Trade Secrets in Europe

Room for improvement?

Wouter Pors

Zeist, 13 March 2013

Trade Secrets in EuropePage 2© Bird & Bird LLP 2013

The international standard

• Article 39 paragraph 2 TRIPs Agreement• Information lawfully within their control which

• 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

• has commercial value because it is secret• has been subject to reasonable steps under the

circumstances, by the person lawfully in control of the information, to keep it secret

• Obligation to provide means for• preventing information from being disclosed to, acquired by,

or used by others without their consent in a manner contrary to honest commercial practices

Trade Secrets in EuropePage 3© Bird & Bird LLP 2013

European framework

• Enforcement Directive 2004/48/EC, 29 April 2004• Consideration 4

• At international level, all Member States, as well as the Community itself as regards matters within its competence, are bound by the TRIPs Agreement

• Article 1• This Directive concerns the measures, procedures and

remedies necessary to ensure the enforcement of intellectual property rights

• For the purposes of this Directive, the term "intellectual property rights" includes industrial property rights

• Protection already existed in Europe for “traditional” IPR’s

• Question• Is a trade secret an intellectual property right?

Trade Secrets in EuropePage 4© Bird & Bird LLP 2013

Are trade secrets intellectual property rights?

• Advantages of IPR’s• Under civil law, an IPR is an absolute right• Protection is granted as such, without need for a contract• The mere use of the subject of the IPR is an infringement• Intent or damage to honest commercial practice

irrelevant• Easily transferable

• Disadvantages of IPR’s• IPR creates a monopoly• In this case: unlimited in time• Limits competition and free movement of goods +

services• In this case: unpublished content!

Trade Secrets in EuropePage 5© Bird & Bird LLP 2013

Why trade secrets?

• Know how not suitable for patent protection• Business methods• Formats

• Save costs of patent protection• Only works if know how cannot be reverse engineered• Gielen: otherwise it is in the public domain anyway

• Owner wants to avoid mandatory publication• Again: you have to be able to keep it a secret• However: you don’t contribute to innovation, others

cannot develop further; no contribution to the art• This makes recognition as intellectual property

problematic

Trade Secrets in EuropePage 6© Bird & Bird LLP 2013

Alternative basis for protection

• Tort• Violation of duty of care• Confidentiality should be obvious to defendant

• Contract• General contract• Non-disclosure agreement• Non-circumvention agreement• Employment contract• Collective bargaining agreement (“cao”)

• Criminal law• Specific professions (lawyers, patent attorneys)• Employees in general

Trade Secrets in EuropePage 7© Bird & Bird LLP 2013

Examples of Dutch tort cases

• Supreme Court 31-1-1919, NJ 1919/161, Cohen v Lindenbaum• Competitor pays employee to provide him with information• No violation of statutory provisions• First tort based on violation of duty of care

• District Court Breda 11-4-1986, KG 1986/214,

De Vries Robbé v Opstalan• Use of know how obtained during negotiations not allowed

• Court of Appeal The Hague 16-1-1992, IER 1992/53, Pipe Liners v Wavin• U-liner pipe lining technology disclosed, not patented• One company has violated confidentiality obligation• Other group companies would commit a tort when using the

information

Trade Secrets in EuropePage 8© Bird & Bird LLP 2013

Examples of Dutch tort cases

• District Court Amsterdam 14-11-2012, LJN BY8226, Firesense v Sensetek• Former employees violated their duty of care by consistently

using secret information to approach former employer’s clients• New company has benefited, which is a tort too• [Knowingly, since new company was established by these

employees]

• However, many tort actions have failed• Basically, competition and use of available information is

allowed• Proof of actual confidentiality versus public availability• Proof of sufficient protective measures• Which acts actually constitute a violation of a duty of care?• Information as used differs from privileged source• Hogan Lovells: The simple use of trade secrets by third parties

is allowed provided improper methods have not been used to acquire the secrets.

Trade Secrets in EuropePage 9© Bird & Bird LLP 2013

Contractual protection

• General contracts• Information which has been marked as confidential or• The receiver has due cause to assume confidentiality

• But better: be specific

• Send and sign off on regular updates• From time to time: do a “design freeze”

• Submit data carrier (USB/ hard drive) with notary

• At first contact: simple agreement that does not deter investors and possible partners

• Later on: elaborate on obligations• Novate with retroactive effect for initial situation• Provide for (in)ability to use info after termination• Include audit provisions

Trade Secrets in EuropePage 10© Bird & Bird LLP 2013

Trade secrets and employees

• Basis for confidentiality• Employment contract• Collective bargaining agreement ("cao")

• Issues• Guarantee employee confidentiality to opposite party• Disclosure to employees on need to know basis• Employer can impose confidentiality (HR 14-1-1935, NJ

1935/430)• Article 7:678 Civil Code: immediate termination

• Disclosure of details regarding the company which should be treated as confidential

• As such no ground for claim against disclosure itself• But: obligation to act as "good employee" (article 7:611 Civil Code)• Courts have extended this to an obligation of confidentiality• Especially if former employees set up a company of their own

Trade Secrets in EuropePage 11© Bird & Bird LLP 2013

Issues in litigation

• Can court files and hearings be kept confidential?• Court files are confidential to third parties• Hearing can be confidential

• District Court Groningen 16-12-2009, LJN BL3206, Ad Hoc Data v Digicom Media: opposite party has right of access under article 6 ECHR

• TRIPs & Enforcement Directive require adequate protection of confidential info -> collection and evaluation by independent expert

• Can evidence be collected?• Enforcement Directive enables dawn raids• Dutch national law

• Implementation of Directive does not apply to trade secrets -> defect in the law!

• Orders for disclosure are available, but effective?• Witness hearings -> hearing of defendant effective?• Specific injunction: disclosure of supplier of information (“voorman”)

• Fishing expeditions are not allowed• Means should not be abused to unveil trade secrets for benefit of

claimant

Trade Secrets in EuropePage 12© Bird & Bird LLP 2013

Protection of trade secrets in litigation• Defensive protection of trade secrets• In IP litigation

• Suspended rollercoaster• Owner of patent files infringement action• Patent invalidity counterclaim: prior disclosure• Defendant wants to identify nullity material• Defendant has metal fatigue issue• Technical drawings of patentee’s tracks may disclose

error in defendant’s G-force calculations• Trade secret defence invoked• Denied by District Court Fort Worth in discovery• Anti-suit injunction filed in The Hague -> issue settled

Trade Secrets in EuropePage 13© Bird & Bird LLP 2013

Independent development

• Nokia counterfeit battery issue• Counterfeit batteries lack overheat protection• Difference not visible on outside

• Third party presents scratch layer coding system• Hidden code can be used once in database• Non-disclosure agreement

• Nokia was already working on solution• Evidence of actual independent development• Requires extensive documentation

Trade Secrets in EuropePage 14© Bird & Bird LLP 2013

Conclusions

• No harmonization throughout the EU• No Community Trade Secrets Regulation• No Trade Secrets Directive• Enforcement Directive insufficiently implemented

• No solid national system• Basically contractual protection• Employment contracts, employee’s obligations• Fallback scenario based on tort, but uncertain

• No transparant choices• Balance between protection and competition• Balance between confidentiality and further innovation

• This calls for a change -> business driven improvement

Thank youwouter.pors@twobirds.com

+31 653 293896

www.twobirds.com

Bird & Bird is an international legal practice comprising Bird & Bird LLP and its affiliated and associated businesses.

Bird & Bird LLP is a limited liability partnership, registered in England and Wales with registered number OC340318 and is regulated by the Solicitors Regulation Authority. Its registered office and principal place of business is at 15 Fetter Lane, London EC4A 1JP. A list of members

of Bird & Bird LLP and of any non-members who are designated as partners, and of their respective professional qualifications, is open to inspection at that address.

www.twobirds.com