Trade Secrets Directive - Effective Business Framework

19 November 2019

The Act relating to safeguarding trade secrets (GeschGehG) entered into force on 26 April 2019. Safeguarding trade secrets has fundamentally changed in Germany as a result. The fragmentary regulations that currently exist, in particular in §§17 through 19UWG (Unfair Competition Act), are superseded by a comprehensive special law. This defines the term trade secret, regulates the prerequisites for safeguards and provides for claims in the case of infringement of trade secrets. The new law primarily focuses on civil law and safeguards trade secrets against unlawful acquisition, use and disclosure thereof.



The GeschGehG transposes the Directive (EU) 2016/943 on safeguarding undisclosed know-how and undisclosed business information in Germany. Prior to the adoption of this Directive, safeguarding trade secrets was non-uniform in Europe, ranging from intangible regulations in Italy and France up to claims for "breach of confidence" in the United Kingdom. In the sense of coherent trade secret safeguards in the European internal market, the Member States therefore had to commit themselves to provide minimum safeguards for trade secrets under civil law.

Regulations with regard to content

Firstly, the GeschGehG defines what a trade secret is: information that is (a) neither as a body nor in the precise configuration and assembly of its components, generally known or readily accessible and therefore has economic value, that is (b) subject to reasonable steps to keep it secret under the circumstances, and (c) where there is a legitimate interest in keeping it secret. The term information encompasses technical know-how, i.e. procedures, design plans, algorithms, prototypes or formulations, and also business information, i.e. lists of customers, business plans, or advertising strategies. Such information must show economic value specifically for its being undisclosed. This is the case if its unauthorised use or disclosure is likely to harm its proprietor in that it undermines that party's scientific or technical potential, business or financial interests, strategic positions or ability to compete. A potential value is sufficient though so that for example research findings are safeguarded even if immediate use is not intended.

Taking reasonable steps for maintaining secrecy

The prerequisite of the existence of reasonable steps for maintaining secrecy is of particular importance. In terms of law this is an obligation, as such the proprietor forfeits safeguarding any secret if there is a failure to provide appropriate steps for maintaining secrecy. The provision demands "appropriate" but not absolutely effective or optimal safeguards. The statement of grounds for the law indicates as the criteria for appropriateness, the value of the trade secret, its importance for the business, the size of the business, the customary steps for maintaining secrecy in that business, the type of labelling of the information, and agreed contractual regulations with business partners and workers.

In summary, the steps for maintaining secrecy must be distinctive in proportion to the trade secret's importance. Businesses should therefore collect and classify their information requiring safeguards, as a basis for the steps to be taken for maintaining secrecy. The steps for maintaining secrecy in question may make a distinction between organisational, technical, and legal measures. For example, information may be labelled as classified, where the "need to know" principle may be implemented according to which workers only have access to confidential information required for their job, or a non-disclosure agreement may be subject to contractual regulations. Since this is a comparatively new law, there is no case law as yet covering details of "appropriate steps for maintaining secrecy". However, it may be assumed that it will be remedied over time and the judicial authorities will further define the standard of appropriateness.

Infringing acts

The GeschGehG considers the unauthorised acquisition, use or disclosure of trade secrets to be acts which may infringe those trade secrets. Firstly, this includes "industrial espionage", i.e. unauthorised access to, appropriation of, or copying of documents, objects, materials, substances or electronic files containing the secret or from which it can be deduced. Unauthorised acquisition also includes any other conduct which under the circumstances contravenes the principles of good faith, taking into account fair market practices. This general clause offers the courts of law a broad scope for assessing what should be considered unauthorised acquisition.

As a matter of course, a party having acquired secret information in an unauthorised way, must neither use nor disclose such information. Even if such information was acquired lawfully, it must not be disclosed nor used if it would involve breach of a conflicting obligation. Finally, the secret must not be disclosed or used if it was obtained - authorised - from a person who in turn had obtained it in an unauthorised way. This requires, however, that the person using or disclosing the information has, or should have had, knowledge of the previous infringement of the trade secret.

Allowed acts and exceptions

Other than infringing acts, the GeschGehG also defines allowed acts and exceptions. Other than independent discovery or creation, so-called "reverse engineering" is in particular allowed. The law declares exceptions, where a case calls for weighing conflicting interests against one another to be exercising the right to freedom of expression and "whistleblowing", if it is appropriate to safeguard the general public interest.

In the case of infringement of a trade secret its proprietor is entitled to claim elimination and cease-and-desist, destruction, restitution, recall, removal and return, as well as claim for information and damages. It should be noted that, unlike intangible property rights, cease-and-desist claims are subject to the principle of proportionality. If fulfilling the claim were disproportionate in a case, the claim and any and all other claims are excluded, with the exception of claims for damages.

Finally the GeschGehG provides regulations for dissolving in judicial proceedings strained relations between the interests of the plaintiff in safeguarding his secret, an existing burden of presentation and of proof notwithstanding, and the procedural rights of the defendant. Therefore, in trade secret litigation the court may, upon request, assess litigious information to be classified, which entails the obligation of all the parties involved to treat this information as confidential and to not use or disclose it outside of the legal proceeding - the obligation continuing after the proceeding has ended. Simultaneously the court may restrict access to documents or to oral proceedings to a narrow circle of persons. However, there is no all-encompassing safeguard against the opposing party obtaining knowledge because access must be granted to at least one natural person for each of the parties, other than legal counsel. On the whole the GeschGehG offers a well-balanced procedural framework to safeguard secrets also in proceedings.

Conclusion

The new law relating to safeguarding trade secrets first provides the trade secret holder with effective legal means for safeguarding his trade secrets. The prerequisite therefor is, however, that appropriate steps for maintaining secrecy had been previously made. This is why businesses must make more careful and detailed considerations in future regarding the dealing with, and safeguarding of, confidential information.

The full article was originally published in German on 6 November 2019 in publication "Intellectual Property Magazin".

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