The placement in escrow: A not so optional option

Co-author: Lucie Ciaramella

The European Union (“EU”) directive No. 2016/943 of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure was implemented into French law on 1 August 2018 in Articles L. 151-1 to L. 154-1 of the French commercial code. This reform was more than welcomed, as French law did not provide for a clear regime to protect trade secrets.

The reform has introduced several procedural provisions to maintain confidentiality of trade secrets before French courts.

A French decree, dated 11 December 2018, clarified the provisional and protective measures that the judge may pronounce to protect trade secrets in the course of proceedings.

In particular, Article R. 153-1 of the French commercial code now provides that, the judge may order ex officio the escrow of seized documents to ensure the protection of trade secrets.

This escrow is only temporary; if no request for amendment or withdrawal of the order is lodged within one month from the service of the confiscation order, the claimant will automatically have access to the documents. If the order is challenged, the escrow is confirmed and the parties have to discuss the opportunity and terms for removing it. This new mechanism applies both to in futurum investigations to infringement-seizure proceedings.

A recent decision handed down by the Cour de Cassation (French Supreme Court) clarified this mechanism (Cour de Cassation, 1 February 2023, No. 21-22.225). On 1 February 2023, the French Supreme Court quashed the decision issued by the Paris court of appeal in which the judges rejected the request for retraction of the order having authorized the infringement-seizure proceeding “subject to the placement in escrow in the event of a breach of trade secret” (Paris court of appeal, 25 June 2021, No. 20/09994).

The court of appeal considered that the placement in escrow provided by Article R. 153-1 of the French commercial code was optional, and that it was up to the judge to use a different proceeding, i.e. the sealing of documents likely to violate trade secret. Such proceeding does not result in the release of the document after the expiration of the 1-month deadline but after the issuance of a court decision.

The Cour de Cassation considered that the court of appeal violated the applicable legal provisions “whereas in order to ensure the protection of trade secret of the seized party, the president, ruling on a request for infringement-seizure, can only have recourse, if need be ex officio, to the special procedure of provisional escrow”.

In other words, the President authorizing a seizure-infringement proceeding has no other option than the mechanism of Article R. 153-1 of the French commercial code. It was an awaited clarification specifying the articulation of the new provisions of the French decree with the former legal regime which could be used to protect trade secrets before French courts.

Pt. 2 to this article