I. Background

Companies regularly invest a lot of money and time in the acquisition and application of know-how. In many cases, such information is even crucial for the competitiveness and market success of the company. The need to protect the confidentiality of certain business information is therefore obvious. And yet this information only partially benefits from legal protection. In the context of intellectual property, it is possible, for example, to protect patents, designs or copyrights. The protection of, for example, information about customers and suppliers, business plans or business strategies cannot be achieved with this. The European Union is responding to this need for protection with the Trade Secrets Directive. In order to implement the Trade Secrets Directive into German law, the government has currently prepared a draft law for the protection of trade secrets, which is expected to come into force in the first quarter of 2019. Since the deadline for the implementation of the Directive expired on 9 June 2018, provisions of the Trade Secrets Directive may be directly applicable even before the entry into force of the Trade Secrets Act.

II. What kind of information is protected as a trade secret?

The Trade Secrets Directive and the government draft establish a separate regulatory area aimed at preventing products whose design, features, operation, manufacturing process or marketing are to a significant extent based on an unlawfully acquired, used or disclosed trade secret.
Therefore, as a trade secret under the government draft and the Trade Secrets Directive, any information based on trade secret is protected which “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” and has therefore a commercial value. In addition, it is necessary that the commercial information is protected by the circumstances according to appropriate confidentiality measures of its lawful owner. The very vague formulation of a trade secret is necessary in order to be able to take into account the versatility of information in the various fields of application also in the future. This avoids legal loopholes to the detriment of legal clarity in order to enable comprehensive legal protection.

III. Prohibited practices in dealing with trade secrets

The extensive wording of a trade secret is also reflected in the description of the unlawful actions. The Directive distinguishes between unlawful acquisition, unlawful use and unlawful disclosure of trade secrets and gives various examples. In this way, the different facets of dealing with trade secrets can be taken into account.
For example, an unlawful acquisition occurs when someone gains unauthorized access to documents or files that are subject to the lawful control of the holder of the trade secret. The documents or files must contain the trade secret or at least be derivable from it. Likewise, a trade secret is infringed if it is obtained by the unauthorized appropriation of components of a product manufactured on the basis of the trade secret.
In addition, it is unlawful to act in order to acquire a trade secret if it “under the circumstances, is considered contrary to honest commercial practices“. Such an openly formulated prohibition is also reflected in the government draft and is likely to create substantial legal uncertainty. It remains to be seen to what extent the jurisprudence will further specify the requirements and how it will deal with infringements of trade secrets.
If someone acquires a trade secret in an unlawful manner, he is equally prohibited from using or disclosing the trade secret without the consent of the owner. The unlawful acquisition thus continues in the unlawful use and disclosure of business information. Use or disclosure is also prohibited if it violates any confidentiality agreement or other obligation dedicated to the protection of trade secrets.
Similarly, for trade secrets to be protected as a whole, the acquisition, use or disclosure of a trade secret shall be unlawful if, at the time of acquisition, use or disclosure, the person knew, or should have known, that he or she had obtained, directly or indirectly through another person, the trade secret unlawfully. The Trade Secrets Directive and the government’s draft thus offer the prospect of comprehensive protection of trade secrets.

IV. Permitted practices in dealing with trade secrets

As the constant competition for innovation and know-how can lead to overlaps in trade secrets, the Trade Secrets Directive and the government draft not only address prohibited practices, but also set out the conditions for legitimate acquisition, use and disclosure of trade secrets. For example, it is lawful for someone to obtain a trade secret through independent discovery or creation.
Furthermore, “reverse engineering”, i.e. obtaining a trade secret by observing, investigating, dismantling or testing a product, is a lawful course of action within the meaning of the provision. However, it is a condition that the product has been made publicly available or is in the lawful possession of the investigator. In addition, the investigator must not be subject to any obligation to restrict the acquisition of the trade secret, for example by contract.
Lastly, the European Union recognizes that an action is lawful if it “under the circumstances, is in conformity with honest commercial practices”. The government draft does not take up such action, so that the German courts may have to deal with a lack of implementation of the Directive.

V. Justification for an exceptionally permissible disclosure of trade secrets

In line with the government’s draft, the Trade Secrets Directive explicitly states that there is no violation of trade secrets when an action is necessary for the exercise of freedom of expression, in particular to detect an unlawful act or other misconduct, with the intention of protecting the general public interest. This is particularly intended to facilitate whistleblowing.

VI. Consequences of an infringement of trade secrets

There are various legal consequences of an infringement of a trade secret. According to the government draft, the holder of a trade secret can request information from the infringer about the circumstances of the infringement. In addition, the holder of the trade secret may claim from the injuring party the removal of the impairment and, if there is a risk of repetition, an injunction. In addition, with respect to the infringing product, the draft contains a claim by the holder of the trade secret to destruction, surrender, recall, removal and withdrawal from the market.
Furthermore, the infringer is obliged to compensate the owner of the trade secret for any damage resulting from the unlawful handling of the trade secret. The claim for damages may also be linked to delayed or insufficient information. In connection with the claim for damages, the Trade Secrets Directive emphasizes that all relevant factors must be taken into account when determining the amount of damages. Therefore, in addition to the loss of income of the proprietor and the unfair profit of the infringer, the non-material damage suffered by the proprietor must also be taken into account.
Since the violation of trade secrets is already partly punishable according to §§ 17 – 19 of the Law on Unfair Competition [UWG], the German legislator takes the implementation of the Trade Secrets Directive as an opportunity to align the existing provisions with the Trade Secrets Directive. The criminal offences set forth in §§ 17 – 19 UWG shall henceforth be incorporated into the Act on the Protection of Trade Secrets. The government’s draft therefore makes individual prohibited practices punishable in § 23, provided that the infringer fulfils certain subjective conditions. It is sufficient if the infringer, for example, acts for his own benefit or in favor of a third party, or if he acts in the knowledge that he is promoting his own competition or that of a third party. The penalty ranges from a fine to imprisonment of up to five years. In addition, an attempt to do so constitutes a criminal offence.
The government draft therefore not only contains civil law provisions, but also completes the protection of trade secrets on a criminal law level.

VII. Outlook

The comprehensive protection of trade secrets is both a curse and a blessing. Although the different claims of the holder of a trade secret ensure that the different facets of an infringement are countered, the definition work of the European legislator contributes to considerable legal uncertainty. The government’s draft does not hold out the prospect that the German legislator can be expected to provide further details.
Nevertheless, in view of the threat of prosecution and the claim for damages, trade secret holders are advised to follow the continuing legislative process and to carefully align their internal processes with the Trade Secrets Protection Act and the underlying Trade Secrets Directive.