WIREDGOV

The European Commission has recently proposed new rules on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure.

The draft directive introduces a common definition of trade secrets, as well as means through which victims of trade secret misappropriation can obtain redress. It will make it easier for national courts to deal with the misappropriation of confidential business information, to remove the trade secret infringing products from the market and make it easier for victims to receive damages for illegal actions.

In today’s knowledge economy, the capacity of companies to innovate and compete can be seriously harmed when confidential information is stolen or misused. According to a recent survey¹, one in five companies has suffered at least one attempt to steal its trade secrets in the last ten years. According to another recent study², the numbers are going up with 25% of companies reporting theft of information in 2013, up from 18% in 2012.

There are substantial differences in the laws in place in EU countries on protection against trade secret misappropriation. Some countries have no specific laws on the issue. Businesses find it difficult to understand and access the systems of other Member States and, whenever they become victims of misappropriation of confidential know-how, they are reluctant to bring civil court proceedings as they are not sure the confidentiality of their trade secrets will be upheld by the courts. The current fragmented system has a negative effect on cross-border cooperation between business and research partners and is a key obstacle to using the EU single market as an enabler of innovation and economic growth.

Commissioner for Internal Market and Services Michel Barnier said: "Cybercrime and industrial espionage are unfortunately part of the reality that businesses in Europe face every day. We have to make sure our laws move with the times and that the strategic assets of our companies are adequately protected against theft and misuse. Protecting trade secrets is also about more than that. This proposal aims to boost the confidence of businesses, creators, researchers and innovators in collaborative innovation across the internal market. They will no longer be dissuaded from investing in new knowledge by the threat of having their trade secrets stolen. It is a further step in the Commission’s efforts to shape a legal framework that is conducive to innovation and smart growth."

Vice-President Antonio Tajani added: "Protecting trade secrets is particularly important for the EU's smaller, less established firms. They employ trade secrecy more intensively than larger companies - in part because of the cost of patenting and protection against infringement. The loss of a trade secret and disclosure of a key invention to competitors means a catastrophic drop in value and future performance for an SME. With this legislation, the Commission will protect EU businesses' livelihood and the trade secrets that form a vital part of it. "

Recently proposal aims to give businesses an adequate level of protection and an effective means of redress if their trade secrets are stolen or misused. The sound, balanced and harmonised system of trade secret protection will give businesses and researchers a safer environment in which they can create, share and license valuable know-how and technology across the borders of the single market. It will also facilitate the engagement of companies and researchers from different EU countries in common and collaborative projects for innovation and research.

Background

Under the flagship initiative "Innovation Union" (IP/10/1288), one of the pillars of the “EU 2020 strategy”, the Commission undertook to create an innovation-friendly environment. Within this framework, the Commission adopted a comprehensive strategy to ensure that the Single Market for intellectual property functions smoothly (IP/11/630). This strategy also extends to areas complementary to intellectual property rights (IPRs) such as trade secrets.

Trade secrets (also called “confidential business information" or “undisclosed information”) are used by companies of all sizes in all economic sectors to protect a wide range of different information, such as the manufacturing process of Michelin tyres, the recipe for “Pasteis de Belém" (a Portuguese custard tart), the technology and know-how used in Airbus aircraft and Google's search algorithm. Trade secrets are particularly important for smaller businesses that lack the human and financial resources to seek out, manage and enforce a large portfolio of IPRs.

Unlike patented inventions or novels protected by copyright, the holder of a trade secret, such as a formula, business process, recipe or marketing concept, is not the owner of an exclusive right over its creation. Competitors, and other third parties, may therefore discover, develop and freely use the same formula. Trade secrets are only legally protected in instances where someone has obtained the confidential information by illegitimate means (for example through theft or bribery).

Trade secrets are therefore substantially different from IPRs, which confer exclusivity. Nevertheless, they need to be protected for the same reasons that IPRs exist: to incentivise innovation by ensuring that creators are in a position to be rewarded for their efforts. The proposed Directive achieves this by providing innovators with defences against dishonest practices aimed at illegally obtaining their confidential information in order to free-ride on innovative solutions without incurring any investment associated with research or reverse engineering.

See also MEMO/13/1061

Next steps

The Commission's proposal on the protection against misappropriation of trade secrets will be transmitted to the Council of Ministers and the European Parliament for adoption under the ordinary legislative procedure.

More information:

http://ec.europa.eu/internal_market/iprenforcement/trade_secrets/index_en.htm

Contacts:

Chantal Hughes (+32 2 296 44 50)

Carmel Dunne (+32 2 299 88 94)

Audrey Augier (+32 2 297 16 07)