EU: Trade Secrets Directive slowly progresses through European Parliament

The EU "Trade Secrets Directive" is gradually making its way through the European Parliament. The Committee on Legal Affairs (JURI) has yet to adopt a draft Report on the proposal; an indicative plenary sitting date for first reading/single reading has been set for 8 September 2015. Meanwhile, the Committee on Industry, Research and Energy (IRE) submitted an Opinion for JURI on 29 April 2015, including the following recommendations and amendments:

• Confirmation of minimum harmonisation in most cases: the Opinion is consistent with the view taken by the European Counsel that the Directive should allow Member States to provide for more far-reaching provisions to protect trade secrets, save for specific provisions of the Directive (Amendment to Article 1).
• Amendments to the definition of trade secrets: "trade secret" has been amended to clarify it means undisclosed know-how and business information..." and it must now have actual or potential significant commercial value because it is secret and because its disclosure would be significantly detrimental to the legitimate economic interest of the owner (Amendment to Article 2, para 1)). In addition the third part of the definition (the trade secret has been subject to reasonable steps to keep it secret) has been expanded to require the owner to demonstrate and verify how they have taken such steps to keep the information confidential. This places more emphasis on the need to adequately protect the secret and to be seen to be doing so. The IRE opinion recommends changes to some of the terms used in the draft Directive to avoid language typically belonging to the IPR legal context, given that this Directive is not intended to create a new intellectual property right.
• Who holds the trade secret? Instead of this being the person who controls the trade secret the proposed amendment would limit this to a "registered market operator legally established as being in control" of the trade secret. This introduces a new concept and begs the question who a registered market operator may be considered to be.
• To prove an unlawful use of a trade secret the trade secret holder must show there was intent. Gross negligence has been removed so would not be sufficient (Article 3).
• Addresses the situation where a trade secret was acquired lawfully but is then used inappropriately: this amendment would address the situation which arises in the employment context where an employee receives the information lawfully but then uses it contrary to the current employer's honest commercial practices and is likely to harm its commercial interests when the trade secret is offered to a new employer when he or she leaves (Article 3).
• Employee skill and knowledge addressed: this introduces for the first time a carve out for the equivalent of an employee's skill and knowledge "use of experience acquired honestly through employment or some other contractual relationship" (Article 3) and "knowledge, qualifications and skills gained by employees in previous employment". It goes further to limit contracts which purport to cut across this "obligations of contracts and other actions that may limit the use of such knowledge shall comply with the principle of proportionality in the interest of innovation and free competition". This opens up the argument to employees that overly wide confidential information clauses in employment contracts should be limited by virtue of this principle (Article 4).
• Burden of proof: the trade secret holder has the burden of proving the trade secret was unlawful acquired (Article 6).
• Importance of employee mobility for innovation and professional development: the protection against unlawful acquisition, disclosure and use of trade secrets should not become an impediment to employees' mobility. The Opinion refers to several studies which demonstrate that regions which enforce strong non-compete agreements between employers and employees are subject to "brain drain" of the most high skilled workers, reduced investments and innovation. It recommends that there should not be a limit on the use of acquired experience and know-how through honest practices through the employment agreement or contract (Amendment to Recital 8 and Article 6, para 1, point b). Member states should ensure that the length of any restriction imposed to eliminate any commercial advantage which the third party could have derived, should be reasonable and avoid the creation of unjustified obstacles to fair competition, innovation and labour mobility (Amendment to Recital 16 and Article 12). Further, Member States should restrict liability for damages of employees towards their employers for the unlawful acquisition, use or disclosure of a trade secret of the employer, when they act without intent (including post-termination of employment) (Amendment to Article 13, para 1).

Separately, the Committee on Internal Market and Consumer Protection published an Opinion for JURI on 30 March 2015, also proposing various amendments to the Directive. In particular that there should be a three year limitation period to bring an action to protect a trade secret, which departs from previous suggestions of six years and the usual limitation period for contractual claims in the UK of six years.

Until JURI adopt a draft Report of the proposal, expected in September 2015, there is uncertainty on the final drafting of the Directive. But these recent Committee Opinions are interesting as they propose changes to the definition of "trade secrets" and suggest a number of amendments to the rest of the Directive, including provisions to ensure sufficient balance between the protection of trade secrets and the mobility of employees/rights of employees to use information acquired from previous professional activities necessary for innovation and professional development.