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Monday, 4 January 2016

The Secret’s Out! Agreed text of the EU Trade Secrets Directive now available

The AmeriKat is bewildered
by the agreed text of the Trade Secrets Directive
and all the inevitable references to the CJEU
if passed
Following the surprise political agreement on the EU Trade Secrets Directive just before Christmas (see previous post here), those of us clamoring for details may have spotted that the agreed text made a low-key appearance on the EUROPA website over the holiday period. Fortunately, for those of us justifiably distracted by seasonal festivities, Kat friend and trade secrets guru Mark Ridgway (Allen & Overy) returns with the following summary:
“As previously reported, following a rapid series of “trilogue” meetings on the EU Trade Secrets Directive late last year, a "provisional" agreement was reached between representatives of the European Parliament and EU Council on 15 December. Assuming the deal is approved by the full EU Council and European Parliament, the Directive could take effect early this year, with Member States then having a 2 year window in which to implement its provisions.

The text that was the subject of December’s “provisional” agreement has now also been released for public consumption (see here).  Whilst the Directive covers a lot of ground, most of it is unchanged from earlier drafts so I have focused on the two most interesting aspects, namely: (1) the potential impact of the Directive on employees; and (2) the potential scope of the Directive’s whistleblowing defence.  Both of theses issues were subject to significant debate during the legislative process, with changes being made to the text.
A related point to note is that, under the agreed text, Member States will be able to adopt “more far-reaching protection” of trade secrets if they wish to do so (ie the Directive only seeks to impose a minimum standard (see Article 1)).  That said, any national laws that go beyond the provisions of the Directive must still comply with certain safeguards, including in relation to whistleblowing (see below). This means that the Directive effectively also serves as a maximum standard of protection in certain areas.

Trade secrets and employees 
The impact of the Directive on employee mobility had originally attracted only a single, rather oblique, mention in the Commission’s original proposal (see Recital 8 here).  However, when the draft came to be considered by the European Parliament’s JURI committee, the issue unsurprisingly attracted a lot more attention, given the interests of the various political parties in the European Parliament. Indeed, some of the European Parliament's proposed amendments appeared potentially problematic from the point of view of business. For instance, a proposed amendment to Article 1 stated that the Directive would: “…not affect …the use of information, knowledge, experience and skills honestly acquired by employees in the normal course of their previous employment…” (emphasis added).
Employees on the run - will the Directive help?
At its broadest, this provision could have been taken to mean that, no matter how confidential the information in question was, employees should be entitled to use it if it was honestly known to them from the normal course of their duties - even if the information would have otherwise been protected as a trade secret (eg the fabled Coca Cola recipe).  At least as far as English law is concerned, this would have represented a significant weakening of the current position. 
Businesses may therefore be relieved that this particular provision did not survive the trilogue discussions. Instead, the Directive contains a new Article 1(2a) as follows:
“Nothing in this Directive shall be understood to offer any ground for restricting the mobility of employees. In particular, in relation to the exercise of such mobility, this Directive shall not offer any ground for: 
(a) limiting employees’ use of information not constituting a trade secret as defined on point (1) of Article 2; 
(b) limited employees’ use of the experience and skills honestly acquired in the normal course of their employment; and 
(c) imposing any additional restrictions on employees in their employment contracts other than in accordance with Union or national law.” 
This provision clearly recognises two classes of information.  The first class is information that does not fall within the definition of a trade secret at all (Article 1(2a)(a)).  The second class is information that, although it might otherwise be confidential, is also part of the an employee's experience and skills (Article 1(2a)(b)).  In neither case does the Directive allow the information to be protected, as against that employee.  
Article 1(2a)(a) does however appear to leave open the possibility that some information will be trade secret whilst not being part of the employee's "experience and skills honestly acquired" (eg information that goes above and beyond mere skill/experience). In such cases, the main provisions of the Directive would therefore seem to apply, allowing companies to prevent former employees from making unauthorised use of such trade secrets. It can also be argued that this will have no impact on labour mobility, since employees will remain able to move between jobs based on the use of skills and experience alone. 
The AmeriKat's (and her friends) preferred method
of delivery of chicken - Faccenda or not
If this is the intended approach then Article 1(2a) seems to me to be largely equivalent to the current approach under English law. Under the Faccenda Chicken analysis, sufficiently sensitive information (trade secrets) is capable of protection indefinitely, even against former employees. However, otherwise confidential information that becomes part of an employee's skill and experience cannot be protected, other than by suitable restrictive covenants. It is however easy to see scope for disagreement as to the meaning of the above provisions. References to the CJEU for clarification are therefore unfortunately inevitable. 
Finally in relation to employees, Recital 27a of the Directive records that it is not intended to “affect the possibility of concluding non-competition agreements between employers and employees, in accordance with applicable law”. Sensitive issues in relation to restrictive covenants / non-compete clauses (and the enforceability thereof) are therefore left to national law, with no harmonisation being attempted.

The whistleblowing defence 
English law in relation to public interest disclosures is rather unclear.  Some cases suggest a widely-applicable defence, whilst others suggest a much narrower one. What is clear, however, is that disclosures of confidential information will only be excused to the extent that they are justified in the public interest. This means that unnecessarily broad disclosures, or disclosures to overly wide or inappropriate audiences, will not be protected.

How loud will the public interest whistle be under the Directive?
Against this background, the text of the Commission’s original proposal for the Trade Secrets Directive was already felt by some to provide an overly broad/vague whistleblowing defence. In particular, Article 4(3)(b), provided a defence whenever a trade secret was acquired, used or disclosed:
“…for the purpose of revealing an applicant’s misconduct, wrongdoing or illegal activity, provided that the alleged acquisition, use or disclosure of the trade secret was necessary for such revelation and that the respondent acted in the public interest”.
Amendments proposed by the European Parliament however sought to widen this provision further.  Under the European Parliament’s drafting, the defence would apply whenever a trade secret was acquired, used or disclosed:
"…for revealing a misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest".
This provision, which appears to have very broad scope, has now been agreed as part of the compromise deal. As such, in future it is arguable that any disclosure made with the subjective purpose of revealing wrongdoing will be protected, regardless of the scope of the disclosure or the audience or whether it was necessary to do so. If this is correct, then it may well serve to broaden the public interest defence under English law. Again, however, the interpretation of the provision will inevitably be subject to clarification by the CJEU before too long."

6 comments:

Anonymous said...

Boy does that chicken look good! I read somewhere that Colonel Sander's secret recipe had been reverse engineered. There may be no legally binding contract to prevent such things (hence it would becompliant with this Directive if done in Europe), but then I'm normally three sheets to the wind when I eat such things so it's never my top priority... Maybe that's all part of the Colonel's genius IP strategy.

PBB said...

It strikes me that, despite the new Article 1(2a)(a) [couldn't that be simpler?!] there could still be trade secrets that might also be "experience and skills honestly acquired". Yet again, the sage advice to businesses is practical and not legal: make sure technological systems and physical protections are in place so that no one employee knows the whole of your Coca Cola recipe!

Anonymous said...

In stark contrast to this is the proposal of the European patent Office to forbid all former employees to continue their lives with a job in IP, pensioners and younger employees alike.

Anocat

Cosy Nostra said...

@Anocat

Come on now, not all former employees.
If you are a buddy of BB then you'll be all right ... no restrictions will apply.

Cynic said...

Thanks Anocat. Couldn't be clearer but I'm sure BB will still speak his usual guff about EPO practice being the best practice taken from laws of the member states (which laws actually the EPO doesn't recognise).

Anonymous said...

I imagine that a lot of information that might otherwise be "trade secret" under the Directive will, as against an employee, be regarded as "experience and skill honestly acquired", hence unprotected. That said, I think the Directive (rightly) allows for at least the following possibilities:

1. That information which cannot be protected against an employee (because it has become part of the employee's skill and experience) might still be protectable as against a commercial counterparty (ie the Directive is flexible as to the question of what can be protected).

2. That there will sometimes be a need to enforce trade secrets against employees who have illegitimately taken (or memorised) information, even when in other circumstances the same information would be regarded as skill and experience (the stolen customer list would be the classic example). Where the information has been dishonestly taken then it can still be protected under the Directive, provided there is no impact on labour mobility.

3. That there will also sometimes be cases where the trade secret is sufficiently sensitive / distinct / secret that, although known to the employee from the course of their work, it cannot reasonably be said to be part of the employee's skill and experience. In those cases, again, I think the Directive would still allow the employer to take action, provided there is no impact on labour mobility.

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