EU Trade Secrets Deal Wins Wary Support from Industry, Free Speech Advocates

Industry and public interest groups have welcomed the provisional deal by the European Parliament and EU Council on protection of business know-how and trade secrets but say some of its provisions, particularly on protection of whistleblowers who disclose corporate information, remain troublesome.

The compromise directive followed several “trilogues” among the European Parliament, Council and European Commission. It “goes to the limits of the flexibility of the co-legislators,” an 18 December note from the EU Luxembourg Presidency to the Council’s Permanent Representatives Committee said. “It has therefore to be considered as a package-deal that cannot be reopened at any part without jeopardizing the whole agreement.”

The Presidency note is here [pdf].

The draft directive, which now needs approval from the European Parliament, sets out EU-wide rules barring the unlawful acquisition, use and disclosure of trade secrets. Once finalised, it will require EU governments to put in place fair, effective and dissuasive laws, procedures and remedies to ensure that companies have legal redress when their trade secrets are abused.

The directive is also intended to safeguard public interest rights such as public safety, consumer protection, public health, environmental protection and worker mobility, a Council press release said. While the new rules may prevent information from being disclosed in order to protect confidential trade secrets, they don’t restrict the right to freedom of expression, particularly with regard to investigative journalism and protection of reporters’ sources. Nor may companies stop workers from using the experience and skills honestly acquired in the course of their employment when they move to a new job.

In addition, trade secrets protection “should not restrict whistleblowing activity,” the Presidency note said. Protection shouldn’t extend to cases in which disclosure of a trade secret serves the public interest, when directly relevant misconduct, wrongdoing or illegal activity is revealed.

The Trade Secrets and Innovation Coalition and free-speech advocacy group Article 19 said they’re wary about the deal.

Glass Half-Empty or Half-Full?

“When assessing compromise, it is often said that it is not bad when it doesn’t entirely satisfy all parties,” Charles Laroche, International Fragrance Association senior advisor-public affairs, said on behalf of the coalition.

That could be true in this case, but it could also be that negotiations were biased by the fact that, unlike the Council text, which would have required whistleblowers to prove that revealing a trade secret was necessary, the European Parliament proposal clearly shielded whistleblowers who showed they acted in the general public interest, he said.

Governments gave in to lawmakers on the less strict whistleblowing test in exchange for getting their way on minimum harmonisation, definitions and the limitation period (which can’t exceed six years), he emailed. The time period during which companies can take action against former employees or competitors for misuse of trade secrets won’t be standardised, leading to a patchwork of rules, he said in an earlier interview.

It’s “unfair” that governments backed down on whistleblowing because everyone knows that without that protection, “the Council would have been in trouble” and would have faced media pressure, said Laroche. The issue was of importance to all stakeholders, not just the European Parliament, he said. Governments have thus gotten satisfaction on minimum harmonisation and other provisions at the expense of Parliament’s position, he said.

From an industry perspective, “this will weaken the effectiveness” of the directive, Laroche said. But whether that means that the glass is half-full or half-empty will only be known when countries adopt the measure into national law, he said. Experience “will show the need for a revision of this first step in harmonization.”

Article 19, whose interests lie in access to information, free expression and whistleblowing, welcomes the specific mention of whistleblowing agreed to in the deal, said Senior Legal Counsel David Banisar.

“But we are still concerned that the impact of the directive will still be used to limit access to public information,” which may be particularly problematic in the public procurement area where many contracts are not made public due to claims of confidentiality and trade secrets, he said.

[Update:] The final provisional agreement is “clearly better” than the original EC proposal, but is it good enough?” asked Corporate Europe Observatory (CEO) researcher and campaigner Martin Pigeon. One of CEO’s chief concerns was regulatory data, including scientific studies assessing products sent to regulators such as clinical trials for medicines, and here, the text has improved, he said.

But industry lobby groups were successful in securing a catch-all definition of trade secrets copy-pasted from the World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and extensive references to intellectual property legislation as opposed to competition law, he said.

“This means that by default pretty much any information within a company is covered and that opponents such as ourselves had to fight for exceptions,” he said.

The directive will do little to fight corporate espionage, Pigeon said: “Nobody to my knowledge in the EU has ever demonstrated that it had been hacked by the [US National Security Agency] or the Chinese government,” and evidence of trade secrets misappropriation is difficult to find. The directive’s key target is thus employees, who make up the large majority of legal cases involving trade secrets. Whistleblowers have been protected in the legislation, but it’s not clear whether workers’ individual and collective rights have been as well, he added.