The European Union currently lacks common rules concerning trade secrets. While the EU the member states’ domestic laws generally provide that trade secrets may not be obtained by illegitimate means, the lack of common rules on the definition and protection of trade secrets has led to a situation where their protection varies in different countries.Generally speaking, trade secrets are not intellectual property rights as such; a trade secret may be e.g. a manufacturing process which has not been patented and thus the “owner” of that has not secured exclusive rights over its use and may have instead opted for not disclosing it and keeping it as a trade secret. Therefore also competitors may develop and use corresponding manufacturing processes if it is protected by e.g. a patent.

The fragmented regulatory framework concerning trade secrets within the EU, as the European Commission (EC) considers, fails to provide businesses confidence in the availability of protection and remedies within the single-market.  Therefore, to address this problem, the EC recently released its proposal for a directive “on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure”. The proposal, adopted on 28 November 2013, relates to the EU’s “Innovation Union” initiative which is part of the “EU 2020 strategy”, and aims to support the creation of an innovation-friendly environment and is designed to harmonize the member states’ domestic legislation to give businesses confidence in the protection of their confidential business information.

The significance the protection of trade secrets is underlined by a study commissioned by the EC that states that one in five companies has faced at least an attempt to gain access to their undisclosed information during the past decade. And a recent survey shows that the number of companies whose trade secrets have been illegally acquired by others has seen an increase from 18% of respondents in 2012 to 25% in2013. This indicates that the role of trade secrets and confidential business information should be seen as a priority. Having recognized these needs, also Commissioner for Internal Market and Services, Michel Barnier, stated in the press release on the proposal that:

“… 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. … 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.”

To put in practice the intention to support creation of an innovation-friendly environment, the directive proposal introduces i.a. a common definition of trade secrets, as well as provides for measures against the unlawful acquisition, use or disclosure of trade secrets to be implemented in in domestic laws to provide for harmonized ways to seek remedies in case of misappropriation of confidential business information. While in contractual relationships trade secrets are typically addressed in agreements so that e.g. their use is limited to only specific purposes, to have harmonized rules for preventing their misappropriation is aimed at giving businesses confidence in the protection of their trade secrets – especially outside a contractual relationship. This may be beneficial especially for small and medium-sized companies which typically do not have comprehensive IPR strategies implemented and do not extensively protect their intellectual assets by e.g. patenting innovations and thus lack an IPR portfolio which can be used to give a competitive advantage.

By Associate Petteri Günter and Partner Markus Myhrberg at Lexia Attorneys Ltd.