The New Protection Of Trade And Business Secrets

Author:Dr. Constantin Rehaag

Finally, German parliament is about to vote on the draft Act on the Protection of Business Secrets (Gesetz zum Schutz von Geschäftsgeheimnissen). Find out more about the lengthy genesis and the provisions of this important piece of legislation that is about to change the protection and enforcement of trade and business secrets in Germany fundamentally:

In the past, the protection of trade and industrial secrets has not received the same attention from legislators as patents or trademarks. However, these secrets - such as the composition of products, manufacturing processes, quotations, terms, technical specifications, proposed business acquisitions, algorithms, encryptions or processes in business establishments (the list of examples could be continued almost endlessly) - must receive wide-ranging protection because of two main reasons. On the one hand, such knowledge may not be eligible for protection as a patent, trademark, design or copyright. On the other hand, there may be situations, in which the owner of such knowledge deliberately waives protection, e.g. as a patent, as this would also include publication. Nevertheless, even in such cases, the owner of these secrets will have an economic interest in them, which highlights the urgency to protect these secrets even more.

The fact that business and trade secrets have so far been neglected, or at least in part, may be partly due to the fact that the legal situation in Germany has not been perceived as “fundamentally unsatisfactory”. The design of central provisions as criminal law provisions was unusual, and the protection of secrets in legal proceedings was difficult to ensure. Nevertheless, the definition of a business and trade secret (in practice, there was no distinction between the terms) was considered sufficiently broad to provide the necessary protection.

Business secrets have been, and are to date considered as those facts, that, according to the recognizable will of the business owner, are to be kept secret and are only known to a limited group of persons and thus, not publicly known, and for which the business owner, therefore, has a legitimate interest in secrecy since the discovery of the facts would be capable of inflicting economic damage on the person holding the secrets.

In the future, the EU Directive 2016/943, the so-called “EU Trade Secret Directive” or “Know-how Directive”, shall ensure a sufficient and equivalent level of legal protection within the internal market and will prevent the unlawful acquisition of trade secrets. Although Article 39 (2) of the TRIPS-Agreement has been in force since 1995 and establishes a minimum standard for the protection of trade secrets, there are still significant differences between the domestic laws of the EU member states regarding the protection of trade secrets against their unlawful acquisition, use or disclosure by third parties. Moreover, there is no standard solution for dealing with products based on the unlawful use of trade secrets.

The current practice of member states in dealing with trade secrets is to be harmonized by the new Directive: Clear definitions of terms such as "trade secret", "trade secret holder", "infringer" and "infringing product" have been formulated. In addition, harmonized protection and compensation provisions should be adopted for all EU member states. In particular, this should set incentives for cross-border innovation and reduce the threat to the competitiveness of the owners of the secrets. In contrast, competitors obtain the opportunity to find out the protected trade secrets through their own discoveries or as part of reverse engineering. Protection of the secret in judicial proceedings is to be granted.

Another novelty is that in the future - given that the protection of trade secrets is ensured - important judgements that are typically dissuasive shall be published.

Content of Directive 2016/943, adopted on June 8, 2016

The first chapter (Art. 1 - Art. 2) describes the subject matter of the Directive, followed by the now uniformly defined terms "trade secret", "trade secret holder", "infringer" and "infringing products".

The most important definition is the "trade secret", which consists of three parts:

It must be confidential information; Confidentiality should also make this information commercially valuable; and The owner must undertake reasonable steps to keep it secret. A case-by-case analysis determines what is reasonable. The definition of "trade secret" is based on the definition of "undisclosed information" under the TRIPS Agreement.

The second chapter (Art. 3 - Art. 4) lays down standards that determine the circumstances under which the acquisition, use and disclosure of a trade secret are unlawful, and the holders of trade secrets...

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