Fordham 25 (Report 4): Trade Secrets

After lunch was the topic of "Trade Secrets".  A huge topic in a short session, proved happy hunting ground for interesting issues by Laura Whiting who reports:  

"After John White introduced the panellists, James Pooley spoke about the three developments in trade secrets law in the year or so that has elapsed in since the US Defend Trade Secrets Act (DTSA) came into force and the EU Trade Secrets Directive was signed.  First up, the death of the "inevitable disclosure" doctrine based on Pepsico v Redmond, 54 F.3d 1262 (7^th Cir 1995) which assumed that any departing employee potentially carried knowledge acquired in their employment and could therefore be subject to an injunction. Under the DTSA this is no longer the presumption and proof of bad behaviour by the employee is required.   

Jim Pooley

Next, Jim discussed whether the DTSA has extra-territorial effect. According to the principles of US statutory interpretation, extraterritoriality has to be specifically intended by Congress.  He reported that the DTSA does not explicitly provide for extraterritoriality, but §4 suggests that overseas acts impacting US trade secrets may be subject to the DTSA.  Therefore whether or not there is extraterritorial effect in respect of any of the provisions of the DTSA remains unclear. 

Jim considered the Trade Secrets Directive  (the Directive) was a "huge step forward for Europe" and represented a vast improvement over the former patchwork of European trade secrets protection.  On the plus side, it provided for a single rulebook, however, there was some downside in the lack of clarity of the drafting of some of the provisions  He was also concerned that some of the exceptions to liability could ultimately prove harmful.  Jim finished by offering his view that TRIPS required trade secrets to be protected as IP and that therefore interpretation of the Directive in accordance with TRIPS could resolve some of the potential problems.

The AmeriKat in human form

On this point, Giovanni Casucci commented that trade secrets are not protected by TRIPS as a sui generis property right.  he reported that in Italy, the EU Enforcement Directive is not applied to enforcement of trade secrets, but instead national procedures are used to obtain seizures and evidence collection in order to prevent unfair competition.  These provisions are available in cross-border basis and therefore can provide

Huw Evans commented that the Directive is aimed at enhancing the protection of trade secrets in the EU and therefore it is to be hoped that it will be interpreted in a manner that supports this aim.  He acknowledged that various member states provided for procedural mechanisms to collect evidence (e.g: the saisie contrefaçon, UK disclosure). 

The IPKat's own Annsley Merelle Ward (a.k.a. the Amerikat) eloquently introduced the philosophical question: is there an existential crisis in the equilibrium between patent filings and trade secrets?  She noted that various commentators from industry have suggested an increased trend for a preference for trade secrets, leading to a decrease in innovation.

In Annsley's view, there is no need to choose between one or the other. Patents and trade secrets are complementary, providing the subject matter of protection does not overlap.  She suggested that perhaps the uncertainty is due to the inherent conflict in the patent bargain – does the disclosure requirement (sufficiency in Europe, enablement in the US) fail in communicating the essentials of the patented invention to researchers, on which to base further innovations, whilst at the same time disclosing too much for the comfort of some potential patentees?

She also suggested that the courts may also contribute to the move towards trade secrets.  A patentee has to face multiple challenges to the validity of their key patents – it is not in a patentee's interest to disclose too much in a patent, but disclose too little and they face potential invalidation.  Perhaps this underlies the current trend for sufficiency attacks?

Huw in Evans form

Proposing an answer to her own question, Annsley concluded that the patent bargain cannot be responsible for the increasing interest in trade secrets.  Instead, the upsurge in interest in trade secrets provides an opportunity to re-examine the patent bargain in relation to disclosure and, in particular, to carefully consider how this is evaluated.
Victoria Cundiff noted that, like a patent, trade secret litigation also involves disclosure of the details of an invention, albeit much further down the line and (hopefully) under a protective (or similar) order.

Giovanni commented that Italian courts are not pushing reliance on trade secrets (in preference to patents) as they require the plaintiff to prove the identity of his trade secret as well as to demonstrate that it has been kept securely.  He concluded that the Directive did not necessarily encourage reliance on trade secrets, and he did not consider it to be an alternative to patent protection.  Huw added that the trade secret route was only really viable for material which could genuinely be kept secret and, further, it frequently involved (at present) difficulties in enforcing of trade secrets.  There are also issues around the embarrassment which might be caused to clients as a result of trade secrets leak, since that involves acknowledging a security breach.  Further, trade secrets litigation is, in practice, messy and expensive.

Jim recounted that, in his experience, clients are increasingly focusing on high quality patents that can easily be asserted or defended.  Trade secrets are being created, not as a side project to patenting, but as an active choice.  The decision is being made on a case by case basis.  On enforcement, he said that the US discovery obligations make it easier to commence proceedings based on a reasonable suspicion – and while he did not endorse the EU adopting US style discovery (!), this did allow plaintiffs to start cases where otherwise they may not be able to obtain the necessary evidence.  Giovanni noted that since the IP Enforcement Directive had been implemented, most EU countries had provision for some form of ex parte search or seizure order.  Therefore a plaintiff could obtain evidence of wrongdoing.  Jim commented that by comparison to patent enforcement, it was clear that trade secrets cases required access to much more evidence in order to prove misappropriation.  Huw noted that UK Anton Piller orders (originating, as Sir Robin Jacob pointed out, in a trade secrets case) were difficult to obtain, but that was because regular disclosure was provided for in UK procedure.

Victoria Cundiff

Trevor Cook commented that the language of the Directive was inconsistent with the treatment of trade secrets as IP rights.  However, Recital 39 of the Directive should be interpreted so that the IP Enforcement Directive should fill any holes in the specific provisions of the Directive.  He further asked whether the planned UK implementation of the Directive in June 2018 would result in the replacement of the UK's "fully functioning judge-made trade secrets law" with the ambiguity of the freshly drafted provisions of Directive.  He questioned whether this was desirable when the UK will no longer have the ability to clarify these provisions via the CJEU.  Annsley commented that to her knowledge the UKIPO has not been particularly vocal on whether or not the Directive would be implemented as planned - likely as they have other issues to preoccupy themselves.  Watch this space!

Giovanni Cassuci

Annsley mentioned that the DTSA has changed pre-litigation behaviours: parties have started coming to court earlier in order to discuss what evidence might be ordered.  Victoria commented that the DTSA has focused lawyers' attention on how they should approach litigation of this type.  Often it is not possible for parties to establish the full extent of the evidence required to obtain an ex parte seizure order – where this is the case, the DTSA's provisions have encouraged parties to request early case management conferences with detailed provisions as to how the case should be actively managed.  Jim added that in US proceedings, he anticipated that parties would soon be required to define their trade secrets at an early stage in litigation in a manner similar to a patent claim. 

Jim mentioned that an early draft of the Chinese draft unfair competition law contained a burden shifting provision in trade secrets cases where the plaintiff could demonstrate that the defendant's product or process was so similar that it appeared inevitable that it incorporated the trade secret.  This was an interesting legislative approach which might address the evidential issues facing potential plaintiffs."