Protecting the secret sauce

Protecting the secret sauce

There's some good news coming out of Brussels for businesses involved in innovation and development in the mobile sphere, from start-ups to established multi-nationals.

Without much fanfare, it looks like the European Union will soon adopt a Directive to introduce some consistency to the treatment of trade secrets across the EU. This will be of particular importance to companies which rely on trade secrets to protect their “secret sauce”, rather than registrable forms of intellectual property, because:

  • the relevant information can’t be protected in any other way (business intelligence, strategy etc.);
  • the company doesn’t want to file for registration (e.g. because it wants to keep the information secret, such as a particularly secret algorithm);
  • the company simply can’t afford to pay the fees needed to secure such protection.

What would change?

Whilst trade secrets are relatively well protected in the UK, the legal position is patchy across the EU. The law of confidentiality is usually the route taken to protect trade secrets, but there are a couple of significant challenges in determining the scope of any confidentiality duty owed.

Clearly a well-drafted confidentiality agreement is very helpful, but real problems arise in stopping an unrelated third party from using the information. For example if Anne passes a trade secret to Brian under a duty of confidentiality, but Brian then passes it on to Charlie in breach of that duty but without imposing any restrictions on Charlie, what action can Anne bring against Charlie? Clearly Brian owes a duty of some sort to Anne but does the duty allow Brian to do what he did? And what about Charlie? Charlie may never have even met Anne and might not have even known that the information was confidential when he received it.

The proposed Directive aims to fix this problem by attaching liability to Charlie from the moment he realises that he possesses a trade secret. He can’t rely on the fact that he has never met Anne. He won’t be able to use or disclose it without Anne’s consent from the point at which he knows that the information is a trade secret.

Charlie can’t just “put his head in the sand” and claim that he didn’t know that the information was a trade secret. If the circumstances under which he receives the information are questionable, or if he later finds out the truth (and he has to make reasonable enquiries), then he is on notice that there is an issue, and can face liability directly in an action by Anne.

The proposed Directive will also make it easier to bring an action to protect trade secrets. It seeks to ensure that the secret stays secret throughout and after court proceedings, removing the rather tricky issue of having to make a secret public in court in order to protect it, and adopts a more flexible and realistic way of measuring the potential loss caused by unauthorised actions.

With even the smallest businesses now offering their products and services and engaging with suppliers across national borders, having a level of comfort concerning consistent treatment for trade secrets is welcome news.

Hang on, what’s a “trade secret”?

Under the Directive a “trade secret” must not be generally known by people who normally deal with this kind of information, must have commercial value because it is secret, and, crucially, the person controlling the information must have taken “reasonable steps” to keep it secret. If you’re going to claim that something is a trade secret, you need to have made an effort to treat it as such.

What will the proposed Directive prevent?

The Directive aims to prevent the unlawful acquisition, use and disclosure of trade secrets. Essentially, apart from a few limited exceptions, nothing can be done with a trade secret without the owner’s consent.

When will this happen?

This depends on how quickly the EU’s legislative machinery works; the Directive will probably be adopted at some point in 2014, or potentially 2015, with Member States expected to adopt the new regime shortly afterwards.

What do I need to do now?

It’s always a good idea to get your house in order in relation to your trade secrets. Know what they are, know who has access to them and protect them accordingly. Only disclose them when you have to and only under strict confidentiality agreements. Filing for patent or registered design right protection, where relevant and appropriate, remains a great way to protect intellectual property. However, where trade secrets can’t, or shouldn’t, be registered for protection the proposed Directive represents an attractive option for protection.





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