By its 1291 law, the Republic of Venice moved all its glassblowers to the nearby island of Murano, ostensibly to protect Venice’s wooden buildings from catching fire from the trade’s furnaces. But a subsequent 1295 law preventing them from leaving Murano confirmed the authorities’ real concern: to prevent the glassblowers from disclosing the trade secrets of their lucrative business outside the republic.
More than 700 years later, similar concerns about protecting trade secrets in the European Union resulted in Directive (EU) 2016/943 of the European Parliament and of the Council of June 8, 2016, on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure, (the trade secrets directive). A directive imposes a binding obligation on member states to implement its provisions, as opposed to a regulation, which has direct binding effect throughout the European Union. Article 19 sets out the deadline for implementation of the trade secrets directive into the law of each member state; the deadline is no later than June 9, 2018.
Why is a piece of “catch up” European legislation of interest to lawyers in the United States? It is of interest because of one word: Brexit. The departure of the United Kingdom raises the distinct possibility that U.S. corporations operating in Europe might have to implement different measures of protection for their trade secrets in the U.K. than those for their operations in the rest of Europe if the U.K. does not implement the trade secrets directive.
In early June 2016, every IP counsel responsible for their companies’ pan-European trade secrets and confidential information policies will have felt a degree of relief. They could look forward to a unified set of principles across the EU to protect their trade secrets, in place of the disparate levels of protection of trade secrets afforded by the laws of the individual member states. Some of them did not have any laws protecting trade secrets. That sense of relief, however, swiftly evaporated when on June 24, 2016, as news came through that the electorate of the United Kingdom had voted to leave the European Union. That historic vote raises three immediate questions for our IP counsel:
1. Will the U.K. comply with its Article 19 obligation to enact into its legislation the provisions of the directive by June 2018, if at all?
2. If not, will it nonetheless be possible after Brexit to have one trade secrets and confidential information policy which can apply both in the U.K. and in the European Union?
3. In either case, will it still be possible to obtain injunctive relief and damages in a member state and then enforce that relief in the United Kingdom, or to obtain such relief in the United Kingdom and enforce it anywhere in the European Union?
We will take the questions in that order.
1. Will the U.K. comply with its Article 19 obligation to enact into its legislation the provisions of the directive?
The U.K. government served formal notice to leave the European Union by serving its Article 50 notice on March 29, 2017. That triggers a two-year period for the negotiation of exit terms, expiring on March 29, 2019, with a further two-year transition period being discussed as a possibility. In any event the U.K. must submit its provisions for the implementation of the trade secrets directive well before that date, by June 9, 2019. Indications that Her Majesty’s Government will comply with Article 19 are that it has confirmed that it will implement both the general product data regulation and the European Union unified patents system. Counter-indications include the possibility being discussed in the U.K. press that no exit deal will be concluded, or that the enormity of the negotiation task and the rapidly emptying hour glass will simply leave no time for compliance.
2. Will it be possible after Brexit to have one trade secrets and confidential information policy which can apply both in the UK and in the European Union?
Article 2 of the directive defines a trade secret as “… information which meets all of the following requirements: it 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; it has commercial value because it is secret; it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret”. The English law on trade secrets has evolved on a common law, case-precedent basis rather than out of legislation. It has developed as a sub-set of the equitable obligation of confidentiality. It is in that context that we can assess the extent to which English case law on trade secrets can be said to meet the requirements of Article 2(1).
As one might expect, most of the English case law decisions arise out of contractual disputes over the enforceability against a departing employee, consultant or vendor of a company of clauses preventing the disclosure or use of operations, processes, product information, know-how, technical information, designs or software of the company holding the confidential information or trade secrets. The English courts can also enforce restrictions to protect the unauthorized use of customer lists, information and pricing.
The sine qua non is always that the information cannot be in the public domain. The information in question: “… must not be something which is public property and public knowledge,” which ties in with the Article 2 (1) (a) requirement that the article is not generally known or readily accessible to those who usually deal with such categories of information. It is also well-established in English law that the information must have commercial value because it is secret as Article 2.1 (c) will now require. In a case dating back to the industrial revolution, when Britain led the world in technological development, the judge had to consider whether to permit the defendant to use his former company’s customer list. The arguments advanced will be quickly recognised by lawyers dealing with this same problem today. The defendant’s barrister contended that the order book comprised information which could easily be compiled by reference to public address directories. The judge, however, rejected that argument comprehensively:
“The names of all the customers are collected together in the order-book in a manner not to be found in any other book or paper to which the defendant had access. To him, therefore, the possession of a copy of the order-book would be peculiarly valuable.”
Equally reflected in English common law is the Article 2(1)(c) trade secrets directive requirement that the holder must have treated the information sought to be protected as secret information. In distinguishing between a trade secret and confidential information, which attract different levels of protection after expiry of an employment contract, Lord Justice Staughton confirmed the importance of the holder’s own treatment of the information sought to be protected: “[Counsel] suggested that a trade secret is information which, if discloses to a competitor, would be liable to cause real (or significant) harm to the holder of the secret. I would add first, that it must be information used in a trade or business, and secondly that the owner must limit the dissemination of it or at least not encourage or permit widespread publication.”
English law also mirrors Article 3 of the trade secrets directive, which provides that the use or disclosure of a trade secret is unlawful without the consent of the trade secret holder where the secret has been acquired unlawfully, and is being used in breach of a confidentiality agreement or of any contractual or any other duty to limit the use of the trade secret. For its part, English law holds that even without a written covenant in an employment contract preventing the use of the employer’s trade secrets after its termination, there is an implied duty on a former employee not to use information which qualifies as his former employer’s trade secrets or secrets of a highly confidential nature. The Court of Appeal confirmed that rule in the wonderfully named 1985 case of Faccenda Chicken v. Fowler.
The trade secrets directive requirements for remedies to protect trade secrets including interim injunctions will also be entirely familiar to a lawyer practicing in England.
However, just before our IP counsel breathes a well-earned sigh of relief, there is a further question to contend with: Can the company’s trade secrets directive remedies be enforced both in the European Union and in the United Kingdom after Brexit?
Which leads to our third question:
3. Will it be possible to obtain injunctive relief and damages in a member state and then enforce that relief in the United Kingdom, or to obtain such relief in the United Kingdom and enforce it anywhere in the European Union?
Regulation (EU) 1215/2012 of the European Parliament and of the Council of Dec. 12, 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the Recast Brussels Regulation) provides inter alia for the mutual recognition and enforcement of judgments between the courts of member states and of the European Free Trade Association (EFTA). The EFTA countries comprise Iceland, Norway and Switzerland, where many pharmaceutical companies are based. Critically for the cross-border protection of a company’s intellectual property, Article 35 provides that any “such provisional, including protective measures, as may be available under the law of that state”. So at present, an English court can grant interim remedies in relation to proceedings which have been commenced or may be commenced in Germany or Italy.
However, after the departure of the United Kingdom from the European Union, whether in March 2019, or after a transition period, the Recast Brussels Regulation will no longer apply to the United Kingdom. It will not be a Member State. Potentially that will make it far more difficult and time-consuming to enforce United Kingdom injunctions in Europe.
But that difficulty might be avoided. There was an encouraging development in August 2017 with the U.K. government’s publication of its partnership paper, “Providing a cross-border civil judicial co-operation framework”, in which it stated its intention to secure judicial co-operation on a reciprocal basis which reflects closely the present EU system.
Fortunately, the European Union has expressed a similar intention. In its paper, “Essential Principles on Ongoing Judicial Co-operation in Civil and Commercial Matters,” it confirmed that its withdrawal agreement with the United Kingdom should ensure that the present jurisdictional arrangements should continue to govern judicial proceedings and procedures.
One means of maintaining the ability to enforce an English law judgment for future agreements involving trade secrets might be to have the agreements subject to English law but to the exclusive jurisdiction of the courts of Ireland. The Irish courts would apply English law to resolve the dispute, and then their injunctions and judgments could be enforced in the European Union given that Eire is not leaving.
Ultimately our IP counsel will need to wait and see what is agreed to, but at least in the meantime any trade secrets policy will not need a separate section dealing with the protection of trade secrets in the United Kingdom. Jonathan S. Cohen, a partner with Duane Morris in London, practices in the area of commercial litigation, advising clients in matters relating to trade secrets, international joint ventures, corporate disputes, commodities, financial services and banking litigation, among other areas.