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Changes to UK law for the Trade Secrets Directive

The UK Government has published draft regulations to implement minimum standards of protection for trade secrets in all UK jurisdictions

Trade secrets are an essential if often-overlooked aspect of intellectual property.  A wide range of commercially valuable information, from the recipe for Coca Cola to search engine algorithms to the business plans of wholesale butchers, is protected not by patents but as confidential information.

Although many countries have laws protecting trade secrets and commercially confidential information, there is significant variation in how they do so and the level of protection offered.  The 1994 Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS) required the protection of trade secrets by World Trade Organisation (WTO) members, although this did not prompt any immediate change to UK law.

The EU Trade Secrets Directive (2016/943) will bring changes to UK law, which the Government is required to implement by 9 June 2018.  The UK Intellectual Property Office has now published a consultation document and draft regulations setting out the likely changes.

The Directive

The Trade Secrets Directive requires EU Member States to introduce laws, regulations and administrative provisions to establish a minimum level of protection of trade secrets.  The requirements address, in particular, the remedies available to the victims of a breach and ensuring court procedures protect secrecy whilst such a remedy is sought.

Draft Regulations

The extent to which English law and civil procedure needed to be amended to comply with the Directive was questionable. The existing common law relating to breach of confidence and contract already offers relatively good protection and the applicable Civil Procedure Rules provide a wide discretion to judges to impose the necessary procedures and remedies to effectively enforce those rights.

However, the draft Trade Secrets (Enforcement, etc.) Regulations 2018 (Regulations) do introduce a number of changes to UK law as set out below.

Statutory definition

A key change that was widely expected was the introduction of a statutory definition of trade secret, derived from the wording of TRIPS, contained at Regulation 2:

“trade secret” means confidential information which—

(a) 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;

(b) has commercial value because it is secret; and

(c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

Although this formulation is new to UK law, its implementation it is unlikely to cover any new classes of information not previously protected by the common law.

Time limits

The time limits for proceedings in England under the Regulations is six years from the later of:

  • the day on which the breach of confidence that is the subject of the action ceases; and
  • the day of knowledge of the trade secret holder.

This reflects the six year periods for breach of contract or tort under the existing Limitation Act 1980.

Preservation of confidentiality in proceedings and judgments

The Regulations set out procedures that may be adopted by courts for the preservation of trade secrets in proceedings, including in particular orders that participants must preserve the confidentiality of information revealed during proceedings, restricting access to hearings and redacting public copies of judgments.

Whilst such measures were already available to the English courts, they have been included in the Regulations to ensure that they are available in all jurisdictions covered, including Scotland.

Interim orders for delivery up

The Regulations introduce an interim remedy of seizure and delivery up of suspected infringing goods before a final judgment has been made.  Again, the English courts have such a power but the provisions have been introduced as those of Scotland may not.

The Regulations set out matters to be considered when making such an interim order and impose time limits for claims to be brought after the order has been made.

Corrective measures

The Regulations ensure that courts across all UK jurisdictions have the power to require an infringer, at his expense, to modify the infringing goods to deprive them of their infringing quality, to withdraw the goods from the market, to deliver up and forfeit the goods to the trade secret holder or to destroy the goods.

Damages

The Regulations provide for compensation to be awarded in lieu of a final injunction or order, on the application of the defendant.  Such compensation will be limited to the cost of a hypothetical licence to use the trade secret.

The damages awarded in relation to the knowing breach of a trade secret are to be assessed with reference to the actual prejudice suffered.  This includes negative economic consequences including lost profits, non-economic loss such as moral prejudice.  Damages may be awarded on the basis of royalties or fees under a hypothetical licence. These provisions are in similar terms to those stated in the Intellectual Property (Enforcement etc.) Regulations 2006 for breaches of intellectual property rights.

W&B Comment

The draft Regulations remain subject to consultation until 16 March 2018, but given the short time until implementation there may not be significant changes.

In general, the Regulations codify the law in a manner consistent with the Directive, but which does not vary significantly from the current powers available to the Courts of England and Wales.  As noted, many of the proposed provisions have been introduced primarily to ensure consistency across all UK jurisdictions, including the Scottish Court of Session.  The true impact of the Regulations may not be felt until the first cases are brought before the courts and any change of approach in implementation becomes clear.

However, trade secrets holders should be reassured to know that all EU member states are required to implement similar protections, so that the ability to enforce obligations of commercial confidentiality across jurisdictions will only be improved by the Directive.

Nicholas Mitchell wrote the chapter on Trade Secrets for Intellectual Property Strategy: A Practical Guide to IP Management.

Disclaimer: This article is produced for and on behalf of White & Black Limited, which is a limited liability company registered in England and Wales with registered number 06436665. It is authorised and regulated by the Solicitors Regulation Authority. The contents of this article should be viewed as opinion and general guidance, and should not be treated as legal advice.

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