Trade Secrets – what can be done if the genie escapes from the bottle
Businesses in the UK have benefited from the fact that the UK legal system recognises the importance of trade secrets and that there is a sturdy framework in place to protect them for many years. This level of protection has not been the case, however, for our EU neighbours – until now.
A recently introduced EU law has been implemented by the UK government, and the other 27 EU member states, which provides for a minimum level of protection for trade secrets – which is great news for businesses, particularly those operating on the near continent.
Most businesses rely on using confidential information which is not known to their competitors on a daily basis. It could be bespoke software which speeds up an otherwise mundane and time consuming process; customer and client details; supplier contracts; tailored manufacturing methods; internal financial information; or business critical distribution arrangements. It could even be less positive information, such as non-compliance with industry standards, or management re-shuffles.
All of these examples have one thing in common – they would cause damage to your business if they were widely known.
Trade secrets should always be protected, first and foremost, using practical measures. Password protecting digital files, locking filing cabinets, limitations on which employees can access, restrictions on taking confidential information out of the workplace, etc. But what if something goes wrong?
We are fortunate in the UK; our legal system recognises the importance of trade secrets, and there is a sturdy framework in place to protect them. UK businesses have the ability to bring a claim against a third party (that may be, for example, a competitor or former employee) threatening to use or disclose valuable trade secrets, and even request immediate interim relief – meaning that you could get a Court injunction preventing the misuse or disclosure of confidential information before the case even gets to a trial. I have worked on many cases involving allegations of misuse of trade secrets (sometimes acting for the right holder, and sometimes for the alleged infringer), and I know that these cases are often business critical and very urgent.
The legislation provides a uniform definition of a “trade secret”, which seeks to relieve much of the uncertainty around whether or not critical commercial information is capable of legal protection, particularly outside of the UK. Under this new law there are three hurdles for a business to overcome to prove to the Court that information being misused by a third party is a “trade secret”, and therefore capable of legal protection. To succeed, a claimant will need to show that the information:
1. is secret (i.e. it is not generally known to others dealing with that type of information);
2. has commercial value because it is secret; and
3. has been subject to reasonable steps to protect its secrecy.
This all seems sensible enough. After all, it’s great to get more certainty around what this potentially “woolly” legal right actually protects. However, there is a caveat to this – the definition of trade secret under the EU law is narrower than has traditionally been used by the UK Courts.
In the UK, confidential information has for many years been protected by common law (i.e. by applying principles derived from previous decisions of the Court, rather than legislation from Parliament), under a regime known as “breach of confidence”; and this has worked really quite well. The UK Courts have given us clear guidance – for confidential information (including trade secrets) to be protected, a claimant must show that the information (i) has the “necessary quality of confidence”, and (ii) was disclosed to a third party in circumstances importing an obligation of confidence.
This is a flexible and potentially wide-reaching definition, which rightly favours businesses looking to protect their legitimate trade secrets.
However, all is not lost. To implement the new EU law, the UK has recently passed a regulation with the catchy title “Trade Secrets (Enforcement, etc.) Regulations 2018”. That Regulation recognises the EU’s definition of trade secret, but has a further provision entitled “wider protection”, which states that pre-existing law protecting confidential information remains in force. This means that, from now on, if a business is looking bring a claim for misuse of confidential information in the UK, it will have two lines of attack – a claim under the new EU law, and a secondary claim under the traditional UK law of breach of confidence.
It is also worth noting that, because of its more limited scope, when drafting confidentiality provisions in a contract, lawyers should not rush to adopt the EU’s definition of “trade secret”. This is perhaps particularly relevant for employment contracts, as the new EU law explicitly states that trade secret legislation should not limit an employees’ use of the experience and skills honestly acquired in the normal course of their employment. Arguably this is also the case under the existing UK law of breach of confidence; however, without an explicit definition, there is perhaps more room for flexible arguments under UK law about what qualifies as a trade secret, which will be relevant in sectors where specialist employee knowledge is acquired and used.
Ultimately the best way to protect trade secrets is either to refrain from disclosing the information at all or, if this is unavoidable, use practical security measures, as discussed above. Whilst the Courts can order interim relief to prevent a breach if it is threatened in advance, usually by the time the Courts consider the case at trial, the claimant is looking to recover damages from harm already suffered. Sometimes, it best to concentrate on keeping the genie inside the bottle.