The Act relating to safeguarding trade secrets (Gesetz zum Schutz von Geschäftsgeheimnissen - GeschGehG) entered into force on 26 April 2019. Safeguarding trade secrets has fundamentally changed in Germany as a result. The fragmentary regulations that previously existed, in particular in §§17 through 19 UWG (Unfair Competition Act), were superseded by a comprehensive special law.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 GeschGehG primarily focuses on civil law and safeguards trade secrets against unlawful acquisition, use and disclosure thereof.
The GeschGehG transposed 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 by its legitimate proprietor, 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 and, 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 the criteria for appropriateness as being: 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, and use this as a basis for the steps to be taken for maintaining secrecy. Such steps may make a distinction between organisational, technical and legal measures.
- Labelling as "confidential".
- Non-disclosure agreements (stand alone or as part of another agreement, e.g. an employment agreement).
- Technical-organisational measures like encryption, firewalls, authentication procedures etc.
- Internal policies.
- Company training courses for employees.
It is subject to each individual case what the "appropriate steps for maintaining secrecy" are.
The GeschGehG also specifies what must be understood as "unauthorised acquisition", use or disclosure of trade secrets in terms of acts that may infringe those trade secrets. It firstly refers to industrial espionage (i.e. unauthorised access to/appropriation of/copy of documents, objects, materials, substances or electronic files containing trade secrets, or from which such secrets can be deduced). Unauthorised acquisition pursuant to the GeschGehG also includes any acquisition of information covered by a trade secret, which contravenes the principles of good faith, taking into account fair practices. It is therefore clear that the GeschGehG grants a broad scope to the German courts for assessing unauthorised acquisition, because of the generality of its provisions.
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
The GeschGehG also defines allowed acts and exceptions. Alongside independent discovery or creation, so-called "reverse engineering" is, in particular, allowed unless it is contractually prohibited or leads to an infringement of IP rights. The law also declares exceptions to ensure the freedom of expression, whistleblowing and certain communication between employees and the works council (or other employee representation).
Consequences of infringement
In the case of infringement of a trade secret, its proprietor is entitled to request the prohibition of the continuation of the infringement, as well as the destruction, restitution, recall, removal and return of the documents/goods containing such secret information, and to request damages, including the skimming of excess profit. It should be noted that, unlike intangible property rights, the prohibition of the continuation of the infringement orders are subject to the principle of proportionality.
Finally, the GeschGehG allows the German courts, in the course of proceedings, to classify some information as covered by trade secret in order to limit their access and use, notably outside the court and after the end of the proceedings – a change that was eagerly awaited. Indeed, before the GeschGehG came into force, there were only minimal, if any, mechanisms available to allow a trade secret holder to limit the disclosure of trade secrets to opposing parties during litigation; especially, since even non-parties/members of the public were rarely excluded from the rooms for hearings during the oral arguments. By adding the implementation of this possibility into German law, the GeschGehG has taken a step forward in terms of protecting trade secrets during legal proceedings.
What wider impact will this framework have?
Foremost, the new law relating to safeguarding trade secrets provides the trade secret holder with effective legal means for safeguarding its trade secrets. The prerequisite therefore is, however, that appropriate steps for maintaining secrecy have been previously made. This is why businesses must make more careful and detailed considerations regarding the dealing with, and safeguarding of, confidential information. It is of utmost importance that there is a comprehensive documentation of all steps taken.
To discuss any of the points raised in this article further, or any related intellectual property law issues, please contact a member of our dedicated Trade Secrets team.