The proposed Trade Secrets directive: comments from the Max Planck Institute

Nuno Sousa e Silva, Katfriend and contributor to the Journal of Intellectual Property Law & Practice (JIPLP), has been giving thought to the current proposal for a trade secrets directive -- but he's not the only one: the Max Planck Institute has been giving its weighty thoughts to the same proposal. Accordingly Nuno, a lecturer at UCP (Porto) and ISCAP and trainee lawyer with PTCS Advogados, has taken a look at the Max Planck Institute's comments for the benefit of readers of this weblog. This is what he writes:

The Proposal for a Directive on Trade Secrets: the Max Planck Institute (MPI) comments 

Having published a first opinion on a proposed Directive on the Protection of Trade Secrets on 12 May (only available in German, here) on 3 June, the Max Planck Institute has now made its comments available on the latest version of the proposal (on which see Alberto Bellan's post here). 

The comments below follow the structure of the latest version (Doc 9870/14), but start with some general considerations. 

General Considerations 

The Institute thinks that harmonization in this field of law is a good thing and agrees with the justifications presented for the EU's intervention. At the same time it also highlights some omissions and risks. 

The thorny issue of employee mobility has not been addressed but it is pointed out that it would be very difficult to regulate it, also from a subsidiarity point of view. The same applies to ownership of trade secrets which, the MPI suggests, should be addressed either by contract or under applicable national law. 

The nature of the protection established in the Proposal is still unclear. Recital 10 seems to deny that trade secrets have the quality of intellectual property rights: 

"…the provisions of this Directive should not create any exclusive right on the know-how or information protected as trade secrets”

However, this question is closely connected to that of the extent of harmonization. The MPI holds that this should be a full harmonization directive, precluding the establishment of stronger rules under criminal law which would likewise prevent the treatment of trade secrets as intellectual property rights. Classification of trade secret protection as unfair competition should also settle the question of applicable law (the Rome II Regulation, Article 6, could provide the answer to this kind of question). 

The Proposal apparently establishes a relationship of speciality with the Enforcement Directive 2004/48 which, the MPI says, is at odds with its unfair competition character and should be abandoned. The Directive on Trade Secrets should be totally independent and not lex specialis. 

Definitions 

Concerning the definition of trade secrets, the preamble should clarify that the requirement of "reasonable steps under the circumstances" can be satisfied both by factual measures and explicit agreements in order to guarantee uniformity in its interpretation. The MPI maintains that the notion of "infringing goods" is too far-reaching: Article 2(4) of the Proposal defines them as "goods whose design, quality, manufacturing process or marketing significantly benefits from trade secrets unlawfully acquired, used or disclosed": the reference to marketing should be deleted. Likewise the term "quality" should be changed to "characteristics", allowing more flexibility. 

Article 3(5) states: 

"The conscious and deliberate production, offering or placing on the market of infringing goods, or import, export or storage of infringing goods for those purposes, shall be considered an unlawful use of a trade secret”. 

The MPI suggests limiting the import and export ban to third countries, in order not to hinder free movement of goods in the internal market. Moreover, since the mere use of goods is not infringement, Article 3(5) should not apply to those imports and exports for personal use or consumption (this could be hard to reconcile with Case C-98/13 Blomquist v Rolex, on which see Jeremy's post here, if Regulation 608/2013 on customs enforcement is deemed applicable: should it be?) 

Unlawful acquisition, use and disclosure of trade secrets 

Article 3 of the Proposal defines unlawful acts, while Article 4 explains the conditions under which one can lawfully acquire, use and disclose trade secrets. 

Article 3 divides unlawful acquisition (explained in Article 3(2)) from unlawful use and disclosure (defined in Article3(3)). The MPI believes that the criminal concepts used in Article 3(2), such as bribery, may give room to different interpretations and should be circumscribed in more "neutral" language. The position of third parties is regulated in Article 3(4) and, according to the MPI, this is where "breach or inducement to breach a confidentiality agreement or any other duty to maintain secrecy" (currently in Article 3(2)(e)) should be included. 

The requirement of intention or gross negligence should only matter in relation to third parties (i.e. under Article 3(4)) and it makes no sense to apply it when someone (a) has acquired the trade secret unlawfully; (b) is in breach of a confidentiality agreement or any other duty to maintain secrecy of the trade secret or (c) is in breach of a contractual or any other duty to limit the use of the trade secret. Accordingly this requirement should be excluded from Article 3(3) concerning unlawful use and disclosure of trade secrets. 

In contrast the MPI suggests the inclusion of an express limitation in order to guarantee the legitimate interest of former employees, stating they can use "personal information and experience gained honestly in the course of employment". In any case this already seems to result from Recital 8, which states:

"[the definition of trade secrets] should exclude trivial information and should not extend to the knowledge and skills gained by employees in the normal course of their employment and which are known among or accessible to persons within the circles that normally deal with the kind of information in question". 

Lawful acquisition, use and disclosure of trade secrets 

The provision that reverse engineering is allowed is praised, although it is also recalled that it will not apply in the field of software (Recital 28 leaves Directive 2009/24 on the legal protection of computer programs unaffected). Here no suggestions are made. The risk of market failure in some industries, namely perfumes, and the prohibition of their advertising as replicas (under Article 4(g) of Directive 2006/114 concerning misleading and comparative advertising) is mentioned but this sounds a bit "off-topic". 

In general the open texture of several provisions like Article 4(2)(e): 

"Member States shall ensure that there shall be no entitlement to the application for the measures, procedures and remedies provided for in this Directive when the alleged acquisition, use or disclosure of the trade secret was carried out (…) for the purpose of protecting a legitimate interest" 

is welcomed, since they allow the very necessary balancing of interests. 

Enforcement 

The MPI supports the balanced approach highlighting the role of proportionality (see Articles 6 and 10(2)). Unlike the Enforcement Directive this Proposal establishes penalties for abuse of litigation. The MPI calls for further clarification of some procedural aspects: the defendant against whom unfounded claims are brought should be able to either file a counterclaim or bring an action, the sanctions against the plaintiff filing such an unfounded action should include full reimbursement of the costs incurred (including attorney's fees) and payment of damages caused by undue litigation to their full extent. 

The MPI believes that the contentious limitations period of Article 7, which is deemed unusual in the context of EU Law, should last three years and should start running when the last relevant action (i.e. the behaviour giving cause to the suit) ends. 

Article 8 regarding preservation of confidentiality in proceedings passes the MPI’s scrutiny unscathed. Like the Enforcement Directive, Article 9(1) on interim measures should also allow the imposition of penalty payments where those measures are violated. Allowing securities as an alternative to interim measures is criticised as inadequate in the context of trade secrets. Article 10 should specify the requirement of urgency and the factors listed in it in order to assess proportionality should be explicitly classified as non-exhaustive. 

Unlike the Enforcement Directive, the Proposal does not establish measures concerning claims for information and preserving of evidence. The Institute believes these should be established taking into account the specific character of trade secrets. 

Not yet ripe 

The MPI is fairly systematic in pointing out several reasons for uncertainty and practical changes for the better. The text of this directive is not yet ripe and there is a lack of agreement in several fundamental issues. The objective of full harmonization might be too ambitious. However, if achieved, this might just be the start of a truly European unfair completion law.