and the level of protection is often below the English one.

Take, for example, Germany as an important trading partner. While the constitution recognizes trade secrets and know-how as "property", they only enjoy protection against certain acts that are deemed unfair. As the relevant statutory provisions provide for penal sanctions they are interpreted narrowly. There is no cause of action if e.g. an employee is entrusted with a piece of information, memorizes (rather than copies) it and discloses it to a competitor after the end of his employment.

Moreover, the enforcement of claims for trade secret theft is rather cumbersome. In the absence of an obligation of disclosure, the claimant may find that he cannot make out a good case. Also, German law in principle does not allow restriction of the access by one party to documents submitted to the court by the other party, or limitation of the number of persons who may inspect them. The absence of a "confidentiality club" regime is arguably the main reason why trade secret cases are rarely brought in Germany.

The Directive will not solve all these issues. Notably, it does not require member states to introduce the concept of disclosure. Nor does it shift the burden of proof. So, owners of trade secrets may still have problems substantiating their claims. This piece of EU legislation, however, indirectly introduces the "confidentiality club" to the Continent, because courts are required to take adequate measures to safeguard confidentiality. This implies that the number of persons who will receive access to confidential information can be limited. UK companies will therefore benefit from the implementation of the Directive, which harmonises the law in a way that improves the protection of trade secrets on the Continent.

Anette Gaertner is a partner at global law firm Reed Smith, and specialises in IP law