The effect of the new Trade Secrets Regulations
[This article on trade secrets regulations was written by Teju Adejumo, an intern at Gregg Latchams]
The Directive on Trade Secrets was published on 15 June 2016 with an implementation deadline of 9 June 2018. The UK implemented the Directive by enacting the Trade Secrets (Enforcement, etc.) Regulations 2018. They came into force on 9 June 2018.
As the UK already has protective mechanisms for trade secrets under its law of confidence, the UK has only modified its laws to meet the additional requirements of the EU Directive on Trade Secrets. We explore some of these modifications below.
The Definition of a trade secret: One aim of the Directive on Trade Secrets is a single EU-wide definition for what constitutes a trade secret. Previously there was no definition of trade secrets within the UK but as of 9 June 2018, a trade secret must have the following qualifying characteristics:
(a) 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,
(b) It has commercial value because it is secret, and
(c) It has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.
Reasonable steps: As mentioned above, the holder of the trade secret will be required to prove that all reasonable steps have been taken to keep the information secret. Under the common law of confidence, this was not an explicit requirement and confidence could be implied from the circumstances of disclosure.
Preservation of confidentiality during proceedings: During proceedings in the English courts, trade secrets can be disclosed to a select number of people determined by the court: A “confidentiality club”. Following the Regulation, if a court sets a club up during proceedings, at least one representative from each party must be permitted to join. Litigants should be aware that any sensitive information related to the trade secret involved and submitted to the court will much more likely be available to both parties following the new Regulations.
Remedies: Under the new UK regulations implementing the EU Directive, a defendant in breach of the regulations can ask the court to order the payment of damages to the injured trade secret holder instead of an injunction. This is only possible if (1) they acted in good faith, i.e. they did not know that the trade secret was acquired in breach of confidence, and (2) the injunction would cause him/her disproportionate harm.
Aspects of the UK legislation that will remain unchanged:
Limitation period: The Directive provides member states with discretion to determine a suitable limitation period that must not exceed 6 years. Therefore, the limitation period in the UK for bringing a claim regarding a breach of confidence will remain 6 years after the holder of the trade secret knows (or would have been reasonably expected to know) of the infringer’s identity, activity and that the activity constitutes an unlawful acquisition, use or disclosure of the trade secret.
Employees: The Directive briefly refers to employees, stating that the experience and skill honestly acquired by employees during employment does not qualify as a trade secret, but it provides a wide margin of appreciation to member states to determine what rules apply to employees. The amended UK regulations contain no provisions dealing with employees who share trade secrets belonging to the company they are working for. In these cases, companies can refer to existing law.
Advice on how to adapt to the change in the law:
Companies should continue work to determine who has access to their confidential information and what protective mechanisms they have in place to keep it a secret. This is particularly important now that they are required to prove that all reasonable steps to keep the information secret have been taken.
When it comes to proceedings, litigants should be aware that it will rarely be possible to keep confidential information obscured from the other side, if it is relied upon. The availability of an injunction against further use or publication of the secrets in question may now also be reduced.
For more advice on how to adapt to the change in the law, Get in touch with our expert Chris Haywood.