What's new with Trade Secrets?

With the tennis, the world cup, President Trump’s visit, the heatwave and the endless Brexit drama, it may have escaped you that on 9 June 2018 the Trade Secrets (Enforcement, etc) Regulations 2018 came into force. Here’s a quick summary of what you need to know when dealing with the errant employee who has run off with the Company’s pricing structure, tender information or marketing policy.

 

The aims of the EU Directive which was implemented by the Regulations are:

 

  1. to harmonise the existing patchwork protection and
  2. to provide a common framework for the minimum standards that member states must provide for the protection of trade secrets.

 

At a time when trade secrets become increasingly valuable business assets, it is vital to know where the new law stands. This provides further clarity and potentially an addition to any letter before action or a “cease and desist” letter, and request for undertakings against former employees who have run off with their employer’s confidential information, pricing structures etc and the new employer who could benefit from such information. It improves on the current common law position in relation to ‘confidential information’ and so called ‘Trade Secrets’.

 

1. Defining ‘trade secret’

Regulation 2 tackles the definitions of certain terms. Most importantly ‘trade secret’ “means information which:

  1. is secret in the sense that it is not as a body or in the precise configuration and assembly of its components, generally known among, or readily accessible to, persons within the circles that normally deal with the kind of information in question;
  2. has commercial value because it is secret, and
  3. has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information to keep it secret”.

 

The Government’s view is that the definition of a trade secret is imprecise and leaves much scope for argument as to whether its three elements are made out.. However, there are also views to suggest that the scope is arguably narrower than current UK law. ‘Trade secret(s)’ have been substituted for the UK term ‘confidential information’. Issues of ‘confidential information’ have been dealt with through caselaw up until now. Our law is well developed on this. Now, there are three parts to consider. It may be the case that the scope is narrower. Currently, proof of the steps to keep the trade secret confidential is an evidential matter and it is for the Company to substantiate that there is a protectable trade secret which is not information already in the public domain.

 

2. Limitation periods

According to Regulations 4-9, the duration of a limitation period should not exceed 6 years. The further details are left up to individual member states. The limitation period for bringing a claim under the Regulations is 6 years in England and Wales. The 6-year period within England and Wales reflect the breach of contract provisions in the Limitation Act 1980 and begin with the later of:

  1. the date on which the unlawful acquisition, use or disclosure that is the subject of the claim ceases; and
  2. the day of knowledge of the trade secret holder.
     

3. Wider protection

Regulation 3 considers there to be unlawfulness in the use, acquisition or disclosure of a trade secret when there is a breach of confidence in doing so. Where wider protection is considered, an employer can apply to obtain an injunction or damages that is not listed in the Regulations. This is only if it complies with the safeguards referred to in Article 1. The measures applied for can be used as an alternative to the remedies provided in the Regulations.

 

4. Preservation of confidentiality of trade secrets in the course of proceedings

Regulation 10(4) enables courts to maintain the preservation of confidentiality during legal proceedings. An employer can apply for, or a court can make the following orders on its own initiative:

  1. restrict access to any document containing an alleged trade secret to a limited number of persons;
  2. restrict access to hearings where (alleged) trade secrets may be disclosed to a limited number of persons;
  3. make available a non-confidential version of any judicial decision in which trade secrets have been redacted.

A court must take into account:

  1. the need to ensure the right to an effective remedy and to a fair trial;
  2. the legitimate interest of the parties; and
  3. any potential harm for the parties (including third parties where appropriate).
     

5. Measures

With Regulations 11-15, the court can make temporary and final measures. These measures can include the disallowing of the unlawful activity involving a trade secret and seizing the delivery of goods that contain the infringed product.

 

6. Damages

According to Regulation 16, the court may order compensation instead of ordering the measures mentioned in regulations 11-15. The damages awarded to the trade secret holder must reflect the detriment they suffered. When considering damages, the court will take into account all the circumstances. The Directive says that this includes two areas; economic and non-economic. Negative economic consequences will include any unfair profits made by the infringer and the economic detriment to the trade secrets holder. Non-economic factors include moral prejudice caused to the trade secrets holder by the unlawful activity involving the trade secret.

 

7. Proceedings to which these regulations apply

These regulations apply to claims involving unlawful activity with a trade secret(s) brought on or after 9 June 2018.

 

Conclusion

There is no case law yet on these very new regulations.  It is certainly worth including where appropriate the breach of the regulations in any cease and desist letters or any pre-action letters requesting undertakings from former employees and their new employers. Companies may also consider reviewing their restrictive covenants and internal policies to reflect this change in the law.

 

Heather Platt