How to best protect trade secrets – implications of the Directive (EU) 2016/943 of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets)
The proper and timely protection of trade secrets as core corporate assets is key to a successful business. Leaks may lead to irreparable damage. Legal remedies do not always provide full compensation to make a company whole for its losses in either revenue or prospects. Based on the Directive (EU) 2016/943 on the protection of undisclosed know-how and business information to be implemented by the Member States by 9 June 2018, companies should carefully review their non-disclosure policies.
Directive (EU) 2016/943 on the protection of undisclosed know-how and business information (trade secrets)
The Directive is designed to harmonize the currently inconsistent laws of EU Member States regarding trade secrets, which inconsistencies have a particularly negative impact on cross-border network research and development as well as innovation-related activities.
To that effect, the Directive provides the following general definition of a “trade secret”:
- It is secret in the sense that it is not generally known among, or readily accessible to, persons within the circles that normally deal with that kind of information;
- It has commercial value because it is secret;
- It has been subject to reasonable steps by the person lawfully in control of the information to keep it secret.
Such trade secrets are protected against unlawful acquisition, use and disclosure. A third-party acquisition shall be considered lawful in case of (a) independent discovery or creation, (b) reverse engineering of a lawfully acquired product except when contractually agreed otherwise, (c) a lawful exercise of the right of workers or workers’ representatives to information and consultation (limited to the scope of responsibilities of the works council while maintaining confidentiality towards third parties), or (d) if obtained in conformity with honest commercial practices (not defined). The acquisition, use and disclosure shall be considered lawful if required or allowed by EU or national law.
The protection of trade secrets does not apply if the alleged violation was carried out (a) in exercising the right to freedom of expression and information, (b) for “whistle-blowing”, (c) for disclosure by workers to their representatives as part of and as necessary to their legitimate exercise, or (d) for protecting a legitimate interest recognized by EU or national law.
The Directive sets forth general provisions on measures, procedures and remedies that include rules on a maximum limitation period of six years, provisional and precautionary measures, injunctions, and damage calculation guidelines.
Under the Directive, Member States are permitted to provide more far-reaching protection of trade secrets — as long as the safeguards explicitly defined in the Directive for protecting the interests of other parties are respected within their reach.
Current Austrian Law and Jurisprudence
According to section 1 of the Unfair Competition Act (UCA), the unlawful acquisition, use and disclosure of trade secrets undertaken in the course of business may qualify as “unfair commercial practice against good morals and standards” with the ability to influence competition to the detriment of companies.
According to section 11 para 1 UCA, an employee who discloses to others — without authorization — a trade secret entrusted or made accessible to him for competitive purposes during the duration of his employment, may be subject to a term of imprisonment or a fine. According to section 11 para 2, the same applies in cases of industrial spying, such as the unauthorized use (exploitation) of trade secrets by third parties or employees (including as may transpire after the termination of the employment contract). According to section 12 UCA, the unauthorized use of entrusted templates and technical provisions for competitive purposes is punished in the same way. The UCA also provides for injunctive relief and, in case of negligence, for damage claims.
Without a competitive element, spying out a trade secret with the intention to use it, make it available to someone else, or disclose it to the public, may be subject to a term of imprisonment according to section 123 of the Austrian Criminal Code.
These provisions neither include a definition of a trade secret nor any non-disclosure measures to be complied with. The Directive is expected to be implemented in the UCA.
According to the latest decision of the Austrian Supreme Court (4 Ob 165/16t), in line with case law to date, trade secrets are defined as “facts and findings of commercial or technical nature with an existing commercial interest on their secrecy, only known to a certain and limited number of persons, which shall not leave the defined circle”. The intention of secrecy need not be expressly declared, but may be concluded from the circumstances. As long as the owner of the trade secret exercises a minimum level of protective measures (eg a password protection), one may not assume that the owner waived secrecy, even if the protective measures are objectively inadequate or outdated. Honest employees and third parties have to assume that the owner was not aware of any inadequacy of protection, so that these deficiencies cannot be viewed as a relinquishment of a classification as trade secret. In this case, the use of an unlawfully-acquired trade secret is therefore a violation of section 11 UCA. It is not necessary to assess the question of whether accidental security gaps preclude a classification as trade secret in accordance with the proposed Directive, since a more far-reaching protection may be provided by the Member States, and no mandatory exception according to the Directive seems to apply.
Consequently, the requirement of reasonable non-disclosure measures for a classification as trade secret according to the Directive is a new, essential, criterion not yet covered by Austrian law and jurisprudence. It remains to be seen exactly how the Directive will be implemented — particularly in this regard.
Reasonable Non-Disclosure Measures
To ensure compliance with the protection requirement of reasonable non-disclosure measures, at least the following steps should be taken:
- Mandatory company policy should be implemented regarding non-disclosure measures, to be signed by all executives, employees and contractors as part of their contracts;
- Description, marking and listing of trade secrets should be compiled;
- Mandatory non-disclosure agreements with all third parties prior to any disclosure including contractual penalties in case of violation should be implemented;
- Adequate organizational (rules on access permissions, safe, etc.) and IT security measures should be enacted.
For more information please contact Teresa Bogensberger or your customary KNOETZL relationship professional at our firm.
Dr. Teresa Bogensberger | Partner
KNOETZL | Herrengasse 1, 1010 Vienna, Austria | T + 43 1 34 34 000 900 |