European Commission Floats Proposal To Stop Theft Of Trade Secrets

The rise of cybercrime and industrial espionage, including alleged economic spying by the US National Security Agency, calls for a pan-European system to protect trade secrets, the European Commission said on 27 November. A recent survey showed that one in five European companies has suffered at least one attempt to steal its trade secrets in the past 10 years, the EC said, and the numbers are rising. It proposed legislation to safeguard undisclosed know-how and business information against unlawful theft and abuse. Industry generally hailed the proposal, though one law firm said it lacks some enforcement teeth.

Trade secrets include such things as manufacturing process, client list or recipe, the EC said. They are not intellectual property rights because they don’t give holders exclusive rights, and are only legally protected where someone has obtained confidential information illegally.

Nevertheless, trade secrets complement IP rights, because they are heavily used in the creative process that leads to innovation and the creation of IPRs, it said. They are also used when there is valuable information for which no IPR protection exists, but for which investment or research is required, it said. Smaller companies and start-ups rely on trade secrets more than larger ones because they lack the resources to obtain patents and police the market, it said.

The draft directive [pdf] has three key elements, the EC said. It provides a harmonised definition of trade secrets; sets out the circumstances under which acquiring, using and disclosing trade secrets is illegal; and lays out the measures holders can use to seek redress.

The proposal also makes clear how courts can avoid leaking trade secrets in the course of civil proceedings. The legislation needs approval from the European Parliament and Council.

Trade Secrets Part of Trade Talks

Cybercrime and industrial espionage are “unfortunately part of the reality that businesses in Europe face every day,” said Internal Market and Services Commissioner Michel Barnier. EU laws must move with the times to protect companies’ strategic assets against theft and misuse, he said. The proposal also aims to boost the confidence of businesses, creators, researchers and innovators in collaborations across the internal market, he said.

Trade secrets will be part of the EU-US Transatlantic Trade and Investment Partnership (TTIP) talks, the EC said. It “has a heightened level of relevance with the recent allegation of economic espionage carried out” by the NSA, it said.

One goal of the TTIP could be to make sure that the EU and US legal systems can interoperate to recognise and enforce each other’s trade secret judgements, it said. The EU and US also have a common interest in preventing third countries from stealing trade secrets, it said.

Proposal Good But Has “Noticeable Gaps”

The proposal is “good news for European business,” especially small and mid-sized companies, said Markus Beyrer, director general of BUSINESSEUROPE, whose members are industrial and employers’ federations. It will make Europe more attractive as an investment location, he said.

“The creation of proprietary know-how and business information are woven into the fabric of the pharmaceutical industry,” said the European Federation of Pharmaceutical Industries and Associations. That information can be of substantial economic value to companies, but Europe’s fragmented legal protection risks negative consequences for knowledge-based companies and in general, it said. A harmonised approach to trade secrets protection, with sufficient and comparable levels of redress, “will act as a strong disincentive for misappropriation attempts,” it said.

The Trade Secrets & Innovation Coalition (TSIC), created to raise awareness of the importance of business information, also praised the EC proposal. An EU-wide legal scheme will stop innovation “free-riders” by ensuring that rivals invest in the necessary resources to develop the same knowledge bases, it said. TSIC members include BUSINESSEUROPE, Alstom, Intel and General Electric.

The proposed changes “appear to tie in with the Commission’s general desire to ensure respect for intellectual property and related rights,” but there are “noticeable gaps,” said a Hogan Lovells “newsflash.” Trade secret holders often face great difficulties in obtaining the evidence of misuse and damage needed for legal actions, it said. The proposal doesn’t address that by, for example, providing ways to compel defendants to produce needed information or documents or allowing claimants to seek “search and seize” orders without notice to alleged thieves in order to stop evidence from being destroyed, it said.

Any Company “Is Vulnerable”

The need to shield business information also applies to multinational companies, a white paper [pdf] by the Center for Responsible Enterprise and Trade (CREATe) found. Because many of the global markets lack trade secret protection, the onus often falls on individual companies, it said. Multinationals would benefit from playing a more deliberate, proactive role in protecting their trade secrets across global supply chains, it said.

CREATe recommended that businesses carry out strategic assessments of their trade secrets, and perform due diligence before signing contracts with suppliers. It urged companies to use strong contract provisions to protect trade secrets during and after each business relationship, and to take proper operational and security measures to ensure that personnel, physical security measures and technical safeguards are in place. Companies should also insist that after business relations end, departing employees and former business partners honour their continuing duty not to disclose confidential information, it said.