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Trade secrets

Trade secrets

A trade secret is a valuable piece of information for an enterprise that is treated as confidential and that gives that enterprise a competitive advantage.

Whether through laborious and costly research, decades of experience, or a sudden burst of creativity, companies constantly develop information which can help them to perform better, faster or at lower cost. Such knowledge can include new manufacturing processes, improved recipes, or information on whom to buy from and whom to sell to. Information protected through a trade secret can be strategic for decades (for example, a recipe or a chemical compound), or ephemeral (for example, the results of a marketing study, the name, price and launch date of a new product, or the price offered in a bidding procedure).

Information, knowledge, inventiveness and creativity are the raw materials of the new economy, and trade secrets are important for companies both large or small, in all economic sectors. However, while large companies have the resources to manage a large portfolio of intellectual property rights, such as patents, smaller companies often cannot afford to do this - therefore their reliance on trade secrets is greater.

The trade secrets directive in short

On 8 June 2016 following a proposal from the European Commission, the European Parliament and the Council adopted a directive that aims to standardise the national laws in EU countries against the unlawful acquisition, disclosure and use of trade secrets.

The directive harmonises the definition of trade secrets in accordance with existing internationally binding standards. It also defines the relevant forms of misappropriation and clarifies that reverse engineering and parallel innovation must be guaranteed, given that trade secrets are not a form of exclusive intellectual property right.

Without establishing criminal sanctions, the proposal harmonises the civil means through which victims of trade secret misappropriation can seek protection, such as:

  • stopping the unlawful use and further disclosure of misappropriated trade secrets
  • the removal from the market of goods that have been manufactured on the basis of a trade secret that has been illegally acquired
  • the right to compensation for the damages caused by the unlawful use or disclosure of the misappropriated trade secret.

EU countries must bring into force the laws and administrative provisions necessary to comply with the Directive by 9 June 2018.

Directive (EU) 2016/943 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure

Frequently asked questions

Does the directive have any impact on the freedom of expression and the right to information?

No. Journalists remain free to investigate and publish news on companies’ practices and business affairs, as they were before. The Directive only deals with unlawful conduct by which someone acquires or discloses, without authorisation and through illicit means, information with commercial value that companies treat as confidential in order to keep a competitive advantage over their competitors. If no unlawful conduct takes place, the relevant disclosure of the trade secret is out of scope of the Directive and therefore not affected by it.

Even when a trade secret is misappropriated, the Directive foresees a specific safeguard in order to preserve the freedom of expression and right to information (including a free press) as protected by the Charter of Fundamental Rights of the European Union. The safeguard is operative if the divulgation of the trade secret that was acquired by, or passed to the journalist, was through the use of illicit means such as the breach of law or contract.

Are companies able to hide information on matters of public interest, such as public health, the environment or the safety of consumers?

No. The directive does not alter the current legal obligations on companies to divulge information for such public policy objectives. The public interest prevails over private interest in such matters. Companies are subject to legal obligations to disclose information of public interest, for example, in the chemical and pharmaceutical sectors. Such regulations, which ensure a high level of transparency, are not affected. The directive does not provide any grounds for companies to hide information that they are obliged to submit to regulatory authorities or to the public at large.

Moreover, the directive does not alter and does not have any impact on the regulations that foresee the right of citizens to access documents in the possession of public authorities, including documents submitted by third parties such as companies and business organisations.

In addition, the directive expressly safeguards those who, acting in the public interest, disclose a trade secret for the purpose of revealing a misconduct, wrongdoing or illegal activity. This safeguard is operative if the trade secret was acquired or passed to the whistle-blower through the use of illicit means such as the breach of law or contract. If no unlawful conduct takes place the disclosure of the trade secret is out of the scope of the directive and therefore no safeguards are necessary.

Cyber theft of trade secrets

The theft of trade secrets used to imply stealing or copying a physical document or object. With the digitalisation of information, this form of industrial espionage is increasingly done through unlawful access to computer networks. 

In October 2018 the European Commission held a workshop on cyber industrial espionage with the participation of representatives and experts from EU countries, EU agencies, individual businesses and business organisations, think tanks, academia, and experts on intellectual property, SMEs and cybersecurity.

The conclusions of the workshop are included in a study that we commissioned on industrial espionage through cyber means. The study includes research on the estimated volume and impact of cyber theft of trade secrets and makes recommendations on policy actions. 

The scale and impact of industrial espionage and theft of trade secrets through cyber (December 2018)

 

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