New directive must provide stronger protection of trade secrets in the European Union (Part II)

In a previous article we discussed the background and key points of Directive (EU) 2016/943 of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure (hereinafter: "the directive").

Present part II discusses the measures, procedures and remedies that the directive provides for a trade secret holder.
Once publicly disclosed it is impossible for a trade secret holder to revert to the situation prior to the loss of the trade secret.
As a result, the directive provides fast and accessible remedies.
These remedies entail both provisional and precautionary measures or definitive measures ordered by the competent judicial authority.

1. How to act for the protection of trade secrets?

The new directive provides trade secret holders with an additional tool to act before the national court, e.g. to enforce a prohibition, against the unlawful acquisition, use and disclosure of their trade secrets.
The directive only covers to file a claim in the field of civil law (criminal law is not covered).

2. Who may file a claim before court?

The directive states that the "lawfully controlling" trade secret holder may file a claim for trade secret violation.
In our opinion this doesn't exclude the possibility for the owner of a trade secret to agree on mutual competence on standing with a potential licensee or others who "lawfully control" the trade secret.

The trade secret holder carries the burden of proof to support its claim by providing evidence in order for the court to decide “with a sufficient degree of certainty” on the possible trade secret violation.

3. Necessity to preserve the confidentiality of trade secrets in the course of legal proceedings

Obviously preservation of confidentiality of valid trade secrets must be maintained during and after the legal proceedings have ended.
The directive provides that the trade secret holder may file a duly reasoned application in order to prevent that the alleged trade secret will be used or disclosed or that specific measures are taken to preserve the confidentiality of the trade secret.

At least the following measures must be provided:

• Restricting access to any document containing alleged trade secrets, in whole or in part, to a limited number of persons;
• Restricting access to hearings to a limited number of persons as long as all the guarantees to a fair trial are respected. These are:
  • at least one natural person from each party and the respective lawyers;
  • legitimate interests of the (third) parties (e.g. journalists and whistleblowers,…).

These obligations are revoked or otherwise cease if the alleged trade secret in question:

• is found, by final decision of a judge, not to meet all the requirements of the definition of trade secret (secret-commercial value because it is secret-reasonable measures to keep it secret, see part I);
• where over time, the information in question becomes generally known among or readily accessible to persons within the circles that normally deal with that kind of information.

4. Which provisional and precautionary measures can the trade secret holder use?

The following provisional and precautionary measures may be ordered against the alleged infringer:

• the cessation of or, as the case may be, the prohibition of the use or disclosure of the trade secret on a provisional basis;
• the prohibition of the production, offering, placing on the market or use of infringing goods, or the importation, export or storage of infringing goods for those purposes;
• the seizure or delivery up of the suspected infringing goods, including imported goods, so as to prevent their entry into, or circulation on, the market;
• as an alternative, make the continuation of the alleged unlawful use of a trade secret subject to the lodging of guarantees intended to ensure the compensation of the trade secret holder.

As part of this, the courts shall be required to take into account the specific circumstances of the case, including, where appropriate:

• the value and other specific features of the trade secret;
• the measures taken to protect the trade secret;
• the conduct of the respondent in acquiring, using or disclosing the trade secret;
• the impact of the unlawful use or disclosure of the trade secret;
• the legitimate interests of the parties and the impact which the granting or rejection of the measures could have on the parties;
• the legitimate interests of third parties and the public interest;
• the safeguard of fundamental rights (e.g. the exercise of the right of freedom of expression).

The trade secret holder is obliged to institute legal proceedings leading to a decision on the merits of the case before the court, within a reasonable period determined by the judicial authority ordering the measures where the law of a Member State so permits or, in the absence of such determination, within a period not exceeding 20 working days or 31 calendar days, whichever is the longer.

5. Which definitive measures can the trade secret holder use?

Next to damages, the trade secret holder may request to order one or more definitive measures against an infringer.
Definitive measures are amongst others:

• the cessation of or, as the case may be, the prohibition of the use or disclosure of the trade secret;
• the prohibition of the production, offering, placing on the market or use of infringing goods, or the importation, export or storage of infringing goods for those purposes;
• the adoption of the appropriate corrective measures with regard to the infringing goods: recall of the infringing goods from the market; depriving the infringing goods of their infringing quality; withdrawal from the market;
• the destruction/delivery up of all or part of any document, object, material, substance or electronic file containing or embodying the trade secret or, where appropriate;
• the delivery up to charitable organisations.

6. Possibility to impose penalty payment

The directive expressly provides that Member States shall ensure the possibility of imposing recurring penalty payments in the event of non-compliance with any provisional or definitive measures.

7. Third party in good faith

For a third party acting in good faith, upon his request, an order of pecuniary compensation to be paid to the injured party may be sufficient if the execution of injunctions and corrective measures would cause that person disproportionate harm and the pecuniary compensation appears reasonably satisfactory.

8. Appropriate damages: objectification of loss

Trade secret holders shall be allowed to claim from the infringer "who knew or ought to have known" that he, she or it was engaging in unlawful acquisition, use or disclosure of a trade secret, to pay the trade secret holder damages appropriate to the actual prejudice suffered as a result of the unlawful acquisition, use or disclosure of the trade secret.
It is essential for the trade secret holder to objectify its damages as much as possible. Since, the intangible nature of trade secrets makes it difficult to demonstrate actual damage.
For the calculation of damages the court must take into account all appropriate factors.
For example based on the negative economic consequences, including lost profits, which the injured party has suffered, any unfair profits made by the infringer; or the amount of royalties or fees, which would have been due, had that person requested authorisation to use the trade secret in question.
And also, elements other than economic factors, such as the moral prejudice caused to the trade secret holder.
In an employment relationship member States may limit the liability for damages of employees towards their employers for the unlawful acquisition, use or disclosure of a trade secret of the employer where they act without intent.

9. Limitation period to file a claim

The duration of the limitation period to file a claim shall not exceed 6 years.

10. Measures against abuse of process

Where an application of the trade secret holder is manifestly unfounded or in bad faith, the defendant or offended party may file a claim for damages and imposing sanctions on the trade secret holder, including an order for publication of the judicial decision.

11. Conclusion

With this new directive, companies have an additional tool, whether as a complement or as an alternative to existing intellectual property rights, to act against the unlawful acquisition, use and disclosure of their trade secrets.
Fulfilment of all the requirements of the uniform definition of "trade secret" will serve as guide to determine the chances of success of a claim before court.
The proposed measures show similarities with the previously installed Enforcement Directive of intellectual property rights (Directive 2004/48/EC). However, in the event of an overlap, this new directive takes precedence.
This directive only covers civil law so it is therefore not excluded that Member States will provide for additional sanctions to infringers in the field of criminal law. However when Member States draft measures that impose criminal penalties, they are obliged to take full account of the safeguards and exceptions on lawful acquisition of trade secrets as provided in this directive.

You can consult the text of the new directive (EU) 2016/943 here.