Author
Dr. Christian Frank, Licencié en droit (Paris II / Panthéon-Assas)

Dr. Christian Frank, Licencié en droit (Paris II / Panthéon-Assas)

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Author
Dr. Christian Frank, Licencié en droit (Paris II / Panthéon-Assas)

Dr. Christian Frank, Licencié en droit (Paris II / Panthéon-Assas)

Partner

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9 June 2022

Trade and secrets

  • Briefing

#Trade Secrets, EU Directive 2016/943; “Implementation in Member States”

Art. 2 "reasonable steps to keep it secret”,

Art. 9 “legal proceedings”, “preservation of confidentiality”

Art. 10 “provisional and precautionary measures” “infringement actions”.

How to make hard-paste porcelain was discovered in China in the 7th century. For artefacts manufactured accordingly, the demand and the prices both increased sharply. The few manufacturers were able to keep its composition and methods of production secret. In the 16th century, artefacts began to be exported to Europe, where the nobility spent vast sums for the highly coveted "white gold". August the Strong, Elector of Saxony, financed various research projects. In 1708, the alchemists von Tschirnhaus and Böttger succeeded in generating a novel chemical recipe for hard-paste porcelain probably saving the latter’s neck - he had promised but failed to reveal the secret of manufacturing gold … Two years later, August the Strong founded the first European porcelain manufactory in Meissen choosing his vacant and remotely located Albrechtsburg Castle to become its production facility. Above all, it provided protection for the manufacturing secret. Only a small circle of the staff was each told a fraction of the secret. They were bound to secrecy and were not allowed to leave the country. Nevertheless, the Austrian court succeeded eight years later in establishing a second manufactory in Vienna with the help of a porcelain chemist who had escaped from Meissen and some artisans whom they had poached there.

The economic importance of trade secrets has increased enormously, especially with the industrial revolution: The know-how for the industrial processing of cotton was largely developed in England. In 1771, Richard Arkwright took a decisive step by putting into operation the first water-powered spinning machine with automatic yarn feed in Cromford, the so-called "waterframe". Textile processing gave became the English industry a huge competitive edge. The machines were banned from export, textile workers were not allowed to leave the county and especially not to travel abroad. Nevertheless, Johann Bruegelmann established the first cotton spinning mill on the European mainland in Ratingen in 1783 - after he had succeeded to smuggle the model of a waterframe with the help of a friend. The U.S. textile industry has similar origins: While being the world's largest producer of cotton at that time, they lacked the processing know-how so that they had to ship cotton to England and have it re-imported for this purpose. Not surprisingly, they offered considerable bounties for the corresponding knowledge. Samuel Slater had worked in English spinning mills for years before he emigrated- disguising himself as a farmer and taking all his knowledge with him he had meticulously memorized. Within two years, founded the first spinning mill in Rhode Island. In 1848, Robert Fortune boosted the developing tea industry by introducing tea plants along with skilled tea makers to India – after having travelled through China on behalf of the British East India Company disguising himself as a local merchant while violating restrictions on travel and export of plants. Today, authorities report on a regular basis about huge, also state sponsored industrial espionage.

Secrets have always been protected but also been chiseled and traded. The law has struggled to protect trade secrets: Archaic threats of punishment and export bans were characteristic means in many states until the end of the 19th century. The German Statute of Unfair competition in its original version of June 7, 1909, also regulated the violation of trade secrets primarily as a criminal offense; in addition, it contained an obligation to compensate for the damage incurred. The regulations have largely remained a “paper tiger”. There is only a very limited number of cases tried in Germany in the 110 years up to the reform by the enactment of the Trade Secrets Protection Act in 2019. The "credo" of the German civil courts has contributed to this in particular: anyone who sues for trade secret infringement either loses the secret or the case.

In the Europe Union, the decisive step towards reform has been taken by its Trade Secrets Directive 2016/943 of June 8, 2016. Its main objective and purpose is to achieve a smoothly functioning internal market for research and innovation by establishing measures, procedures and remedies for the protection of trade secrets, in particular to deter the unlawful acquisition and unlawful use and disclosure of a trade secret. In particular, it contains a definition of a trade secret, which is conditional, among other things, on the holder making it subject to "reasonable steps under the circumstances, to keep it secret." It also regulates the settings in which the acquisition, use and disclosure of trade secrets are lawful and unlawful. Exceptions are included to delimit legitimate secrecy interests from the freedom of expression and information or the permissibility of whistleblowing. In addition, the Directive provides detailed specifications for corresponding procedures in order to strike a balance between protecting the holder and enabling to fight infringements on the one hand, and ensuring sufficient defenses against controversial legal remedies on the other hand.

The Directive was to be implemented by June 9, 2018. Some Member States have adopted their separate statutes for this purpose, such as Belgium, Germany, Ireland, the Netherlands and the United Kingdom. France and Slovakia have implemented the Directive's requirements primarily by amending their respective commercial codes, while Austria and Hungary have integrated them into their national laws on unfair competition.

The significance for companies and the economy is huge: The damages and disadvantages caused by unlawful appropriation, cyber-attacks and industrial espionage are enormous. In a 2018 report on cybercrime, the European Centre for International Political Economy describes an economic impact caused by cyber theft of EUR 60 billion loss in economic growth in the EU and a consequential potential loss of 289,000 jobs. Practical experience gained and the evolving new case law are taking shape in all Member States. What exactly has changed for companies, how do they manage the balancing act between "locking away for secrecy" and daily use for the company's purposes? Have the courts established clear minimum standards to be maintained for a trade secret; do companies have to adapt their confidentiality policies to rely on a trade secret in the event of a dispute? In which situations have infringement claims been successful, in which have they failed, and why? Have the procedural safeguards - such as secrecy orders issued by courts – proven to be effective? How does the practice differ in the EU Member States? As of June 9, 2021, the EUIPO Observatory should prepare a first report on the developments in the course of the application of this Directive, which, however, has not yet been made public.

The legal practice is still lagging behind. Taylor Wessing will report on real-world experiences. Brief but weekly. Bits and pieces from different perspectives and countries. With reference to the Directive to facilitate cross-border comparison. 

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