Update on the Implementation of Directive on Trade Secrets

Business secrets have long been poorly protected and difficult to defend compared to intellectual property rights (including patents, copyrights and trademarks). For companies within the EU, strategic information not covered by intellectual property rights remained until then inadequately protected. Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure (Directive (EU) 2016/9431) intends to establish a sufficient and harmonised level of protection of trade secrets in the European Union (EU). In particular, it imposes on the member states to provide for sufficient and consistent civil remedies in the internal market in the event of unlawful acquisition, or use or disclosure of a trade secret.

However, Directive (EU) 2016/943 is a minimum harmonisation directive so that Member States have the possibility - if they wish - to put in place wider trade secret protection, provided that the safeguard measures expressly provided for in Directive (EU) 2016/943, to protect the interests of third parties, are respected.

As the Directive expressly points out, however, this new system needs to reconcile contradictory imperatives: the protection of information, on the one hand, and the safeguarding of fundamental freedoms and the values of transparency (the right to be informed and to be alerted), on the other hand.

According to Article 19 of Directive (EU) 2016/943, Member States have to comply with this Directive by 9 June 2018.

Implementation in Belgium

In Belgium, on 24 August 2018 the law of 30 July 2018 on the protection of trade secrets2 entered into force. This law implements Directive (EU) 2016/943 and offers many opportunities for companies to protect their know-how and undisclosed commercial information (trade secrets) against unlawful acquisition, use and disclosure.

Implementation in France

In France, law n° 2018-670 dated 30 July 2018 which implements Directive (EU) 2016/943 was published in the Official Journal on 31 July 20183.

A decree was published on 13 December 2018 (Decree 2018-1126 of 11 December 20184). Almost all its provisions came into force on 14 December 2018. Much-anticipated by practitioners, its main contributions consist of:

  • Specifying the content of provisional and protective measures which may be pronounced on application or in urgent proceedings in the event of breach of a trade secret.
  • Defining the rules of procedure applicable to the measures of protection of the trade secret before the civil and commercial courts.

The two most interesting points within the new provisions of the decree are: 

  • the introduction of the escrow (séquestre) mechanism under which the judge may order to put documents in escrow when obtained following investigations or seizures, in order to ensure the protection of trade secrets, and
  • the introduction of a guarantee mechanism under which the judge may order the provision of financial guarantees to the defendant, as a condition for allowing it to continue the alleged infringement and to ensure the potential subsequent compensation of the secret holder. The judge may also order the provision of financial guarantees to a claimant who was granted provisional or protective measures, if the alleged infringement of the secret is subsequently found to be baseless, in order to compensate the defendant or any third party affected by such measures.

A Draft Bill Still Under Discussion in Luxembourg

In Luxembourg, until now, the concept of business secrecy has been defined by case law. Four levels of protection could be considered in case of breach of a trade secret: 

  • Criminal law (Article 309 of the Penal Code), 
  • The legislation on civil liability (Article 1382 of the Civil Code), 
  • Contractual law, and
  • The legislation on unfair competition.

A draft bill implementing Directive (EU) 2016/943 was filed with the Chamber of Deputies on 13 August 20185.

As far as the method of implementation is concerned, it has been decided to apply the terms of the Directive as literally as possible in accordance with the principle of common application in Luxembourg - ‘the whole Directive, nothing but the Directive.’

In addition, the authors of this draft law were able to examine, in an unofficial way, the draft Belgian law.

It is specified that the French law proposal differs in some places from the terms of the Directive and it was therefore decided not to employ it.

In the last quarter of 2018, the Luxembourg Chamber of Commerce (CC), the Chamber of Employees (CSL) and the Chamber of Public Servants and Public Employees (CPSPE) published their comments on the draft bill.

The Luxembourg draft bill is still under discussion today. Some of the main points are the following:

On the definition of business secrets

The definition of trade secrecy (Article 2 of the draft bill) is very similar to the one developed by the Luxembourg courts. It aims to:

  • Cover know-how, commercial information and technological information where there is both a legitimate interest in keeping them confidential and a legitimate expectation of protecting that confidentiality,
  • Recognise that such know-how or information should have commercial, actual or potential value. Such know-how or information should be considered to have commercial value, for example, when its unlawful acquisition, use or disclosure may adversely affect the legal and scientific potential of the legal possessor, its economic or financial interests, its strategic positions or its competitive ability.

The draft bill excludes from the definition of business secrets: current information, experience and skills obtained by workers in the normal performance of their duties, and information that is generally known to persons belonging to environments that normally deal with the type of information in question, or that is easily accessible to them.

On provisional and conservatory measures available to the holder of a trade secret

The CC notes that the text of the draft bill (Article 7 (2)) departs from the wording of Directive (EU) 2016/943 (Article 11 (1)) and wonders about the reasons for this difference in terminology with the possible consideration that the authors of this draft law have expressly wished to derogate from the rules of common law on the administration of the proof by giving the judge of such applications a power of initiative in the investigation of the application. Such a situation appears, according to the CC, to go beyond the requirements of Directive (EU) 2016/943 and to be contrary to the duty of impartiality incumbent on a judge.

The CC approves, however, the content of Article 7 (4) of the draft bill, which provides that the order may be made independently of any public action. ‘This provision does not appear in Directive (EU) 2016/943 and aims to allow, notwithstanding the principle that the "criminal holds the civilian as is", to apply for a measure of temporary cessation pending the outcome of a possible criminal procedure in progress.’

The CC is of the opinion that the fact that the judge has fixed a lump sum amount as compensation before the damage is incurred is contrary to the principle of full compensation for the loss suffered, which is well established in Luxembourg law, and in particular in Article 1382 of the Civil Code. Such a provision also appears to be in contradiction with the principle of full compensation set out in Directive (EU) 2016/943.

Article 8 of Directive (EU) 2016/943 requires member states to lay down rules on the limitation periods applicable to applications on the merits, and on actions for the purpose of applying the measures, procedures and remedies provided for by the Directive. This limitation period may not exceed six years.

The CC also notes that the authors of this bill opted for the introduction of a two-year limitation period to bring one of the actions provided for by the draft bill, unlike Belgium, which opted for a five-year limitation period. In the interests of harmonisation, in line with the spirit of Directive (EU) 2016/943, the CC therefore wonders whether it would not have been useful to align the limitation periods laid down in the neighbouring Member States.

The authors of this draft bill have also adopted the option offered by Article 12 (3) of Directive (EU) 2016/943, to allow judicial authorities to withdraw infringing goods from the market, and to order, at the request of the trade secret holder, that the goods be delivered up to the holder or to charitable organisations.

On employees’ protection

Article 14 of Directive (EU) 2016/943 deals with the compensation of the lawful holder of business secrets, once the unlawful acquisition, use or disclosure of secrets is definitely reported and proven. It allows Member States to limit the liability of employees towards their employer for damage caused by the unlawful acquisition, use or disclosure of a trade secret of the employer when the said employees did not act intentionally.

The CSL regrets that the authors of the Luxembourg draft bill have not made use of this option and asks, with a view to protecting employees, that it is remedied.

The CPSPE considers that the option provided for by Article 14 of Directive  constitutes an essential provision for the protection of workers who have not acted intentionally and, consequently, that the implementation of the Directive into Luxembourg law is not complete on this point.

On confidentiality during judicial proceedings

Article 88 of the Luxembourg Constitution of 17 October 1868 states that ‘court hearings are public, unless such publicity is dangerous to the order or morals.’

Article 15 of the draft bill provides for various measures to ensure the confidentiality of business secrets during judicial proceedings.

According to the CPSPE, assessing that the protection of trade secrets would fall under the public order or good morals nevertheless seems somewhat hazardous.

The same is true of the provision to make available to certain persons only ‘non-confidential’ versions of judicial decisions rendered in this respect. This measure runs the risk of contravening Article 89 of the Constitution, which sets out the obligations to state reasons and to deliver a judgment in open court, obligations which are of public order.

It has also been specified by the Luxembourg Ministry of Economy that Article 5 of Directive (EU) 2016/943 dealing with exceptions, is implemented literally, both in the Belgian bill and in the current Luxembourg draft bill, so that the protection of whistle-blowers, as it currently exists in Luxembourg law, is not affected. The draft bill makes it clear that the measures it provides cannot be applied to whistle-blowers. It should also be noted that the scope of the proposal for a Directive on the protection of persons denouncing infringements of European Union law of 23 April 20186 is not related to the scope of the present draft bill.

We can expect that the bill implementing Directive (EU) 2016/943 will be passed in 2019. However, a litigation procedure for breach of trade secrets will always occur in a crisis context. Even though the new bill will significantly improve the situation of secret holders, it will in practice be impossible to eliminate all the effects of an unlawful disclosure. In most cases, the damage has already been done. The possible case of a disclosure abroad necessitating the multiplication of legal proceedings is also not to be ignored. Therefore, the protection of confidential information must start with the implementation of internal measures, which will be very useful in demonstrating to the judge the secrecy of the data that is intended to be protected. Internationally, it is also recommended to learn about the culture of confidentiality that exists in the country concerned, as well as the legal arsenal available. The best protection is anticipation: companies must tackle the issue of the protection of their trade secrets head on and adopt measures upstream to limit disclosure.

1. https://eur-lex.europa.eu/legal-content/FR/TXT/?uri=CELEX%3A32016L0943

2. Loi relative à la protection des personnes physiques à l'égard des traitements de données à caractère personnel http://www.ejustice.just.fgov.be/eli/loi/2018/07/30/2018040581/justel

3. https://www.legifrance.gouv.fr/eli/loi/2018/7/30/JUSX1805103L/jo/texte

4. https://www.legifrance.gouv.fr/eli/decret/2018/12/11/JUSC1821661D/jo/texte

5. http://legilux.public.lu/eli/etat/proj/pl/20180273

6. Procedure 2018/0106/COD https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A52018PC0218