IP Basics: Trade secrets

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Welcome to this Gowling WLG podcast on trade secrets.  My name is Alessandra.  I am an Associate at the Gowling Frankfurt office and I am here today with Lucy, Senior Associate from London and Alexis,  Principal Associate from the Paris office.  Together we are going to give you a quick overview on trade secrets.

Alessandra Birkendorf: As innovation has considerable asset value and as a guarantee of competitiveness and growth for companies, companies often have an interest in protecting it.  Most often and as discussed in other podcasts in this series, such protection is obtained through patents.  However, patent protection may not be available or not desired, as it requires the protected invention to be disclosed and made available to the public.  In such cases trade secrets protection offers an interesting alternative as they guarantee confidentiality of the information, maintaining business competitiveness.

For many years trade secrets were not protected in Europe.  Infringement of trade secrets was only apprehended through specific prohibitions, such as breach of contractual confidentiality obligation or theft of confidential documents.  However, such prohibitions did not provide comprehensive and effective protection for trade secrets.

In 2016, the European legislature therefore adopted the trade secrets directive transposed into French law by the Trade Secrets Act of 2018 into UK Law by the Trade Secrets Regulation of 2018 and into German law, Geschäftsgeheimnisgesetz in 2019 respectively.

In the next few minutes, we will discuss the following topics:

1. What are trade secrets?
2. Are there different categories of trade secrets?
3. Reasons for protection of trade secrets.
4. The differences between trade secrets and confidential information.
5. How to protect information by via trade secrets and how to enforce trade secrets protection in France, Germany and the UK respectively.

 

Lucy Singer: Thank you for that introduction Alessandra.  I will now be taking us through the basics of what constitutes a trade secret.  So as discussed above, the source of this definition is found within the 2016 EU Directive, which was implemented across at various jurisdictions.  The definition of trade secrets is information that meets the following criteria, which is accumulative requirement.

The first, it is information which is not generally known among or readily accessible to persons who are in the circles that normally deal with the kind of information in question.  Within this it is important to note that the threshold may differ from sector to sector and there is no need for the information to be sophisticated or technical.

 

The second criteria is that the information has actual or potential commercial value because it is a secret.  For this point, it is important to note that the secret information is presumed to have an actual or potential commercial value, but there is no need to have a specific financial value attached a price.

The third criteria is that the information has been subject to reasonable steps by the person lawfully in control of the information to keep it secret, considering the circumstances.  This therefore puts responsibility on the person lawfully in control of the information to keep the information secret.

Alexis Augustin: While UK, German and French law provide clear criteria for defining trade secrets, none determines different categories of them. Any information that meets the conditions previously discussed is therefore protectable as a trade secret.

In practice, trade secret protection can cover various information:

First and foremost are manufacturing processes, such as the one claimed by the American company Hershey regarding its process for making chocolate, but it can also be a composition, such as the one claimed by WD-40 company regarding the oil of the same name, or even a recipe, like the one of Coca Cola.

Software, and in particular source codes and algorithms, like Googles Add's algorithm, can also benefit from trade secrets protection, like research programmes and some economic and financial information.

Regarding economic and financial information, they notably include distribution networks and supply conditions. For example, French courts consider that the content of negotiations with suppliers can benefit such a protection. A large amount of other economic information is also likely to be protected as a trade secret, such as profit margins, financing plans, and financial statements. Strategic information, including new product launch plans, pricing strategies, and sales techniques are also eligible to trade secrets protection. For example, in 2024 Domino's Pizzas selling strategy was acknowledged as covered by trade secrets.

Lastly, information relating to employees and customers can be protectable as trade secrets. For example, in 2021, contacts and general information regarding Canal +'s clients have been considered as covered by trade secrets.

Obtaining trade secret protection is not automatic and requires a proactive approach. It is therefore a choice generally made because the information cannot be protected by IP rights, or because trade secret protection offers advantages that available IP rights do not.

The main advantage of trade secret protection is that, unlike patents for example, it has no expiry date. This means that, theoretically at least, trade secrets can be used to guarantee a monopoly position beyond the 20-year period of patent validity. However, the period of protection offered by trade secrets is never guaranteed, since a third party may legitimately acquire this information by discoveries, creations and analysis.

Another advantage of trade secrets is that they do not require any registration, thus avoiding drafting, translation, registration and maintenance fees. This is a significant advantage over patent protection, especially for small businesses.

Lastly, trade secrets offer protection that may be broader than IP rights. The protection of recipes is a good example of that. Recipes are not protected by copyright because they do not constitute a work of art but just a succession of instructions. Similarly, recipes are not generally eligible for protection under patent law because they are not considered as inventions. Trade secrets may then offer a strong alternative to IP rights.

Alessandra: As some of you might be familiar with the term confidential information and might wonder what distinguishes them from trade secrets.  Here is a quick distinction.  Trade secrets are a sub-category of confidential information, which is just a broader term and defined as any information meeting the following conditions:

1. It is only known by a limited number of people;
2. disclosure of the information is likely to cause serious harm to the person who disclosed it or to third parties; and
3. the interests likely to be harmed by disclosure of the confidential information are objectively worth your protection.

Unlike trade secrets, confidential information does not generally need to be commercially valuable nor kept secret through reasonable measures.

Lucy: So, I will now consider how to protect information via trade secrets.  So, it is important to note that there are no specific steps which are required to keep information protected.  Instead, information can be protected by taking a number of reasonable steps.  The reasonableness of these measures is assessed on a case by case basis considering the sector of the business, the size of the company and the value of the information.

Across all our other jurisdictions, there are several commonly adopted reasonable steps acknowledged by Courts to keep information secret.

The first of this could be documentation measures so marking the information as confidential, important, sensitive and adopting specific protective measures as necessary.  For example, watermarks.  This can also include taking regular stock of the information ensuring those who have access to the information is properly documented and recorded in a secure manner.

The second could be organisational measures, so reviewing periodically which employees need to know the trade secret information and perhaps creating a log of those who have access to it.

The implementation of compliant and management in assessing the secrecy of the information is therefore important.  You could also implement impersonal measures, so making sure employees have awareness of the confidentiality of certain information and creating an employee culture that makes maintaining confidentiality a priority.  Of course, we would not discuss legal measures so signing NDAs with any person accessing the information including employees, suppliers and partners, such NDAs would prohibit the recipient from making any unauthorised use or disclosure of the information and it could also implement sanctions should they make any unauthorised disclosures.

Finally, you can obviously consider technical measures.  So in terms of practical steps, this can include making an electronic document password protected or a physical document which is physically locked away.

Alexis: Trade secrets can be enforced before national courts by their legitimate holder, meaning the person who is lawfully in control of the information because it has acquired it through his/her discoveries, creations and analysis.

Because of the differences between the English, German and French legal systems, the protection of trade secrets is not ensured under the same conditions in these three countries.

Before French courts, trade secrets are mostly enforced before civil and commercial courts.

Indeed, French criminal law punishes various types of behaviours that may amount to an infringement of trade secrets, like the steal of confidential documents, but it does not punish trade secrets infringement per se.

However, before French civil courts, trade secrets can be enforced to obtain permanent and provisional measures against trade secrets infringement. In addition, trade secrets can also be invoked during proceedings in order to have the procedure adjusted or as a defence against investigative measures, and in particular against a saisie-contrefaçon.

Where an action on the merits based on trade secrets succeeds before French courts, these latest can order permanent measures, like when ruling on the infringement of IP rights. These measures include permanent injunctions, the recall, the confiscation or the destruction of any medium containing or embodying the trade secret, the publication of the decision, and damages, designed to fully compensate the prejudice suffered.

In order to prevent or to stop an imminent or ongoing infringement, provisional measures can also be In order to prevent or to stop and an imminent or ongoing infringement, provisional measures can also be ordered within short notice. They include preliminary injunctions, the seizure of the products, or guarantees that must be paid as a counterpart for the continuation of the alleged infringement.

Lastly, trade secrets can be invoked in proceedings that do not necessarily deal with trade secrets infringement. In such cases, trade secrets are generally used in order to obtain some provisional adjustments or as a defence against probative measures.

Regarding procedural adjustments, when information covered by trade secrets need to be disclosed, each party can request the debates and the pronouncement of the decision, which are usually public, to be made in camera. French courts can also decide that the public version of a decision will be handed down with the information covered by trade secrets being redacted.

vTrade secrets can also be claimed as a defence against investigative measures, and in particular against a saisie-contrefaçon. For those who would not be familiar with French procedure, a saisie-contrefaçon is a probative measure consisting of a party requesting from a French judge to issue a Court order allowing such party to mandate a bailiff to visit the premises of an alleged infringer in order to collect evidence of IP rights' infringement.

 

Since 2018, Court orders can specify that, if the seized party mentions during the saisie that some of the mediums contain trade secrets, such mediums must be temporarily sequestrated, which means that they cannot be immediately accessed by the party carrying out the saisie-contrefaçon. In such event, the seized party has 1 month from the end of the saisie to request the revocation of the Court order. If such request is not filed or fails, the provisional sequestration is lifted and the mediums seized are disclosed.

Moreover, during these proceedings, the seized party can request that, even if the order is maintained, access to the mediums seized should be limited in order to protect trade secrets. French law provides that courts must deal with such claim by balancing the interests of the parties, considering the usefulness of the information for the resolution of the dispute.

In practice, French courts generally order that mediums allegedly covered by trade secrets will only be disclosed to a restricted number of people bound by an obligation of confidentiality, and forming a 'confidentiality club'. Such clubs generally comprise one person per party, their representatives and a member of the Court.

Alessandra: Similarly to France, the rights holder might bring actions based on the merits before German Civil Courts as well as preliminary injunctions.  The Court can order the following measures to prevent or stop trade secrets infringement on actions based on the merits.  It might order injunctive relief and omission, restitution of any medium containing the trade secret recall off the infringing product, permanent removal of the infringing product as well as destruction of any medium containing the trade secret and withdrawal of the product from the market.

The rights holder may also claim to get information about the documents and materials in the possession or ownership of the infringer, that contain or embody the trade secret.  Should the infringing party not disclose the information, disclose it in a wrong or incomplete way, the rights holder might be awarded damages.

All of the above claims are subject to a proportionality test.  Thus, for the Court to order measures, the value of the information, the behaviour of the infringing party, the consequences of the disclosure as well as the rightful interests of the rights holder, must be weighed up against each other.

Also, the rights holder might ask for provisional measures based on trade secrets infringement.  Preliminary injunctions are generally faster than decisions on the merits.  They are restrictive, as the anticipation of the decision on the merits is prohibited under German law.

Within preliminary injunctions, there is a special interest for injunctive relief with threat of administrative remedies.  As part of the injunctive relief, remedy of the infringement can be ordered, meaning that the debtor must act upon third parties to the extent possible and reasonable and recall delivered infringing products.

When it comes to damages, those are calculated for actions committed intentionally or negligently.  Profits of the infringing party can be taken into account when calculating the damages and also the hypothetically appropriate remuneration of the rights holder.  Also, damages might be paid as compensation for immaterial loss.

In civil proceedings, there might be an obligation to disclose information to the opposing party according to the principle of contribution.  Still the rights holder can request procedural adjustments to be made during any proceeding with consideration of trade secrets.  There are no in camera proceedings in a technical sense, but the Courts can classify all or part of the information and dispute as confidential, if it may constitute a trade secret.  Should third parties be allowed to access files, the relevant information needs to be blackened out.  Parties and other persons involved in the litigation or who have access to documents in such proceedings must treat classified information as confidential and may not use or disclose it outside of the proceedings, unless they have gained knowledge of it outside of the proceedings.

The parties must keep information confidential from pendency of the actions to after the proceedings are completed.  The Courts may also at the request of a party restrict access to confidential documents or oral proceedings or the recording of the minutes of the proceedings in whole or in part to a certain number of reliable people if such limitation is proportionate.  If the Court restricts such access, the public may be excluded from the proceedings.  This is especially remarkable in Germany as proceedings are by virtue of the constitution, usually held publicly.

With a focus on Criminal Courts, infringement of trade secrets is a criminal offence and can lead both to a financial penalty or prison sentence for up to three years.  Actions sanctioned are obtaining trade secrets, disclosing them as well as using trade secrets.  Access to files by third parties should already be objected to when filing a criminal complaint for trade secret infringement and in the event that access to files is planned, a hearing should be requested.  However, this does not prevent the information from possibly being passed on to the accused.  Note that trade secrets might come under the control of the investigating authorities through searches and prosecution and subsequent seizures.  If the secrets are embodied and documents are data carriers, they are taken into custody by the authorities.  However, this does not necessarily lead to disclosure of the trade secrets.

Lucy: I will now be considering a UK law perspective.  By comparison with EU member states, the UK's common law framework i.e. judge made law in UK Courts for protecting trade secrets as a form of confidential information was already fairly robust and well established.  I will refer to this as the UK's common law of confidentiality.  As such in the UK, trade secrets can technically be protected under two different regimes which exist in parallel.

The first being the common law of confidentiality and the second the statutory regime of the Trade Secrets Regulation.  It is important to note that the Trade Secrets Regulation therefore does not purport to transpose the whole of the trade secrets directive into English law, does not replace the protection afforded to trade secrets under the common law of confidence.  Instead, they are intended to supplement and sit alongside it.  For example, the introduction of a statutory definition of trade secrets, which had not existed previously.

Finally, it would seek to address areas where gaps occur or where the implementation of the provisions of the trade secrets directive in the UK may be made more transparent and coherent.  It is important to note that the Trade Secrets Regulations therefore only apply to litigation proceedings brought after 9 June 2018.  The UK's decision to adopt these regulations in line with EU based law, should help companies who want to implement EU wide trade secret policies, whether including or excluding the UK.

It is likely that with more on-line innovation and some of the more modern forms of technology, the concept of a trade secret will become ever more important.  That innovation and technology may not be protectable by the more traditional forms of IPRs.  Therefore, protection by other means such as under the Trade Secrets Regulation is key.

In the UK the test for assessing confidential information, i.e., if a trade secret is to be protected under the common law of confidentiality, was created in the case of Coco and Clark.  This three limb test sets out the following criteria:

The first is that the information has a necessary quality of confidence.

The second is that the information was imparted under circumstances which implied an obligation of confidence and the third was that there has been an unauthorised use of this information to the disclosee's detriment.

There are two main distinctions we can draw between the common law of confidentiality and the Trade Secrets Regulation.  Under the Trade Secrets Regulation, there is a requirement for the owner to show that it has taken reasonable steps to maintain the secrecy of its trade secrets.  Such a requirement is not strictly necessary under the common law of confidentiality.

The other distinction between the two provisions is the remedies that are available.  Under the common law of confidentiality, no compensation in the form of damages is available with the sole remedy offered being an injunction.  Conversely, the Trade Secrets Regulation provides an express allowance for compensation as an alternative to an injunction.

Alessandra: As a conclusion, trade secret protection is improving in Europe and is sought more often than before.

Thank you for listening to this podcast and get in touch should you need advice on any matters related to trade secrets.

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