Notes

The Trade Secrets Directive (TSD)

• Law: Directive (EU) 2016/943 on the protection of undisclosed know-how and business information (so called Trade Secrets) against their unlawful acquisition, use and disclosure.
• Purpose: Harmonization of EU legal landscape on trade secrets, which was very varied amongst EU member states.
• Relevance: Trade Secrets are a valuable asset for companies, often greater than registered IPRs.
• Before: Some degree of harmonization with Art. 39 TRIPS.

Knowledge Economy With TSD Directive we give value to Knowledge that is kept secret.

Recital 1 TSD: Non-commercial companies and research institutions invest in the acquisition, development and application of know-how and information, which is the currency of the knowledge economy and provides a competitive advantage. Investment in the production and exploitation of intellectual capital is a key factor for the competitiveness and innovative capacity of companies in the market and therefore the return on their investment, which is the motivation behind the research and development activities of companies. The latter use various means to appropriate the results of their innovative activities, when market opening does not allow full exploitation of the investments made in research and innovation. One of these is the use of intellectual property rights, such as patents, design rights or copyright. Another means of appropriating the results of innovative activities is to protect access to and use of knowledge that is valuable to the entity that owns it and is not disseminated. This precious patrimony of know-how and commercial information, which is not disclosed and is destined to remain confidential, is defined as a commercial secret.

What are Trade Secrets?

• Types of Information
  • Undisclosed Know-How, Technical Knowledge useful or necessary for conducting a manufacturing process, resolving problems in industry (patentable and non-patentable knowledge): know-how in strict sense.
  • Business Information, knowledge or rules of conduct derived from experience in business management, including customer data (with sufficient degree of specification) or market analysis.
  • No specific level of originality, novelty or individual character is required.
  • The format in which the information is accessible is irrelevant.
• Protection Requirements - Article 1 TSD

  "Trade Secret" means information which meets all of the following requirements:

• It 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.
• It has commercial value because it is secret.
• It has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.
• Objective Secrecy: Is the information Generally known or Readily Accessible to the relevant public? Examples for "Generally known":
  • Reports in Media
  • Public Registers (e.g. patents)
  • Public presentations on trade fairs, events.
  • Information that is totally inaccessible.
  • Information that is difficult to know as it cannot be accessed by competitors within a reasonable time and at reasonable cost (considerable effort and/or investment).
  • For example: trade secrets may consist in information that can be theoretically accessed by third parties with revers engineering activities of considerable complexity (but see below on reverse engineering)
• Economic Value
  • Business secrets must be of value to the undertaking which holds them: an economically significant competitive advantage over competitors.
  • They must be of some practical use to the business, in the context of an economic activity (but a potential advantage is sufficient).
  • By disclosing these secrets, the company would lose a competitive advantage position (e.g. cost savings).
  • E.g. more efficient manufacturing, better product quality, targeting of offers to customers.
• Reasonable steps to keep them secret
  • Reasonable measures, not too burdensome in terms of implementation costs
  • No overly intrusive controls of employees' activities.
  • Updated to technological development.
  • Ex ante judgment (even if a third party was able, in practice, to violate the secret, the measures can be adequate per se).
  • Contractual measures are considered (secrecy clauses in employment contracts, other confidentiality agreements, e.g. non-disclosure agreements).
• Conflicting decisions on "reasonable steps" (Italian Case Law)
  • Use of passwords to access computer files (Court of Bologna, 4-7-2008).
  • Use of passwords may be adequate, but in practice insufficient because the information could freely circulate by mail, fax and telephone (Court of Bologna, 16-5-2006).
  • Use of passwords on an employee's personal computer (which then leaves the company) instead of being uploaded on a company database.

Bottom Line Efficient protection of trade secrets and secret know-how depends on the protection measures the companies take themselves. Practical approach: a continuous series of steps, measures and arrangements that keep the economically valuable information secret. Remember: Potentially perpetual form of Protection. Who can benefit from TSD? Trade Secret Holder

• Companies
• Irrespective of their organization form, size, market share, area of activity, etc.
• "Start-Ups", SME (Small-Medium Enterprise)
• Non-Commercial Research Facilities

How wide is TSD Protection? Scope of Protection and Trade Secrets - Article 3 and 4 TSD

• 3(1) Member States shall ensure that trade secret holders are entitled to apply for the measures, procedures and remedies provided for in this Directive in order to prevent, or obtain redress for, the unlawful acquisition, use or disclosure of their trade secret.
• Lawful acquisition, use and disclosure is allowed, limitations to TDS Scope of Protection.
• Seems obvious, but enormous difference with other IPRs, e.g. patents, for which the protection is absolute.

Lawful Acquisition, Use and Disclosure of Trade Secrets

• Article 3 Trade Secrets Directive

  The acquisition of a trade secret shall be considered lawful when the trade secret is obtained by any of the following means:

• Independent discovery or creation.
• Observation, study, disassembly or testing of a product or subject that has been made available to the public or that is lawfully in the possession of the acquirer of the information who is free from any legally valid duty to limit the acquisition of the trade secret.
• Exercise of the right of workers or workers' representatives to information and consultation in accordance with Union Law and National Law and practices.
• Any other practice which, under the circumstances, is in conformity with honest commercial practices.
• If I create something, that is exactly what others are keeping secret, they can't do anything. Because if I haven't copied I am not infringing any law.
• Reverse Engineering
  • Trade secrets can be protected even if information is theoretically accessible through reverse engineering (as long as not "readily accessible").
  • "Readily Accessible" means only information that can be learned from the simple explanation of products (NO: easy reverse engineering), without "observing, studying, disassembling or testing a product or object".
  • On the other hand: if you get information through reverse engineering, it is obtained independently and it is allowed (even if complex reverse engineering was necessary).
  • If the information to be protected can be obtained through reverse engineering, the behavior of the third party is lawful only to the extent that reverse engineering is the actual source of its knowledge.
  • The abstract possibility of tracing information back from the product is not sufficient to bypass protection (e.g. if you have stolen it).
  • The option of contractually excluding the eligibility of reverse engineering should be considered.

Unlawful Acts - Article 4 TSD

• Direct Infringement, Art. 4 (2) and (3) TSD:
  • Unlawful acquisition, Art. 4(2)
  • Use and disclosure, Art. 4(3)
  • Without the consent of a trade secret holder
  • No intent or negligence necessary.
• Indirect Infringement, Art. 4 (4) and (5) TSD:
  • Unlawful acquisition, use and disclosure if trade secret had been obtained from person who was using or disclosing the trade secret unlawfully in the meaning of Art. 4 (3), Art. 4 (4).
  • Same applies to: Production, Offering or Placing on the market of infringing goods, or the importation, export or storage of infringing goods for those purposes, Art. 4 (5).
  • Intent or negligence necessary

Infringing Goods - Art. 4 (5) TSD Art. 4 (5) TSD - The production, offering or placing on the market of infringing goods, or the importation, export or storage of infringing goods for those purposes, shall also be considered an unlawful use of a trade secret where the person carrying out such activities knew, or ought, under the circumstances, to have known that the trade secret was used unlawfully within the meaning of paragraph 3. Art. 1 (4) - "infringing goods" means goods, the design, characteristics, functioning, production process or marketing of which significantly benefits from trade secrets unlawfully acquired, used or disclosed.

TSD Protection and Employee Mobility Explicit protection of employees: "Nothing shall be understood to offer any ground for restricting the mobility of employees" (Art. 1(3) TSD). Employees may use information that is not trade secret as well as their experiences and skills honestly acquired in the normal course of their employment. Distinction: Know-How of the company >< Experience Employee.

Trade Secrets & Patent Protection - Comparison Trade Secrets

• Exclusive right to relative secrecy vs. Unlawful acquisition, disclosure and use.
• The scope of the protection is defined by the secrecy of the information and not by its objective content.
• No dissemination of technical knowledge.
• No time limitation (potentially perpetual protection)
• A different and less intense form of protection than that of patents.

Patent Protection

• Exclusive right to use the invention erga omnes.
• Assessment of the merits of the existence of the protection requirements in relation to the objective content of the technical solution (novelty, inventive step, industrial application, etc.)
• Publication of the text and dissemination of technical knowledge.
• Time limit (20 years from application).
• Presumption of validity of the granted patent.

Trade Secrets & Software Copyright

• Invention or source code is (usually) kept a secret (unless in Open Source Software cases).
• Monopoly to use source code for unlimited period of time until becomes public knowledge.
• The exception for decompilation for the purposes of interoperability, which stems from copyright law, "trumps" the reverse engineering (lawful acts) provisions on trade secrets.
• Copyright + Trade Secrets on source code vs patent protection.

Trade Secrets & IP Rights

• Alternative to Patent: confidential information meets the requirements of patent ability; the inventor decides to "take the risk" of independent creation or disclosure against potentially perpetual protection which lasts as long as the knowledge base is secret (e.g. production processes; final products more difficult to produce).
• On Top of Patent: in addition to a core of patented information, other information is kept as a secret, in order to obtain a broader overall protection.
• On Top of Copyright: for software, where the secret is added on to on the protection offered by copyright.
• Accessory: to obtain patent protection (to allow the application) and possibly protect the information between the filing of the patent application and its publication.
• Sole Protection: for information which does not meet the requirements for patentability or which, even in the abstract, could not be patentable because not technical or, as such, does not deserve copyright protection (is not original).