[Ip-health] The long-arm of Article 3(5) of the proposed EU Trade Secrets Directive

Jamie Love james.love at keionline.org
Fri Oct 30 07:19:44 PDT 2015


The IPKat

The long-arm of Article 3(5) of the proposed EU Trade Secrets Directive
Annsley Merelle Ward
23 October 2015

With the proposed EU Trade Secrets Directive  on the horizon, the flight to
Rio last week was a purrfect time to think about Article 3(5)

If readers thought witnessing the Unified Patent Court legislative package
wheedle its way through European legislation was fun, they will equally
enjoy the saga of the draft EU Trade Secrets Directive proposed by the
European Commission.  The Directive, currently being reviewed/amended by
the EU Council and European Parliament and subject to on-going “trialogue”
discussions, is intended to create a minimum standard for the protection
and enforcement of trade secrets in Europe. It was therefore no surprise
that one of the four Working Questions at this year's AIPPI World Congress
was devoted to the topic (more on that in a separate post).  The draft
Directive provides for the prohibition of unlawful acquisition, use or
disclosure of trade secrets. It also provides for the removal from the
market of "infringing goods", as Mark Ridgway (Allen & Overy) explains:

<------------- long quote from RIdgway--

"Heading south last Saturday to join the AIPPI community in Rio (to debate,
amongst other things, trade secret protection), I had chance to put my mind
to one of the more intriguing aspects of the proposed EU Trade Secrets
Directive: will the Directive's provisions on "infringing goods" change the
law as it currently stands? Also, how useful will this be to those who
believe their trade secrets have been misused beyond Europe's borders?

"Infringing goods" is of course a term we are familiar with in the context
of IP rights, although many (including the EU Commission) interestingly do
not regard trade secrets as being IP rights at all. In any event, Article
2(4) of the Directive defines "infringing goods" as those whose:
"...conception, characteristics, functioning, manufacturing process or
marketing significantly benefits from trade secrets unlawfully acquired,
used or disclosed" (this is the text as it emerged from the European
Parliament's Legal Affairs committee in June 2015).

The definition of infringing goods is then given teeth by Article 3(5),
which provides that: "The production, offering or placing on the market of
infringing goods, or import, export, storage of infringing goods for those
purposes, shall also be considered an unlawful use of a trade secret, in
cases where the person engaging in such activity was, or depending on the
circumstances, should have been, aware of the fact that unlawful use had
been made of the trade secret within the meaning of paragraph 3."

Paragraph 3 of Article 3 sets out the circumstances in which trade secret
use will be unlawful, including where it is in breach of an NDA or other
duty to maintain secrecy. Meanwhile, Articles 9 and 11 make clear that
injunctions (both provisional and final) are available as potential
remedies when there has been a misuse of trade secrets. Damages would also
be available under Article 13.

The provisions relating to “infringing products” are no doubt aimed at the
concerns expressed in Recital 7 of the draft directive regarding "...the
importation of goods from third countries into the Union through entry
points with weaker protection, when the design, manufacturing or marketing
of those goods rely on stolen or otherwise unlawfully acquired trade
secrets." The provisions also have the potential to be very powerful in
addressing these concerns in the future. But what is the current position?
If a product is being manufactured outside Europe through misuse of trade
secrets (for example, using a confidential process the details of which
have been unlawfully acquired), can the English Courts injunct the
importation of that product?

In a simple case where the same company is undertaking the manufacture and
also importing/selling the product, the answer, at least technically, is
“yes”. A claimant could seek to rely on the new jurisdictional gateway in
CPR PD 6B.3.1, which relates to claims for “…breach of confidence… where…
detriment was suffered, or will be suffered, within the jurisdiction…”.
Permission would still be needed to serve the claim out of the jurisdiction
(and this would not be a mere formality – the Court would need to consider
whether England was the appropriate forum). However, if permission was
given and the claim was successful, the Court could grant an injunction to
prevent the on-going sale of the product.

Things would not however be so easy if the importation and sale was being
done by a separate company on an arm's length basis. Absent a claim for
joint tortfeasance, the importer wouldn't itself be doing anything that
could be said to be a misuse of confidential information. It is therefore
difficult to see the basis for a claim directly against the importer.  The
provisions of the directive would therefore appear to strengthen, in a
potentially useful way, the position of rights holders as far as English
law is concerned.

A quick survey of my colleagues in a couple of other jurisdictions also
indicates that it is not just the UK that will be affected in this way:

*  As in England, explained David Por, bringing a claim against an importer
to prevent importation of goods manufactured through misappropriation of
trade secrets would not be possible under French law, if the importer was
operating at an arm’s length basis. A claim might be possible against the
manufacturer himself (even if a separate importer was involved), but the
effective enforcement of the ruling could be difficult.

*  A claim to prevent importation of ‘infringing goods’ would also be
difficult in the Netherlands under its current regime, Frits Gerritzen
explained. Trade secrets in the Netherlands are protected through the
general law of tort, but it remains to be seen whether an importer,
operating on an arm’s length basis from the manufacturer, could be found to
commit a tort. That would seem like a hard thing to prove.

*  The German position is similar to the French and Dutch. Whilst actions
for breach of confidence in Germany are by and large efficient and not
overly onerous, Jens Matthes considers that an action against a downstream
customer would be much more difficult. Such a claim would be possible in
theory, but in practice it would be challenging to present sufficient
evidence to bite upon the importer (‎unless there was already a court
decision against the manufacturer). As such, the proposed Directive would
improve the position in Germany by lowering the threshold for judges to
accept such a claim.

Overall, therefore, the proposed Directive (assuming it comes to pass)
appears to significantly strengthen the position of rights holders. It will
inevitably be used by companies seeking to block allegedly "infringing"
imports, in a way akin the jurisdiction of the US ITC. There will no doubt
be heated debate as to what "significantly" means under Article 2(4), about
when an importer should be taken to know about an upstream misuse of trade
secrets, and about what threshold a claimant's case must meet before an
interim injunction should be granted. The directive leaves very
considerable discretion with judges in this regard, so no doubt some courts
will emerge as more claimant-friendly than others. "

-----end long quote from Ridgway-->

So while us UPC-folk are busily fretting about the possibility of
forum-shopping in the UPC, if the proposed Trade Secrets Directive comes to
pass then there may be another chapter in European forum shopping in the IP
landscape (or not IP landscape, if you are the Commission).  With the risk
of one court protecting an alleged trade secret as such, while another
holds that it is not a trade secret (and the consequential public
disclosure of that secret in that jurisdiction and then beyond), perhaps we
need a Unified Trade Secrets Court.

Cue ensuing panic....

James Love.  Knowledge Ecology International
KEI DC tel: +1.202.332.2670, US Mobile: +1.202.361.3040, Geneva Mobile:
+41.76.413.6584, twitter.com/jamie_love

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