What Trade Secrets Should You Be Protecting In Your Company?
Monetize You Trade Secrets and Protect Them Against Unlawful Disclosure
Which Resources Give a Competitive Advantage to Enterprises?
Companies -- and particularly Startups – create or develop to maintain their competitive edge within their activity, certain tangible and intangible resources that become part of the assets and wealth available to them.
On the one hand, there’s brands, trademarks or any distinctive signs owned by the company that showcase their distinctiveness and special features that differentiates them in the market from competitors.
On the other hand, there’s industrial designs, utility models or patents, which protect either the external aspect or appearance of a product, or technical inventions resolving technical issues, or newly crafted products or proceedings or any noticeable improvement to them that are or can be marketed. All of them can be registered for their protection against unlawful disclosure or illicit trade by non-authorized third parties.
In addition to said resources, companies often develop as part of their innovation processes meaningful information or secrets commercially valuable that only they possess and are outside the public domain, have commercial or technical nature, and are applied or can be applied in the production or industrial processes of the company. However, the protection of this information differs from the traditional one given to IP, and must be safeguarded under the protective umbrella of a secret.
Before that happens, it has first to classify as a secret by either not being easily accessible or independently developable by other competing companies, of little importance or not valuable enough, or being obtained by unlawful appropriation of techniques or skills autonomously developed by employees.
What If the Secret Is Discovered?
Not all discovery entails an infringement of the secret.
- Revelation by means of reverse engineering is not punished: if a good is manufactured based on the secret appliance, inspecting of it it’s not off limits, and can even be necessary to determine, for instance, its patentability. Discovery of the secret and use / commercialization of it would be allowed.
- Revelation regardless of cause immediately gives access and allows for use by third parties. If unauthorized, only the transgressor can be punished, but use by bona fide third parties cannot be prevented.
- The discovered secret may be patented by anyone having obtained said information through licit means.
- To sum up, protection as a trade secret does not confer an exclusive, perpetual right of use and trade over it against bona fides third parties
Concept originated from Uruguay Round Agreement: TRIPS Trade-Related Aspects of Intellectual Property Rightsdated 15 April, 1994.
Trade value of the secret must be current or future, actual or potential, by providing a significative competitive advantage within the industry sector in which the company operates.
Companies creating or developing commercially valuable knowledge and investment in R&D activities can benefit in some EU Member States from a special taxation regime known as Patent Box.
¿Current Regulation Is Uniform?
It is not – several regulations and directive apply within the EU.
In the European Union, trade secrets is governed by DIRECTIVE (EU) 2016/943 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure (the "Directive"). But also apply DIRECTIVE (EU) 2015/2436 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 16 December 2015 to approximate the laws of the Member States relating to trade marks, REGULATION (EU) 2017/1001 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 14 June 2017 on the European Union trade mark, Council Regulation (EC) No 6/2002 of 12 December 2001 on Community designs, the DIRECTIVE 98/44/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 6 July 1998 on the legal protection of biotechnological inventions, etc.
¿Harmonization goal has been achieved?
Generally speaking, yes.
There is a common EU definition.
Judicial protection is granted regarding unlawful appropriation, use or revelation of trade secrets.
A minimum protection level is set up.
General criteria about measures, proceedings, remedies and penalties are established.
Yet, there remain differences in national legislation between EU Member States.
Differences in applicable rules in France, Spain, Italy and United Kingdom (which is currently exiting the EU) are studied below.
How Is the Protection Regulated in France?
French Lawmakers Are Pioneers in the Creation of a Specific Set of Rules
On July 31st, 2018, France adopted a new law on trade secret protection, the loi n°2018-670, implementing the Directive. However, France was the first European country to adopt regulations on trade secrets protection, through the enactment of the “Loi de blocage” No. 68-538 on July 28th, 1968.
Protection granted under the French Trade Secret Law extend also to privacy issues, as Article 8 of the European Convention on Human Rights (concerning the right to respect for private and family life) applies to legal entities, other than to individuals. Based on which, corporations can protect their information as if they were physical persons as part of their right to privacyand family life.
However, said protection may clash with free speech and access to information, and that’s the reason why French courts have determined that in trade secret infringement litigation, secrecy cannot be justified or upheld when doing so would jeopardize or suppress freedom of speech. This lack of enforcement is relevant also for whistleblowing matters.
All creations or confidential elements that fall outside the scope of traditional IP rights are covered: from elements in a patent that must not be revealed to competitors, or that are not patentable but still valuable, to other information such as R&D, commercial strategy, business acquisition projects, the launch of a new product, customer or supplier files, strategic business data, etc. The only prerequisite is lawful obtention (Art. L. 151 Code de commerce).
Discovery through authorized revelation is permitted.
Independent creation, including use of reverse engineering of products available on the market (unless is contractually prohibited).
Non-authorized disclosure or use or unfair behavior is forbidden.
Infringement can be prosecuted in civil and commercial courts. But there’s no specific criminal proceeding for punishing said infringement.
In a protective measures proceedings (ex parte or inter parte), the judge has the power to prohibit use, continuation of use or disclosure of a trade secret, and to stop production, offering, marketing or use of products suspected of being the result of misuse of a trade secret, or of importing, exporting or storing such products; or the seizure or return of such products even blocking their entry into or circulation on the French market.
Patent Box is applied as incentive in the form of a reduced rate of 10% (instead of 31% in 2019) of net income generated by exploitation of industrial property (patents, certificates of Public convenience, non-patented patentable inventions, Proprietary Obtention Certificates, and manufacturing processes) and copyrighted software.
What about Spain?
Before the entry into force of the Directive, there were no specific regulation for trade secrets. However, protection was given under the article 13 of the Unfair Competition Act and articles 278 and 279 of the Criminal Code..
The Directive was implemented through the Trade Secrets Act No. 1/2019 from 20 February 2019(the “Spanish Trade Secret Law”).
The language adopted by Spanish lawmakers defined it as “business secret”, and not “trade secret”, but the meaning is the same.
Statute of limitations is three years from the moment the rightful holder knows that the secret has been unlawfully revealed (article 11).
Protection is given against infringing goods: products and services which design, features, functioning, production or marketing processes benefit from trade secrets unlawfully obtained, used or revealed (article 3 (4)).
Spanish Trade Secret Law is a special law, meaning that it prevails over other regulations not directly addressing trade secret protection. However, trade secret infringement it is framed as an act of unfair competition.
Spanish criminal law establishes offenses specifically addressing trade secret infringement in articles 278 and 279 of the Criminal Code.In particular, they punish with prison terms from two to four years, and from three to five years for anyone unlawfully disseminating, revealing or trading with secrets.
Patent Box is applied as incentive in the form of a 60% exemption of net income generated by the transfer or transmission of industrial property rights (patents, industrial designs, drawings, formulas and other secret industrial processes, trade secrets and know-how), excluding intellectual rights. Is compatible with other fiscal deductions for R&D activities.
Il Belpaese is any different?
In Italy, the Directive was implemented through the Legislative Decree No. 63 from 11 May 2018, which become applicable as of 22 June 2018.
The information eligible for protection is distinguished between know-how and trade secret.
Trade secrets’ must have monetary value, be secret or not easily accessible to third parties, and be protected through measures reasonably adequate to allow for secrecy (article 98 of IP Code and 3 of Legislative Decree).
Behavior that unlawful and therefore punished is the illicit, non-authorized or abusive obtention, use or disclosure of the secret, excluding any lawful obtention derived from a separate or independent research or development.
A claim against any infringer that deliberately or negligently revealed or used in an unlawful manner the secret, or having commercialized products made based on the information infringed (article 99 of the IP Code). Previously only willful conduct was punished.
In the course of a judicial proceeding, the judge can prohibit to parties and their legal counsels or specialist witnesses to access to certain documents containing secrets or partially or totally limit their disclosure.
It is possible to ask the court for the adoption of protective measures (ex parte or inter parte), against the use of the secrets deemed to have been infringed, and the defendant will be requested to pay a security as a guarantee if he/she wants to continue using the secrets.
The unlawful disclosure is treated according to article 2598 of the Italian Civil code, as an unfair competition act , and articles 388 and 623 of the Italian Criminal Codepunish it when is a willful conduct as a crime.
Was the United Kingdom far ahead of its time?
Yes. In the United Kingdom, the Directive was implemented through The Trade Secrets (Enforcement, etc.) Regulations 2018 (SI 2018 No. 597)(the “UK Trade Secret Law”) applicable from 9 June 2018.
However, before that, trade secrets were protected through Common law and case law, being one of the most efficient and less bureaucratic systems.
- Access must be lawful: acquisition, use and dissemination of a trade secret is illicit when it violates the trust relationship with regard to the preservation of the secrecy.
- However, requisites of the Directive are fully implemented.
- Statute of limitations for trade secret’s defence actions is six years.
- Inside judicial proceedings, “confidentiality clubs” are created to limit the access to secrets and confidential documents.
- Private hearings can be held, at the request of the claimant.
- Patent Box is applied as incentive in the form of a lower rate of 10% of Corporation Tax on the net income generated by licensing or exploiting of patented inventions or certain other medicinal, veterinary or botanic innovation rights. Patents must have been granted by the UK intellectual Property Office, the EUIPO or certain other European countries.
- Trade secrets cannot be registered. They can only be protected through keeping the maximum secrecy and adoption of adequate measures preventing unauthorized disclosure.
- Protection, however, is for an unlimited period, as long as information is kept confidential.
- There are no registration costs. Costs only result from the implementation of measures to preserve the confidentiality.
- Trade secrets are not subject to control by authorities or government entities
- In some European countries, there are fiscal incentives known as “Patent Box”.
- In Europe, there is harmonized legislation on trade secrets through the Directive. But national legislation may vary.
- Outside Europe, trade secret regulations are not uniform.
How Can We Help You?
At Gowper, we are committed to protect and ensure safe exploitation of our clients’ trade secrets whatever it takes. That’s why we offer IP and contract drafting services such as:
- Negotiating and drafting of any kind of contracts aimed at protecting or ensuring safe exploitation of trade secrets and know-how: non-disclosure agreements (NDA), transfer or licensing of technology, know-how or trade secrets, for development of innovative processes, services or goods, etc.
- Implementing compliance and surveillance programs to shield secrets.
- Litigation concerning unlawful disclosure of trade secrets and claim for damages.