Following months of debate, the European Parliament voted on April 15 to adopt the Trade Secrets Directive. Following the approval of the parliament, the council should formally adopt the directive at its next sitting on May 17.
Trade secrets are everything companies keep secret to stay ahead of competitors.
They can range from a secret recipe or manufacturing process and plans for a new product, to a list of clients and prototypes.
Large companies such as Coca Cola and Pepsi Cola, who have large manufacturing operations in Ireland, rely on trade secrets to protect their unique flavour.
So do certain pharmaceutical companies such as Allergan with operations in Mayo where it manufactures Botox.
But for most small and medium-sized businesses, particularly in the food and drink sector, the formulations that give them their uniqueness and market appeal is only covered by trade secrets, whether it is the formula handed down from the founders or the hard won trial and error new flavour developed on the shop floor.
Paying for patenting and then monitoring breaches and following up with legal action for compensation across 28 different legal systems within the EU, even before tackling further afield, is just not affordable for these companies.
The European Commission surveyed Irish industry and across the EU in relation to trade secrets and found that “one in five companies had suffered at least one attempt at misappropriation within the EU, whereas nearly two in five respondents stated that the risk of trade secret misappropriation had increased during the same period.”
Hence, the directive will come as very welcome news to businesses of all sizes in Ireland and across the EU.
However, protection will only be afforded to businesses where reasonable steps have been taken to keep certain information secret.
So, it is imperative for any business to make sure that appropriate measures are taken to safeguard trade secrets. If these measures have not yet been taken, this should become a priority.
The directive will provide a range of new and robust remedies to enforce trade secret rights, if there is unlawful acquisition, use, or disclosure of a trade secret.
These remedies include obtaining an injunction against further use or disclosure and the award of damages. In addition, the trade secret holder can take action against “infringing goods”.
Remedies include seizure of the infringing goods and a court order prohibiting these goods from being produced, marketed, sold, stored, imported, or exported.
The infringing goods may also be recalled and all documents, objects, or data embodying the trade secret may be destroyed.
Once adopted, Ireland and other member states will have two years in which to implement the provisions of the Directive into national law.
Most Irish exporters will welcome the directive as they have been stating for some time that what they need is a legal framework that will provide certainty and the sense of protection whenever a competitor’s wrongful act threatens the normal course of business in the European market.
The EU directive sets uniform minimum rules on what constitutes a trade secret.
It defines a “trade secret” as undisclosed know-how and business information. There are three elements that need to be taken into account for information to qualify as a trade secret.
The information must be secret, have an actual or potential commercial value because it is secret, and have been subject to reasonable steps to keep it secret.
The definition does not specify what information can qualify as a trade secret and can, therefore, be anything that meets the three elements, both technical and commercial.
The directive provides an objective test for the infringement of a trade secret. Any acquisition of a trade secret carried out by unauthorised access, copying or appropriation, or any other conduct considered contrary to honest commercial practices will constitute infringement of a trade secret.
Use or disclosure of a trade secret by a person who unlawfully acquired that trade secret will also constitute infringement.
The adopted trade secrets directive is definitely a very important step toward reinforcing the common market within the EU, providing for the first time a standardised definition of trade secrets across Europe and a framework of protection for businesses that have developed and invested in trade secrets.
John Whelan is a leading consultant on Irish and international trade
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