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By Ali Qassim
April 12—Companies in the U.K. concerned about employees stealing confidential business information will be better protected by new trade secret rules the European Commission is set to introduce, according to attorneys interviewed by Bloomberg BNA.
The forthcoming Trade Secrets Directive will provide an EU-wide common definition of trade secrets for the first time, making it easier for employers to receive damages in cases of stolen information and to defend their rights in national courts, attorneys said.
According to an official EU document, one in four European companies reported at least one case of information theft in 2013–the latest available figures–up from 18 percent in 2012.
“The law on trade secrets currently available in the EU is fragmented,” Huw Evans, a partner at Norton Rose Fulbright LLP, London, told Bloomberg BNA. “The level of protection varies between member states.”
Harmonization across the bloc’s 28 members “will bring the EU more into line with other innovative markets such as the U.S., where trade secret protection has been put on a statutory footing,” Evans said.
David Whincup, labor and employment partner at London attorneys firm Squire Patton Boggs, agreed.
The EC–the EU’s executive arm–“felt the protection in some areas was so weak that the EU was at a significant disadvantage in terms of attractiveness to global investors,” Whincup told Bloomberg BNA.
The European Parliament will vote on the text of the proposed directive, which was published in December 2015, on April 14.
“It is a final vote as there is agreement with the European Council,” a spokeswoman for the European Commission told Bloomberg BNA.
The proposed directive could “come into effect later this year with member states having two years to implement the proposed directive into national law,” according to Evans.
One of the key benefits of the directive, according to Evans, is that “it will give, for the first time, a statutory definition of ‘trade secret.'”
“In addition to setting out what can be protected, the definition will also assist businesses in identifying information which may not be covered by the proposed directive, but they nevertheless wish to protect,” Evans said. “Protection could then be sought by other means, such as by restricting access or contract.”
“The U.K. won’t be alone in welcoming clarification over what is, and what is not, a trade secret,” Whincup said. “As a study by the EC found, up until now, what has been protectable in trade secret terms in one EU country might not have been in another.”
The directive will require employers to create “a process that clearly identifies what their trade secrets are, in line with the directive’s definition,” Whincup said. “This is important as in litigation it will be up to the employer to demonstrate measures to protect this secret internally if they wish to prove that it has been wrongfully disclosed. That will include attention to internal security measures, access rights, policies and contracts.”
“In order to be able to protect trade secrets in the long term, bosses will also need to anticipate an impact on the level of understanding they require of the roles of their employees,” Whincup continued. “Without a high level of understanding, it will be extremely difficult to ensure that a trade secret does not fall within a member of staff's ‘experience and skills’ when the person in question leaves the company.”
Evans highlighted as a positive development for employers the fact that the directive “further provides for the preservation of confidentiality during court proceedings, helping to avoid the concern that the very case you bring to protect trade secrets will in itself disclose the trade secrets.” Although British courts are “already used to hearings taking place at least in part in private to preserve the confidentiality of information,” such procedures “are currently not available in all member states,” which means these states “will have to adapt to deal with the new provision.”
The directive will also allow businesses to “bring an action against persons dealing in infringing goods even if those persons do not know that an unlawful use of a trade secret was made,” Evans said.
According to the directive, “to qualify as infringing goods, the goods themselves do not need to disclose the trade secret, it is sufficient for example that the goods’ characteristics or functioning significantly benefit from the trade secret,” Evans said, concluding that “this is a valuable weapon in stopping third parties from benefitting from parties’ valuable trade secrets.”
One area of the directive that “was controversial to some parties is the lack of protection for businesses from whistleblowers,” Whincup said. The directive “will not extend to employees who chose to disclose a trade secret where the use or disclosure of the trade secret was carried out ‘for revealing a misconduct, wrongdoing or illegal activity, provided that the [employee] acted for the purpose of protecting the general public interest.’”
“What is important in terms of public interest is subjective and can vary from person to person,” Whincup warned. “Consequently, it is difficult to prove bad faith in the discloser’s purpose.”
“Member states and their business communities may feel that the directive could have offered increased protection to business here by clarifying the public interest requirement, at least by the requirement that the belief that the disclosure would serve the public interest was reasonable,” Whincup said, although “fears over how this affects the sanctity of employers' information may be somewhat mitigated” by the fact that protection for whistleblowers “is seemingly limited to where there has been proven wrongdoing or misconduct as opposed to where the discloser merely believes there to be.”
“That said, it seems likely that transposition into the domestic law of member states will not limit its effect in this way,” Whincup said, “and that they will allow also the purpose of preventing likely wrong doing.”
Another area “where confusion remains” is around “employees who move on from their current job,” Whincup said. “In their new role, these employees will not be prevented from using ‘experience and skills honestly acquired in the normal course of their employment’ in their old one. Just as ‘in the public interest’ may be an ambiguous phrase, ‘honestly acquired’ may also be hard to define during litigation.”
“Although some member states may consider this a controversial element of the draft,” Whincup said that “it is not insurmountable.”
“As long as ‘experience and skills’ is not extended to cover knowledge and information,” Whincup said, “this does little more than reflect the current position in the U.K. in relation to later use of tricks of the trade as opposed to confidential information.”
According to Brussels-based research group Corporate Europe Observatory, however, the definition of trade secrets is “so huge” that a lot of information learned by employees in their jobs would qualify.
“This means that if they want to change jobs and use in their new job knowledge and information that their former employer considers is a trade secret, it might sue them during up to six years after they've left,” CEO said in a March 30 open letter. “This would be very bad for workers' mobility and, as a consequence, innovation, which thrives on mixing ideas and experiences.”
To contact the reporter on this story: Ali Qassim in London at firstname.lastname@example.org
To contact the editor responsible for this story: Rick Vollmar at email@example.com
For more information on European Union HR law and regulation, see the European Union primer.
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