An EU Regulation on Trade Secrets

Eurocadres considers the protection of trade secrets important, but the regulation must be clear, balanced and predictable. Eurocadres has some serious objections to the European Commission’s proposal for a directive on the protection of trade secrets and the Council’s position.

Eurocadres is against a directive that makes it possible for national laws to criminalise violations of trade secrets. To enforce a trade secrets law, it is more preferable to apply penalties in civil law, reasonable economic damages alone, or in combination with other labour law sanctions. It is of great importance that the definition of a trade secret is as precise and clear as possible, so that the employee has a reasonable chance to foresee what would be considered a trade secret. To copy-paste Article 39 in WTO’s TRIPS Agreement does not make the directive proposals more predictable nor clear.

An important part of promoting innovations in today’s market economy, is the possibility for companies to protect their own innovation investments. That can be done in several ways, for example by patent legislation; other intellectual property rights; preventing the spread of trade secrets; and preventing industrial espionage.

The proposal’s objective is to ensure that competitiveness of European businesses and research bodies, based on undisclosed know-how and business information, is adequately protected. It also aims to improve conditions for the development and exploitation of innovation and for knowledge transfer within the Internal Market. The idea is to adopt common EU rules for harmonising national legislation to establish a sufficient and comparable level of redress across the Internal Market.

There are, however, some crucial elements that are missing in the proposal. For example, it does not take into account the employees’ situation and interests, particularly not those of Professional and Managerial Staff. In the context of workers representatives’ exercise of trade union rights, the acquisition and disclosure of trade secrets should be excluded from the scope of unlawful acquisition. Eurocadres also points out that the role of the social partners is completely missing in the proposal and this is not acceptable. In the Council’s position (10c), it is mentioned but should be emphasised more.

The definition of trade secrets is found in Article 2 (1) a-c in the proposal and there are some related articles about what can be unlawful (Article 3) and lawful (Article 4) acquisition, use and disclosure of trade secrets. It is likely that, regardless of these articles, there will be uncertainty about what constitutes a trade secret and when its use is considered to be lawful or unlawful. There is a need for more clarification. For example, it should be beyond doubt that an employee’s use of his or her intellectual property rights – e.g., the employee’s own patent – can never be considered an unlawful use of trade secrets.

Article 4 is about the lawful handling of trade secrets. In the proposal, this article is very detailed and partly incomprehensible, and in the Council’s position it is still so. The proposal should strive for generous opportunities for the lawful use of trade secrets, at the same time defending key rights such as the freedom of expression and information, as well as whistleblowing.

The following example illustrates the complexity of this issue: An employee takes part in developing a process. This process has similarities with what the employee learned during studies at the university as well what the employee has read in a magazine article – similarities, but not exactly the same. The process used in the company is real competitive advantage in comparison with other players on the market. The employee leaves the job at this company and takes part in building up a very similar process for a new employer.

This example highlights the ‘grey area’. Is the process used by the first company actually a trade secret? Is the ‘precise configuration and assembly of its components’ different enough from what was taught at university or printed in a magazine? Or is the information ‘generally known among, or readily accessible to persons within the circles that normally deal with the kind of information in question?’ Does the process have ‘commercial value because it is secret’? Has it ‘been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret’? How will the employee be able to tell the difference between lawful and unlawful acts? Eurocadres anticipates that there will be problems with these three articles when the directive is introduced into national law and applied and interpreted by courts.

Eurocadres welcomes the additional second paragraph to Article 13.1 in the Council’s position, which allows Member States to restrict the liability for damages of employees to their employers for an unlawful acquisition, use or disclosure of an employer’s trade secret. However, we do not support it being conditional on whether the employee has acted with intent or not; such a condition creates too much legal uncertainty.

The proposal establishes a limitation period for bringing actions for the application of the measures, procedures and remedies (Article 7). The Council changed the way the article was constructed and extended the time limit. The time period should be kept as short as possible, and definitely shorter than the six years suggested in the Council’s position.

When it comes to claims for damages in a situation where the employment contract has already ended, there is no other limitation than the general limitation period in Article 7. Nor does the wording in the second paragraph of Article 13.1 include former employees. That is not reasonable: if the employee is to be held liable for revealing a trade secret after employment, then that revelation must be significantly more serious than what the employee could be held responsible for during the period of employment.

The protection of trade secrets is of importance but must not lead to undesirable lock-in effects that inhibit a flexible labour market and the improvement and use of employees’ skills. Legislation like this poses a danger, especially for managers and professionals who of course are the employees most frequently dealing with this kind of secret information in companies. The danger is that it is easier and safer for an employee to avoid jobs in the same field as the former employer. Rather than facing the risk of not being able to use skills and competence and being liable for damages, the employee can refrain from moving to a new job. This not only inhibits the individual’s career development and professional and geographical mobility on the labour market, but can also lead to less successful skills matching on the labour market, causing skills shortages.

In the view of Eurocadres, this issue is of paramount importance as the proposed legislation may create vast problems for professional and managerial staff. A person spreading a trade secret can be liable for both the actual financial losses of the former employer as well as for any moral prejudice caused to the former employer.