Navigating litigation in the new Trade Secrets Directive era

Trade secrets litigation can arise from one of a number of incidents located on a spectrum of wrongdoing. Increasingly, companies face the threats of cyberattack and industrial espionage; this can range from hacking, such as that experienced by TalkTalk late last year, to information theft by a disgruntled former employee, as suffered by Morrisons supermarket during 2014.

Somewhere in the middle of this is a concerted effort made by one company to obtain the confidential information of its competitor. Companies should continue to consider how best to ensure they can take advantage of the protections offered by the Directive in any resultant litigation focusing in particular on the definition of Trade Secrets set out in Article 2.

Article 2 of the Trade Secrets Directive

Article 2 places more emphasis than the traditional English law approach (which focuses on whether the information has the necessary quality of confidentiality) on looking at the 'reasonable steps' taken by the owner of the information to keep it secret. In order to fall within the protective regime of the Directive, therefore, companies should identify information considered to be a trade secret and assess the arrangements in place to keep that information secret and, if necessary, introduce further measures, including:

  • Physical means of restricting access to information such as locks, key cards, and restricted access areas
  • Network security infrastructure, including use of passwords and encryption
  • Adoption of policies and processes aimed at maintaining the secrecy of information, such as codes of conduct and IT policies – and ensure staff training on these and that they are consistently applied
  • Contractual restrictions contained within employment contracts to preserve confidentiality obligations and limit use of trade secrets after an employee has left the company
  • Use of confidentiality /non-disclosure agreements – these may be particularly helpful since the Directive expressly provides that the obtaining or use of a trade secret is automatically unlawful if it results from the breach of a confidentiality agreement

A good move towards consistency?

The Directive means that companies may be able to adopt a more consistent approach to the protection of trade secrets across the Member States in which they operate. Taking reasonable steps to protect your information should allow it to fall within the definition of trade secrets under the Directive and attract more harmonised protection throughout Europe. Conversely, failure to demonstrate that the information was adequately protected may result in a finding that it falls outside Article 2, and so remedies otherwise available under the Directive could be denied.

Once a company has determined it has no option but to commence trade secrets litigation, the Directive provides some useful assistance.

Importantly, the Directive provides that all Member States should make interim injunctions available as a remedy to prevent use or disclosure of the trade secrets during the course of the proceedings. This allows a claimant to protect its information using the same method across Europe, even in jurisdictions where interim relief has not previously been available.

What you need to bear in mind

Companies should however be aware that the Directive sets out a number of factors which are to be taken into account by a court when determining whether to grant interim relief, which may be interpreted to varying effect throughout different European jurisdictions and influenced by existing tests for granting injunctions. Claimants should seek advice on the particular requirements likely in any given national court as interim injunctions remain highly effective in influencing the course of the litigation, and focusing the Defendant's mind on settlement.

A common deterrent from initiating trade secrets litigation is the risk of disclosure of the trade secrets during the proceedings. The Directive seeks to alleviate this concern; pursuant to Article 8(2), on a 'duly reasoned application' by a party, specific measures may be ordered to preserve confidentiality (including a confidentiality club).

It is intended that these are to be the minimum protection available so it remains open to the parties to apply for more creative protective measures. The UK courts already regularly adopt confidentiality clubs but this should afford companies involved in proceedings in jurisdictions less familiar with protecting confidentiality a greater opportunity to seek protection.

Available final relief has been harmonised under the Directive. Article 13(2) specifically provides that an account of profits (permitting the claimant to recover the profits made by the defendant) should be available, without the need to demonstrate that a particular relationship existed between the parties. Whilst in the UK an account of profits is a familiar concept in breach of confidence claims, elsewhere in Europe Article 13(2) may add an additional remedy to a claimant's arsenal. Claimants should consider the type of disclosure likely to assist them with an account of profits claim at an early stage; requests should be made for evidence of the defendant's revenue related to products/business resulting from use of the trade secrets and related direct and indirect costs.

The message is therefore a clear one: when the Directive comes into force, more harmonised protection of trade secrets should become available across Europe. To benefit, companies should pay close attention to the detailed requirements of the Directive.

Jonathan Speed (Partner) and Bryony Hurst (Senior Associate), Bird & Bird LLP