A better protection of knowhow and trade secrets in the pipeline?

News On 28 November 2013, the European Commission issued a proposal for a Directive on the protection of undisclosed know-how and business information against their unlawful acquisition, use and disclosure.

It concerns information, which is not always susceptible for protection trough the traditional protection mechanisms of the intellectual property rights. As a result, adequate protection of trade secrets is quite difficult. The Commission underlines that (cross-border) cooperation between companies and/or universities lead to the collection of valuable information and the development of new knowledge, which cannot always fall under the scope of a certain intellectual property right.

However, this knowledge is important for the competiveness of businesses in general. Hence, it is vital for the value of this knowledge, that it is kept secret. In this regard, trade information, market research, business processes, etc. comes to mind. Once made public, its value will be lost.

According to the Commission, trade secrets are the drivers of our knowledge economy. With this Directive, which aims at the protection of secret knowhow and business information, the Commission attempts to create a favourable innovation climate within the Union, in order to encourage companies to invest in research and development.

In Belgium, legislation already exists concerning the illegal disclosure or acquisition of trade secrets. Violations on these regulations are restrained criminally, and can be considered as an illegal trade practice. The Directive aims to provide the holders of trade secrets with new procedures in order to allow them to address violations more adequately than before.

Based on the Directive, the holders of trade secrets are entitled to apply for the measures in order to prevent or obtain redress for the unlawful acquisition, use or disclosure of a trade secret. The acquisition of a trade secret will be considered unlawful whenever carried out intentionally or with gross negligence by a.o. theft, bribery, deception, breach or inducement to breach a confidentiality agreement, or any other conduct, which, under the circumstances, is considered to contrary to honest commercial practices.

The proposal further specifies that it is and will continue to be possible to obtain trade secrets lawfully. In this regard, the Directive refers to independent creation, observation, study, disassembly or test of a product that has been made available to the public. The Commission encourages businesses to develop similar or identical products, while at the same it, sanctions fraud and deceit rigorously.

Additionally, the holder of a trade secret will not be entitled to apply for measures whenever the disclosure made legitimate use of the freedom of expression and information or for the purpose of revealing an applicant’s misconduct, or illegal activity, provided that the acquisition, use or disclosure of the trade secret was necessary for such revelation and that the respondent acted in the public interest.

Furthermore, the Directive contains a particular provision, which finds its origin in the theory of abuse of right. More specifically, whenever the courts would determine that a claim concerning the unlawful acquisition, disclosure or use of a trade secret is manifestly unfounded and the applicant is found to have initiated the legal proceedings in bad faith with the purpose of unfairly delaying or restricting the respondent’s access to the market or otherwise intimidating or harassing the defendant, he can be sanctioned.

The damages rewarded will be commensurate to the actual prejudice suffered by the trade secret holder, taking into account all appropriate factors, such as the negative economic consequences, or the moral prejudice. Moreover, the courts may also set the damages as a lump sum on the basis of elements such as the amount of royalties or fees which would have been due if the infringer had requested authorisation to use the trade secret in question. The actual calculation of this type of damages will not be quite evident.

Meanwhile, the proposal has been transferred to the European Parliament, where it will or will not be accepted. If it survives the vote, it will be transformed into national legislation, after which the holders of trade secrets will have new possibilities to deal with unlawful acts.