Legal Update: The Proposal for a Trade Secrets Directive is on the Home Straight

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In a Nutshell

• The EU is ever closer to a directive harmonizing the protection of trade secrets within the internal market
• In Finnish law, the protection of trade secrets has been carried out mainly by way of criminal legislation and criminal proceedings, but also under the Unfair Business Practices Act subject to the jurisdiction of the Market Court
• The current level of protection of trade secrets in Finland is quite satisfactory
• The Directive would offer additional tools, most of which are already familiar to Finnish IPR legislation, for the protection of trade secrets. Such tools would include, for example, the possibility to:
  • protect evidence containing trade secrets from being disclosed even to the parties to a litigation
  • destroy infringing goods or deprive the goods of their infringing quality
  • determine the amount of damages according to the amount of royalties
  • order the publishing of a trade secret related court decision at the applicant's request and the infringer's expense
• The Directive might create fragmentation between the Finnish Criminal Code and civil legislation
• The European Parliament will take the Directive on its agenda during spring 2016
• If enacted, the Directive will need to be implemented by the Member States within a two-year transposition period

Background

The proposal for a Directive of the European Parliament and of the Council on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use, and disclosure (hereinafter “the Directive”) was originally set forth by the European Commission in November 2013. As part of its wider Europe 2020 strategy, the Commission had undertaken to create an Innovation Union protecting investments in the knowledge base, reducing costly fragmentation, and making Europe a more rewarding place for innovation. These objectives required the establishment of a sufficient and comparable level of redress across the EU in the event of unlawful acquisition, use, or disclosure of trade secrets (hereinafter “misuse of trade secrets”) (1).

The reaction to the Directive was somewhat mixed. Various aspects of the Directive, such as the potential limitations it seemed to impose on the freedom of speech, received criticism (2). This resulted in an amended proposal adopted by the Council in May 2014. Some additional negotiations were conducted in sessions between the negotiating teams of the European Commission, the European Parliament, and the Council during autumn 2015. Finally, on 15 December 2015, a preliminary agreement on the text of the Directive proposal was reached (3).

The Contents of the Directive

The Directive sets a minimum standard for the protection against the misuse of trade secrets. Hence, it is possible for Member States to enact stricter rules as long as they are compliant with the requirements of the Directive.

The Directive contains a common definition of a trade secret. According to the definition, (i) the information must be confidential; (ii) it should have commercial value because of its confidentiality; and (iii) the trade secret holder should have made reasonable efforts to keep it confidential (4).

The Directive specifies the circumstances under which the acquisition, use, and disclosure of a trade secret is unlawful. The key element in this regard is the absence of consent of the trade secret holder (5).

The main aspect of the Directive is that it establishes the measures, procedures, and remedies that the Member States should make available in the event of any misuse of trade secrets. The Directive contains provisions on:

• A period of limitation to claims and actions. According to the amended Directive proposal, said period may not exceed the duration of six years (6).
• Preservation of the confidentiality of trade secrets disclosed in court for the purpose of litigation. These measures may include, among other things, restricting access to documents containing trade secrets, which restriction also concerns the parties to the litigation. However, at least one natural person from each party and the respective lawyer or other representative of those parties will have to be given access to the documents in order to ensure the parties' right to fair trial.
• The use of provisional and precautionary measures against alleged infringers. These measures include the prohibition of use or disclosure of the secret; the prohibition to use, offer, import, export, or store infringing goods; and a seizure to avoid the entry or circulation of suspected infringing goods.
• The use of effective measures against the infringer in case a judicial decision finds that misuse of a trade secret has occurred. Some of these measures are similar to the ones available for provisional measures, however, some of them go beyond, such as the adoption of corrective measures with regard to the infringing goods, as well as the destruction of all or parts of the material dealing with the trade secret.
• The infringer's obligation to pay damages to the trade secret holder according to the actual prejudice suffered. Member States may, however, limit employees’ liability for damages towards their employers for an infringement committed without intent. The awarding of damages suffered by the trade secret holder calls for taking into consideration all appropriate factors, and also the unfair profits obtained by the infringer. The possibility of determining the damages on the basis of hypothetical royalties is also made available.
• The dissemination of information concerning court decisions on trade secret protection. According to the Directive, the judicial authority may order, for example, the publishing of a decision in full or in part at the expense of the infringer, if the applicant so requests.

Reflection from the Finnish Perspective

Whereas the Directive mainly concentrates on civil and procedural issues, the protection of trade secrets in Finland is carried out mainly by way of criminal proceedings. The Criminal Code contains a definition of a trade secret as well as various penal sanctions for the misuse thereof (7). The level of protection of trade secrets is quite satisfactory and, in general, the system is working well in this regard (8). However, some aspects of the Directive might bring additional protection to trade secret holders in Finland.

The contents of the definition of a trade secret set out in the Directive are basically equivalent to the definition set out in Chapter 30, Section 11 of the Finnish Criminal Code. However, if the definition as such was to be implemented in Finnish civil legislation, it might be necessary to amend the definition in the Criminal Code in order to prevent any inconsistency in national legislation.

The aforementioned possibility to restrict the parties' access to documents in court proceedings for preserving the confidentiality of trade secrets may be considered problematic from the perspective of Finnish law, and especially the contradictory principle. Said possibility would constitute a major exception to Section 11 of the Act on the Publicity of Court Proceedings in General Courts, according to which a party has the right to be informed about the contents of trial documents other than public trial documents.

The injunctions and corrective measures set out in the Directive bring the protection of trade secrets closer to the protection of other intellectual property rights. For instance, the possibility to destroy infringing goods or deprive the infringing goods of their infringing quality is equivalent to the regulation set forth in national industrial property and copyright legislation. In addition, the possibility of determining the amount of damages according to the amount of hypothetical royalties (9) is analogous to the already existing provisions regarding the protection of other intellectual property rights, such as Section 58 of the Patents Act. Finally, the possibility to order the publishing of decisions regarding trade secrets at the applicant's request and the infringer's expense is equivalent to national industrial property and copyright legislation. All of these possible amendments would be new and welcome additions to Finnish trade secret protection (10).

What Next?

The proposed Directive will shortly be submitted to the full European Parliament for approval. The European Parliament is expected to vote on the initiative in April (11), but the precise date is yet to be determined. If the vote is favourable to the proposal, the Directive will still need to be endorsed by the Council. If enacted, Member States will be required to impose national laws consistent with the Directive within two years.

The final wording of the Directive is yet to be determined and, therefore, little analysis can be made on how it will be received in the national parliament. Finland's way of implementing the Directive and tackling the possible chaenges it might bring with regard to the coherence of national legislation remains to be seen. Nevertheless, by harmonising the heterogeneous legislation within the internal market, the Directive will most likely be a useful tool to secure innovative efforts in the EU.

Further information:

Laura Kallioinen
Senior Associate
Telephone: +358 9 2288 4354
Mobile: +358 41 440 5340
laura.kallioinen@hannessnellman.com

Jussi Talvitie
Senior Associate
Telephone: +358 9 2288 4391
Mobile: +358 40 510 9409
jussi.talvitie@hannessnellman.com

(1) See p. 2 and p. 6 of the directive proposal of 28 November 2013 at: http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52013PC0813&from=EN.

(2) See for example: https://couragefound.org/wp-content/uploads/2015/04/trade-secrets-letter-en-logo.pdf and http://www.scl.org/site.aspx?i=ed41176

(3) See pp. 1-2 of the directive proposal of 18 December 2015: http://data.consilium.europa.eu/doc/document/ST-15382-2015-REV-1/en/pdf.

(4) The definition has been criticised for being too broad. See, for example, the statement of The Federation of Finnish Enterprises: http://www.yrittajat.fi/fi-FI/suomenyrittajat/lausunnot/lausunnot/?groupId=66d2143f-3220-4b10-9c3b-44621a2b523c&announcementId=b5dc9856-5c04-460a-8b8d-1b183231eb1c. Too broad a definition might pave the way for an avalanche of infringement litigations.

(5) In its current form, the Directive provides exceptions to acts considered unlawful, among which is the protection of the source for journalists as well as whistleblowers who reveal misconduct, wrongdoing, or illegal activity to protect the general public interest.

(6) During the process, the length of the maximum limitation period has varied from two to six years. The Finnish Bar Association viewed the initial limitation period as problematic from the perspective of Finnish law and legal practice due to the briefness of the period.

(7) The Unfair Business Practices Act and the Employment Contracts Act also contain provisions on trade secrets.

(8) See http://ek.fi/ajankohtaista/uutiset/2014/02/18/liikesalaisuuksien-suojaa-uudistetaan-eussa-saantely-suomessa-jo-esimerkillista/.

(9) Royalties or fees which would have been due had the infringer requested authorisation to use the trade secret.

(10) For more information, please see the statement of the Finnish Bar Association on the proposal for a Trade Secret Directive at: http://www.asianajajaliitto.fi/viestinta/tiedotteita_ja_lausuntoja/2014/lausunto_direktiiviehdotukseksi_liikesalaisuuksien_suojasta.7510.news.

(11) See: http://www.europarl.europa.eu/news/fi/news-room/20160126IPR11511/Trade-secrets-EPCouncil-deal-backed-by-Legal-Affairs-Committee