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EU Law on Protection of “Trade Secrets” to be Implemented EU-wide by Mid-2018

A new EU law, namely, Directive 2016/943/EU on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure, has been published in the Official Journal and will have to be implemented by the EU Member States by 9 June 2018.

Under this law, known as the Trade Secrets Directive, trade secrets are protected against unlawful acquisition as well as unlawful use and disclosure. Of particular interest to Hong Kong and Chinese mainland companies will be the fact that the law provides the possibility for Member States to block imports of products from outside the EU, if these products have been produced on the basis of unlawful use or disclosure of trade secrets.

A national authority can also order the infringer of trade secrets to stop producing, offering, placing on the market or using the goods concerned.

To qualify as a trade secret and therefore be protected by means of the Trade Secrets Directive, information must meet each of the following characteristics: (i) information that, as a body or from its assembly of components, is not known and readily accessible in circles that normally deal with the same kind of information; (ii) information that holds commercial value due to its secrecy; and (iii) information where the trade secret holder has implemented reasonable steps to keep it a secret.

Unlawful acquisition refers to any form of access, appropriation, or copying of materials which contain the trade secret or from which the trade secret can be deduced without the trade secret holder’s consent. More broadly, any conduct contrary to honest commercial practices may constitute unlawful acquisition.

Unlawful use or disclosure occurs when, without the trade secret holder’s consent, any of the following apply: (i) the person acquired the trade secret unlawfully; (ii) the person is in breach of a confidential agreement or other duty not to disclose the secret; or (iii) the person is in breach of a contractual or any other duty to limit use of the secret.

The Trade Secrets Directive also applies to persons who knew or ought to have known that the trade secret was obtained directly or indirectly from another person/third party who used or disclosed the trade secret unlawfully. Similarly, persons who produce, offer or otherwise place, import, export, or store in order to produce or offer the infringing goods on the market are covered by the Directive.

While the Trade Secrets Directive provides for measures preventing the disclosure of information to protect the confidentiality of trade secrets, the new measures allow the acquisition, use or disclosure of information in order to (i) exercise the right to freedom of expression and media freedom; (ii) reveal misconduct or illegal activity to protect a public interest; or (iii) exercise legitimate work functions where disclosure was necessary. Furthermore, the Trade Secrets Directive will not affect the mobility and contractual rights of employees to use skills honestly acquired in the normal course of employment.

The Trade Secret Directive does not impede the lawful acquisition of trade secrets, including: (i) independent discovery or creation; (ii) observation, study, disassembly or testing of a product made available to the public or of which the acquirer of the information is lawfully in possession; (iii) through the rights of workers or their representatives to information in accordance with EU and national laws and practice; or (iv) broadly, any other practice that conforms with honest commercial practices. The acquisition, use, or disclosure of a trade secret is lawful to the extent that such practices are required or allowed by EU or national law.

The protection of a trade secret should end if the alleged secret is found by a final decision not to meet the definition of a trade secret or if the information has, over time, become generally known and accessible.

Member States must ensure that civil redress for trade secret holders, against infringements of their secrets, will be available. Redress measures should be fair and equitable, efficient, effective and dissuasive. The measures should be applied in a proportional manner, thus avoiding discouragement of legitimate trade. Competent judicial authorities must take into account the parties’ and also third parties’ legitimate interests, where appropriate.

If a prima facie infringement has been established, courts may apply various measures against the infringer including (i) the cessation or prohibition of the use or disclosure of the trade secret on a provisional basis; (ii) the prohibition of the production, offering, placing on the market or use of infringing goods, or the importation, export or storage of infringing goods; and (iii) the seizure or delivery of the suspected infringing goods, including imported goods, so as to prevent their entry into, or circulation on, the market.

These measures will cease to apply if the trade secret holder does not initiate legal proceedings on the merits or if the information no longer qualifies as a trade secret.

If a judicial decision taken on the merits of the case finds that there has been unlawful acquisition, use or disclosure of a trade secret, the courts may, at the request of the trade secret holder, order one or more of the following measures against the infringer:

  • Injunction and corrective measures which include: (i) the cessation or prohibition of the use or disclosure of the trade secret; (ii) the prohibition of further work with the infringing goods; (iii) adoption of corrective measures regarding infringing goods (e.g. recall) and; (iv) the destruction of all or part of materials containing or embodying the trade secret.
  • Pecuniary compensation which may be appropriate instead if the person (i) neither knew nor ought to have known that the trade secret was obtained unlawfully; (ii) the measures in question would cause that person disproportionate harm and; (iii) pecuniary compensation to the injured party appears reasonably satisfactory.
  • Damages which take account of different factors such as negative economic consequences, including lost profits, any unfair profits made by the infringing party and, in appropriate cases, moral prejudice caused to the trade secret holder.

During legal proceedings, courts must be allowed to act on their own initiative to restrict access to documents containing trade secrets or alleged trade secrets. They may also restrict access to hearings involving trade secrets, and make available non-confidential versions of judicial decisions with redacted information.

Please click on the following to access the Trade Secrets Directive.

Content provided by Picture: HKTDC Research
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