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Teresa Trallero Ocaña

The Notion of Secrecy

A Balanced Approach in the Light of the Trade Secrets Directive

1. Edition 2021, ISBN print: 978-3-8487-7146-2, ISBN online: 978-3-7489-1197-5, https://doi.org/10.5771/9783748911975

Series: Munich Intellectual Property Law Center - MIPLC Studies, vol. 39

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MIPLC Studies The Notion of Secrecy Teresa Trallero Ocaña A Balanced Approach in the Light of the Trade Secrets Directive 39 Nomos MIPLC Studies Edited by Prof. Dr. Christoph Ann, LL.M. (Duke Univ.) TUM School of Management Prof. Robert Brauneis The George Washington University Law School Prof. Dr. Josef Drexl, LL.M. (Berkeley) Max Planck Institute for Innovation and Competition Prof. Dr. Michael Kort University of Augsburg Prof. Dr. Thomas M.J. Möllers University of Augsburg Prof. Dr. Dres. h.c. Joseph Straus Max Planck Institute for Innovation and Competition Volume 39 BUT_TralleroOcana_7146-2_OA.indd 2 31.03.21 10:04 Teresa Trallero Ocaña The Notion of Secrecy A Balanced Approach in the Light of the Trade Secrets Directive Nomos BUT_TralleroOcana_7146-2_OA.indd 3 31.03.21 10:04 This publication was supported by the Max Planck Society. The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available on the Internet at http://dnb.d-nb.de a.t.: München, LMU, Diss., 2020 ISBN 978-3-8487-7146-2 (Print) 978-3-7489-1197-5 (ePDF) British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN 978-3-8487-7146-2 (Print) 978-3-7489-1197-5 (ePDF) Library of Congress Cataloging-in-Publication Data Trallero Ocaña, Teresa The Notion of Secrecy A Balanced Approach in the Light of the Trade Secrets Directive Teresa Trallero Ocaña 640 pp. Includes bibliographic references. ISBN 978-3-8487-7146-2 (Print) 978-3-7489-1197-5(ePDF) 1st Edition 2021 © Teresa Trallero Ocaña Published by Nomos Verlagsgesellschaft mbH & Co. KG Waldseestraße 3 – 5 | 76530 Baden-Baden www.nomos.de Production of the printed version: Nomos Verlagsgesellschaft mbH & Co. KG Waldseestraße 3 – 5 | 76530 Baden-Baden ISBN 978-3-8487-7146-2 (Print) ISBN 978-3-7489-1197-5 (ePDF) DOI https://doi.org/10.5771/9783748911975 This work is licensed under a Creative Commons Attribution – Non Commercial – No Derivations 4.0 International License. Onlineversion Nomos eLibrary BUT_TralleroOcana_7146-2_OA.indd 4 31.03.21 10:04 Acknowledgements I would like to thank my supervisor Professor Annette Kur for her support during the completion of the dissertation and her valuable academic guidance. I would also like to express my gratitude to Professor Ansgar Ohly for providing the Zweitgutachten. After graduating from the Munich Intellectual Property Law Center (MIPLC), I was fortunate to be accepted as a doctoral student by the Max Planck Institute for Innovation and Competition, to which I owe not only the financial support, but also the possibility of conducting research in the most stimulating academic environment. I am particularly grateful to Seth Ericsson, Margit Hinkel and Ulrike Stubenvoll for their support throughout this long journey and making the MIPLC my family far away from home. I would not have been able to complete this work without the support of so many friends and colleagues, but among them I would especially like to mention my good friend Marisa for her constant encouragement. Special thanks go to Fabian for everything. Most importantly, I would like to thank my mother Maite, my sister Anna, and my grandparents Manuel and María Teresa. This dissertation is dedicated to them. 5 Table of Contents Abbreviations 19 Introduction 23 Object, scope and structure of the research§ 1 25 Research methodology§ 2 27 Concept, justifications and legal nature of trade secretsChapter 1. 29 The significance and concept of trade secrets§ 1 29 The problematic justifications underlying trade secrets protection § 2 30 Deontological argumentsA) 33 Commercial ethicsI. 33 Labour value theoryII. 34 Contractarian theoryIII. 35 Utilitarian argumentsB) 36 Incentives to innovateI. 36 Incentives to discloseII. 41 Limit to the arms raceIII. 43 The privacy rationaleIV. 45 Conclusion on the doctrines underlying trade secrets protection C) 48 Dissecting the legal nature of trade secrets: between IPRs and unfair competition § 3 49 The unsettled relationship between trade secrets and IPRsA) 51 Trade secrets and patentsI. 51 Trade secrets prior to patenting1. 52 Preferring trade secrets over patents2. 55 Analysis of economical empirical evidencea) 55 Advantages of secrets over patentsb) 59 The risks of secrecyc) 65 Simultaneous protection of trade secrets and patents3. 69 Trade secrets and copyrightII. 71 Trade secrets and trade marksIII. 74 7 Trade secrets and the database right: the protection of investment as such IV. 77 The EU two-tier legal regime for the protection of databases and its interplay with trade secrets protection 1. 77 The problem of protecting created data under the sui generis database right and the possibility of resorting to contractual protection 2. 82 Conclusion on the relationship between trade secrets and IPRs V. 87 Trade secrets as the object of intellectual property law: considerations for Europe B) 87 Comparative legal analysisI. 89 International intellectual property convention system1. 89 Common law approach2. 93 Englanda) 93 U.S.b) 96 Civil law approach3. 100 Italya) 100 Germanyb) 101 European Union approach4. 104 Considering information as the object of property rightsII. 107 Preliminary remarks: the problematic conceptualisation of information as such as the object of IPRs 1. 107 The debate in the U.S.: INS v. Associated Press and its influential dissent 2. 110 Semiotics approach to the property debate3. 113 Example case: data producer’s right4. 115 Concluding remarks on the treatment of information as property 5. 119 Dissecting the proprietary debate in the light of the harmonised framework created by the TSD III. 121 Conclusion§ 4 126 Table of Contents 8 Trade secrets protection in the international contextChapter 2. 129 International legal sources for the protection of undisclosed information § 1 129 International minimum standards of protection: The TRIPs Agreement and the protection of undisclosed information A) 130 General frameworkI. 130 Negotiation history of Article 39 TRIPsII. 132 The architecture of the general obligation to protect undisclosed information: Article 39(1)TRIPs III. 135 Hybrid nature of the protection1. 135 Construing Article 10bis PC in the context of undisclosed information 2. 136 Article 39(2) TRIPsIV. 141 Scope of the obligation1. 141 Requirements for protection2. 144 Informationa) 144 Secrecy: Information not generally known or readily accessible b) 146 Commercial valuec) 147 Reasonable steps to maintain secrecyd) 149 Considerations from a soft law perspective: The WIPO Model Provisions on the protection of unfair competition B) 150 Trade secrets protection in the U.S.§ 2 151 Evolution of trade secret law in the U.S.: main legislative sources A) 152 Definition of a trade secret and requirements for protection in the U.S. B) 158 Definitional aspectsI. 158 Requirements for protectionII. 164 Secrecy: information not generally known or readily ascertainable 1. 164 Independent economic value2. 168 Reasonable measures to maintain secrecy3. 171 Assessment of the “reasonableness” of the measures adopted a) 172 Criticismb) 174 The legal regime for the protection of trade secrets under the UTSA, the DTSA and the Restatements of the law C) 177 Conclusion§ 3 181 Table of Contents 9 Fragmented protection of trade secrets across the EU leading to a harmonised system: study of the English and German models and the emerging common framework Chapter 3. 182 Scattered protection across the internal market before the implementation of the Trade Secrets Directive: Different models § 1 182 Trade secrets protection in Germany before the implementation of the TSD § 2 184 Development of the law of trade secretsA) 185 Legal regime for the protection of trade secretsB) 186 Constitutional LawI. 186 Unfair competition law and its intersection with criminal law II. 187 § 17 UWG Trade secrets disclosure1. 189 Unauthorised trade secret disclosure in the course of employment a) 190 Industrial espionageb) 193 General prohibitionc) 195 § 18 UWG Use of models2. 196 Civil lawIII. 198 Criminal accessory claims1. 199 Civil autonomous claims2. 201 Trade Secrets Protection in England before the implementation of the TSD – The law of confidentiality § 3 202 A note on BrexitA) 204 Development of the law of confidentialityB) 205 Legal regime for the protection of confidential information under the breach of confidence action C) 206 Jurisdictional basis for the actionI. 206 Contract1. 207 Equity2. 208 Property3. 209 Tort4. 210 Liability requirementsII. 212 The quality of confidence1. 214 The obligation of confidence2. 215 Disclosure by confider to confidanta) 215 Accidental acquisitionb) 218 Surreptitious acquisitionc) 219 Third party liabilityd) 220 Table of Contents 10 Unauthorised use3. 224 The “springboard doctrine”III. 226 Concluding remarks on the comparative law analysis§ 4 228 The emerging common framework: a critical study of the Trade Secrets Directive § 5 229 Background of the DirectiveA) 229 Legal basis and grounds for harmonising trade secrets protection B) 233 Legal analysis of the TSDC) 237 General remarksI. 238 Scope of application and subject matter coveredII. 242 Scope of application1. 242 Definition of trade secret holder and infringer2. 245 Infringing goods3. 247 Scope of protection: the assessment of misappropriation and lawful conducts III. 250 Lawful acquisition, use and disclosure1. 250 Types of infringing conduct2. 252 Unlawful acquisitiona) 253 Unlawful use and disclosureb) 255 Third party liabilityc) 256 Import and exportd) 258 Exceptions3. 261 EnforcementIV. 264 General provisions1. 265 Limitation period2. 266 Preservation of confidentiality during litigation3. 267 Remedies available in case of infringement4. 269 Provisional and precautionary measuresa) 269 Injunctions and corrective measuresb) 271 Damagesc) 273 Publication of the judicial decisiond) 274 Claims for information and preserving evidencee) 275 Conclusion§ 6 276 Mapping the notion of secrecyChapter 4. 279 Secrecy in the digital age§ 1 279 Increasing vulnerability of confidential informationA) 279 Constructing the public domainB) 281 Table of Contents 11 Different concepts and requirements for protection of trade secrets before the implementation of the TSD § 2 284 Concept and requirements for the protection of trade secrets in Germany A) 284 Distinction between Geschäftsgeheimnis and Betriebsgeheimnissen I. 284 Requirements for the protection of trade secretsII. 285 Information1. 286 Information connected to a business — Geschäftsbezogenheit 2. 286 Secrecy — Nichtoffenkundigkeit3. 288 Will to keep the information secret — Geheimhaltunsgswille 4. 290 Interest in keeping the information secret — Geheimhaltungsinteresse 5. 291 The notion of confidentiality in EnglandB) 293 Concepts of confidential information and trade secret in England I. 293 Subject matter capable of protectionII. 295 Commercial value: protection of trivial information?1. 296 Information that is vague2. 298 Immoral and false information3. 300 Confidential nature of the informationIII. 301 The general test of inaccessibility1. 301 Form of the information2. 305 No need to adopt reasonable measures3. 306 The concept of trade secret in the Directive: considerations in the light of the comparative analysis § 3 306 Preliminary remarksA) 306 TerminologyB) 308 Commercial valueC) 310 Private and personal informationD) 312 Adoption of reasonable stepsE) 314 A requirement of identification of the information concerned? F) 315 Deconstructing secrecy§ 4 316 Evaluating the degree of secrecy requiredA) 316 Table of Contents 12 The doctrine of ready ascertainability and the principle of inaccessibility B) 318 Absence of a normative standardI. 318 CriticismII. 321 Fencing secrecy by its negative dimensionC) 324 The “Third Party Doctrine” of trade secrets law and its limitations: conceptualising the different types disclosures I. 325 Effects of the disclosureII. 328 Disclosure in a patent application or specification1. 328 England as an example casea) 328 Guiding principlesb) 329 Disclosure to the state and its authorities2. 330 England as an example casea) 330 Confidentiality in the acquis communautaire and the right of access to documents b) 335 Protection of competing interests in the TSDc) 337 Guiding principlesd) 338 Marketing of a product in which the trade secret is embodied 3. 339 U.S.a) 340 Englandb) 343 Germanyc) 345 Guiding principlesd) 346 Disclosures on the Internet4. 349 U.S.a) 349 Englandb) 352 Germanyc) 353 Guiding principlesd) 354 Limited content: combination secrets5. 358 U.S.a) 360 Englandb) 364 Germanyc) 365 Guiding principlesd) 368 Disclosures in the Cloud6. 372 General considerations and outline of the problema) 372 Guiding principlesb) 375 The doctrine of relevant circlesD) 378 U.S.I. 379 EnglandII. 381 Table of Contents 13 GermanyIII. 382 Guiding principlesIV. 384 Secrecy as opposed to IPRs normative standardsE) 385 NoveltyI. 385 Novelty under the EPC1. 385 U.S. cases that demand novelty2. 388 Analysis of the relevant case lawa) 388 The “law of ideas”b) 390 English cases that demand novelty under the breach of confidence action 3. 393 OriginalityII. 394 U.S.1. 395 England2. 396 Conclusion – protection of abstract ideasIII. 397 Excursus: Trade secrets and Big Data — the way forward?F) 400 The Data Economy and the associated phenomenaI. 401 Assessing the possibility of relying on trade secrets protection for industrial data II. 408 Reconciling the legal requirements of protection of trade secrets law with Big Data 1. 409 Additional problems: identifying the trade secret holder and the risk of infringement 2. 413 Conclusion on the applicability of the trade secrets liability regime to Big Data 3. 414 Conclusion§ 5 415 Study case: the strategic importance of secrecy in the perfume industry Chapter 5. 417 Preliminary remarks on the methodology applied§ 1 417 The perfume industry§ 2 418 The protection of perfumes through IPRs§ 3 420 CopyrightA) 420 Object of protectionI. 420 Requirements for protectionII. 421 Literary and artistic work1. 422 Originality: author’s own intellectual creation2. 424 Fixation3. 428 EvaluationIII. 430 Table of Contents 14 Patent LawB) 431 Object of protectionI. 431 Aromatic compounds1. 432 Aromatic compositions2. 434 Requirements for protectionII. 434 EvaluationIII. 436 Trade mark lawC) 437 Object of protectionI. 437 Requirements for protectionII. 438 Signs1. 439 Representation2. 439 Distinctiveness3. 443 Functionality4. 445 EvaluationIII. 447 Unfair competition – Comparative advertisementD) 448 Object of protectionI. 448 Requirements for protection in the wake of L’Oréal v Bellure II. 450 Two-step test: Definition of comparative advertisement and the appraisal of fairness 1. 450 Presentation of products as imitations in the wake of L’Oréal v Bellure 2. 451 EvaluationIII. 458 The role of trade secrets in the protection of perfumes§ 4 459 Importance of trade secrets for the perfume industryA) 459 Increasing vulnerability of trade secrets in the perfume sectorB) 461 Reverse engineeringI. 462 Demands for disclosure and transparencyII. 463 Electronic information storage and transmissionIII. 463 Employment mobilityIV. 464 Measures adopted to protect the company’s trade secretsV. 465 Conclusion§ 5 465 The internal and external spheres of secrecy and their limitations Chapter 6. 467 The two shperes of secrecy§ 1 467 The internal sphere of secrecy: confidentiality and employeesA) 469 Implied duty of confidentiality during the course of the employment relationship I. 469 Table of Contents 15 Secrecy obligations of departing employeesII. 471 Employees general skills, knowledge and experience and the implied obligation of secrecy after the termination of the employment relationship 1. 472 Comparative law analysisa) 472 U.S.aa) 472 Englandbb) 478 Germanycc) 480 Implied secrecy obligation of departing employees under the TSD b) 484 Guiding principlesc) 486 Some considerations regarding post contractual nondisclosure and non-competition clauses 2. 489 Comparative law analysisa) 490 U.S.aa) 490 Englandbb) 493 Germanycc) 498 Post-contractual obligations under the TSDb) 501 The external sphere of secrecyB) 502 Licensing agreementsI. 503 Object and legal nature1. 503 Secrecy obligations2. 506 Pre-contractual obligations of secrecya) 506 During the term of the contractb) 507 Secrecy obligations of the licensoraa) 507 Secrecy obligations of the licenseebb) 508 After the termination of the contractc) 510 R&D agreementsII. 511 Object and legal nature1. 511 Secrecy obligations2. 513 The limitations of secrecy§ 2 515 Independent discovery and creationA) 516 Reverse engineeringB) 518 Conceptual introductory remarksI. 518 Rationales underlying reverse engineeringII. 521 Comparative law analysisIII. 525 TRIPs1. 525 U.S.2. 526 England before the implementation of the TSD3. 529 Germany before the implementation of the TSD4. 534 Table of Contents 16 Reverse engineering under the TSDIV. 536 Scope of the reverse engineering pursuant to Article 3(1)(b) TSD 1) 536 Contractual limitations on the possibility of reverse engineering and in particular the interplay with the Software Directive 2) 539 Guiding principles3) 545 Competition law as an inherent limitation to the protection conferred by a trade secret C) 547 The optimal scope of secrecy: a balanced approach in the light of the TSD § 3 552 The Nordhaus model and trade secrets protectionA) 552 Legal application of the Nordhaus model to trade secrets protection: introduction of a presumption regarding postcontractual duration in business-to-business relationships B) 556 Conclusion 561 Transcript of the Interview with head of IP Perfume Company 1 Annex 1: 569 Transcript of the interview with Perfumist Rosendo Mateu Annex 2: 571 Zusammenfassung 573 Bibliography 601 Table of Contents 17 Abbreviations AIA America Invents Act BAG Bundesarbeitsgericht or Federal Labour Court BC Berne Convention BGB Bürgerliches Gesetzbuch BGH Bundesgerichtshof or Federal Supreme Court BKartA Bundeskartellamt BverGe Bundesverfassungsgerichtentscheidungen CCZ Corporate Compliance Zeitschrift CFI Court of First Instance ChFREU Charter of Fundamental Rights of the EU CJEU Court of Justice of the European Union Commission The European Commission CR Computer und Recht DPMA German Patent and Trade Mark Office DSU Dispute Settlement Understanding DTSA Defend Trade Secrets Act of 2016 e.g. (from Latin exempli gratia) For example EC European Community EC Treaty The Treaty Establishing the European Community ECHR European Convention of Human Rights ECJ European Court of Justice ECR European Court Reports ECS European Copyright Society ECtHR European Court of Human Rights ed/eds Editor/Editors EIPR European Intellectual Property Review EJIL European Journal of International Law EPC European Patent Convention EPO European Patent Office EU European Union 19 EUTMR European Union Trade Mark Regulation FTC Federal Trade Commission GATT General Agreement on Tariffs and Trade GCEU General Court of the European Union GG Grundgesetz für die Bundesrepublik Deutschland GRUR Gewerblicher Rechtsschutz und Urheberrecht GRUR Int Gewerblicher Rechtsschutz und Urheberrecht/Internationaler Teil HGB Handelsgesetzbuch HRA Human Rights Act i.e. (from Latin id est) That is to say IDEA IDEA: The Intellectual Property Law Review IIC International Review of Intellectual Property and Competition Law IoT Internet of Things IP Intellectual Property IPQ Intellectual Property Quarterley IPR(s) Intellectual Property Right(s) JEP Journal of Economic Perspectives JIPITEC Journal of Intellectual Property, Information Technology and Electronic Commerce Law JIPLP Journal of Intellectual Property Law and Practice JuS Juristische Schulung LJ Law Journal LQR Law Quarterly Review LR Law Review MCAD Misleading and Comparative Advertisement Directive NAFTA North American Free Trade Agreement NDA Non-disclosure agreement NZA Neue Zeitschrift für Arbeitsrecht NZA-RR Neue Zeitschrift für Arbeitsrecht -Rechtsprechungs-Report Arbeitsrecht para(s) Paragraph(s) PC Paris Convention R&D Research and Development Abbreviations 20 R&DBER Research and Development Block Exemption Regulation SC Supreme Court TEU The Treaty of the European Union TFEU The Treaty on the Functioning of the European Union TMD Trade Mark Directive TMR Trade Mark Review TRIPs Trade-Related Aspects of Intellectual Property Rights TSD Trade Secrets Directive TTBER Technology Transfer Block Exemption Regulation UK United Kingdom U.S. United States of America UN United Nations UTSA Uniform Trade Secrets Act UWG Gesetz gegen den unlauteren Wettbewerb VCLT Vienna Convention on the Law of Treaties VPN Virtual Private Networks WHO World Health Organisation WIPO World Intellectual Property Organization WRP Wettbewerb in Recht und Praxis WTO World Trade Organisation Abbreviations 21 Introduction In this regard I should like to recount an anecdote that is so beautiful that one trembles at the thought that it might be true. It gathers into a single figure all constraints of discourse: those which limit its powers, those which master its aleatory appearances, and those which carry out the selection among speaking subjects. At the beginning of the seventeenth century, the Shogun heard tell that Europeans’ superiority in matters of navigation, commerce, politics, and military skill was due to their knowledge of mathematics. He desired to get hold of such precious knowledge. As he had been told of an English sailor who possessed the secret of these miraculous discourses, he summoned him to his place and kept him there. Alone with him, he took lessons. He learned mathematics. He retained power, and lived to a great old age. It was not until the nineteenth century that there were Japanese mathematicians. But the anecdote does not stop there: it has a European side too. The story has it that this English sailor, Will Adams, was an autodidact, a carpenter who had learnt geometry in the course of working in a shipyard. Should we see this story as the expression of one of the great myths of European culture? The universal communication of knowledge and the infinite free exchange of discourses in Europe, against the monopolised and secret Oriental tyranny?1 The theme that underlies the passage reproduced above is the relationship between power and knowledge. By learning mathematics, the Shogun aspired to achieve the same level of dominance as the Europeans in strategic matters such as navigation, commerce, politics and military skills. Indeed, the knowledge he acquired from the English sailor allowed him to have a long and prosperous reign. Foucault’s short story ultimately tells us that knowledge defines and confers power upon those who possess it. By the same token, the rhetorical questions posed at the end of the passage highlight the dichotomy between the exchange of information, which has dominated occidental discourses, and the exclusivity conferred by secrecy, which has prevailed in oriental traditions. Such a tension is a recurring one 1 Michel Foucault, ‘The Order of Discourse’ 52, 62 in Robert Young (ed), Untying the Text: A Post-Structuralist Reader (1st edn, Routledge & Kegan Paul 1981). 23 in the field of intellectual property, where policy makers strive to find the most appropriate balance between the access to and sharing of information and the necessary exclusivity to incentivise creation and innovation. This conflict is even more present in the realm of trade secrets, where the holder of commercial secret information may use it in the market exclusively for as long as it remains concealed from competitors. Remarkably, unlike IPRs, trade secrets afford protection to their holders without the need to meet any qualitative threshold and without imposing any disclosure obligations or time restrictions. This explains why trade secrets are often identified as one of the preferred forms of appropriating returns from innovation and creative activities. Following Foucault’s example, trade secrets confer a competitive advantage and market power upon their holders, without participating in the trade-off imposed by the general IPR framework. As a result, the coexistence of trade secrets with traditional IPRs is not a peaceful one, as in some instances they serve contradictory objectives. In the digital age, information has become an increasingly valuable, but at the same time vulnerable commodity. In effect, in the knowledge economy, companies operate globally and outsource their research and manufacturing activities to other countries in search of cost-optimisation and the best qualified human capital.2 In such a globalised context, the strategic role that trade secrets play in the economy of the Single Market and the scattered legal framework across EU jurisdictions prompted the EU Commission to harmonise this field of law, which led to the adoption of the Trade Secrets Directive (TSD),3 that should have been implemented in all 28 EU Member States before 9 June 2018. This dissertation looks into the fundamentals of the law of trade secrecy in the wake of the Directive. In particular, it aims at studying the cornerstone of trade secret protection: the secrecy requirement. 2 Anselm Kamperman Sanders, ‘The Actio Servi Corrupti’ from the Roman Empire to the Globalised Economy’ 3, 4 in Christopher Heath and Anselm Kamperman Sanders (eds), Employees, Trade Secrets and Restrictive Covenants (Wolter Kluwer 2016). 3 Directive (EU) 2016/943 of 8 June 2016 on the protection of undisclosed knowhow and business information (trade secrets) against their unlawful acquisition, use and disclosure [2016] OJ L157/1 (Trade Secrets Directive, TSD). Introduction 24 Object, scope and structure of the research The primary aim of this thesis is to analyse the conditions under which information loses its secret nature, enters the public domain and is then free for competitors to use, taking into account the legal framework created by the TSD. Indeed, the requirements for the protection of formal IPRs such as copyright or patents have been the object of academic study for years. However little attention has been paid to the requirements of the protection of trade secrets and the policy implications of defining them in a narrower or broader sense. In the light of the above, the following research questions guide the dissertation. First, the thesis examines whether the protection of trade secrets is justified by the mere fact of them being unknown to competitors on the basis of utilitarian and deontological arguments. Secondly, it delves into the relationship between formal IPRs and trade secrets in order to investigate whether the latter should be conceptualised as falling within the realm of IPRs or unfair competition rules. Next, it analyses how the secrecy requirement has been construed in Germany and England up two now. These jurisdictions represent two of the most effective models for the protection of trade secrets in the EU before the harmonisation. Based on this comparative study, the thesis enquires whether there is common ground that would allow for further harmonisation of such a requirement in view of the challenges raised by the advent of new technologies and the harmonisation goals pursued by the Directive. Thereafter, taking the perfume industry as a study case, the dissertation interrogates the strategic importance of secrecy as a means of appropriating returns from innovation as opposed to formal IPRs and the impact of new technologies in the lead time conferred by secrecy. Ultimately, the thesis aims at proposing a legal solution with regard to the optimal scope of protection conferred by secrecy. With a view to providing answers to the previous research questions, the following structure has been implemented. Chapter 1 discusses the rationales underlying trade secrets protection. Against this background, deontological and utilitarian arguments are analysed. Then, the interplay between trade secrets and other IPRs (i.e. patents, trade marks, copyright and the sui generis database right) is examined for the appraisal of the functionality of secrecy. Lastly, the chapter discusses the hybrid legal nature of trade secrets, which are bound to sit between the realms of traditional IPRs and unfair competition rules. Chapter 2 surveys the international legal framework for trade secrets protection. A two-fold approach is adopted. First, the minimum standards § 1 § 1 Object, scope and structure of the research 25 set forth by Article 39 of the Agreement on Trade-Related Aspects of Intellectual Property Rights4 are studied in connection to Article 10bis of the Paris Convention5. Next, the U.S. regime upon which the relevant TRIPs provisions on undisclosed information were modelled is analysed. In both instances particular emphasis is placed on the study of the definition of trade secrets and how the secrecy requirement is construed in the relevant treaties, statutes and case law. Chapter 3 identifies six pre-eminent models in the protection of trade secrets among the 28 EU jurisdictions before the implementation of the TSD. The method of comparative law is applied to study two of them: the German jurisdiction and the English system under the breach of confidence action. Again, both legal systems are closely examined with a view to obtaining a better understanding of the relevant liability conduct in order to assess when information enters the public domain. Then, the emerging harmonised framework created by the TSD is critically analysed. To that end, first the legal basis to harmonise trade secrets protection across the EU are surveyed. Next, the relevant types of lawful and infringing conduct and the limitations to the rights conferred under the TSD are studied. Finally, some remarks on the enforcement provisions and their importance in keeping information undisclosed are presented. Chapter 4 maps out the notion of secrecy considering the harmonisation goals laid down in the TSD. To this end, first the requirements of protection of trade secrets are analysed from a comparative law perspective (England and Germany). Drawing on this analysis, a number of interpretative principles regarding the understanding of the concept of secrecy (or to be more precise, the circumstances under which it is lost) and its interplay with other IPRs normative standards are provided with a view to ensuring a uniform appraisal by national courts after the implementation of the TSD. Finally, the chapter concludes by examining the applicability of the trade secrets liability regime to Big Data sets and proposes an analytical framework to that end. Chapter 5 delves into the relation between perfumes and trade secrets. For the purposes of the present research, the fragrance industry is used as a 4 Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) (adopted 15 April 1994) (Annex 1C to the Agreement establishing the World Trade Organization), 1869 UNTS 183. 5 Paris Convention for the Protection of Industrial Property (adopted 29 March 1883, as revised at Stockholm on 14 July 1967 and as amended on 28 September 1979) 21 UST 1583, 828 UNTS 305 (PC). Introduction 26 study case to outline the main difficulties in keeping business information undisclosed. This sector was selected based on the possibility of conducting qualitative empirical research with a major undertaking, but also due to the relevance of trade secrets in appropriating returns from innovation in the manufacturing and commercialisation stages. The first part of the chapter examines the relationship between perfumes and IPRs (copyright, trade mark, unfair competition and patents) and the central role that trade secrets play in ensuring the competitiveness of the firms in this sector. Finally, the major risks faced by fragrance and scent manufacturers in concealing valuable commercial information are identified. Finally, chapter 6 studies the external and internal spheres of secrecy and their limitations in order to propose a balanced legal solution to regarding the understanding of secrecy. Research methodology To answer the research questions described above, two combined methodologies are followed. In the first place, the method of comparative law is applied to study the legal mechanisms for the protection of trade secrets in England and Germany before the implementation of the Directive. The main points of comparison are the concept of trade secret and the requirements for protection followed in each jurisdiction and the main features of the regimes in place to achieve trade secrets protection. This research is conducted with reference to the main statutory provisions, but also the relevant case law, legal scholarly works and a number of studies and reports. To further understand the challenges that stakeholders face in keeping their valuable information secret, qualitative empirical research has been conducted with regard to the perfume industry. This sector is used as an example case to illustrate the increasing difficulties in maintaining secrecy and the strategic importance of trade secrets in certain industries. Hence, a perfumist and the head of IP of a multinational perfume company have been interviewed and the methodology of qualitative content analysis is used to analyse the interviews.6 The main outcome of the interviews is presented in chapter 5 and a transcript of the interviews is included in Annex 1 and Annex 2. § 2 6 Philipp Mayring, ‘Qualitative content analysis’ 266-269 in Uwe Flick, Ernst von Kardoff and Ines Steinke (eds), A companion to qualitative research (Sage 2004). § 2 Research methodology 27 The manuscript of this dissertation was concluded on 27 May 2018. Since its completion, the UK has passed the Trade Secrets Regulations 2018, which implement the TSD. Similarly, Germany has adopted the Gesetz zum Schutz von Geschäftsgeheimnissen vom 18. April 2019 (BGBl. I S. 466). The amendments introduced by the legislation implementing the TSD fall outside the temporal scope examined in this dissertation and therefore, no specific reference is made to them. Introduction 28 Concept, justifications and legal nature of trade secrets The significance and concept of trade secrets On an abstract level, the intrinsic significance of trade secrets revolves around two conflicting forces: the principles of openness, freedom of discourse and communications, which clash with the principles of privacy, secrecy and a restrictive flow of information.7 Such a tension also reflects the dichotomy between the intellectual commons movement and the increasing commodification of intellectual creations.8 The former aims at fostering open innovation and knowledge dissemination and opposes overpowering proprietary systems. In such a context, the interest of firms in keeping their valuable information secret conflicts with the public interest in securing a certain degree of openness and free circulation of information in the markets, both of which are essential in democratic societies that operate under free market principles.9 Despite the economic and social importance of trade secrets, there is no universally accepted definition of the concept. At the international level, much common ground is provided by Article 39(2) TRIPs, which has laid down minimum standards of protection to be implemented by all WTO Member States. Pursuant to this provision, to merit protection “undisclosed information” needs to be secret, derive economic value from its secret nature and be subject to reasonable steps under the circumstances to keep it secret. Yet, on the basis of this three-pronged approach, which has also been included in the TSD as the foundation to conceptualise trade secrets, WTO Member States, including some EU jurisdictions, have developed different definitions, some of which include additional requirements.10 The requirements of protection and the subject matter covered by Chapter 1. § 1 7 William van Caenegem, Trade Secrets and Intellectual Property (Kluwer Law International 2014) 11. 8 William van Caenegem 2014 (n 7) 11; Yochai Benkler, ʻFree As the Air to Common Use: First Amendment Constraints on Enclosure of the Public Domainʼ [1997] 74 NYULR 354, 355. 9 William van Caenegem 2014 (n 7) 11. 10 Recital 6 TSD. 29 the notion of trade secrets constitute the study of chapter 2 (from the perspective of the TRIPs Agreement and the U.S. jurisdiction) and chapter 4 (from the perspective of the English and German jurisdictions, and the harmonised framework created by the TSD). For clarity, it should be noted that throughout the thesis, unless specified otherwise, the term “undisclosed information” is used as a synonym for trade secrets, as defined in Article 39 TRIPs. In the same vein, “confidential information” is deployed as an alternative expression to “secret” or “concealed information”, i.e. information that is not generally known (and that does not necessarily confer a competitive advantage upon its holder). Yet, in the context of the English jurisdiction, this expression should be understood as referring solely to information covered by the breach of confidence action. Likewise, unless stated otherwise, “know-how” is used exclusively in the sense laid down in Article 1(i) TTBER, that is, to refer to a specific type of non-patentable technical trade secret resulting from experience and testing.11 The problematic justifications underlying trade secrets protection Market economies operate under the principles of (typically) unrestricted competition and the free circulation of goods and information in order to enhance consumer welfare. However, at first glance, trade secrets protection seems to contravene this proposition, as protection is afforded to information for the mere fact of keeping it undisclosed to competitors. In this context, it appears that the study of the optimal scope of secrecy should first start by considering the rationales underlying the protection of valuable secret information. Indeed, the underpinning policy justifications for the protection of trade secrets remain to a large extent unexplored, if compared to other IPRs such § 2 11 Article 1(1)(g) of Commission Regulation (EU) No 316/2014 of 21 March on the application of Article 101 (3) of the Treaty on the Functioning of the European Union to categories of technology transfer agreements [2014] OJ L93/17 (TTBER): “know-how’ means a package of practical information, resulting from experience and testing, which is: (i) secret, that is to say, not generally known or easily accessible, (ii) substantial, that is to say, significant and useful for the production of the contract products, and (iii) identified, that is to say, described in a sufficiently comprehensive manner so as to make it possible to verify that it fulfils the criteria of secrecy and substantiality”. Chapter 1. Concept, justifications and legal nature of trade secrets 30 as patents and copyright.12 Legal scholars and industry representatives usually resort to the argument that trade secrets should be protected because they are economically valuable and thus constitute relevant assets for their holders.13 However, such an approach conflicts with most of the policy justifications upon which the intellectual property system is built, where providing incentives to create or innovate through exclusivity is weighed against the welfare effects triggered by the disclosure of information.14 Against this background, a number of grounds have been put forward to explain the need to protect secret information,15 although in Europe the theoretical foundations have garnered less scholarly discussion than in the U.S. Nonetheless, a comprehensive inquiry into the underlying justifications appears to be of paramount importance considering the TSD. If the EU Member States are to embark on the complex task of harmonising their legal systems (in this case, as regards trade secrets) they should do so on the basis of solid and coherent grounds.16 In line with the above, this section surveys the most relevant policy arguments that have been invoked by legal scholars and case law, following the traditional classification of justifications for intellectual property: deontological and utilitarian.17 The former are linked to the concept of fairness 12 Robert G. Bone, ʻA New Look at Trade Secret Law: Doctrine in Search of Justificationʼ [1998] 86 California LR 241, 245 refers to a “normative vacuum that continues to remain unfulfilled”. 13 Ansgar Ohly, ʻHarmonising the Protection of Trade Secretsʼ 2, 35 in Jacques de Werra (ed), La protection des secrets d’affaires (Schulthess 2013). 14 For a more detailed account of the underpinning policy justifications to IPRs see Justin Hughes, ʻThe Philosophy of Intellectual Propertyʼ [1988] 77 George Mason LJ 287; for an overall assessment of trade secrets vis-à-vis IPRs see chapter 1 § 3 A) below. 15 Some of the most influential scholarly works concerning the justification of trade secrets are Robert G. Bone, ʻA New Look at Trade Secret Law: Doctrine in Search of Justificationʼ [1998] 86 California LR 241; Robert G. Bone, ʻTrade Secrecy, Innovation and the Requirement of Reasonable Secrecy Precautions’ 46 in Rochelle C. Dreyfuss and Katherine J. Strandburg (eds), The Law and Theory of Trade Secrecy: A Handbook of Contemporary Research (Edward Elgar 2011); Robert G. Bone, ʻThe Still Shaky Foundations of Trade Secret Lawʼ [2014] 92 Texa s LR 1803; Mark A. Lemley, ʻThe Surprising Virtues of Treating Trade Secrets as IP Rightsʼ [2008] 61 Stanford LR 311; Michael Risch, ʻWhy Do We Have Trade Secrets?’ [2007] 11 Marquette IPLR 1. 16 Ansgar Ohly 2013 (n 13) 36 highlighting the importance of finding a solid theoretical justification, particularly after the creation of the still contested sui generis right by the Directive 96/9 on the legal protection of databases [1996] OJ L77/20 (Database Directive). 17 Ansgar Ohly 2013 (n 13) 36. § 2 The problematic justifications underlying trade secrets protection 31 and encompass the need to maintain commercial morality, labour value theories, and veil-of-ignorance arguments.18 From a utilitarian perspective, it has been suggested that affording protection to secret information generates incentives to innovate and to disclose, reduces investment in protective measures and ultimately protects business privacy.19 More generally, it has been argued that trade secrets law serves as a complement to the patent system. Each of these policy justifications is analysed in turn, with the exception of the complementary theory, which is examined in § 3 A), where the interplay between patents and trade secrets is studied. 18 Pursuant to the Stanford Encyclopaedia of Philosophy “Deontological theories (…), hold that some choices cannot be justified by their effects— that no matter how morally good their consequences, some choices are morally forbidden” accessed 15 September 2018; Immanuel Kant, Groundwork for the Metaphysics of Morals (first published 1785, CUP 2011), probably the most prominent among the deontological philosophers, regarded that good will was central to any moral choice. As applied to the realm of IPRs, it is held that these are granted based on the principle of justice in one’s intellectual creations and against free riders. 19 Utilitarism holds that the morally right action is the one that yields the most good. One of classical exponents of this normative ethics approach was Jeremy Bentham; see Stanford Encyclopedia of Philosophy accessed 15 September 2018; Jeremy Bentham, An Introduction to the Principles of Morals and Legislation (first published 1781, Batoche Books 2000) Chapter I.II regarded the principle of utility as “that principle which approves or disapproves of every action whatsoever. According to the tendency it appears to have to augment or diminish the happiness of the party whose interest is in question: or, what is the same thing in other words to promote or to oppose that happiness. I say of every action whatsoever, and therefore not only of every action of a private individual, but of every measure of government”. As applied to IPRs, utilitarism suggests that granting an exclusive right to exploit an intangible good stimulates the development of socially valuable inventions or creations and is essential to avoid the market failure inherent to their exploitation; see further Jeanne C. Former, ʻExpressive Incentives in Intellectual Propertyʼ [2012] 98 Virginia LR 1745, 1751. Chapter 1. Concept, justifications and legal nature of trade secrets 32 Deontological arguments Commercial ethics One of the most widely accepted theories underlying trade secrets legislation is that it is necessary in order to maintain “the standard of commercial ethics”.20 This argument stems from a general moral principle according to which “reaping without sowing” is unfair.21 It is unethical for a business to acquire the information of another by unfair means and thus be unjustly enriched.22 At first glance, this justification seems very appealing. Behaviours that contravene generally accepted ethical codes or customs appear immediately morally reprehensible.23 Notwithstanding this, upon a closer look the contours of the “standard of commercial ethics” seem intrinsically open-ended.24 As noted by Jacob J “what one man calls ‘unfair’ another calls ‘fair.’”25 However, flexibility and a certain degree of uncertainty are typical characteristics of any unfair competition law regime26 and this has not prevented the development of unfair competition legislation in most continental European jurisdictions, especially vis-à-vis intellectual property law.27 A) I. 20 In the words of the U.S. Supreme Court in Kewanee Oil Co. v. Bicron Co., 416 U.S. 470, 481 (1974): “The maintenance of standards of commercial ethics and the encouragement of invention are the broadly stated policies behind trade secret law”. 21 This principle was most notably applied by the U.S. Supreme Court in INS v. Associated Press, 248 U.S. 215 (1918); Ansgar Ohly 2013 (n 13) 35. 22 Tanya Aplin and others, Gurry on Breach of Confidence (2nd edn, OUP 2012) para 3.20. 23 Notwithstanding this, Michael Risch 2007 (n 15) 36-37 considers that this is a “populist justification” rooted in the fact that people do not like bad actions; the opposite view is purported by Michael Spence, Intellectual Property (OUP 2007) 62. 24 Vincent Chiappetta, ʻMyth, Chameleon or Intellectual Property Olympian?ʼ [1999] 8 George Mason LR 69, 90. 25 L’Oréal SA v Bellure NV [2007] EWCA Civ 968 (CA), [139]. 26 Ansgar Ohly, ʻUnfair Competitionʼ, Max Planck Encyclopaedia of European Private Law (OUP 2012) 1172. 27 Annette Kur, ‘What to Protect, and How? Unfair Competition, Intellectual Property, or Protection Sui Generisʼ 11, 14 in Nari Lee and others (eds), Intellectual Property, Unfair Competition and Publicity (Edward 2014); conversely, on the UK’s approach to unfair competition Tanya Aplin and others 2012 (n 22) para 3.27 highlight that: “The first problem (…) is the problem of legal knowledge: how § 2 The problematic justifications underlying trade secrets protection 33 Likewise, some purport that trade secret legislation could be used for the purposes of enforcing morality in the marketplace, i.e. to enforce industry norms. This hypothesis has been challenged essentially for two reasons. First, there is no empirical evidence that shows that generally accepted norms for a given industry regulating when the acquisition, use and disclosure of secret valuable information from a competitor should be deemed lawful exist. Second, even if they did exist, the extent to which judicial enforcement would increase the already high litigation costs and undermine the equilibrium upon which any tacit norm is built is unclear.28 In view of the foregoing, it is submitted that on the basis of commercial ethics only certain types of behaviour such as the breach of a confidential relationship, the theft of a secret or fraud can be proscribed. The inherent vagueness attached to the commercial ethics justification does not provide solutions for more controversial issues, such as the limits of reverse engineering and obligations after termination of an employment relationship.29 Labour value theory The labour value justification draws from John Locke’s theory of property and in essence submits that those who create value should own the products of their work.30 As regards trade secrets, this is understood as meaning II. does the law know what is to count as ethically appropriate or inappropriate commercial behaviour? It is this problem that has informed the refusal of the English Courts to sanction ʻunfairʼ competition as a cause of action in English law”; similarly, Anselm Kamperman Sanders, Unfair Competition Law (1st edn, OUP 1997) 78 noting that “Reasons for the absence of a law of unfair competition in common law systems lie mostly in the fact that the judges are of the opinion that general principles are not suited for regulation of the market-place. This is because the criteria for the assessment of what is unfair behaviour in the market-place are thought to be ambiguous”. 28 Robert G. Bone 1998 (n 15) 294-296. 29 This argument is raised by Ansgar Ohly 2013 (n 13) 36. 30 John Locke, The Selected Political Writings of John Locke (Paul E. Sigmund ed, Norton& Company 2005) 28-29: “Whatsoever then he removes out of the state that nature hath provided and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it property (...) For this labour being the unquestionable property of the labourer, no man but he can have a right to what that is once joined to, a least where there is enough , and as good, left in common for others”. Chapter 1. Concept, justifications and legal nature of trade secrets 34 that the person who creates information has a right in such information and against third parties.31 However, following this natural law argument as a guiding principle does not offer a convincing ground to justify two of the essential features of trade secret protection, namely (i) the secret nature of information and (ii) the fact that protection is only envisaged against misappropriation.32 Under the labour value theory even non-secret information can be protected, so long as it is the result of one’s effort.33 Similarly, information should be afforded protection against appropriation as such, irrespective of the means used. This may lead to the overprotection of information, one of the aspects that has garnered more criticism when applying the Lockean theory of property to trade secrets. Furthermore, it does not provide solid grounds to justify the exceptions and limitations to trade secrets protection, which are central to the interplay with the intellectual property system. Contractarian theory The contractarian argument results from applying the hypothetical bargaining model created by Rawls in A Theory of Justice with the purpose of finding a solid explanation for trade secrets protection. Rawls’ theory is based on the decision-making process that occurs in a social contract under the so-called “veil of ignorance”. This is a hypothetical state of nature under which rational individuals decide on the distribution of rights without knowing which position they will ultimately occupy in a society (their wealth, social status, level of intelligence and the like), as well as the particular circumstances of that society (economic and political), the so-called III. 31 As stressed by Justin Hughes (n 14) 306: “There is a very simple reason why the legal doctrines of unfair competition and trade secret protection are inherently orientated toward the value-added theory: they are court-created doctrines and people rarely go to court unless something of valuable is at stake. When intellectual property is created more systematically, such as through legislation, the resulting property doctrines seem less singularly oriented toward rewarding social value”; but see also Michel Risch 2007 (n 15) 29: “An initial criticism of this theory is that Locke was dealing with real property and not intellectual property, which can be ʻpossessedʼ by two people at the same time”. 32 Robert G. Bone 2014 (n 15) 1824. 33 Robert G. Bone 2014 (n 15) 1825; contrary Eric R. Claeys, ʻPrivate Law Theory and Corrective Justice in Trade Secrecyʼ [2011] 4 J of Tort Law 1, 33 arguing that the secrecy requirement signals the information as his own. § 2 The problematic justifications underlying trade secrets protection 35 “original position”.34 Against this background, Rawls propounds that individuals will make choices following the maximin rule, that is, they “are to adopt the alternative the worst outcome of which is superior to the worst outcome of the others”.35 This will ensure that even if individuals turn out to be in the worst position in society, they will not be in need.36 As applied to the trade secrets scenario, under the veil of ignorance companies will agree to provide at least some level of trade secrets protection in order to reduce the negative outcome resulting from an eventual loss of confidential information.37 On the same ground, it has been suggested that industry members would ex ante accept reverse engineering due to the expected gains stemming from product improvements.38 Notwithstanding this, as with most contractarian arguments, it has been fiercely criticised, due to the fact that there is no solid reason to believe that firms would accept the terms of the agreement in the real world.39 Utilitarian arguments Incentives to innovate The most frequently cited economic argument to justify trade secrets protection, which is also invoked in connection to formal IPRs, submits that it generates incentives to innovate.40 B) I. 34 John Rawls, A Theory of Justice (OUP 1972) 136-142. 35 John Rawls, A Theory of Justice (OUP 1972) 152-153. 36 Ultimately, Rawls advocates in favour of a redistribution of wealth as part of the concept of justice; see Michael Risch 2007 (n 15) 35. 37 See Kim Lane Scheppele, Legal Secrets: Equality and Efficiency in the Common Law (The University of Chicago Press 1992) 76-83. 38 William Landes and Richard Posner, The Economic Structure of Intellectual Property Law (Belknap Press 2003) 370. 39 Robert G. Bone 1998 (n 15) 292-293; Michael Risch 2007 (n 15) 35 holds a different view and argues that this justification is useful from a normative perspective and notes that even an efficient analysis cannot predict if one rule or another will turn out to be more efficient under all circumstances. 40 Innovation is understood as creation of inventions, but also other types of information that do not meet inventive standards. For the purposes of the present research, the definition of Innovation provided by Schumpeter will be followed as per Jon Sundbo, The Theory of Innovation: Entrepreneurs, Technology and Strategy (Edward Elgar 2009) 20: “Schumpeter defines innovation as one or more of the following events: 1. Introduction of a new product or a new product quality. Chapter 1. Concept, justifications and legal nature of trade secrets 36 Economists consider that information falls within the category of “public goods”, namely those goods whose “use by one person does not preclude use by another person and does not cost additional resources, except the small cost of distributing them”.41 As a result, information is defined as non-rival because it can be consumed by an individual without limiting its availability to others.42 Another essential characteristic is that it is non-exclusive, meaning that it is very difficult to prevent unauthorised individuals from making use of it once it is created. Indeed, the development of information can be very costly; yet its acquisition and use by third parties can be carried out at a very low incremental cost. This has a two-fold effect: acquirers save the costs of generating the data and at the same time the competitive advantage conferred by the information on its creator disappears. As a result, acquirers may compete at a much lower price. This may ultimately lead to a market failure, if there are no incentives to create the information because the creator cannot recoup the investment made in its development.43 It is against this backdrop that trade secrets law provides the owner of new and valuable information the right to restrict others from using it.44 Consequently, he can obtain supracompetitive profits from the information, both as regards technical and commercial secrets and in terms of re- 2. Introduction of a new production method. This need not be a new scientific invention. It may consist of a new way of treating a product commercially. 3. The opening up of a new market. 4. The opening up of a new source of raw materials, or semimanufacturers regardless of whether the source has existed before. 5. The creation of a new organizational structure in industry, for example by creating or breaking down a monopoly situation”. 41 Suzanne Scotchmer, Innovation and Incentives (1st edn, The MIT Press 2004) 311. 42 Yochai Benkler, The Wealth of Networks (Yale University Press 2006) 35; as opposed to that, apples are rival goods. 43 Vincent Chiappetta 1999 (n 24) 86; Suzanne Scotchmer 2004 (n 41) 31; also Harold Demsetz, ʻThe Private Production of Public Goodsʼ [1970] 13 Journal of Law and Economics 293, 300-306 and Wendy J. Gordon, ʻOn Owning Information: Intellectual Property and the Restitutionary Impulseʼ [1992] 78 Vanderbilt LR 149, where she provides an overview of the conditions that may lead to a market failure in the appropriation of intellectual goods and concludes that there is a need for intellectual property protection. 44 Jonathan R. Chally, ʻThe Law of Trade Secrets: Toward a More Efficient Approachʼ [2004] 57 Vanderbilt LR 1269, 1280: “Trade secret law enhances exclusivity and thereby increases innovation by supplanting the precautions that an innovator must take to guard the secrecy of her information”. § 2 The problematic justifications underlying trade secrets protection 37 covering his investment.45 In this scenario, there would be no market failure, as the holder would internalise the benefits of innovation and would be able to recoup the investment made in the creation of the information.46 However, the rights in a trade secret are not absolute; protection is only envisaged against misappropriation.47 The incentives to innovate argument was most prominently raised by the U.S. Supreme Court in its landmark decision Kewanee Oil Co. v. Bicron Co., where it was noted that “trade secret law will encourage invention in areas where patent law does not reach, and will prompt the independent innovator to proceed with the discovery of his invention”.48 Notwithstanding the aforementioned, in recent years, a number of scholars have cast doubt on the extent to which trade secrets law in fact creates incentives to innovate and create.49 It cannot be ensured that the 45 See Mark A. Lemley 2008 (n 15) 330; the TSD also echoes this argument in Recital 1, where it is stated that “By protecting such a wide range of know-how and commercial information, whether as a complement or as an alternative to intellectual property right, trade secrets allow the creator to derive profit from his/her creation and innovations and therefore are particularly important for research and development and innovative performance”. 46 David D. William M. Landes and Richard A. Posner, ʻSome Economics of Trade Secret Lawʼ [1991] 5 JEP 61, 64 noting that trade secret law provides means of internalizing the benefits of innovation; similarly, Jerome H. Reichman, ‘How trade secrecy law generates a natural semicommons of innovative know-how’ 185, 188 in Rochelle C. Dreyfuss and Katherine J. Strandburg (eds), The law and theory of trade secrecy (Edward Elgar 2011) purports that the law of trade secrets encourage investment in innovative activities: “the conduct-based liability rules of trade secrecy law were the primary vehicle for stimulating investment in innovative enterprise after the industrial revolution. This conclusion follows because most innovation consists of cumulative and sequential applications of know-how to industry by routine engineers at work on common technical trajectories. Given relatively high standards of non-obviousness in patent law, as well as the possibilities for inventing around patents once issued, most commercial ventures depend on the conduct-based liability rules of trade secrecy law (and other unfair competition laws, as well as trade mark law) for opportunities to recoup their investment in R&D”. 47 See Mark A. Lemley 2008 (n 15) 329-330. 48 Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 481-482 (1974). 49 See Michael Risch 2007 (n 15) 26 noting that the creation of incentives to innovate “is only a very minor justification of trade secret law”. Chapter 1. Concept, justifications and legal nature of trade secrets 38 information protected is innovative, as it merits protection for the mere fact of being secret.50 From an economic perspective, Bone argues that the objective of protecting information is to distribute it widely, so long as such information is still created. He further notes that secrecy generates high costs, but these have been overlooked by most of the existing literature.51 In his cost-benefit analysis, two different scenarios are considered: (i) incentives as regards patentable inventions that most likely will not be reinvented during the patent term, and (ii) non-patentable inventions that are difficult to invent around. In the first case, choosing secrecy over patent protection may lead to a wasteful duplication of efforts, as trade secrets law does not prevent independent discovery by competitors. Furthermore, this may have an adverse effect on cumulative innovation.52 As noted by Beier and Straus, “the greatest danger of keeping an invention secret lies in the fact that the inventor cannot be fertile in its own field as the mother of new inventions”.53 In effect, innovation nowadays is to a large extent cumulative; every innovator uses prior discoveries or developments as a basis for further innovation.54 Hence, in most cases, the benefit of a given innovation lies in the boost it gives to subsequent innovators.55 If the holder of innovative information conceals it as a trade secret, later innovators will not be able to use it for their own innovations. In the case of non-patentable inventions, Bone purports that trade secrets law only creates ex ante incentives to innovate if they are “moderately” difficult to reverse engineer. If the secret can be unveiled with little effort it only merits very weak protection, as it will most likely not be considered secret. At the other end of the spectrum, inventions that are very 50 Josef Drexl, ‘Refusal to grant access to trade secrets as an abuse of market dominance’165, 181-182 in Steven Anderman and Ariel Ezrachi (eds), Intellectual Property and Competition Law (OUP 2011). 51 Robert G. Bone 1998 (n 15) 266; Michael Abramowicz and John F. Duffy, ʻIntellectual Property for Market Experimentationʼ [2008] 83 NYULR 337, 391. 52 William Landes and Richard Posner 2003 (n 38) 357 note that in this case, applying for a patent may enable the competitor to invent around of instruct him on how to infringe. The relationship between patents and trade secrets is discussed in detail in chapter 1 § 3 A) I. 53 Friederich-Karl Beier and Josef Straus, ʻThe Patent System and Its Informational Functionʼ [1977] IIC 387, 397. 54 Cumulativeness is central in technological fields such as biotechnology, computer hardware and computer software. 55 Suzanne Scotchmer 2004 (n 41) 127. § 2 The problematic justifications underlying trade secrets protection 39 difficult to reverse engineer or reinvent are likely to be deemed inventive and thus patent law would provide greater incentives than trade secrecy law.56 On this specific point he disagrees with Landes and Posner, who consider that allowing for trade secret protection proves that the patent system was wrong and consequenlty the holder can achieve a level of exclusivity similar to the one provided by patent rights.57 In a similar vein, Chiappetta submits that there are two major shortcomings to the encouragement of innovation theory. In the first place, he argues that this guiding principle alone does not provide solid grounds to establish the rights conferred by a trade secret and the equally important limitations to those rights, such as reverse engineering and independent creation. Next, he is of the opinion that the grant of IPRs is largely based on the presumption that they will provide incentives to create and that applying the same foundation to justify trade secrets protection may “conflict, duplicate or absorb” the incentives provided by patent and copyright law.58 Against this background, Risch further suggests that formal IPRs, such as patents and copyright, confer a period of exclusivity to allow the holder to recoup the cost of the creation. However, he convincingly argues that this rationale does not apply in the case of trade secrets protection: in the absence of self-help measures, if a company cannot keep valuable information concealed from third parties, trade secrets laws will not provide additional incentives to maintain the confidentiality of the said information.59 In the light of the foregoing criticism, it has been suggested that the protection of trade secrets is to be understood as a social subsidy to encourage market experimentation, rather than as an incentive to innovate. Such an approach underscores that trade secrets laws, as opposed to patent laws, also afford protection to non-technological information produced during the ordinary course of business. Consequently, the main purpose of trade secrets law would not be to foster the creation of information, but rather to foster the development of business activities as such. Under this theory, by protecting business data that can be kept undisclosed, the entry of competitors would be deterred and the profits of the first comers would increase accordingly. This is likely to generate stronger incentives for com- 56 Robert G. Bone 1998 (n 15) 266-270. 57 William Landes and Richard Posner 2003 (n 38) 358-359. 58 Vincent Chiappetta 1999 (n 24) 88. 59 Michael Risch 2007 (n 15) 27. Chapter 1. Concept, justifications and legal nature of trade secrets 40 panies to carry out market experiments that create data, irrespective of their inventive or original nature.60 Bearing the above analysis in mind, it can be concluded that trade secrets protection does provide certain incentives to create new information of both a commercial and technical nature. It protects factual secrecy over the information concerned until it becomes generally known, thus allowing the creator to internalise the benefits of innovation. It is also a useful means to encourage market experimentation and the development of business. The most salient problem in this context is reconciling these incentives with the ones created by other IPRs (more notably patent law), and avoiding tensions with the former. This can best be achieved through the establishment of clear and solid exceptions and limitations to the rights in a trade secret, such as reverse engineering, independent discovery or even a public interest defence, such as the one implemented in England under the breach of confidence action.61 Incentives to disclose One of the soundest policies that explains trade secrets law is that it creates incentives to disclose by reducing transaction costs. The efficient exploitation of secret information requires that the holders are able to pass on information to other parties, with some certainty that they will not reveal it or use it against their interests. This applies not only within the internal sphere of a company (employees), but also in relation to third parties (suppliers of materials, prospective company partners, clients or licensees).62 Even though at first glance this may seem counterintuitive, trade secrets protection provides a partial solution to the so-called “Arrow’s Information Paradox”, which is best explained with an example, such as the nego- II. 60 Michael Abramowicz and John F. Duffy 2008 (n 51) 391 the authors nevertheless conclude that “on our theory, trade secret law may be overinclusive -it protects copycat businesses too- but in general, innovators are the businesses that have the most information worth protecting”. 61 This topic will be elaborated further in chapter 6 below. 62 Aurea Sunol, ʻTrade Secrets vs Skill and knowledgeʼ 197, 198-199 in Fabrizio Cafaggi and others (eds), The Organizational Contract, From Exchange to Long-term network Cooperation in European Contract Law (Ashgate 2013). § 2 The problematic justifications underlying trade secrets protection 41 tiation of a licensing agreement.63 In this case, the commercial exploitation of information requires that any potential licensee, prior to concluding the agreement, gains full knowledge of the information object of the contract. However, such a disclosure implies that the licensee acquires the information in question without cost and to the detriment of the licensor. In view of this, the licensor will be reluctant to engage in negotiations unless the licensee agrees not to use such information in the event that no contract is concluded. Under such an agreement the licensee could be precluded from using the information even if he developed it independently or through reverse engineering. Therefore, transaction costs increase and licensing becomes more difficult.64 In order to solve the Information Paradox, trade secrets provide a legal right to prevent third parties from using and disclosing information revealed in confidence during the course of precontractual negotiations.65 As a result, the holder of information will be more willing to share it, thus facilitating the conclusion of licensing agreements (or any other commercial transactions) and ultimately the exploitation of knowledge.66 This argument has been strongly criticised because it does not contemplate a number of parameters. In particular, it has been suggested that the limited disclosure achieved through a licensing agreement or other transactions is not the kind of disclosure that intellectual property law aims at promoting.67 For instance, in patent law the grant of an exclusive right is conditioned upon the publication of the relevant technology in the patent specification. This allows competitors to invent around and avoid the duplication of research,68 thus fostering competition in the market and incentivising the creation of new products. In the words of the U.S. Supreme Court: 63 Kenneth J. Arrow, ʻAllocation of Resources for inventionʼ 609, 615 in Universities-National Bureau Committee for Economic Research and Committee on Economic Growth of the Social Science Research Council (ed), The Rate and Direction of Inventive Activity: Economic and Social Factors (Princeton University Press 1962): “There is a fundamental paradox in the determination of demand for information; its value for the purchaser is not known until he has the information, but then he has in effect acquired it without cost”; Josef Drexl 2011 (n 50) 181-182. 64 Robert G. Bone 1998 (n 15) 280. 65 Mark A. Lemley 2008 (n 15) 336. 66 James Pooley, Trade Secrets (Law Journal Press 2002) § 1.02[5]1-12 67 Robert G. Bone 1998 (n 15) 280. 68 William Landes and Richard Posner 2003 (n 38) 357. Chapter 1. Concept, justifications and legal nature of trade secrets 42 Patents are not given as favours (…) but are meant to encourage invention by rewarding the inventor with the right, limited to a term of years fixed by the patent, to exclude others from the use of his invention.69 The disclosure of the technical teachings of a patent is of paramount importance for technological, economic and social development.70 As a matter of principle, this function is undermined by the law of trade secrecy, due to the fact that information may never become generally known. As a whole, there is social value in the general dissemination of information that is not fulfilled in the case of licensing agreements (or any other commercial transaction), where information is only disclosed to the other parties to the negotiation. In the same vein, it has been argued that the Arrow Paradox could be solved by the operation of contract law, without the need to resort to specific legislation.71 To be sure, it is undeniable that trade secrets laws incentivise some level of secrecy, as protection is only afforded to information that is not generally known. However, considering the previous analysis, there are solid grounds to argue that they also help to lower the transaction costs associated with the commercial exploitation of confidential information, which despite not fulfilling the patent system’s underlying information function in the broadest sense, is also desirable in order to enhance cooperation between market participants and facilitate organisation within a company. Limit to the arms race Even more convincing is the theory that trade secrets protection helps to decrease the economic investment in the factual protection of secret information. Trade secrets law serves as an alternative to measures that undertakings would otherwise have to adopt for the purposes of ensuring confi- III. 69 Sears Roebuck&Co. v. Stiffel Co., 376 U.S. 225, 229-230 (1964). 70 Friedrich-Karl Beier, ʻDie Bedeutung des Patentsystems für den technischen, wirtschaftlichen und sozialen Fortschrittʼ [1979] GRUR Int 227, 234: “Wichtig ist aber vor allem die Erkenntnis, daß die Verbreitung technischer Kenntnisse durch die Ausschließlichkeit des Patentrechts nicht etwa gehemmt, sondern im Gegenteil entscheidend gefördert wird. Man sollte an sich meinen, die optimale Form der Verbreitung und Anwendung technischen Wissens bestehe darin, es jedermann, z. B. durch Veröffentlichung in Fachzeitschriften, kostenlos zur Verfügung zu stellen”. 71 Robert G. Bone 2014 (n 15) 1818. § 2 The problematic justifications underlying trade secrets protection 43 dentiality (self-help measures).72 If no such thing as the law of trade secrets existed, holders of information would spend large sums of money protecting their secrets (both through physical measures and additional remuneration for employees to keep the business’s secrets or not leave the company). In turn, appropriators would increase the amount spent to acquire them. This would lead to a so-called “arms race” without social value.73 This is best illustrated with a real example. An undertaking with two manufacturing facilities, one located in the United States and the other in China, equipped the latter with very sophisticated technology in order to prevent trade secrets misappropriation (fingerprint scanners, almost no Internet access, physical security, etc.), whereas in the one located in the United States only standard efficient measures were implemented. The difference in the self-help measures adopted was triggered by the fact that the trade secret holder did not rely on the possibility of enforcing trade secrets protection in China.74 In view of these conflicting interests, the law of trade secrets strikes a balance between the wish to acquire a competitor’s information and the need to protect one’s own information. This is achieved by prohibiting only the costliest means of acquiring a secret, thus preventing holders from being forced to implement equally expensive and non-efficient protective measures.75 The resources saved both by the holder of the information and the alleged misappropriator can be invested in a more productive way.76 In order to achieve such a balance, trade secret holders are only required to implement “reasonable steps under the circumstances”.77 Although convincing, this justification has been challenged by commentators in the U.S. on the basis of the following four arguments: in the first place, the detection of misappropriation conduct in practice can be very 72 Mark A. Lemley 2008 (n 15) 332. 73 Michael Risch 2007 (n 15) 43-44; similarly, Mark A. Lemley 2008 (n 15) 334 noting that evidence shows that overinvestment in secrecy is a problem in countries like Brazil or Mexico where trade secret protection and enforcement are not efficient. 74 This case is reported by Michael Risch 2007 (n 15) 44. 75 William Landes and Richard Posner 2003 (n 38) 364, 365; Peter S. Menell and Suzanne Scotchmer, ʻIntellectual Propertyʼ 1473, 1479 in A. Mitchell Polinsky and Steven Shave (eds), Handbook of Law and Economics, vol 2 (Elsevier 2007). 76 William Landes and Richard Posner 2003 (n 38) 371: “Obtaining a trade secret by force or fraud … should be punishable because of the heavy costs that would be incurred in self-help remedies against such incursions if they were lawful and the damage to the incentive to invent that would be produced”. 77 See Article 39(2)(c) TRIPs. Chapter 1. Concept, justifications and legal nature of trade secrets 44 costly.78 Similarly, bringing lawsuits is also usually very expensive for most trade secret holders, as they bear the burden of proof.79 Likewise, the extent to which rules that try to prevent arms races will merely result in the efforts being directed elsewhere (namely, costly litigation or more sophisticated technology to acquire the secret) is unclear.80 Finally, it should be borne in mind that not all arms races are wasteful. The law should not prevent those (unusual) ones that yield spill-over benefits that would not have been achieved otherwise.81 Ultimately, the persuasiveness of this argument should be based upon a comparison of the costs in a legal system where no trade secrets protection is envisaged and the social cost incurred where such protection is foreseen.82 The privacy rationale Trade secrets protection has often been justified on the basis of business privacy.83 This approach has both a deontological and utilitarian dimen- IV. 78 James Pooley and others, ʻUnderstanding the Economic Espionage Act of 1996ʼ [1997] 5 Texas IPLJ 177, 224: “Information loss is inherently difficult to detect, since the original property remains intact, apparently untouched”. 79 Robert G. Bone 2014 (n 15) 1816. 80 Douglas Gary Lichtman, ʻHow the Law Responds to Self-Helpʼ (2004) John M. Olin Program in Law and economics Working Paper 232, 31 accessed 15 September 2018. 81 Douglas Gary Lichtman 2004 (n 80) 32 arguing that the race on distribution of online materials protected under copyright law has yielded substantial progression on Internet based technologies. 82 Tanya Aplin and others 2012 (n 22) para 3.16. 83 The U.S. Supreme Court adopted a similar position in three of its landmark decisions on trade secret protection. In E.I. DuPont de Nemours&Co. v. Cristopher, 447 431 F.2d 1012, 1016 (5th Cir. 1970) the Court noted that “Our tolerance of the espionage game must cease when the protections required to prevent another’s spying cost so much that the spirit of inventiveness is dampened. Commercial privacy must be protected from espionage which could not have been reasonably anticipated or prevented”; some years later, when ruling on the potential preemption of state trade secret law by federal patent law, the Court stressed in Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 487 (1974) that “A most fundamental right, that of privacy, is threatened when industrial espionage is condoned or is made profitable; the state interest in denying profit to such illegal ventures is unchallengeable; finally, the Supreme Court restated that privacy was one of the three policies underlying trade secret protection in Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 155 (1989); see Melvin F. Jager, Trade Secrets Law (Thomsons Reuters 2015) § 1:5. § 2 The problematic justifications underlying trade secrets protection 45 sion. Before turning to these, some general remarks should be made as to its conceptual contours. The Right of Privacy has been defined as “the Right of a person to be free from intrusion into matters of a personal nature”84 or in a more succinct fashion, as the right “to be let alone”.85 In Europe, it has been codified in Article 8 of the European Convention on Human Rights86 and is now part of the acquis communautaire since the entry into force of the Charter of Fundamental Rights of the European Union (“ChFREU”) pursuant to Article 7.87 88 The European Court of Human Rights (“ECtHR”) has interpreted that Article 8 ECHR is essentially intended to: ensure the development, without outside interference, of the personality of each individual in his relations with other human beings. There is therefore a zone of interaction of a person, with others, even in the public context, which may fall within the scope of private life.89 84 Encyclopaedia Britannica, ‘Rights of privacy’ accessed 15 September 2018. 85 Samuel Warren and Louis Brandeis, ‘The Right to Privacy’ [1980] 4 Harvard LR 193, 195 (as cited in Thomas M. Cooley on Torts, A Treatise on the Law of Torts, Or, The Wrongs which Arise Independent of Contract (2nd edn, Callaghan 1879) 29); other definitions include the one provided by the Parliamentary Assembly of the Council of Europe “Right to live one’s own life with a minimum of interference” Resolution 1165 (1998) Assembly debate on 26 June 1998 (24th Sitting). Doc. 8130, report of the Committee on Legal Affairs and Human Rights (rapporteur: Mr Schwimmer), Doc. 8147, opinion of the Committee on Culture and Education (rapporteur: Mr Staes) and Doc. 8146, opinion of the Social, Health and Family Affairs Committee (rapporteur: Mr Mitterrand). 86 Article 8 of the Convention for the Protection of Human Rights and Fundamental Freedoms (European Convention on Human Rights, as amended on 1 June 2010) (ECHR) reads as follows: “1. Everyone has the right to respect for his private and family life, his home and his correspondence. 2. There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic wellbeing of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others”. 87 Article 7 of the Charter of Fundamental Rights of the European Union [2012] OJ C326/391 (ChFREU) sets out that: “Everyone has the right to respect for his or her private and family life, home and communications”. 88 Both provisions are rooted in the Universal Declaration of Human Rights (adopted 10 December 1948 UNGAs 217 A (III) (UDHR), Art 12. 89 Von Hannover v Germany (2005) 40 EHHR 1, para 50. Chapter 1. Concept, justifications and legal nature of trade secrets 46 As is apparent from the above, privacy arguments appear best suited for physical persons. Corporations do not present the personality attributes a priori protected by such a right that would ultimately justify trade secrets protection.90 Notwithstanding this, the ECtHR in Société Colás Est v France,91 a case concerning the inspection of the premises of various companies during the course of an investigation by the French Competition Authority, held that “in certain circumstances the rights guaranteed by Article 8 of the Convention may be construed as including the right to respect for a company’s registered office, branches and other business premises”.92 93 In view of this and following a dynamic interpretation of the ECHR, the scope of Article 8(1)ECHR might be extended to the protection of telephone, mail or electronic communications in the context of an inspection of premises.94 The CJEU has followed a more extensive approach and has stated that the privacy right “cannot be taken to mean that the professional or commercial activities of either natural or legal persons are excluded.95 In the same vein, it has concluded that “the protection of business secrets is a general principle”.96 Consequently, from a deontological perspective, even if it could be agreed that legal persons are entitled to a right of privacy, it is still unclear whether or not trade secrets fall under the scope of its protection, as resorting to a moral right to commercial privacy for corporations is seemingly weak. As noted above, such a right can best be explained in the context of personal relationships, but it is unsatisfactory when applied to corporations and the protection of their undisclosed information.97 On the other hand, following a utilitarian rationale, trade secrets protection ensures that companies have a so-called “Laboratory Zone” in which 90 Robert G. Bone 1998 (n 15) 286-288; Tanya Aplin and others 2012 (n 22) para 3.31. 91 Société Colás Est v France (2004) 39 EHRR 17. 92 Société Colás Est v France (2004) 39 EHRR 17, para 388. 93 A more detailed account of this issue is provided by Tanya Aplin, ‘A right of privacy for corporations?’ 475-505 in Paul L.C. Torremans (ed), Intellectual Property and Human Rights (Kluwer Law International 2008). 94 Tanya Aplin 2008 (n 93) 14. 95 Case C–450/06 Varec SA v Belgium [2008] ECR I-581 para 48. 96 Case C–450/06 Varec SA v Belgium [2008] ECR I-581 para 48; Gianclaudio Malgieri, ‘Trade Secrets v Personal Data: a possible solution for balancing rights’ [2016] 6 International Data Privacy LR 1, 9. 97 Robert G. Bone 1998 (n 15) 288-289. § 2 The problematic justifications underlying trade secrets protection 47 to develop their inventions or business strategies in confidence.98 Trial and error is essential to any innovative process and it is most effectively carried out under conditions of secrecy. It is also crucial to preserve the novelty of an innovation until the application date.99 A similar rationale can be applied with respect to commercial and business information; a market strategy cannot be known to competitors to succeed.100 As noted by the Commission, “every IPR starts with a secret”.101 As a whole, the protection of “business privacy” in its utilitarian dimension appears as a key element to encourage both innovation and competition in the market. If secrecy were not protected at all and every market participant had access to a competitor’s information, incentives to innovate and compete with better products would disappear.102 Conclusion on the doctrines underlying trade secrets protection A survey of the main legal justifications underlying trade secrets protection reveals that deontological theories seem intrinsically vague. In effect, resorting to commercial moral standards, natural labour value principles and contractarian doctrines does not seem to provide solid legal grounds to justify some of the pillars upon which trade secrets laws are premised. Under the commercial ethics theory, reverse engineering and the limitation of post-contractual obligations do not appear legitimate. Equally, following labour value doctrines, the creation of information should confer a property right in rem on its creator, irrespective of the concealed nature of the information, which furthermore should not be subject to any exceptions and limitations. Similar considerations apply to contractarian theories: C) 98 This argument is discussed by Ansgar Ohly, ‘Reverse Engineering: Unfair Competition or Catalyst for Innovation?’ 540, 547 in Joseph Drexl and others (eds), Patents and Technological Progress in a Globalized World (Springer 2009). 99 Florian Schweyer, Die rechtliche Bewertung des Reverse Engineering in Deutschland und den USA (Mohr Siebeck 2012) 431-432. 100 Ansgar Ohly, ‘Der Geheimnisschutz im deutschen Recht: heutiger Stand und Perspektiven’ [2014] GRUR 1, 3. 101 Commission, ‘Explanatory Memorandum, Proposal for a Directive of the European Parliament and of the Council on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure’ 2. 102 Jerome H. Reichman, ‘Legal Hybrids Between the Patent and Copyright Paradigm’ [1994] 94 Columbia LR 2432, 2506 noting that competition presupposes the lead time conferred by secrecy. Chapter 1. Concept, justifications and legal nature of trade secrets 48 there is no actual evidence that the assumptions upon which they are premised would take place in the real world. Consequently, it is submitted that utilitarian theories provide a more solid justification for the enactment of rules that regulate the protection of trade secrets and the resulting limitation on the flow of information among market participants that such protection entails. As argued above,103 trade secrets legislation protects factual secrecy, allowing the creator of information to internalise the benefits of its (incremental) innovations, thereby preventing potential market failures in the development of information that is not eligible for protection under the general IPRs framework. Crucially, it creates incentives to encourage market experimentation and the development of business as such. According to the incentives to disclose rationale, trade secrets legal regimes also lower the transaction costs associated with the commercial exploitation of confidential information, foster cooperation between market participants and prevent the fragmentation of information within the internal sphere of a company. Most importantly, trade secrets laws prevent wasteful arms races in the adoption of protective measures and provide companies with a Laboratory Zone in which to develop their innovations without third party interference.104 Whereas some of the doctrines analysed above, such as the contractarian theories and incentives to innovate rationale, are common to other IPRs (patents and copyright), others serve conflicting interests. For instance, the incentives to disclose doctrine serves different objectives to the disclosure function under patent law. Such a tension inevitably leads to the question of how trade secrets interrelate with other IPRs and whether they should even be conceptualised as a species of them. This complex topic is the object of analysis in the following section (§ 3). Dissecting the legal nature of trade secrets: between IPRs and unfair competition The legal nature of secret information is one of the most contested aspects of the law of trade secrets. There has been a longstanding debate regarding whether they should be considered property rights or even be protected as § 3 103 See chapter 1 § 2 B) I. 104 Contrary, Robert G. Bone 1998 (n 15) concludes that there is no normative theory capable of justifying trade secrets protection. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 49 an IPR. This tension is a common theme in other areas of intellectual property law and stems from the different conceptions of property in civil law countries and the “Anglo-American legal system”.105 In the former, the property right is understood as a single and solid right that the owner has in respect of the material object.106 It is regarded as the most complete and absolute right that one can enjoy in an asset.107 By contrast, property in common law is a broader notion that comprises a number of situations where a person has “some exclusive rights, though not absolute, to use a resource”.108 As regards intellectual property, the problem lies in the extension of the property metaphor to the protection of intangible assets, because originally it was only envisaged to protect real property.109 Therefore, some commentators suggest that intellectual property should be considered a “unique form of legal protection” that is specifically tailored to deal with the protection of public goods.110 This controversy is even more prominent in the field of trade secrets, as they present a hybrid legal nature within the IPRs spectrum, and share some of the features of IPRs and some of the unfair competition paradigm.111 105 Thomas Dreier, ‘How much ‘property’ is there in intellectual property?’ 116, 116-117 in Helena R. Howe and Jonathan Griffiths (eds), Concepts of Property in Intellectual Property Law (CUP 2013); Ralf Michaels, ‘Property’, The Max Planck Encyclopaedia of European Private Law (OUP 2012) 1371 noting that: “The term property is ambiguous. Sometimes property designates a right in an object; sometimes it designates the object itself: a person has property in an object, and the object is her property. Understood as a right, property is the most comprehensive right that one can have over an object. It encompasses the right to use and enjoy, the right to exclude and the power to dispose”. 106 Thomas Dreier 2013 (n 105) highlighting that “the effects of this different understanding of the legal concept of what constitutes property in general runs like a red thread through the history of intellectual property protection in most, if not all civil law states”. 107 Séverine Dusollier, ‘The commons as a reverse intellectual property-from exclusivity to inclusivity’ 258, 265 in Helena R. Howe and Jonathan Griffiths (eds), Concepts of Property in Intellectual Property Law (CUP 2013). 108 Séverine Dusollier 2013 (n 107) 265. 109 Mark. A. Lemley, ‘Property, Intellectual Property, and Free Riding’ [2004] 83 Texas LR 1031, 1033. 110 Mark A. Lemley 2004 (n 109) 1031-1032; see also Lionel Bently, ‘Trade Secrets: ʻIntellectual propertyʼ but not property?’ in Helena R. Howe and Jonathan Griffiths (eds), Concepts of Property in Intellectual Property Law (CUP 2013). 111 Stanisław Sołtysiński, ‘Are Trade Secrets Property?’ [1986] IIC 331-356 distinguishes between property and subjective rights. Chapter 1. Concept, justifications and legal nature of trade secrets 50 The following sections intend to map out the complex topic of the legal nature of trade secrets protection, following a two-fold approach. In the first place, the relationship and overlaps between trade secrets law and other IPRs (patents, copyrights, trade marks and the database right) are examined in section A. Next, section B looks into whether trade secrets themselves can be the object of an IPR. To this end, the prevailing academic and case law views on this topic are surveyed. The unsettled relationship between trade secrets and IPRs Trade secrets and patents112 The relationship between the patent system and trade secrecy is not settled. These two means of appropriation have often been regarded as mutually exclusive.113 Such an approach, nevertheless, overlooks many aspects of the interplay between the two regimes. In fact, trade secrets protection supplements the patent system in a number of ways. In view of this, the following sections provide an analysis of the three possible scenarios in which trade secrets and patents may interact: (i) trade secrets prior to patenting; (ii) preferring trade secrecy to patents, and (iii) combining patent protection with trade secrets protection.114 A) I. 112 Similar considerations would apply in the context of utility models that are characterised, among others, by a (i) flexibility on the level of novelty (innovations are usually required to be regionally or even locally new); (ii) a lower level of inventiveness and (iii) a shorter term of duration than patents (the period of durations in countries that do provide for utility models protection ranges from five to twenty years); see further on this issue Uma Suthersanen, ‘Utility Models and Innovation in Developing Countries’ (2006) ICTSD Issue Paper No. 13, 2 accessed 15 September 2018 and Henning Grosse Ruse-Khan, ‘The International Legal Framework for the protection of Utility Models’ (2012) WIPO Regional Seminar on the Legislative, Economic and Policy Aspects of the Utility Model System, Kuala Lumpur accessed 15 September 2018. 113 For instance Michael Risch 2011 (n 113) 168 noting that “Patent law and trade secret law cannot be co-extensive because trades secrets must be secret and patents must be publicly disclosed”; contrary, David D. Friedman, William M. Landes and Richard A. Posner, ‘Some Economics of Trade Secret Law’ [1991] 5 JEP 61, 64. 114 The legal analysis of this section is conducted based on the framework created by the European Patent Convention, as it governs the application and grant pro- § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 51 Trade secrets prior to patenting Pursuant to Article 52(1) of the European Patent Convention,115 patents shall only be granted for inventions if they are new, involve an inventive step and are susceptible to industrial applicability.116 Frequently, before reaching the patentability stage, undertakings must conduct costly and lengthy research and development endeavours, particularly in order to come up with an invention with some degree of industrial applicability.117 This process should be carried out in a working environment where secrecy is guaranteed for the purposes of ensuring novelty, the Laboratory Zone referred to above.118 Conversely, the invention would fall into the public domain and would not meet the patentability standards. In practice, stakeholders also take this time to assess, from a business perspective, whether to apply for a patent or opt for informal protection (such as secrecy, lead time or complexity).119 Under the legal framework created by the EPC, an invention can be exploited secretly without detriment to the possibility of obtaining a patent for it later on.120 Notwithstanding this, prior to filing an application with the patent office, the holder of the information should be careful not to disclose it. In this regard, it is important to note that the priority date is crucial for two reasons: it indicates the date at which novelty is assessed 1. cess for European patents and has shaped patent law in the 28 Member States. The three identified scenarios follow the scheme presented by Lionel Bently, ‘Patents and trade secrets’ 57 para 3.62 in Neil Wilkof and Shamnad Basheer (eds), Overlapping Intellectual Property Rights (OUP 2012). 115 Convention on the Grant of European Patents (European Patent Convention) of 5 October 1973 (as revised by the Act revising Article 63 EPC of 17 December 1991 and the Act revising the EPC of 29 November 2000) (EPC). 116 See also Article 27(1) TRIPs. 117 Lionel Bently 2012 (n 114) para 3.58; Robert P. Merges, ‘Priority and Novelty Under the AIA’ [2012] 27 Berkeley Technology LJ 1023, 1044. 118 See chapter 1 § 2 B) IV. 119 This is further developed by Katrin Hussinger, ‘Is Silence golden? Patent versus secrecy at the firm level, Governance and the Efficiency of Economic Systems’ (2005) ZEW Discussion Papers 04-78, 16 accessed 15 September 2018 noting that the strong reliance on secrecy takes places for early-state inventions that will be marketed afterwards. 120 Lionel Bently 2012 (n 114) para 3.62; Rudolf Kraßer and Christoph Ann, Patentrecht (6th edn, C.H. Beck 2009) § 16 IV, Rdn 2; similarly, in the U.S. with the adoption of The Leahy-Smith America Invents Act, Pub. L. No. 112-29, 125 Stat. 284 (2011) (America Invents Act of 2011 or AIA), see 35 U.S.C. § 102(a)(1). Chapter 1. Concept, justifications and legal nature of trade secrets 52 and the date at which the invention can be used without compromising potential patents.121 The novelty requirement plays a central role in understanding the complementarity between secrecy and patents. The basic framework for the assessment of this patentability condition is laid down in Article 54 EPC, which as a general rule provides that an invention is new if it does not form part of the state of the art (paragraph 1). In turn, the state of the art is composed of everything that is made available to the public (paragraph 2).122 No territorial or time limits shall apply for establishing relevant disclosures, provided that there is an actual possibility of acquiring the knowledge.123 This can be oral, written or even refer to public prior uses that make the invention accessible. There are also no restrictions regarding the type of media in which the information is made available.124 Typically, the question that arises in connection with trade secrets is whether marketing a product in which a secret invention is embodied renders it automatically available and thus part of the public domain. Consistent case law from the Boards of Appeal of the European Patent Office (“EPO”) indicates that the use of an invention is only regarded as noveltydestroying if it is possible for members of the public to acquire knowledge of that subject matter on the relevant priority day. This includes not only the external examination of the product, but also the obtention after further analysis of the intrinsic features (those which do not need to interact with external conditions to become apparent).125 Against this background, it should be noted that pursuant to settled case law from the Boards of Appeal of the EPO, if it is possible to reverse engineer the secret, the invention will lack novelty for the purposes of patent law, provided that there 121 Lionel Bently 2012 (n 114) para 3.62. 122 See Article 54 EPC. 123 The EPC follows an absolute novelty approach. For instance, in T 355/07 (28 November 2008) the Boards of Appeal of the European Patent Office (EPO) considered that the theoretical possibility of having access to the information included in a document on a particular date renders it available to the public as of that date, regardless of whether on that date a member of the public actually inspected the file; see also Rudolf Kraßer and Christoph Ann 2009 (n 120) Kapitel 3, § 17 I a) 1; William Cornish, ‘The Essential Criteria for Patentability of European Inventions: Novelty and Inventive Step’ [1983] IIC 765, 765-766. 124 Joel Nägerl and Lorenz Walder-Hartmann, ‘Differentiation from the state of the art’ 129, 142-150 in Maximilian Haedicke and Henrik Timmann (eds), Patent Law A Handbook on European and German Patent Law (C.H. Beck 2014). 125 Lionel Bently and Brad Sherman, Intellectual Property Law (4th edn, 2014 OUP) 536. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 53 was no confidentiality obligation restricting the use or dissemination of such knowledge and no additional inventive effort is required.126 Notably, secret information disclosed in confidence is not regarded as available.127 The existence of a confidentiality obligation can derive either from an express or a tacit agreement.128 If, on the other hand the recipient of secret information covering a patentable invention reveals it, for example breaching a duty of secrecy, such a disclosure is deemed non-prejudicial when assessing novelty.129 In this case, the holder of the information has six months to file for a European patent.130 If the disclosure takes place before the six months prior to the filing of the application, it will lack novelty and thus will be part of the state of the art.131 All in all, the legal framework created by the EPC affords some level of protection to an inventor who relies on secrecy prior to patenting. This approach is in line with the argument that “every IPR starts with a secret”132 126 G 1/92 [1993] OJ EPO 277, 279; see further Guidelines for Examination in the EPO. Part G. Chapter IV. Section 6.2.1 noting that “subject matter should be regarded as made available to the public by use or in any other way if, at the relevant date, it was possible for members of the public to gain knowledge of the subject-matter and there was no bar of confidentiality restricting the use or dissemination of such knowledge (…). This may, for example, arise if an object is unconditionally sold to a member of the public, since the buyer thereby acquires unlimited possession of any knowledge which may be obtained from the object. Even where in such cases the specific features of the object may not be ascertained from an external examination, but only by further analysis, those features are nevertheless to be considered as having been made available to the public. This is irrespective of whether or not particular reasons can be identified for analysing the composition or internal structure of the object”. 127 See Article 55(1)(a) EPC. 128 Lionel Bently 2012 (n 114) para 3.68; T 830/90 [1994] OJ EPO 713 and T 681/01 (28 November 2006) para 2.8, where the Technical Board of Appeal noted that the supply of a product does not necessarily entail a tacit agreement as to confidentiality. 129 Guidelines for Examination in the EPO. Part G. Chapter V. Section 3; see also Rudolf Kraßer and Christoph Ann 2009 (n 120) Kapitel 3, § 16.A.IV. Rdn 2. 130 Guidelines for Examination in the EPO. Part G. Chapter V. Section 2. 131 Article 55(1) EPC; this point was later clarified by the EPO Enlarge Board of Appeal in G 2/99 [2001] OJ EPO 83, where it was noted that the relevant date to calculate the six months period was the actual date of filing before the EPO and not the priority date. 132 Commission, ‘Explanatory Memorandum, Proposal for a Directive of the European Parliament and of the Council on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure’ 2. Chapter 1. Concept, justifications and legal nature of trade secrets 54 and highlights the complementarity of patents and trade secrets as appropriation methods.133 Inventors can rely on secrecy during the development phase and apply for patents to protect their inventions during the marketing phase. Notwithstanding this, the EPC also imposes temporal restrictions on unlawful disclosure in order to encourage early patenting.134 Preferring trade secrets over patents Analysis of economical empirical evidence Contrary to the general belief that patents protect a company’s most valuable inventions, empirical evidence suggests that alternative mechanisms, such as secrecy and lead-time advantage, are the preferred methods of appropriating returns from innovation.135 This is true at least in the EU,136 the UK,137 Switzerland138 and the U.S.139 Indeed, it has been reported that in the UK, only 4% of the companies engaging in innovative activities applied for a patent between 1998 and 2006.140 This figure is only slightly higher for undertakings operating in the U.S., where only 5,5% of the 2. a) 133 Anthony V. Arundel, ‘The relative effectiveness of patents and secrecy for appropriation’ [2001] 30 Research Policy 611-624. 134 Lionel Bently 2012 (n 114) para 3.68. 135 Bronwyn H. Hall, Christian Helmers, Mark Rogers and Vania Sena, ‘The Choice between Formal and Informal Intellectual Property: A Review’ [2014] 52 Journal of Economic Literature 1, 6. 136 Anthony V. Arundel 2001 (n 133) 611-624. 137 UK Innovation Survey 2007. 138 Najib Harabi, ‘Appropiability of Technichal Innovations an Empirical Analysis’ [1995] 24 Research Policy 981-992. 139 Over the last decades, a number of studies have addressed the preferred means of appropriation in the U.S. The most well-known ones are two: Richard C. Levin, Alvin K, Klevorick, Richard R. Nelson and Sidney G. Winter ‘Appropriating the Returns from Industrial Research and Development’ [1987] 18 Brookings Papers on Economic Activity 783-832; and Wesley Cohen, Richard R. Nelson, John P. Walsh, ‘Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (or Not)’ (2000) National Bureau of Economic Research Working Paper 7552 accessed 15 September 2018. 140 Bronwyn H. Hall, Christian Helmers, Mark Rogers and Vania Sena, ‘The importance (or not) of patents to UK Firms’ (2013) NBER Working Paper No. 19089 accessed 15 September 2018. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 55 manufacturing companies hold patents for their inventions.141 With regard to these statistics, this section surveys the underlying economic factors that determine whether firms will opt to apply for patents or rely on other informal appropriation mechanisms instead. For the purposes of the current research, Arundel’s survey is reviewed as it provides the most accurate insight into the preferred methods for protecting innovations by EU firms during a certain period.142 Arundel’s study looks into the data gathered from 1990 to 1992 in the Community Innovation Survey (“CIS”) of six EU Member States (Germany, Luxemburg, the Netherlands, Belgium, Denmark and Ireland), as well as Norway and analyses the responses of 2.849 R&D performing firms. His research intends to answer mainly three questions. In the first place, he examines the relative importance of secrecy and patents for European manufacturers. Next, he considers whether small firms believe that patents are of greater value than secrets as opposed to larger firms. Finally, he looks into the factors that affect the value of secrecy in contrast to patents.143 With regard to the relative importance of secrecy, the respondents in the CIS were asked to take into account not only trade secrets and patents as potential appropriation means to maintain and increase the competitiveness of innovations, but also three other parameters, namely (i) design registration, (ii) complexity of product design,144 and (iii) lead-time advantage over competitors.145 At the same time, a distinction was drawn between product and process innovations. The results are illustrated in Table 1 below: 141 Natarajan Balasubramanian and Jagadeesh Sivadasan, ‘What happens when firms patent? New evidence from U.S. economic census data’ [2011] 93 The Review of Economics and Statistics 126, 126-127. 142 Anthony V. Arundel 2001 (n 133) 611-624. 143 Anthony V. Arundel 2001 (n 133) 614. 144 Complexity of product design refers to a product of high intricacy that requires considerable resources to be reverse engineered; see further Pamela Samuelson and Suzanne Scotchmer 2002 (n 226) 1619. 145 The term lead-time advantage (also known as the first mover advantage) refers to “the ability of pioneering firms to earn positive economic profits (i.e. profits in excess of capital). (…) It arises from three primary sources (1) technological leadership, (2) preemption of assets, and (3) buyer switching costs” according to Marvin B. Lieberman, ‘First-Mover Advantage’ [1988] 9 Strategic Management J 41, 41-42. Chapter 1. Concept, justifications and legal nature of trade secrets 56 As is apparent from the above reproduced table, lead-time advantage (the first mover advantage) was deemed the preferred method of appropriation for product innovation by 54,4% of the respondents, followed by secrecy (16,95%), complexity of product design (14,1%), patents (11,2%) and design registration (3,4%). As regards process innovations, lead-time advantage also received the highest rating score (54,4%), followed by the complexity of the product (21,2%), and secrecy (19,8%).146 Notably, in regard to process innovations, the complexity of the product was considered more effective to secure returns from innovation than secrecy. In contrast, patents were the preferred option only for 7,3% of the R&D companies. 146 The UK Innovation Survey 2007 provided similar results. The preferred methods for protecting innovations among the more than 28.000 undertakings surveyed between 2004 and 2006 were confidentiality agreements (18%), lead-time advantage (15%) and secrecy (13%). In contrast, only 8% of the sampled companies ranked patents as highly important means of protecting innovations. In the U.S., the survey evidence conducted by Weseley Cohen and others 2000 (n 139) shows that for product innovations secrecy and lead-time are perceived as the two most effective appropriation mechanisms. This means that in more than 50% of the product innovations in which undertakings resorted to leadtime and secrecy, effective protection was achieved. At the other end of the spectrum, patents were only regarded as effective means of appropriation in 34.83% of the innovations. As regards process innovations, secrecy was regarded as the most effective mechanism of appropriation (50.59%), followed by lead-time (38.43%). Patents were only effective in 23.30% of the cases in which companies resorted to them. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 57 This is in line with the idea that process patents are likely to disclose too much information to competitors in their specification, as it is generally considered that they are easier to invent around than product patents.147 Also, when process innovations are kept secret, they are less likely to be examined by third parties and thus protection can last beyond the twentyyear patent term.148 On the other hand, keeping a product innovation secret is seemingly more difficult, as it can be inspected upon purchase of the product.149 Turning to the size of firms, in regard to product innovations, a higher percentage of small firms considered trade secrets to be more important than patents as compared to larger firms. The data gathered from the CIS survey suggests that there is a correlation between the size of the firm and the relative importance of secrecy, when compared to patents.150 However, this correlation does not exist in regard to process innovations, where the relative value of secrecy and patents is similar across firms of all sizes. Special emphasis should be given to the responses provided by small R&D-intensive firms, as on average they regarded patents as more important than small R&D-performing firms.151 Other factors that come into play in the assessment of the relative value of secrecy and patents are the firm’s own innovative strategies and the sector in which they are applied. As noted in the previous paragraph, R&Dintensive firms tend to attach greater value to patents. Most importantly, there are significant variations across manufacturing sectors. Patents are most valued by firms when the development of the invention is very cost- 147 Bronwyn Hall, Christian Helmers, Mark Rogers and Vania Sena 2014 (n 135) 380. 148 Wesley Cohen and others 2000 (n 139) 10. 149 Richard C. Levin and others 1987 (n 139) 795. 150 Anthony V. Arundel 2001 (n 133) 617; similar conclusions were reached by Serge Pajak, ‘Do innovative firms rely on big secrets? An analysis of IP protection strategies with the CIS 4 survey’ [2016] 25 Economics of Innovation and New Technology 516; Knut Blind, Jakob Edler, Rainer Frietsch and Ulrich Schmoch, ‘Motives to patent: Empirical evidence from Germany’[2006] 35 Research Policy 655-672 studied the German scenario and came to the conclusion that the importance of patents increases according to the size of the firm. Larger firms tend to rely more on patents as means of appropriation than smaller ones, which prefer informal means. This is also the case in the UK according to the studies of Alan Hughes and Andrea Mina, ‘The Impact of the Patent System on SMEs’ (2010) Centre for Business Research, University of Cambridge Working Paper No.411 Working Papers accessed 15 September 2018. 151 Anthony V. Arundel 2001 (n 133) 616-617. Chapter 1. Concept, justifications and legal nature of trade secrets 58 ly, but its imitation is actually very cheap.152 Thus, the pharmaceutical and chemical industries are two of the most paradigmatic examples of sectors where there is a strong reliance on patents.153 As a whole, the prevalence of lead-time advantage and secrecy over patents as the preferred appropriation mechanisms both for product and process innovations seems intrinsically linked to the disclosure requirement provided for in patent law.154 Secrecy plays a central role in ensuring a technological head start, which is irretrievably hindered by patent disclosure.155 Advantages of secrets over patents Protecting information through the law of trade secrecy entails a number of advantages over patents for their holders. The three most salient ones are that: (i) the protection is available without burdensome administrative procedures and at a very low cost, (ii) critical information is not disclosed to competitors, and (iii) protection may extend beyond the twenty-year term. Each of these features are examined in turn. The grant of a patent is subject to a formal (and in some instances lengthy)156 procedure of application to national offices.157 In addition, patent applications must be drafted in a very specific manner, which in most countries involves engaging the services of qualified patent attorneys. b) 152 Anthony V. Arundel 2001 (n 133) 618-619. 153 Richard C. Levin and others 1987 (n 139) 796; empirical evidence on the positive effects of the patent system in the pharmaceutical and chemical sector is provided by Edwin Mansfield ‘Patents and Innovation: An Empirical Study’ [1986] 32 Management Science 173-181. 154 Wesley Cohen and others 2000 (n 139) 14 provide empirical evidence (Figure 5), according to which the main reason not to apply for a patent is the ease to invent around by competitors; a similar point is raised in Richard C. Levin and others 1987 (n 139) 802-803. 155 See Alexandra K. Zaby, ‘Losing the lead: Patents and the disclosure requirement’ (2005) Tübinger Diskussionsbeitrag No. 296 accessed 15 September 2018. 156 For a more detailed account see Eugenio Hoss, ‘Delays in Patent Examination and their Implications under the TRIPS Agreement’ (Master Thesis, MIPLC 2010/11) accessed 15 September 2018. 157 Article 4 A PC; for a detailed account of the European and German grant proceedings see Felix Landry, ‘The proceedings for grant’ 338-501 in Maximilian Haedicke and Henrik Timmann (eds), Patent Law Handbook (2013 C.H. Beck). § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 59 Furthermore, if international protection is sought, costly translations for the selected countries are required.158 Similarly, most patent offices demand the payment of maintenance fees yearly throughout the life of the patent.159 Conversely, under the law of trade secrets undisclosed information is protected as long as it is not publicly known and without the need to comply with burdensome administrative procedures.160 As a result, information can be protected automatically and at a lower cost. However, pursuant to Article 39(2)(c) TRIPs, the holders of information must take reasonable measures to protect the secret nature of their information.161 It is generally accepted that the cost of implementing protective measures is lower than the fixed patentability costs (these include the average price of patenting and the maintenance cost of the patent throughout its life), particularly for trade secrets of modest value, as from a rational perspective the investment made in protecting trade secrets should never be higher than their actual value.162 The most relevant advantage provided by the law of trade secrets as opposed to the patent system is that it affords protection to inventions without disclosing relevant information to competitors. Patent law ensures that the holder can benefit exclusively from his innovation for a certain period of time, subject to the condition that the patent is published and thus accessible to the public at large.163 As indicated above,164 a number of empirical studies show that the disclosure requirement is the main reason why holders of information choose informal means to protect their inventions. They fear that the description of an innovation in the patent specification may instruct competitors on how to invent around before the expiry of the 158 As provided by Article 22 PCT; this point is further elaborated in Lionel Bentley 2012 (n 114) 62. 159 See for instance the schedule of fees and expenses applicable to patents granted by the EPO accessed 15 September 2018 and the USPTO accessed 15 September 2018. 160 Roger M. Milgrim, Milgrim on Trade Secrets (Matthew Bender 2014) § 1.06 [2]; see James Pooley 2002 (n 66) § 3.01 [3-5]; Lionel Bently 2012 (n 114) 62. 161 This requirement is developed further in chapter 2 § 1 A) IV. 2. d). 162 Michael Risch 2007 (n 15) 43. 163 Friedrich-Karl Beier and Josef Straus, ‘The Patent System and Its Informational Function – Yesterday and Today’ [1977] IIC 387, 397. 164 See chapter 1 § 3 A) I. 2. a). Chapter 1. Concept, justifications and legal nature of trade secrets 60 patent term.165 Furthermore, innovations that do not fulfil the patentability standards because they are not regarded as new or inventive will be dedicated to the public after the publication of a patent application, even if a patent is not granted, thus forfeiting trade secrets protection. These factors explain the prevalence of trade secrets over patents as a means of appropriating returns from innovation across different industries.166 Thirdly, the protection of innovations through secrecy may last for as long as the inventor is able to keep the invention secret,167 whereas with patents the term of protection is limited to twenty years from filing.168 In theory, trade secrets may extend for as long as the secret remains unveiled. Prime examples of this are the Coca-Cola formula for the so-called “Merchandise 7x” flavouring or KFC’s famous “11 herbs and spices” sauce.169 However, this feature of trade secrets is an advantage only for those inventions that are not easy to study.170 The foregoing analysis has been conducted from the perspective of the trade secret holder. However, it is important to bear in mind that the patent system is based on four pillars that take into account not only the private interest of the inventor, but also the general interest of society. According to Machlup, the grant of an exclusive right on a patent is justified on the basis of four grounds that partially overlap with the justifications outlined with respect to trade secrets protection:171 (i) the intellectual property thesis, (ii) the reward thesis, (iii) the incentive thesis and (iv) the 165 See Article 93(1)(a) EPC; but also 35 U.S.C. § 122 (2008) (U.S. Patent Act) regarding the confidential status of applications; William Landes and Richard Posner 2003 (n 38) 362-363; Suzanne Scotchmer 2004 (n 41) 83 noting that “Nevertheless, inventors generally prefer to avoid disclosure because it is difficult to protect all of the knowledge disclosed in a patent. Trade secrecy is especially attractive if the inventor thinks that the trade secret would never leak out and never be rediscovered independently by someone else. However, choosing trade secrecy undermines the well-thought-out objectives of the patent system”. 166 Sabra Chartrand, ‘Patents; Many companies will forgo patents in an effort to safeguard their trade secrets’ New York Times (New York, 5 February 2001) C00005. 167 Michael Risch 2011 (n 113) 168. 168 See Article 38 TRIPs, Article 63 EPC and Article 33 TRIPs. However, it should be borne in mind that TRIPs only lays down minimum standards of protection and thus, the patent term may extend beyond twenty years. 169 Robbie Brown and Kim Severson, ‘Recipe for Coke? One More to Add to the File’ New York Times (New York, 19 February 2011) WK3. 170 Michael Risch 2011 (n 113) 168; William Landes and Richard Posner 2003 (n 38) 362. 171 See chapter 1 § 2. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 61 disclosure thesis.172 The first two are of a deontological nature and consider that individuals have a natural right in their inventions and should be rewarded for their contribution to society (following the Lockean labour law theory described in § 2 A) II of this chapter).173 Under the incentive thesis, the exclusive patent right is granted in order to encourage technical and scientific progress.174 As outlined above,175 the disclosure thesis contends that the main goal of the patent system is to make publicly available information that otherwise would be concealed by its holder in order to encourage further development. Following this rationale, the patent system is pictured as a trade-off between the inventor and society.176 In the light of the above, it should be highlighted that although the justifications for the protection of trade secrets and patents present some common ground, they also present notable differences owing to the hybrid legal nature of trade secrets and the fact that protection is only envisaged against misappropriation. Turning first to the deontological arguments, pursuant to the labour value thesis, both the patent holder and the trade secrets holder have a natural right in their inventions and the information that they have generated. In the same vein, contractarian theories are also applicable to justify both trade secrets protection and the general legal framework created by IPRs.177 With respect to the latter, Merges, in his seminal book Justifying Intellectual Property, submits that individuals in the Original Position 172 A more detailed account on the justifications of the patent system is provided by Fritz Machlup in his seminal article ‘Economic Review of the Patent System’ (1958) Study No. 15 of the subcommittee on the Judiciary-United States Senate 85th Congress, 2nd session, Washington, 20-21; Rudolf Kraßer and Christoph Ann 2009 (n 120) § 3 II. 173 Friedrich-Karl Beier, ‘Traditional and Socialist Concepts of Protecting Inventions’ [1970] IIC 328, 330-332. 174 Similarly, William Fisher ‘Theories of Intellectual Property’ 168, 173 in Stephen R. Munzer (ed), New Essays in the Legal and Political Theory of Property (CUP 2001); Friedrich-Karl Beier 1970 (n 173) 333 noting that “The incentive thesis views the main purpose of patent protection in its function to stimulate the profit expectations of the inventor and to encourage enterprises to invest capital in research, development, and exploitation of new inventions”. 175 A more comprehensive account of this principle is provided in chapter 1 § 2 B) II. 176 See Friedrich-Karl Beier 1970 (n 173) 336-338; but see Robert P. Merges and Richard R. Nelson, ‘On the complete economics of patent scope’ [1990] 90 Columbia LR 839, 868 arguing that the trade-off analysis is too simplistic and appropriate consideration should be paid to other factors. 177 Robert P. Merges, Justiffying Intellectual Property Law (HUP 2011) 112, 135-136. Chapter 1. Concept, justifications and legal nature of trade secrets 62 would agree on granting IPRs (including patents) to creators and inventors despite the unequal distribution of resources among members of a society that this would entail. He argues that such an incentive would encourage the most creative/inventive individuals to pursue this kind of activity, which would ultimately result in a net positive distributional effect. In other words, the individuals in the worst position in society would still benefit from the products covered by IPRs. Consequently, he concludes that the unfair allocation of resources may appear justified and should be part of the essential liberties to which every individual is entitled.178 In contrast, the patent reward theory is not applicable to trade secrets protection, as trade secrets holders do not publish the subject matter covered by the secret, which in addition is not necessarily innovative. In fact, upon disclosure, protection ceases. Therefore, the holder of valuable secret information does not participate in the trade-off between the inventor and society and will not be entitled to obtain an absolute erga omnes right to exploit the information concerned. With respect to the commercial ethics theory, its application to patent rights is highly questionable, based on the fact that patents are absolute property rights with erga omnes effects. This means that the patent holder is protected against the exploitation of products in which the invention is embodied by any third party.179 Consequently, the standard of liability is a strict one, unlike the one applicable to trade secrets, where protection is afforded only in case of unlawful acquisition, use and disclosure of information. Hence, while trade secrets protection may be justified on the basis that it is necessary to enforce honest commercial practices in the marketplace among competitors, the strict patent liability standard precludes any analogous consideration in the field of patents. Indeed, in patent infringement cases, the appraisal of negligence or wilfulness on the side of the in- 178 Robert P. Merges, Justiffying Intellectual Property Law (HUP 2011) 112. 179 In this regard, it should be noted that Article 28 the TRIPs Agreement sets out the following minimum standards of protection with regard to the rights conferred by a patent: “1. A patent shall confer on its owner the following exclusive rights: (a)where the subject matter of a patent is a product, to prevent third parties not having the owner’s consent from the acts of: making, using, offering for sale, selling, or importing for these purposes that product; (b) where the subject matter of a patent is a process, to prevent third parties not having the owner’s consent from the act of using the process, and from the acts of: using, offering for sale, selling, or importing for these purposes at least the product obtained directly by that process”. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 63 fringer does not play a role during the assessment of the acts that trigger liability in direct infringement cases, with the exception of those situations where the defendant uses a process or offers to use a process.180 In the latter case, the plaintiff must prove that the defendant knew or that it was obvious from the circumstances that use of the process without consent would result in an infringement.181 Following utilitarian arguments, at first glance it seems that the fact that under the law of trade secrets an invention that may be eligible for patent protection can be perpetually exploited without disclosing to the public at large its technical innovation runs counter to the last two theoretical justifications put forward with respect to the patent law systems: the incentive thesis and the disclosure thesis. There is social value in the disclosure of an invention that is undermined if the trade secret holder is able to reap the fruits indefinitely.182 In such a case, society would not be able to build on existing knowledge and develop follow-on innovation.183 As noted above, cumulative innovation is central to the development of technological progress.184 In the words of Scotchmer, “intellectual property should be designed to achieve the right balance of protection for innovators, protection for consumers, and opportunity for rivals to make improvements. Protection through secrecy can obstruct these objectives”.185 However, following the conclusions previously outlined,186 trade secrets protection does provide certain incentives to generate information (that may be both of an innovative and non-innovative nature) and allows for lower transaction costs, which despite not fulfilling the patent disclosure function, incentivise information sharing among market participants and within the internal sphere of firms. Consequently, it is submitted that the incentive 180 Lionel Bently and Brad Sherman 2014 (n 125) 610 and 624-625. 181 Lionel Bently and Brad Sherman 2014 (n 125) 619; along the same lines see § 9(2) Patentgesetz in der Fassung der Bekanntmachung vom 16. Dezember 1980 (BGBl. 1981 I S. 1), das zuletzt durch Artikel 4 des Gesetzes vom 8. Oktober 2017 (BGBl. I S. 3546) geändert worden ist (German Patent Act). 182 See Fritz Machlup 1985 (n 172) 76; Suzanne Scotchmer 2004 (n 41) 83; Surblyte Gintare, The Refusal to Disclose Trade Secrets as an Abuse of Market Dominance – Microsoft and Beyond (Stämpfli 2011) 92. 183 Katherine J. Strandburg, ‘What does the public get? Experimental use and the patent bargain?’[2004] 57 Wisconsin LR 81, 107-118 discussing the interplay between the incentive to disclose and the incentive to innovate within the patent system and its effects on follow-on innovation. 184 See chapter 1 § 2 B) I. 185 Suzanne Scotchmer 2004 (n 41) 26. 186 See chapter 1 § 2 B) II. Chapter 1. Concept, justifications and legal nature of trade secrets 64 thesis and the disclosure thesis under patent law and the trade secrets legal regime are not completely mutually exclusive. As a final consideration, it should be noted that the two additional utilitarian arguments that have been discussed with respect to trade secrets protection are not extrapolatable to the patent system. With respect to the limit to the arms race argument, it should be observed that according to the strict liability rules followed in patent law, patentees do not have to invest in costly self-help measures to protect their inventions. Once the patent is granted, the patentee will be protected against any unauthorised acts of exploitation in the market of the products in which the patented invention is embodied or that have been directly obtained from a new patented process.187 This is further reinforced by the fact that the adoption of reasonable measures under the circumstances to protect the undisclosed nature of a trade secret is not a requirement for protection under patent law. In the same vein, the privacy rationale is not applicable to justify patent legal regimes, as knowledge diffusion is one of the principles upon with the patent system is built. In fact, pursuant to the PCT, patent applications are published at the latest eighteen months after filing188 and according to the EPO, upon grant, the patent specification is also published in the European Patent Bulletin.189 Notwithstanding this, it should be recalled that following the utilitarian dimension of the privacy rationale explained above,190 it is of utmost importance that the secrecy of the invention is not lost prior to the submission of the patent application. Prospective patent applicants should be guaranteed a Laboratory Zone in which to develop their innovations without the interference of third parties. The risks of secrecy The protection of innovations through secrecy involves considerable risks, in contrast to patents. The most salient one is the revelation of the information. Upon disclosure, information ceases to be protected and enters the c) 187 Please note that some countries confer provisional protection to the applicant from the date of publication and until the date of publication of mention of its grant is published in the Patent Office Bulletin. In Europe, such a right is regulated under Articl 67 of the EPC, which confers upon the applicant the same protection provided for granted patents in the designated contracting state. 188 See Article 21 PCT and 93 EPC. 189 See Article 98 EPC. 190 See chapter 1 § 2 B) IV. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 65 public domain. It is not possible to recoup the confidential nature once it is lost. As noted by Sir John Donaldson M.R. during the course of the socalled “Spycatcher” litigation in England: Confidential information is like an ice cube. Give it to the party who undertakes to keep it in his refrigerator and you still have an ice cube by the time the matter comes to trial. Either party may then succeed in obtaining possession of the cube. Give it to the party who has no refrigerator or will not agree to keep it in one, and by the time of the trial you just have a pool of water which neither party wants. It is the inherently perishable nature of confidential information which gives rise to unique problems.191 Against this background, it is important to outline the four main scenarios in which secrets may be revealed,192 namely: (i) with the publication of the information by its holder; (ii) if the information is independently generated and made available; (iii) if the secret is unveiled through lawful means such as reverse engineering; and (iv) as a result of a breach of a duty of confidence. In the first scenario, a lack of due diligence may lead the trade secret holder to disclose his own invention. Sometimes scientists publish their inventions in journals, unaware of how the novelty requirement operates within the patent system. Subsequently, in the assessment of their application by the patent office their own publication is regarded as prior art.193 Similarly, if an inventor applies for a patent that in the end is not granted, the application will be published and the secret contained therein will fall into the public domain. As a result, the invention will be protected neither by patent law nor as a trade secret.194 According to the second scenario, even if an invention is successfully concealed by the trade secret holder, it is possible that a competitor will be 191 Attorney General v Newspaper Publishing Plc and Others [1989] 2 FSR 27(Ch), 48. 192 As noted by Lionel Bently 2012 (n 114) para 3.27-3.51. 193 EPO T 381/87 [1990] OJ EPO 213 dealing with an invention published before the priority date in an article submitted to a scientific journal by the three inventors. 194 This has been confirmed by case law in the UK (Mustad v Son v Dosen and another [1964] 1 WRL 109 (HL)); Germany (BGH GRUR 1975, 206 ‒ Kunststoffschaum-Bahnen) and also in the United States (Timely Products Corp v. Arron 523 F 2d 288 (2d Cir. 19751975)); for a more detailed account of the underlying policy see Friedrich-Karl Beier and Josef Straus, ‘The Patent System and Its Informational Function – Yesterday and Today’ [1977] IIC 387, 387. Chapter 1. Concept, justifications and legal nature of trade secrets 66 able to generate it independently. Nowadays most technological progress is built upon prior innovations and thus it is possible that two competing firms will manage to develop the same invention separately.195 This is particularly problematic if the second inventor obtains a patent covering the secret innovation, as according to consistent case law from the EPO, a secret or inherent use does not anticipate the invention unless it is accessible to the public. Thus, the first inventor will not be able to rely on such a use to invalidate the patent.196 In this context, another problem that may arise is the potential infringement of the patent by the first inventor. To overcome this, most European jurisdictions have developed a so-called “prior user right”, which entitles the holder of a secret invention to continue using it, despite the grant of a valid patent.197 Such a defence was developed on the basis of fairness arguments and with the purpose of counterbalancing the effects of the first-tofile system. It is generally accepted that the trade secret holder who has invested time and work and incurred high costs to use the invention should not be deprived of the fruits of his work by a third party’s patent application.198 In Germany for instance, the exercise of the prior user right is conditioned upon the fulfilment of two requirements. In the first place, the 195 Suzanne Scotchmer, ‘Standing on the Shoulders of Giants: Cumulative Research and the Patent Law’ [1991] 5 JEP 29, 29 noting that “most innovators stand on the shoulders of giants, and never more so than in the current evolution of high technologies, where almost all technical progress builds on a foundation provided by earlier innovators”. 196 See T 472/92 [1998] OJ EPO 161, where the Board of Appeal held that the mere delivery of materials did not render them publicly available; see also more generally G 1/92 [1993] OJ EPO 277, where the Enlarged Board of Appeal deemed that if an invention is accessible on the date of priority, it is dedicated to the public. 197 Article 122(5) EPC establishes the so-called “intervening rights”, which operate in a similar manner to prior user rights. Pursuant to this provision, if a person in good faith has used or prepared to use an invention which is the object of a published EP application or a granted EP, between the time a loss of rights occurred and the time of publication of the mention of re-establishment of rights, he may continue to use it in the course of his business. Notwithstanding this, substantive issues concerning the acquisition, scope and transferability of prior user rights is subject to the national legislation of the EPC Contracting States. As regards TRIPs, it is generally accepted that prior user rights to fall within the general scope of Article 30 TRIPs. Prior user rights are regulated for instance in § 12 of the German Patent Acct and § 64 of the UK Patents Act 1977. 198 Rudolf Kraßer and Christoph Ann 2009 (n 120) § 34 II a. 2; a similar position was expressed by the German Federal Supreme Court in one of its decisions on § 12 of the German Patent Act (BGH GRUR, 2010, 47, 48 –Füllstoff ), where the § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 67 patented invention must have actually been used (or arrangements to use it must have been made) in Germany before the priority date. Secondly, the inventor must be in possession of the invention. If these two conditions are met, the patent cannot be enforced against the trade secret holder.199 However, as the prior user right (unlike the patent right) is not of an exclusive nature, its holder will not be able to enforce it against third parties.200 In the U.S., historically there was no general “prior user’s right” defence, as it was only envisaged for business method patents.201 Until the America Invents Act (“AIA”) was passed, the patent system was premised on the first to invent principle, where non-disclosing uses could be invoked as the basis for invalidating a patent application.202 Under the new framework created by the AIA, the paradigm shifted and as of March 16, 2013 it became closer to a first-to-file system.203 In view of that, § 273 U.S. Patent Act204 was amended in order to create a general defence allowing any percourt noted that “The purpose of Section 12 PatG is, for reasons of fairness, to safeguard an existing previously initiated vested right of the prior user, and hence to prevent the unfair destruction of values created in a permissible and, in particular, lawful manner. His (the prior user’s) efforts, time and capital in existing assets, which are utilised to exploit the invention, or in which the will to do so has been confirmed, ought not to have been invested for nothing, nor should such a vested right be stripped of value by someone else’s patent application”. translation by Johannes W. Bukow, ‘Defences’ § 9c I, Rdn 98 in Maximilian Haedicke and Henrik Timmann (eds), Patent Law Handbook (2013 C.H. Beck). 199 Johannes W. Bukow, ‘Defences’ § 9c II in Maximilian Haedicke and Henrik Timmann (eds), Patent Law Handbook (2013 C.H. Beck). 200 Rudolf Kraßer and Christoph Ann 2009 (n 120) § 34 II a. 3; a more detailed account of the prior user right falls outside the scope of the present research. However, see The Tegernsee Group ‘Consolidated Report on the Tegernsee user consultation on substantive Patent Law Harmonization (Tegernsee V)’ (2014), 75-101 accessed 15 September 2018. 201 For a general overview of the prior user rights in the U.S. see The Tegernsee Group ‘Report on Prior User Right (Tegernsee III)’ (2012), 8-9 accessed 15 September 2018; see further Lionel Bently 2012 (n 114) para 3.40. 202 See 35 U.S.C. §§ 102 (g) (2008), which is not applicable to patents filed after 1 March 2013, subject to the provisions of the AIA. 203 For an introduction to the rules laid down before the AIA was passed see Mark A. Lemley, ‘Does “Public Use” Mean the Same Thing It Did Last year?’ [2014] 93 Texas LR 1119, 1123-1125. 204 U.S Patent Act, Public Law 593, 66 Stat. 792 (1952) (codified as amended at 35 U.S.C. §§ 1 et seq) (U.S. Patent Act). Chapter 1. Concept, justifications and legal nature of trade secrets 68 son who acting in good faith had used the invention in the U.S. in a commercial context to continue using the invention after the grant of the patent. However, the prior user can only avail himself of this defence if the relevant use occurred at least one year before the filing date or the date of public disclosure of the patentee who relies on the one-year grace period provided for in § 102(b).205 The two additional scenarios in which the right in a trade secret is lost, i.e. when it is lawfully acquired through reverse engineering and when it is unlawfully acquired, used or disclosed are examined in the following chapters,206 as they are of paramount importance in striking an optimal balance between the trade secrets regime and the IPRs system and are deemed essential limitations for the construction of a solid public domain. In sum, it can be concluded that the choice between patent protection and trade secrets when they are both mutually exclusive will depend on the interplay of a number of factors. Ultimately, from an economic perspective, the holder of information will prefer trade secrets protection if the costs of the patent system are too high compared to the value of the invention or the expected profit is lower than their value.207 Rational inventors will choose the most profitable option. This would be the case if the patentable invention took longer to reverse engineer than the twentyyear patent term.208 In the latter case, the objectives pursued by the patent system and the trade secrets legal regime seem incompatible, as the trade secrets owner may be able to reap the fruits of his endeavours indefinitely. Simultaneous protection of trade secrets and patents The academic literature has paid little attention to the complementarity relationship between patents and trade secrets, even though in practice it plays an essential role in planning the strategic protection of intangible assets and maximising returns from innovative activities.209 3. 205 35 U.S.C. § 102(b). 206 Chapter 3 § 5 C) III provides an account of the misappropriation doctrines under the TSD and chapter 6 § 2 B) examines reverse engineering practices. 207 William Landes and Richard Posner 2003 (n 38) 359. 208 William Landes and Richard Posner 2003 (n 38) 359. 209 William Cornish, David Llewellyn and Tanya Aplin, Intellectual Property: Patents, Copyright, Trade Marks and Allied Rights (8th edn, Sweet&Maxwell 2013) para 8-03 noting that “In actual practice, patents are often secured for a central invention, while much that is learned in the process of bringing it into commer- § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 69 Trade secrets are not only key in early-stage inventions,210 but also when innovations can be protected simultaneously both by trade secrets and patents. In this case, companies will often make use of both appropriation mechanisms.211 On the one hand, processes or products that fulfil the patentability criteria will be protected under the patent law regime. On the other hand, more specific information that is not necessary for the purposes of providing an enabling disclosure in the patent application will be concealed.212 Usually, such information refers to the precise way in which the inventor performed the claimed product or process and it is disclosed through licensing agreements.213 This complementarity relationship is enhanced by the fact that “trade secret law reaches into a number of corners patent law cannot”.214 The spectrum of subject matter eligible for protection is broader for trade secrets than for patents, particularly in Europe where patents covering software and business models are difficult to obtain. However, trade secrets protection may be invoked to protect business plans, customer lists and so-called “negative know-how” against use by third parties.215 The EPO consideres that this type of information lacks inventiveness and hence falls outside the scope of protection of patent law. Yet, it is effectively protected against misappropriation by the law of trade secrets. Furthermore, in some cases inventors must wait up to three years for the patent office to decide cial production is tied up as secret ‘know-how’ by means of confidence undertakings”. 210 See chapter 1 § 3 A) I. 1. 211 Lionel Bently 2012 (n 114) para 3.78; Anthony V. Arundel 2001 (n 133) 613. 212 Elisabetta Ottoz and Franco Cugno, ‘Patent-Secret Mix in Complex Product Firms’ [2008] 10 American Law & Economics R 142. 213 In the U.S., such practices may appear more controversial, as pursuant to 35 U.S.C. § 112 (a) (2011) the inventor must disclose to the public the best mode he knows for performing the invention. That is, of all the embodiments covered within the scope of a claim, the most effective one has to be specified. The fact that the inventor concludes a licensing agreement that includes several recommendations as to how to practice the invention not described in the patent may suggest that he has failed to comply with the “best mode requirement”. Yet, this has been simplified after the adoption of the AIA, by virtue of which, the best mode is no longer an accepted defence in an infringement suit; Robert P. Merges and John F. Duffy, Patent Law and Policy, Cases and Materials (6th edn, Lexis Nexis 2013) 263; Lionel Bently 2012 (n 114) para 3.78. 214 Mark A Lemley 2008 (n 15) 331. 215 David S. Almeling, ‘Seven Reasons Why Trade Secrets are Increasingly Important’ [2012] 27 Berkeley Technology LJ 1091, 1112. Chapter 1. Concept, justifications and legal nature of trade secrets 70 whether to grant protection.216 As a result and for practical reasons, in fastmoving industries like the software industry, patents are rarely applied for.217 Hence, simultaneous reliance on both appropriation mechanisms provides protection of additional subject matter, enhances exclusivity, provides additional remedies in the event of litigation and acts as a fall-back position if the other IPR is not enforceable.218 Trade secrets and copyright As argued in the previous section, upon perfunctory analysis trade secrets are usually associated with patentable subject matter. Nevertheless, overlaps may also occur with regard to copyright. To name some, technical drawings or software can be afforded protection under both regimes.219 Notwithstanding this, relying on such a two-tiered scheme may come into conflict with one of the goals upon which the copyright system is built: promoting access to new works. Indeed, modern copyright law aims at striking an adequate balance between the public interest in education, research and access to information on the one hand, and the exclusive proprietary right granted to the author to incentivise further creation on the other.220 Ultimately, concealing information that is eligible for copyright protection prevents its dissemination to the public at large. The tensions II. 216 On average grant procedures at the EPO take three years and three months accessed 15 September 2018; similarly, the USPTO grant procedure lasts around 27,4 months pursuant to the USPTO, ‘Performance and Accountability Report’ (2014) 128 accessed September 15, 2018; this period is substantially shorter if the application takes place before offices that do not conduct a substantive examination, but rather a mere registration. 217 Mark A. Lemley 2008 (n 15) 332. 218 Elisabetta Ottoz and Franco Cugno 2008 (n 212) 156. 219 Diane L. Zimmerman, ‘Trade secrets and the “philosophy” of copyright: a case of culture crash’ 299, 300 in Rochelle C. Dreyfuss and Katherine J. Strandburg (eds), The Law and Theory of Trade Secrecy: A Handbook of Contemporary Research (Edward Elgar 2011), where the author notes that “technical drawings and specifications are eligible for copyright protection and at the same time may embody information that the author may wish to conceal”. 220 See Recital Fifth of the WIPO Copyright Treaty (adopted 20 December 1996, entered into force 6 March 2002) 2186 UNTS 121 (WCT): “Recognizing the need to maintain a balance between the rights of authors and the larger public § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 71 arising from such an overlap of regimes are best explained in connection to computer programs, which are taken as an example case due to their economic significance and the fact that mass-market computer program producers rely on a dual protection strategy to secure returns from their innovations.221 Indeed, computer programs can be protected simultaneously under the law of trade secrets and copyright. Pursuant to Article 10(1) TRIPs both the source222 and the object code223 fall within the material scope of the Berne Convention224 as a form of literary work.225 Notwithstanding the aforementioned, in practice, software manufacturers protect the source code of a program through trade secrets and resort to copyright for the object code. The rationale for this is two-fold: users prefer the functionality of the object code of programs and, most importantly, software developers are inclined to keep the source code a trade secret, and thus hinder the access to the market of third parties seeking to compete with the new cominterest, particularly education, research and access to information, as reflected in the Berne Convention”; however Recital 22 of the Council Directive (EC) 2001/29 on the harmonisation of certain aspects of copyright and related rights in the information society [2001] OJ L167/10 (Information Society Directive) highlights that “The objective of proper support of dissemination of culture must not be achieved by sacrificing strict protection of rights or by tolerating illegal forms of distribution of counterfeited or pirated goods”. 221 James Pooley 2002 (n 66) § 3.02 [3] 3-23. 222 The Oxford Advanced Learner’s Dictionary defines ‘source code, n’ as “a computer program written in text form that must be translated into another form, such as machine code, before it can run on a computer” (OALD Online, 9th edn, OUP 2015) accessed 15 September 2018. 223 The Oxford Advanced Learner’s Dictionary defines ‘object code, n’ as “the language into which a program is translated using a compiler or an assembler” (OALD Online, 9th edn, OUP 2015) accessed 15 September 2018. 224 Berne Convention for the Protection of Literary and Artistic Works (9 September 1886) 828 UNTS. 221 (BC). 225 Several commentators have called into question the characterisation of computer programs as “literary works”: Sean Gordon, ‘The Very Idea! Why Copyright Law is an Inappropriate Way to Protect Computer Programs’ [1998] 1 EIPR 10; Jerome H. Reichman 1994 (n 102) 2432; Pamela Samuelson and others, ‘A Manifesto Concerning the Legal Protection of Computer Programs [1994] 94 Columbia LR 2308; Tanya Aplin, ‘Subject Matter’ 49, 51-53 in Estelle Derclaye (ed), Research Handbook on the Future of EU Copyright Law (Edward Elgar 2009). Chapter 1. Concept, justifications and legal nature of trade secrets 72 puter program.226 However, the source code can be partially reconstructed in an imperfect way through the use of decompilation programs, which allow reverse engineering of the object code and thereby reveal the source code.227 Under EU Copyright law, as set forth in Article 6(1) and 6(2) of the Software Directive,228 decompilation is only deemed lawful if it is required in order to develop an interoperable program229 and if the three following restrictive conditions are all met, namely: (i) The acts of decompilation shall only be carried out by the licensee or another person entitled to use the copy; (ii) The information should not have previously been available to the person who wishes to achieve interoperability; (iii) Only the original parts of the program which are necessary in order to develop an independent generated interoperable program can be subject to decompilation processes. Against this background, it appears that trade secrets are a crucial asset for the fast-moving software industry, where many firms decide to keep their interfaces undisclosed in an attempt to capture the market. Indeed, concealing the information through which interoperability between the different programs (so-called “interfaces”)230 is achieved allows the software developer to control the applications created for its platform and limit their 226 Pamela Samuelson and Suzanne Scotchmer, ‘The law and economics of reverse Engineering’ [2002] 111 Yale LJ 1575, 1608. 227 Jerome H. Reichman, ‘Computer Programs as applied scientific know-how: implications of copyright’[1989] 42 Vanderbilt LR 639, 701; Pamela Samuelson and Suzanne Scotchmer 2002 (n 226) 1614, where the authors quote a technologist who notes that reverse engineering (decompilation) does not reveal the programm’s inner secrets. According to the expert, these are embodied in the source code and do not appear in the object code after its conversion. Also, reverse engineering of computer programs is described as a very costly and difficult process. 228 Directive of the European Parliament and of the Council 2009/24/EC of 23 April 2009 on the legal protection of computer programs [2009] OJ L122/9 (Software Directive). 229 In this regard, it should be noted that “interoperability” is defined in Recital 10 of the Software Directive “as the ability to exchange information and mutually to use the information which has been exchanged”. 230 The Oxford English Dictionary defines ‘interface, n’ as “A device or program enabling a user to communicate with a computer” (OED Online, OUP June 2013) accessed 15 September 2018. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 73 availability to competitors, thus exploiting the resulting network effects.231 This has important legal consequences, both from a copyright and competition law perspective. However, providing a more detailed account of the former exceeds the limits of the present research and the implications of applying competition law as a necessary limitation to trade secrets protection is analysed in chapter 6.232 Aside from the overlap tensions outlined above, it is noteworthy that trade secrets law also provides an incentive to create information where copyright is not available, in line with the market experimentation incentive purported by Duffy and Abramowicz. Indeed, copyright only protects the expression of literary and artistic works.233 Ideas, facts and processes fall outside of its material scope of application.234 Hence, trade secrets law seems to have been designed to protect non-creative “sweat of the brow” information, which results from economic investment or intellectual effort.235 Unlike copyright, trade secrets law only requires that information is secret and derives its value from its undisclosed nature.236 Thus, business plans or customer lists that are not original in their selection and arrangement are still protectable as undisclosed information. The implications derived from protecting information for the mere fact of keeping it undisclosed are developed in greater detail below.237 Trade secrets and trade marks In the context of trade mark law, there is virtually no possibility that the subject matter protected by trade marks and trade secrets will overlap.238 Indeed, trade marks are valuable because they convey information to con- III. 231 Pamela Samuelson and Suzanne Scotchmer 2002 (n 226) 1617. 232 Legal scholars have thoroughly examined the multiple issues raised by Article 6 of Software Directive, both from an IP law and a competition law perspective. A more detailed account of this topic is provided in chapter 6 § 2 B) IV. 2). 233 See Article 2 BC. 234 Michael Risch 2011 (n 113) 152. 235 The “sweat of the brow” doctrine was first developed in the United States and purported that copyright should be a reward for the labour, time and cost invested in compiling facts. Such a theory was expressly rejected by the U.S. Supreme Court in Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340 (1991). 236 Michael Risch 2011 (n 113) 175. 237 Chapter 1 § 3 B). 238 Michael Risch 2011 (n 113) 178. Chapter 1. Concept, justifications and legal nature of trade secrets 74 sumers, whereas the value of trade secrets lies in their concealed nature.239 However, in some cases, relying on trade secrets and trade marks at the same time as means of appropriation provides further incentives to create both types of information.240 This is best illustrated through the example of luxury perfume producers that market fragrances under famous fashion brands and rely simultaneously on trade mark and trade secrets protection in order to recoup the investment made in their development and maximise profits.241 As is examined in chapter 5, perfume manufacturers try to keep the formula and composition of their perfumes undisclosed in order to avoid potential imitations of their high-end perfumes, which can nevertheless be easily unveiled through not very complex reverse engineering techniques. Consequently, in order to capture the market, they also invest substantial amounts in marketing campaigns to create an aura of exclusivity for their fine fragrances. Against this background, the importance of trade mark protection for the perfume industry was underscored in the famous L’Oréal v Bellure242 case decided by the CJEU, where the L’Oréal Group brought legal action against a manufacturer of so-called “smell-alike perfumes” in the UK (Bellure) and two of its distributors (Malaika and Starion) on the basis of an infringement of its trade mark rights. According to the fact-pattern of the decision, Bellure produced imitations (conveying similar olfactory messages) of famous fragrances including “Trésor”, “Miracle”, “Anais-Anais” and “Noa”,243 as well as of the bottles and packaging of “Trésor” and “Miracle”. These were subsequently marketed by Malaika and Starion and their retailers through comparison lists that indicated the correspondence between the smell-alike perfumes and the famous fragrances by referring to the word mark under which they were protected. In the second instance, the Court of Appeal of England and Wales submitted a number of questions for a preliminary ruling before the CJEU regarding the protection conferred by the Trade Mark Directive (“TMD”)244 to marks having a repu- 239 See Article 39(2)(b) TRIPs. 240 Michael Risch 2011 (n 113) 178. 241 A detailed account of the relationship between perfumes, trade secrets and other IPRs is provided in chapter 5 of this dissertation. 242 Case C–487/07 L’Oréal v Bellure [2009] ECR I-05185. 243 A detailed overview of this case is provided in chapter 5 § 3 D) II. 2. 244 Directive (EU) 2015/2436 of the European Parliament and of the Council of 16 December 2015 to approximate the laws of the Member States relating to trade marks [2015] OJ L336/1 (Trade Mark Directive or TMD). § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 75 tation and its interrelation with the Misleading and Comparative Advertising Directive.245 In its ruling, the CJEU held that a third party takes unfair advantage of the reputation or distinctiveness of a mark when he intends to “ride on the coat tails of the mark with a reputation” in order to take advantage of its power of attraction, position or prestige without providing any financial compensation. Thus, the finding of trade mark infringement does not require either likelihood of confusion among the relevant consumers, or detriment to the distinctive character or repute of the mark.246 With respect to the possibility of the use of trade marks in comparative advertisements (such as comparison lists) by any third party, where the essential origin function of the trade mark is not affected (i.e. designation of origin of the goods and services protected), but such use is likely to play a significant role in the promotion of the goods and services of the other party, the CJEU held that such conduct would only be deemed lawful if it did not affect any of the other trade mark functions. In this context, specific reference was made to the communication, investment and advertisement functions.247 Otherwise, the acts of comparative advertisement would amount to trade mark infringement.248 As regards comparative advertisement, the CJEU held that any explicit or implicit statement in a comparative advertisement that presents goods or services as imitations of marks with a reputation shall be regarded as an infringement for the purposes of Article 4(g) MCAD. In addition, such conduct would be regarded as taking unfair advantage of the reputation of the famous mark, as per Article 4(f) MCAD.249 The foregoing analysis demonstrates the complementarity relationship between trade marks and trade secrets, in particular when the secrets can be easily unveiled through reverse engineering practices and where it is not possible to resort to the protection of any formal IPR, other than trade marks. In this context, trade marks may provide additional incentives to create information by conferring an aura of luxury and exclusivity to products that incorporate secret information, thereby allowing their manufac- 245 Directive of the European Parliament and of the Council 2006/114/EC of 12 December 2006 concerning misleading and comparative advertising [2006] OJ L376/21 (Misleading and Comparative Advertisement Directive or MCAD). 246 As per Article Article 10(2)(c) TMD. 247 The uncertanty sorrounding the trade mark functions discussion is outlined in chapter 5 § 3 C) II. 2. below. 248 As per Article 10(3)(f) of the TMD. 249 Case C–487/07 L’Oréal v Bellure [2009] ECR I-05185, paras 75-79. Chapter 1. Concept, justifications and legal nature of trade secrets 76 tures to internalise the cost of creation and development of the said products. Trade secrets and the database right: the protection of investment as such Although not as self-evident as in the case of patent rights, the sui generis right introduced by the European legislator to protect databases may also overlap with the subject matter protected by the law of trade secrets. After all, both legal regimes aim at protecting investments. However, whereas the sui generis regime aims at protecting the investment made in the compilation of data,250 trade secrets law, following the incentives to innovate theory, is justified because it protects the investment made in the creation of valuable information.251 The interplay between these two legal regimes is examined in section 1. Thereafter, the possibility of resorting to trade secrets protection in the absence of sui generis protection is analysed in section 2. The EU two-tier legal regime for the protection of databases and its interplay with trade secrets protection In the EU, the legal protection of databases was harmonised in the highly contested Database Directive, by virtue of which a two-tier regime of protection was established and a uniform notion of database was introduced. Pursuant to Article 1(2), a database is defined as “a collection of independent works, data or other materials arranged in a systematic or methodical way and individually accessible by electronic and other means”. This definition, together with Recitals 13 and 14, reveals that the protection covers both compilations of data or other materials that are arranged, stored and accessed by means that include electronic, electromagnetic or electro-optical processes or analogous processes, as well as non-electronic databases. IV. 1. 250 See Recital 40 of the Database Directive: “Whereas the object of this sui generis right is to ensure protection of any investment in obtaining, verifying or presenting the contents of a database for the limited duration of the right; whereas such investment may consist in the deployment of financial resources and/or the expending of time, effort and energy (emphasis added). ” 251 See chapter 1 § 2 B) I. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 77 Under the harmonised system, on the one hand, copyright protection is afforded to the structure252 of those databases that by reason of the selection and arrangement of their contents constitute the author’s own intellectual creation.253 In this case, the term of protection extends to seventy years after the death of the author. However, the Directive expressly clarifies that copyright protection does not cover the contents of the database concerned, i.e. the data gathered, which may be the object of independent protection by other rights, such as trade secrets or formal IRPs.254 On the other hand, the European legislator created a sui generis right for the maker of a database who carries out substantial investment (assessed from a qualitative and/or quantitative perspective) in the obtention, verification or presentation of its contents.255 The term of duration of the sui generis right is fifteen years from the date of completion of the database or the date on which it was made available.256 Yet, in practice, such a term may be extended further if substantial changes in the contents of the database are introduced. Following the wording of Article 10(3) along with Recital 55, the mere update or verification of the content of the database will be considered as a new investment 252 The emphasis on the structure of the database is set out in Recital 15 of the Database Directive, which provides that: “Whereas the criteria used to determine whether a database should be protected by copyright should be defined to the fact that the selection or the arrangements of the contents of the database is the author’s own intellectual creation; whereas such protection should cover the structure of the database”. 253 The CJEU clarified in Case C–604/10 Football Dataco Ltd and Others v Yahoo! UK Ltd and Others (CJEU, 1 March 2012), para 38 that the originality requirement of “author’s own intellectual creation is satisfied when, through the selection or arrangement of the data which it contains, its author expresses his, creative ability in an original manner by making free and creative choices (…) and thus stamps his ‘personal touch;’” this is in line with previous case law of the CJEU, such as Case C–5/08 Infopaq International v Danske Dagblades Forening [2009] ECR I-6569, paras 47-48, where the originality standard was also defined by reference to the “author’s intellectual creation”. 254 See Artice 3(2) of the Database Directive: “The copyright protection of databases provided for in this Directive shall not extend to their contents and shall be without prejudice to any rights subsisting in those contents themselves”. 255 Article 7(1) and (2) of the Database Directive; see further Estelle Derclaye, ‘Databases sui generis right: what is a substantial investment?’ [2005] IIC 2-30 providing an insighful analysis of the notion of substantial investment. 256 See Article 10 of the Database Directive. Chapter 1. Concept, justifications and legal nature of trade secrets 78 worthy of protection for fifteen additional years.257 In the context of the sui generis right, the EU legislator stated again that its scope of protection should not affect the rights existing in respect of its contents.258 Indeed, sui generis protection is only applicable to “databases as collection of data”.259 In essence, the sui generis right grants the maker of the database the exclusive right to: (i) prevent unauthorised third parties from extracting and re-utilizing the whole or a substantial part of the contents of the database,260 without prejudice to any other existing rights on its contents261 and; (ii) prevent unauthorised third parties from extracting repeatedly and systematically insubstantial parts of the database, implying acts that would conflict with the normal exploitation of the database. From the above considerations, it appears that in theory (i) the content of a database may constitute the object of a trade secret (i.e. with respect both to individual data and data sets as a whole), whereas (ii) its selection and arrangement may merit protection under copyright law and/or (iii) the investment made in the obtention, verification or presentation of its contents may be the object of the sui generis right. Therefore, the three regimes of protection may overlap and protect two distinct aspects of a database: its structure (through copyright) and its contents (but only against substantial extraction and re-utilisation, in the case of the sui generis database right, and against unlawful acquisition, use and disclosure, in the case of trade secrets law). 257 P. Bernt Hugenholtz ‘Something Completely Different: Europe’s Sui Generis Database Right’ 205, 215 in Susy Frankel and Daniel Gervais (eds), The Internet and the Emerging Importance of New Forms of Intellectual Property (Wolters Kluwer 2016); Matthias Leistner, ‘The Protection of Databases’ 427, 443-444 in Estelle Derclaye (ed), Research handbook on the future of EU Copyright (Edward Elgar 2009) noting that Article 10(3) of the Database Directive should be costrued as referring to the investment effort of the database maker which gives rise to a new sui generis right that may overlap with the pre-existing one. In this case, the author argues that the scope of protection would comprise only the parts of the new database that were the object of the new investment. 258 See Article 7(4) of the Database Directive. 259 Josef Drexl 2016 (n 426) 21. 260 As regards the interpretation of the expression “substantial investment” the CJEU still has to take a stand on the threshold of investment required for a database to merit protection under copyiright law, as noted by P. Bernt Hugenholtz 2016 (n 257) 212 261 See Article 7(4) of the Database Directive. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 79 However, upon closer examination, the assessment of whether the information included in a database can qualify as a trade secret appears more problematic. As discussed in § 1, the cornerstone upon which trade secrets protection is built is precisely its concealed nature. Yet, the rationale underlying the creation of a two-tier regime of protection was to foster the growth and development of a strong database industry in the EU, which ultimately aims at the commercial exploitation of the databases.262 Consequently, if the holder of the database makes it available to a large number of market participants under no obligation of confidence, its contents may be considered generally available within a given industry, and accordingly the secrecy requirement may not be satisfied.263 Likewise, if the database consists of elements in the public domain, even if it is li- 262 See Recital 11 of the Database Directive; see further Commission, ‘Green Paper on Copyright and Challenge of Technology – Copyright Issues Requiring Immediate Action COM (88) 172, final’ [1988] OJ C71, para 6.2.1, where it was noted that “The worldwide turnover of electronic publishing in 1985 amounted to 5 billion U.S. dollars. Of this, the United States were responsible for more than 4/5 of the total turnover, but the value of the total market produced by Germany, France and the United Kingdom represented 350 million dollars. Obstacles to the free flow of information between Member States must be removed if the Community is to develop a competitive role in the information services market” (emphasis added); against this background, it should be observed that the Commission concluded that the Database Directive had not managed to boost the database industry in Europe. However, this statement has been criticised by Matthias Leistner 2009 (n 257) 428 who argues that it was based on dubious data. 263 This was the case in the competition judgements rendered by the CJEU in Joined Cases C-241/91 P and C-242/91 Radio Telefis Eireann (RTE) and Independent Television Publications (ITP) v Commission of the European Communities [1995] ECR I-00743 (know as “Magill”), which concerned the refusal to license a database comprising a weekly TV guide in the territories of Ireland and Northern Ireland, where no comprehensive TV guide existed at that time. Each of the three television stations that broadcasted in these territories published their own guide covering their own programs and licensed the contents of their databases to newspapers on a free-of charge basis. The defendant, Magill TV Guide Ltd intended to publish a weekly comprehensive guide compiling the data of the three TV stations, but was sued by them on the basis of an infringement of their copyright over said compilations of data. In the first instance, the court granted an injunction preventing Magill from publishing the program listings. Subsequently, Magill lodged a complaint before the European Commission, on the basis of an abuse of market dominance by the TV station, by virtue of which the Commission ruled that there had been a breach of Article 102 of the TUE (ex Article 86 of the EEC). Upon appeal, the GCEU (then Court of First Instance) questioned whether copyright protection should be afforded to the TV pro- Chapter 1. Concept, justifications and legal nature of trade secrets 80 censed under confidentiality obligations, the content of the database will not be regarded as secret, unless the selection and arrangement result in a discrete entity protectable as a combination secret.264 The mere expenditure of time and money to gather known information into a searchable database does not automatically confer the database or the individual data trade secrets protection.265 Equally, if a competitor of an electronic database maker duplicates the contents of the protected database in an unauthorised manner, for instance through so-called “screen-scraping practices”,266 and uploads the content to an Internet website for a substantial period of time, the database holder will not be able to claim trade secrets protection against the general public who accessed the website in good faith. Enforcement will only be available against the party that acquired and uploaded the information without authorisation. Notwithstanding the aforementioned, in the three scenarios mentioned above, the original database maker could still rely on the sui generis right to file a claim against unauthorised extraction or re-utilisation of the database contents. Indeed, one of the main justifications presented by the European legislator for the creation of the sui generis database right was that the creation of databases required large investments of money and effort, but the unauthorised access and copy could be carried out at a much lower price.267 From a copyright perspective, if the structure of the database meets the “author’s own intellectual creation” originality threshgramme listings, as they “were not in themselves secret, innovative or related to research. On the contrary, they were mere factual information in which no copyright could therefore subsist”. (as reported in Case T–76/98 Independent Television Publications Ltd v Commission [1991] ECR II-575, para 29). However, such considerations were not taken into account in the decision rendered by the CJEU. 264 On the protection of combination secrets see chapter 4 § 4 C) II. 5. 265 Sharon K. Sandeen, ‘A Contract by Another Name is Still a Contract: Examining the Effectiveness of Trade Secrets Clauses to Protect Database’ [2005] 45 IDEA 119, 134. 266 The term ‘screen scrapping, n’ is defined in the Oxford English Dictionary as “The action of using a computer program to copy data from a website” (OED Online, OUP June 2013) accessed 15 September 2018. 267 See Recital 7 of the Database Directive. However, it should be noted that such a justification has been highly contested in the light of the findings of the Commission, in ‘DG Internal Market and Services Working Paper. First evaluation of Directive 96/9/EC on the legal protection of databases,’ where it was stated that “The economic impact of the “sui generis” right on database production is unproven”. Indeed data from the Gale Directory of Databases, the largest exist- § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 81 old, the author shall have the exclusive right to prevent the unauthorised reproduction, translation, adaptation, arrangement and alteration of its expression, as well as any form of distribution to the public of its expression.268 In the legal analysis of the interplay between trade secrets protection and database protection, the mandatory limitation set out in Article 8(1) of the Database Directive plays a central role. Pursuant to this provision, the database maker cannot prevent the lawful user269 of a database from extracting and/or re-utilising insubstantial parts of its contents (for any purposes). Any agreement to the contrary by the parties will be null and void, as per the wording of Article 15 of the Directive. Thus, contractual confidentiality obligations cannot override such a mandatory limitation. Consequently, if the “insubstantial” data are subsequently re-utilised and as a result disclosed to third parties, the assessment of secrecy with respect to that specific data may be compromised. Yet, the legal issue lies in determining when the extraction and reutilisation of data is to be considered “insubstantial”, and therefore, whether the entire dataset can be considered readily ascertainable for the purposes of trade secrets protection, particularly as the Database Directive does not provide any interpretative guidance on how to measure the threshold of insubstantial extraction and re-utilisation.270 The problem of protecting created data under the sui generis database right and the possibility of resorting to contractual protection Since its adoption, the Database Directive has garnered substantial criticism among legal commentators, as it was perceived that the introduction of such a new exclusive right would create a monopoly over the compiled 2. ing database directory at that time and which contained statistics indicating the growth of the global database industry since the 1970s showed that the production of database in the EU in 2004 had receaded to pre-Directive levels. 268 See Article 5 of the Database Directive. 269 A detailed account of the meaning of “lawful user” in the context of Article 8 and 9 of the Directive is provided by Estelle Derclaye, The legal protection of Databases (Edward Elgar 2008) 120-126, where the author concludes that the term “lawful user” should be interpreted as referring to the user “with a contract of lawful acquirement”. However, the author concludes that the interplay between Article 7(5) and Article 8(1) renders the concept of lawful user superfluous, as pursuant to Article 7(5) “anyone (lawful user or not) is authorised to extract and re-utilize insubstantial parts”. 270 P. Bernt Hugenholtz 2016 (n 257) 213-214. Chapter 1. Concept, justifications and legal nature of trade secrets 82 information, thereby hampering freedom of information and competition, particularly as regards the development of secondary markets.271 A major area of concern was so-called “sole-source databases”, in which the information is created as a by-product in the course of other business activities and, consequently, it is only available from such unique sources.272 In 2004 the CJEU shed some light on the scope of protection of solesource databases by rendering a series of decisions in which it clarified that the sui generis database right does not cover the investment made in the creation of data, but only the investment made in the obtention of data.273 Thereby, the CJEU introduced the so-called “Spin-off Doctrine”,274 initially developed by Dutch courts in the interpretation of the EU sui geneis database legal regime, and ruled, among other things, that the investment made in fixtures lists for English and Scottish football did not require an investment “independent of that required for the creation of the data contained in that list”.275 Accordingly, for an investment to be eligible for protection under the sui generis right it has to “refer to the resources used to seek out existing independent materials and collect them in a database”.276 Following the CJEU’s view, the reason for such a division is that the Database Directive was created to incentivise the creation of processing and storage mechanisms for pre-existing data, not the creation of data as such.277 On a more abstract level, by introducing such a limitation, the CJEU intended to prevent the creation of an exclusive right on informa- 271 Matthias Leistner 2009 (n 257) 427. 272 Matthias Leistner 2009 (n 257) 434. 273 See Case C–444/02 Fixtures Marketing Ltd v Organismos prognostikon agonon podosfairou AE (OPAP) 1 [2004] ECR I-10549; Case C–46/02 Fixtures Marketing Ltd v Oy Veikkaus Ab [2004] ECR I-10396; Case C–203/02 The British Horseracing Board Ltd v William Hill Organization Ltd [2004] ECR I-10415 and Case C– 338/02 Fixtures Marketing v Svenska Spel AB [2004] ECR I-10497. 274 The application of the Dutch spin-off doctrine by the CJEU is discussed further by Mark J. Davison and P. Bernt Hugenholtz, ‘Football fixtures, horse races and spin-offs: the ECJ domesticates the database right’ [2005] 27 EIPR 113, 114-115. 275 Case C–46/02 Fixtures Marketing Ltd v Oy Veikkaus Ab [2004] ECR I-10396, para 44. 276 Case C–203/02 The British Horseracing Board Ltd v. William Hill Organization Ltd [2004] ECR I-10415, para 42; however Mark J. Davis and P. Bernt Hugenholtz, ‘Football fixtures, horseraces and spin-offs: The ECJ domesticates the database right’ [2005] 27 EIPR 113-118 note that the distinction between synthetic data and observed data is not self-evident. 277 Case C–203/02 The British Horseracing Board Ltd v William Hill Organization Ltd [2004] ECR I-10415, para 36. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 83 tion that would not be available otherwise.278 However, such a distinction has been criticised by many academics for not being as “self-evident” as the court initially argued.279 Indeed, in the application of the Spin-off Doctrine held by the CJEU in Football Dataco, the Court of Appeal of England and Wales noted that such a distinction does not apply to observed data, such as the goals scored in the course of a football match, which according to the court should not be regarded as created data for the purposes of database protection.280 In the context of trade secrets, such a distinction inevitably leads to the question of whether, in the event that neither copyright nor sui generis protection are available for a specific database, it would still be possible to rely on trade secrets protection through contractual clauses, such as nondisclosure agreements (“NDAs”). The interplay between the Database Directive and inter partes contractual provisions was clarified by the CJEU in the context of a “screen scraping” case in 2015 (Ryanair Ltd v PR Aviation).281 According to the decision, Ryanair brought legal actions against PR Aviation, the operator of a website that allowed users to search for flights and compare prices, for an infringement of Ryanair’s “rights relating to its data set”282 and the breach of the terms and conditions applicable to its website. As a preliminary remark, it should be noted that the data displayed on PR Aviation website’s was acquired from Ryanair’s website upon acceptance of Ryanair’s terms and conditions, which was not contested throughout the proceedings. Indeed, pursuant to the said terms and conditions, the website could only be used for private non-commercial purposes and the obtention of data through screen scraping practices was prohibited.283 278 Herbert Zech, ‘Data as a Tradable Commodity’ 51, 73 in Alberto De Franceschi (ed), European Contract Law and the Digital Single Market – The Implications of the Digital Revolution (Insertia 2016). 279 P. Bernt Hugenholtz, ‘Data Property: Unwelcome Guest in the House of IP’ (2017), 8 accessed 15 September 2018. 280 Football Dataco & Others v Stan James Plc & Others and Sportradar GmbH & Other [2013] EWCA Civ 27 (CA). 281 Gintare Surblyte, ‘Data as a Digital Resource’ (2016) Max Planck Institute for Innovation and Competition Research Paper No. 16-12, 19-22 accessed 15 September 2018; Case C–30/14 Ryanair Ltd v PR Aviation BV (CJEU, 15 January 2015). 282 Case C–30/14 Ryanair Ltd v PR Aviation BV (CJEU, 15 January 2015), para 17. 283 Case C–30/14 Ryanair Ltd v PR Aviation BV (CJEU, 15 January 2015), para 16: “the use of automated systems or software to extract data from this website or of Chapter 1. Concept, justifications and legal nature of trade secrets 84 Upon appeal, the Dutch Supreme Court submitted a preliminary question to the CJEU, asking whether the use of a database that does not qualify either for copyright or sui generis protection can be contractually limited, in view of the unwaivable nature of the limitations set out in Article 6(1) and Article 8 of the Databases Directive, as per Article 15. In its legal reasoning, the CJEU concluded that any contractual agreements regulating the use of a database that does not qualify for protection under either of the two harmonised regimes (sui generis or copyright) should be admissible, as the unwaivable nature of the limitations provided for in Article 15 is only applicable to those databases that are eligible for protection under the harmonised framework created by the Database Directive.284 Drawing on the above, it is submitted that in practice NDAs may play a central role in the protection of databases that do not satisfy the requirements of protection of either of the two legal regimes set out in the Database Directive, provided that their diffusion within a given industry is rather limited (i.e. that the holder retains control over the use and disclosure of the information). However, such an outcome seems rather paradoxical considering the lawful user limitation laid down in Article 8(1) of the Database Directive. Whereas the maker of a database protected under the sui generis right shall always allow the extraction and re-utilisation of insubstantial parts of its database, such a possibility can be contractually excluded for those databases that do not satisfy the requirements of protection laid down under the harmonised system. Consequently, the limitations introduced by the European legislator in the scope of protection of the two-tier harmonised database regime to avoid the creation of information monopolies are not applicable with regard to those databases that present a lower threshold of originality and investment or even sole-source databases, where information is not accessible in any other possible manner. This may in fact lead to the creation of the facto information monopolies on pre-existing data.285 As a final note, it should be underscored that the distinction between generated data as opposed to obtained data is of utmost importance in the www.bookryanair.com for commercial purposes “screen scraping” is prohibited unless the third party has directly concluded a written licensing agreement with Ryanair in which permits access to Ryanair’s price, flight and timetable for the sole purpose of price comparison”. 284 Case C–30/14 Ryanair Ltd v PR Aviation BV (CJEU, 15 January 2015), para 39. 285 Gintare Surblyte 2016 (n 281) 23-25 highlighting the competition law implications of contractual clauses that prohibit screen-scrapping. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 85 wake of the Data Economy.286 As noted by Drexl, the inclusion of sensors in smart products (for example in connected cars) that collect data or the performance of Big Data analysis that results in the creation of new data are not investments relevant to the obtention of data in the sense of Article 7(1) of the Database Directive. Therefore, these data sets do not qualify for protection under the sui generis database right.287 In the same vein, the possibility of relying on copyright protection seems unlikely, as to benefit from such protection the selection and arrangement of the contents of the database have to reflect the author’s “personal stamp” and, in the Data Economy, big data sets are usually generated automatically by machines and consequently there is no “human intellectual achievement”.288 Another hurdle in the application of the sui generis legal regime to large datasets is the lack of extraction of data in the course of big data analysis, where “the code comes to the data” thus precluding any actionable conduct under the Database Directive.289 It is precisely for the aforementioned reasons that several commentators have contended that the EU framework for the protection of databases was drafted on the basis of outdated technology and that the limitations as to its scope of protection and subject matter are not applicable to the protection of large data sets created in the context of the Data Economy.290 286 For a terminological clarification of these terms see chapter 4 § 4 F) 1. 287 Josef Drexl 2016 (n 426) 21; against this background, Andreas Wiebe, ‘Protection of industrial data – a new property right for the digital economy?’ [2016] GRUR Int 877, 879 argues that in order to accommodate the sui generis database regime to the Data Economy, the CJEU should abandon the Spin-off Doctrine and afford protection to the data generated by the database maker; in this regard, P. Bernt Hugenholtz 2017 (n 279) 8 supports a more nuanced approach by noting that the distinction between created data and observed data is of utmost importance in the context of protection of industrial data “as, sensor data produced by a radar system or observation satellite are likely to qualify as data ‘observed’, and concomitant investments may thus be taken into account when applying the database right. Conversely, computer-generated airline schedule data squarely falls under the rubric of ‘created’ data excluded by the European Court”. 288 Herbert Zech 2016 (n 278) 70 ; a survey of the main views of selected Data Protection Authorities on the issue of Big Data is provided by Bart van der Sloot and Sascha van van Schendel, ‘Ten Questions for Future Regulation of Big Data: A Comparative and Empirical Legal Study’ [2016] 7 JIPITEC 110. 289 Josef Drexl 2016 (n 426) 22. 290 Josef Drexl 2016 (n 426) 22. Chapter 1. Concept, justifications and legal nature of trade secrets 86 Conclusion on the relationship between trade secrets and IPRs As a whole, the picture that emerges from the analysis conducted in the previous section is that there are strong synergies between trade secrets and formal IPRs (particularly patents, but also copyright and the sui generis database right). Indeed, the similarities and overlaps between the two appropriation regimes are so strong that many view trade secrets as a species of IPRs.291 A central element in the protection of IPRs is their exclusive erga omnes nature. In this regard, it is worth noting that in the case of trade secrets, exclusivity is achieved ex ante through the adoption of de facto physical or legal measures that conceal information from third parties. However, protection is only afforded against unlawful acquisition, use and revelation of the information. Against this background, the fact that trade secrets confer a certain degree of exclusivity has been viewed by some commentators as an indicator that trade secrets constitute a species of IPRs. The implications of adopting such an approach are elaborated in the following section from a comparative law perspective, from which a number of considerations are drawn. Trade secrets as the object of intellectual property law: considerations for Europe Traditionally, intellectual property was considered as the best mode to incentivise creation and innovation.292 This assumption stems from the nonexclusive and non-rival nature of intangible goods and the difficulties associated with their exploitation. As outlined above, if the creator is not able to recoup the investment made in the development of an invention or creative work, the incentives to engage in creative and innovate activities may disappear, leading to a suboptimal level of innovation in the market.293 Against this background, and in order to overcome the market failure inherent to the exploitation of any intangible good, exclusive rights are V. B) 291 See for instance Christoph Ann, ‘Know-how- Stiefkind des Geistiges Eigentums?’[2007] GRUR 39; Mark A. Lemley 2008 (n 15) 311-353. 292 Suzanne Scotchmer 2004 (n 41) 8 “Neoclassical economics has established the traditional view that intellectual property (rights) are the best mode to incentivise creative and innovative activity”. 293 Séverine Dusollier 2013 (n 107) 258-259. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 87 granted so as to allow the inventor (or creator) to recover the exclusivity and non-rivalry over his innovations (or creations). Following the systematic division of goods into three levels (consumption, production and innovation), the creation of property rights at one level yields the development of market competition at the next level. Thus, IPRs are conceived as a necessary competitive restriction at the production level to enhance competition at the innovation level.294 However, concerns have also been raised as to whether attaching the traditional proprietarian consequences to IPRs may be detrimental to lawful “free-riding uses” and lead to the overcompensation of creators.295 As regards trade secrets, the application of the exclusivity paradigm to their protection has been widely discussed. The root of the discussion revolves around the fact that exclusivity is obtained through factual secrecy and no qualitative threshold has to be met, unlike formal IPRs, where protection is conditioned upon meeting a certain degree of originality (copyright), novelty and inventiveness (patent law) or being able to distinguish the source of the goods and services (trade mark law). For the purposes of answering one of the research questions that guide the present thesis (i.e. whether trade secrets should be regarded as the object of an IPR), in the first place, the similarities and differences that emerge from conducting a comparative law analysis are reviewed (section I). Next, the implications of considering information as property are discussed (section II). Finally some insights and perspectives are presented on the basis of the foregoing analysis for the application of the TSD by national legislators and the judiciary (section III). 294 Michael Lehmann, ‘The Theory of Property Rights and the Protection of Intellectual and Industrial Property’ [1985] IIC 525, 537-540. 295 In this context, Mark A. Lemley 2004 (n 109) 1046-1050 identifies the following most salient costs of overcompensating creators: (i) the distortion of competition in the market which creates static efficiencies; (ii) the impairment of further creation and innovation; (iii) rent seeking behaviour is also favoured by the expectation of achieving IPRs protection; (iv) administrative costs derived from the enforcement of IPRs and (v) overinvestment in research and development. Chapter 1. Concept, justifications and legal nature of trade secrets 88 Comparative legal analysis International intellectual property convention system The PC does not include any explicit reference to the protection of trade secrets. It only clarifies that the repression of unfair competition is one of the objects of industrial property (Article 1(2) PC), which in turn leads to the question of whether trade secrets protection falls within the scope of unfair competition.296 Similarly, the WIPO Treaty, in its definition of intellectual property, does not mention either trade secrets or confidential information.297 At the international level, undisclosed information was only first explicitly accorded protection in Article 39 TRIPs.298 However, the agreement addresses the issue of whether trade secrets are property in a rather openended manner. On the one hand, TRIPs anchors the protection of trade secrets on unfair competition provisions by referring to Article 10bis PC. On the other hand, Article 1(2) TRIPs regards undisclosed information as one of the “categories of intellectual property” laid down in the agreement.299 Such an inconsistent regulation derives from the conflicting views of the negotiating parties, which, pursuant to Article 32 VCLT, constitute “supplementary means of interpretation” of international treaties.300 Developing countries purported that one of the defining features of IPRs is the disclosure of the information protected, whereas trade secrets, as their name implies, are defined by their confidential nature.301 At the other end of the I. 1. 296 This issue is discussed in detail in chapter 2 § 1 A) III. 297 See Article 2 (VIII) of the Convention Establishing the World Intellectual Property Organisation (signed on 14 July 1967 and amended on 28 September 1979). 298 Markus Peter and Andreas Wiebe, ‘Art. 39’ Rdn 3 in Jan Busche and Tobias Stoll (eds), TRIPs (Carl Heymanns 2013). 299 Article 1 (2) TRIPs: “For the purposes of this Agreement, the term “intellectual property” refers to all categories of intellectual property that are the subject of Sections 1 through 7 of Part II”; in this regard, it is particularly noteworthy that Section 7 of Part II deals with the protection of undisclosed information. 300 Article 32 of the Vienna Convention on the Law of Treaties (adopted 23 May 1969) 1155 UNTS 331 (VCLT). 301 The Peruvian, Indian and Brazilian delegations were particularly belligerent in this regard. The Indian position can be found in the following documents: India made clear its position in GATT Doc. MTN.GNG/NG11/14; Brazil formally objected to the protection of trade secrets as IPRs in an official communication dated 11 December.1989 (GATT Doc. MTN.GNG./NG11/W/57, para 48); simi- § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 89 spectrum, industrialised countries led by the US302 and the Swiss303 delegations were of the opinion that undisclosed information is to be regarded as an IPR that confers exclusive rights in order to protect the intellectual efforts necessary for its creation.304 A review of the academic literature on this matter sheds little light.305 Some commentators are of the opinion that the express reference to unfair competition rules enshrined in Article 39(1) TRIPs, along with the fact that the wording of Article 1(2) TRIPs mentions “categories of intellectual property” and not just IPRs, are clear indicators that no proprietary exclusive right on trade secrets exists.306 In this context, it is noted that the terminology used to draft Article 39 is distinctly different to that used in connection to other IPRs such as trade marks and patents. In some ways, it seems that TRIPs has deliberately avoided the use of proprietary language.307 For instance, trade secrets holders are referred to as the persons who have the information “lawfully within their control”, and not the “owners” of information. What is more, Article 39 does not confer the right to exclude the alleged infringer, but simply “the possibility of preventing information (…) from being disclosed to, acquired by, or used by others”.308 Even though at first glance this may appear trivial, such a distinction entails an important legal nuance. Pursuant to Article 39 TRIPs, it does not matter what the title in the trade secret is; what matters is that the alleged holder possesses the information, that is, that the secret informalarly, Peru expressed a similar view in its official communication (GATT Doc. MTN.GNG/NG11/W/45, para 10). 302 The U.S. position is reflected in GATT Doc. MTN.GNG/NG11/9, 6, para 11. 303 The Swiss delegation formally expressed its view on the proprietary regime for trade secrets during the course of the Uruguay Round in a number of documents, such as GATT Doc. MTN.GNG/NG11/W/38/Add.1. 304 Markus Peter and Andreas Wiebe, ‘Art. 39’ Rdn 4 in Jan Busche and Tobias Stoll (eds), TRIPs (Carl Heymanns 2007). 305 The lack of a clear-cut answer at the international level is highlighted in Michael Dorner, Know-how Schutz im Umbruch (Carls Heymanns 2013) 306-307. 306 Carlos Correa, Trade Related Aspects of Intellectual Property Rights, A commentary on the TRIPs Agreement (OUP 2007) 366-367; Tanya Aplin, ‘Right to Property and Trade Secrets’ 421, 429-431 in Christophe Geiger (ed), Research Handbook on Human Rights and Intellectual Property (Edward Elgar 2015). 307 Lionel Bently, ‘Trade Secrets Intellectual Property but not property?’ 60, 91 in Helena R. Howe and Jonathan Griffiths (eds), Concepts of property in Intellectual Property Law (CUP 2013). 308 Lionel Bently 2013 (n 307) 91. Chapter 1. Concept, justifications and legal nature of trade secrets 90 tion is lawfully under his physical control.309 Similarly, the fact that the negotiating parties agreed on the expression “undisclosed information” rather than the more common terms trade secret or know-how is understood as an attempt to avoid the proprietary connotation of the latter.310 More importantly, the fact that Article 39(1) TRIPs premises the protection of trade secrets upon an unfair competition provision, namely Article10bis PC, makes clear that trade secrets are not property in the sense that they do not create an exclusive right.311 In this context, Wadlow argues that Article 10 PC protects a right that is in essence completely different to a property right. As argued in chapter 2 below, the scope of this provision is confined to protection against unfair conduct by a competitor. As a result, the assessment of the “fairness” of a specific behaviour should be conducted on a case-by-case basis, taking into consideration the individual circumstances of each instance.312 By contrast, a more literal interpretation of the TRIPs provisions that govern trade secrets protection has also been supported by legal scholars. Such an approach suggests that trade secrets are to be regarded as IPRs under the legal framework created by the TRIPs Agreement mainly for two reasons. In the first place, any interpretation that, contrary to the wording of Article 1(2), does not regard undisclosed information as IPRs is to be rejected, as the WTO Appellate Body has consistently stated that treaties should be construed so as to avoid conflicts (principle of effective interpretation).313 Furthermore, pursuant to Article 31(1) of the VCLT “a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given 309 Nuno Pires de Carvalho, The TRIPs Regime of Antitrust and Undisclosed Information (Wolters Kluwer 2007) para 39.2.38. 310 Carlos Correa 2007 (n 306) 368; see also GATT Doc. MTN.GNG/NG11/20. 311 Tanya Aplin 2015 (n 306) 429 noting that “(…) By linking the protection of trade secrets to unfair competition it seems that while trade secrets may be “industrial property” or even “intellectual property” this does not require a focus on property protection”. 312 Christopher Wadlow, ‘Regulatory data protection under TRIPs Article 39(3) and Article 10bis of the Paris Convention: Is there a doctor in the house?’ [2008] IPQ 355, 397. 313 See WTO, Argentina – Footwear (EC), WTO Appellate Body Report, WT/ DS121/AB/R (14 December 1999) para 81 and footnote 72 thereto; see also WTO, United States –Upland Cotton, WTO Appellate Body Report, WT/ DS267/AB/ (2 March 2005); a more detailed account on the interpretation of treaties by the WTO Appellate Body is provided by Isabelle Van Damme, ‘Treaty Interpretation by the WTO Appellate Body’ [2010] 21 EJIL 605-648. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 91 to the terms of the treaty in their context and in view of its object and purpose”.314 Accordingly, in line with this guiding principle, if trade secrets are not regarded as an IPR, the enforcement provisions set forth in Part III of TRIPs should not be applied in connection to undisclosed information. Yet, such an interpretation would again violate the principle of effective interpretation, especially in connection to Article 41(1) TRIPS, which sets forth that the enforcement provisions (in Part III of TRIPs) should be applied to any act of infringement of IPRs that falls under the scope of TRIPs, including Article 39. Similarly, it would also clash with the special provisions on the safeguarding of confidential information embedded in Articles 42 and 43(1) TRIPs.315 In this regard, it is worth noting that a number of bilateral agreements have also included undisclosed information within the scope of intellectual property. For instance, the Euro-Mediterranean Agreement between the EC and Egypt in the Joint Declaration on Article 37 and Annex VI stated that: For the purpose of this Agreement, intellectual property includes, in particular, copyright, including copyright in computer programmes, and neighbouring rights, patents, industrial designs, geographical indications, including appellations of origin, trademarks and service marks, topographies of integrated circuits, as well as the protection against unfair competition as referred to in Article 10 bis of the Paris Convention for the Protection of Industrial Property (Stockholm Act, 1967) and protection of undisclosed information on ‘know-how’ (emphasis added).316 Drawing on the above, it seems that the obligation to protect undisclosed information enshrined in Article 39 TRIPs was specifically tailored so as to leave open the possibility of its protection at the national level through 314 Article 31 VCLT. 315 Marco Bronckers and Natalie McNelis, ‘Is the EU Obliged to improve the Protection of Trade Secrets? An Inquiry into TRIPS, the European Convention on Human Rights and the EU Charter of Fundamental Rights’ [2013] 34 EIPR 673, 677. 316 See Euro-Mediterranean Agreement establishing an Association between the European Communities and their Member States, of the one part, and the Arab Republic of Egypt, of the other part [2004] OJ L304; similar provisions can be found in Article 10. 2 (2) of the of the Free Trade Agreement between the European Union and its Member States, of the one part, and the Republic of Korea, of the other part [2010] OJ L127/6. Chapter 1. Concept, justifications and legal nature of trade secrets 92 non-proprietary means. Bently goes even further and suggests that “TRIPs seems to have deliberately preserved the very possibility that confidential information might be intellectual property but not property”.317 This author takes the view that intellectual property is becoming a genus different from property rights, as is traditionally understood.318 As a whole, the twofold approach of TRIPs seems to highlight the hybrid legal nature of trade secrets. The rules that govern infringing conduct are tailored according to unfair competition principles, whereas their enforcement follows the traditional remedies structure available in intellectual property law. Common law approach England Traditionally, English Courts have rejected the idea that information can be protected through a property right. It is generally agreed that the House of Lords settled the proprietary debate in the Boardman v Phipps ruling,319 which concerned the violation of an equitable fiduciary obligation. The defendant, Mr Boardman, was the solicitor of a trust and in the course of his duties acquired information regarding the value and performance of one of the undertakings held by the trust. He later used it for his own benefit. The plaintiff, a beneficiary who came to know that Mr Boardman had used the data for his own advantage, brought an action, arguing among other things that the information was actually the property of the trust. When giving the judgement, the majority expressed their opposition to conceptualising information as property and argued that: in general, information is not property at all. It is normally open to all who have eyes to read the real and ears to hear. The true test is to determine in what circumstances the information has been acquired. If it has been acquired in such circumstances that it would be a breach of confidence to disclose it to another then courts of equity will restrain the receipt from communicating it to another. (…) But in the end the real truth is that it (confidential information) is not property in any normal 2. a) 317 Lionel Bently 2013 (n 307) 91. 318 Lionel Bently 2013 (n 307) 91. 319 Boardman v Phipps [1967] 2 AC 46 (HL). § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 93 sense, but equity will restrain its transmission to another if in breach of some confidential relationship (emphasis added).320 Likewise, in a more recent decision by the Court of Appeal, Douglas v Hello!,321 Lord Phillips expressly rejected such a possibility, stating that “confidential or private information, which is capable of commercial exploitation but which is only protected by the law of confidence, does not fall to be treated as property that can be owned and transferred”.322 In Lord Phillips’ view, if confidential information were to be regarded as property, such a right could in turn be enforced against third parties, irrespective of whether the recipient of the information was aware of its private or confidential condition. Thus, he concluded that “the right depends upon the effect on the third party’s conscience of the third party’s knowledge of the nature of the information and the circumstances in which it was obtained”.323 In the same vein, the legal scholarship has repeatedly expressed its reluctance to treat confidential information as property, mostly for the same reasons put forward by in Douglas v Hello!, i.e. it would allow for restraining third parties and accidental acquirers, regardless of whether they should have been aware that the information was confidential.324 Aplin, Bently, Johnson and Malynic have argued that, in most cases, confidential information is described as property merely in a metaphorical sense, simply to refer to “ownership” of confidential information or “the confider’s right in contract and equity”.325 A similar view has been taken by most commentators326 and the Law Commission Report on Breach of Confidence, where it is argued that “the nature of confidential information is such as to place it in a category of its own, distinct from that of property”.327 320 Boardman v Phipps [1967] 2 AC 46 (HL), 127 F-128A. 321 Douglas v Hello! Ltd and others [2007] UKHL 21. 322 Douglas v Hello! Ltd and others [2007] UKHL 21, [119]. 323 Douglas v Hello! Ltd and others [2007] UKHL 21, [126]. 324 Tanya Aplin and others 2012 (n 22) para 4.108 by confidential acquired it should be understood “those who accidentally find confidential information”. 325 Tanya Aplin and others 2012 (n 22) para 4.74. 326 See William Cornish, David Llewellyn and Tanya Aplin 2013 (n 209) paras 8-50-8-54; see also Roger M. Toulson and Charles M. Phipps, Confidentiality (3rd edn, Sweet&Maxwell 2012) paras 2-025-061. 327 Law Commission, Law Commission Report on Breach of Confidence (Law Com No 110, 1981) 9 notwithstanding, in Voila ES Nottinghamshire Ltd and Nottinghamshire County Council v Dowen [2010] EWCA Civ 1214 (CA), the Court of Ap- Chapter 1. Concept, justifications and legal nature of trade secrets 94 Notwithstanding the aforesaid, the English Courts have recently regarded trade secrets (as opposed to the broader notion of confidential information)328 as the object of an IPR for the purposes of the European Union’s Intellectual Property Rights Enforcement Directive (“Enforcement Directive”).329 In particular, the Court of Appeal in Vestergaard v Bestnet330 stressed that the proportionality of the enforcement measures principle spelt out in Article 3(2) of the concerned Directive was also applicable to a trade secrets claim. It further concluded that “it is accepted that a claim for misuse of technical trade secrets such as the present is a claim to enforce an intellectual property right”.331 Indeed, there are a number of provisions in UK statutes that regard confidential information as Intellectual Property, such as the Atomic Energy Authority Act,332 the Building Societies Act333 and the Corporation Tax Act 2009.334 This doctrinal position has led some commentators to argue that confidential information falls within the scope of intellectual property, but not property as such.335 peal concluded that possession of confidential commercial information can be protected on the basis of Article 1 of the First Protocol to the European Convention of Human Rights; a more detailed legal analysis of this decisions and its consequences is provided in Tanya Aplin,‘Confidential Information as property?’ [2013] 24 King's LJ 172–201. 328 The conceptual distinction is clarified further in chapter 3 § 3 B) below. 329 Directive of the European Parliament and the Council 2004/48/EC of 29 April 2004 on the enforcement of intellectual property rights [2004] OJ L195/16 (Enforcement Directive). 330 Vestergaard Frandsen A/S v Bestnet Europe Ltd [2011] EWCA Civ 424 (CA). The case at hand concerned the misappropriation of a trade secret regarding the manufacturing of anti-mosquito nets by two departing employees. 331 Vestergaard Frandsen A/S v Bestnet Europe Ltd [2011] EWCA Civ 424 (CA), [56]; for a critical debate on this decision, see Tanya Aplin and others 2012 (n 22) para 17.05 noting that the expansion of the Enforcement Directive to protect trade secrets was left for Member States, particularly in the light of the Commission, ‘Commission Statement on Directive 2004/48/EC’ [2005] OJ L94/37. 332 See Atomic Energy Authority Act 1986, s 8. 333 The Building Societies Act 1997, s 92A(3). 334 The Corporation Tax Act 2009, s 712 (3). 335 Lionel Bently 2013 (n 307) 91. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 95 U.S. In the United States, the property debate has been at the core of the legal discussion since the XIX century.336 Until recently, an analysis of the most relevant legal sources provided no definitive answer.337 Yet, this debate now seems to be settled with the adoption of the Defend Trade Secrets Act of 2016 (“DTSA”).338 Pursuant to Sec. 1 amending § 1836 on Civil proceedings: APPLICABILITY TO OTHER LAWS .—This section and the amendments made by this section shall not be construed to be a law pertaining to intellectual property for purposes of any other Act of Congress. According to the above reproduced provision, it seems that trade secrets shall not be regarded as a species of IPR. Yet, upon closer examination, the expression “for the purposes of any other Act of Congress” appears to have been drafted to establish a hierarchy of norms in order to avoid any potential overlap with other IPRs regulated under Federal Law (i.e. patents and copyright), rather than to clarify the legal nature of trade secrets protection and the implications derived from it. In this regard, it has been suggested that such a categorisation intended to preserve the safe harbour of online intermediaries in the event that a user unlawfully discloses a trade secret, as per § 230 of the Communications Decency Act,339 which is not applicable for intellectual property law infringements.340 It is most likely that in b) 336 For a detailed account of the evolution of the history of the law of trade secrets in the United States as regards the property theory see Robert G. Bone 2011 (n 15) 46. 337 Charles Tait Graves, ‘Trade Secrets as property: Theory and Consequences’ [2007] 15 JIPL 39, 62; in the commentary to the Restatement (First) of Torts § 757 (Am. Law Inst. 1939) it was expressly noted that the proprietarian approach had been frequently advanced and rejected, as “good faith” was the prevailing underlying policy justification. Notwithstanding this, the UTSA and the Restatement (third) of Unfair Competition do not take a clear stand. Only in the Restatement (Third) of Unfair Competition it is mentioned that the term property is still frequently applied and that the legal nature debate has had a rather limited effect in practice. 338 Defend Trade Secrets Act of 2016, Pub. L. No. 114-153, 130 Stat. 376 (2016) (codified at 18 U.S.C. § 1831, et seq.) (DTSA). 339 Communications Decency Act of 1996, Pub. L. No. 104-104, 110 Stat. 133-145 (1996) (codified as amended at 47 U.S.C. § 223 (1934). 340 As per 47 U.S.C. § 230(e)(2) which provides that “Nothing in this section shall be construed to limit or expand any law pertaining to intellectual property”; this argument is submitted by Eric Goldman, ‘The Defend Trade Secrets Act Chapter 1. Concept, justifications and legal nature of trade secrets 96 the near future the wording and implications of such a provision will be the object of a comprehensive and in-depth analysis by courts and academia. Indeed, commentators in the U.S. are divided between those who assert the property nature of trade secrets341 and those who deny it and are in favour of affording protection to confidential information through liability rules.342 A minority supports a middle ground approach, regarding trade secrets as comprising a bundle of rights.343 A review of the Supreme Court case law on this matter sheds little light on the controversy. On the one hand, in E.I. DuPont de Nemours Powder Co. v. Masland, which concerned the misappropriation of confidential information by a departing employee the court noted that: The word property, as applied to trademarks and trade secrets is an unanalysed expression of certain secondary consequences of the factor that the law makes some rudimentary requirements of good faith. Whether the plaintiffs have any valuable secret or not the defendant knows the facts, whatever they are, through a special confidence that he has accepted. The property may be denied but the confidence cannot be. Therefore, the starting point for the present matter is not property or Isn’t an “Intellectual Property ” Law’ [2017] 33 Santa Clara High Technology LJ 541, 542-546. 341 Roger M. Milgrim 2014 (n 160) § 2.01[2] highlights that the rights in a trade secrets are intangible intellectual property. Those rights include the right to use information, to disclose it to others (for instance the employees, licensees and other persons subjected to a confidential relationship) and seek redress in the event of unauthorised user or disclosure to third parties; a similar position is adopted by Mark A. Lemley 2008 (n 15) 311-353. 342 William Landes and Richard Posner 2003 (n 38) 355 noting that “a trade secret is not property in the same sense that real and personal property and even copyrights and patents are because it is not something that the possessor has the (more or less) exclusive right to enjoy it”; see further Pamela Samuelson, ‘Information as Property: Do Ruckelshaus and Monsanto Carpenter Signal a Changing Direction in Intellectual Property Law’ [1988] 38 Catholic University LR 365, 375 noting that “It is simply unnecessary to call trade secrets “property” to enforce confidences and penalize those who use improper means to obtain valuable secret”; the same author in a later article notes that “Although trade secret law is sometimes clustered for the sake of convenience under the general rubric of 'intellectual property' rights, this does not alter the essential nature of trade secrets as a form of unfair competition” Pamela Samuelson, ‘Principles for Resolving Conflicts Between Trade Secrets and the First Amendment’ [2007] 58 Hastings LJ 777, 807. 343 This case is reported by Michael Risch 2007 (n 15) 23-26. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 97 due process of law, but that the defendant stood in confidential relations with the plaintiffs, or one of them (emphasis added).344 As is apparent from the above reproduced paragraph, Justice Holmes suggested that trade secrets should be afforded protection on the basis of the general concepts of fair and equitable conduct, not property.345 This statement is usually cited by those who believe that the breach of a duty of confidence is central to any misappropriation claim, the so-called “Confidential Relationship School”,346 and has been followed by courts both at the state level and in the Federal Circuit.347 Conversely, those who argue that the bundle of rights that the trade secret holder claims on his secrets is best labelled as property rely on another landmark decision from the U.S. Supreme Court: Rueckelhaus v. Monsanto Co.348 In this ruling from 1984 the court took a different view on the property debate, which was more in line with the so-called “Property School”.349 The facts of the case are as follows. Monsanto submitted research data on a pesticide in order to obtain marketing approval from the Environmental Protection Agency (“EPA”), which was subsequently used and disclosed by the agency for the purposes of assessing a competitor’s application on the basis of the Federal Insecticide and Rodenticide Act (“FIFRA”). Thereafter, Monsanto filed a lawsuit arguing that the FIFRA provisions on the use and disclosure of data submitted for obtaining marketing approval constituted a taking of property that violated the Fifth Amendment of the U.S. Constitution.350 Upon appeal to the Supreme 344 E.I. DuPont de Nemours Powder Co. v. Masland, 244 U.S. 100, 102 (1917). 345 Pamela Samuelson 1988 (n 341) 374-375. 346 James Pooley 2002 (n 66) 1.02[8] 1-16, 1-17. 347 In the Federal Circuit see for example Servo Corp. of Am. v. General Electric Co., 393 F.2d 551, 555 (4th Cir. 1968) where the court held that “the gravamen in a trade secrets case is a breach of confidence, rather than an infringement in a property right; hence, reliance on innocent sources of information involving no breach of duty, is an essential element of the defence that the secrets were previously disclosed” and Northern Petrochemical Co. v. Tomlinson, 484 F.2d 1057, 1060 (7th Cir. 1973) noting that “A trade secret, unlike a patent or copyright, has no proprietary dimension. A suit to redress the theft of the secret is one grounded in tort, with the act of theft comprising the misfeasance against which the law protects”. 348 Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984). 349 James Pooley 2002 (n 66) § 1.02[8] 1-18, 1-19. 350 The Fifth Amendment provides that “No person shall be (…) deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation”. Chapter 1. Concept, justifications and legal nature of trade secrets 98 Court, it was held that owing to the intangible nature of trade secrets, the property right conferred by them is defined by the “extent to which the owner of the trade secret protects his interest from disclosure to others”.351 In the course of its legal reasoning, the court further noted that trade secrets share many of the features of other forms of tangible property, as they can be assigned or constitute the object of a trust.352 Consequently, the court concluded that the provisions of the FIFRA resulted in the taking of property that was not supported under the Fifth Amendment of the U.S. Constitution.353 The previous analysis further highlights the tension arising from the hybrid nature of trade secrets, which safeguard confidential information on the basis of liability rules akin to what in continental law is referred to as unfair competition, while also presenting some of the features of property rights. It appears that common law jurisdictions have adopted an “integrated approach”, whereby the holder of secret information has a bundle of rights over such information and a number of these rights present the characteristics of property.354 Against this background, it seems that the root of the discrepancies as to the legal nature of trade secrets derives from the “flexibility” of the property notion in common law jurisdictions and the many purposes for which it is applied.355 351 Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984) 1002. 352 Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984) 1002. 353 After Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984) a number of decisions have followed the “Property School”, such as the Supreme Court of Hawaii in the context of a marriage separation Teller v. Teller, 53 P.3d 240, 247-249 (Haw. 2002); against this background, Roger M. Milgrim 2014 (n 160) 61, § 2.01[1]-[2] notes that “practically all jurisdictions have recognized that a trade secret is property, or, stated more precisely, that the possessor of a trade secret has a property right in it that permits the possessor to restrict use and disclosure of it in many situations”. 354 James Pooley 2002 (n 66)§ 1.02[8] 1-20, 1-21. 355 This argument is raised by William Cornish, David Llewellyn and Tanya Aplin 2013 (n 209) para 8-50 with resepect to the English conceptualisation of property, due to the fact that common law jurisdictions in general understand the term property in a more flexible manner than civil law countries; see chapter 1 § 3 B). § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 99 Civil law approach European civil law jurisdictions do not provide a uniform answer as to the legal nature of trade secrets. This section explores the different solutions followed in two of the EU jurisdictions where this topic has been more widely discussed, namely Italy and Germany. Italy In recent years, the proprietary debate in Italy has attracted substantial attention from European academics, particularly since the enactment of the Industrial Property Code in 2005. Pursuant to Article 1, trade secrets (or more accurately secret information) are regarded as a species of IPRs.356 In the original version of the Code (Article 99), which was later amended, the protection of secret information was envisaged against mere acquisition, use and disclosure.357 This gave rise to widespread criticism, as it was perceived that the new Italian regulation had created an “exclusive and absolute (erga omnes) proprietary regime”.358 Under the first version of the new Code, a trade secret holder would be entitled to prevent use or disclosure resulting from independent creation or reverse engineering, regardless of the breach of a confidentiality obligation or the unlawfulness of the behaviour. Thus, when the Code was amended in 2010, Article 99 was modified such that in order to find infringement there had to be evidence of 3. a) 356 Article 1.1 of the Italian Industrial Property Code (Decreto legisltaivo 10 febbraio 2005, n. 30 1 Codice della proprietà industriale, a norma dell’articolo 15 della legge 12 dicembre 2002, n. 273, aggiornato a seguito del decreto legislativo di correzione 13 agosto 2010, n. 13) sets forth that: “For the purposes of this Code, the expression industrial property comprises trademarks and other distinctive signs, geographical indications, designations of origin, designs, inventions, utility models, topographies of semiconductors, confidential commercial information and new planet varieties” (translation by the author). 357 Giorgio Floridia and others, Diritto Industriale Proprietà Intellettuale e concorrenza (4th edn, Giappichelli Editore 2012) 207. 358 Gustavo Ghidini and Valeria Falce, ‘Trade secrets as intellectual property rights: a disgraceful upgrading – Notes on an Italian reform’ 140 in Rochelle C. Dreyfuss and Katherine J. Strandburg (eds), The Law and Theory of Trade Secrecy: A Handbook of Contemporary Research (Edward Elgar 2011). Chapter 1. Concept, justifications and legal nature of trade secrets 100 abusive conduct by the alleged infringer.359 Despite the new wording, commentators remain sceptical about the new regime enshrined in Article 99. Some contend that the new code has strengthened the protection of trade secrets, which have now become the object of an autonomous IPR, because under the newest version of Article 99 the behaviour is unfair in itself, as in most cases the parties are aware that the information belongs to a third party.360 Interestingly, it has been pointed out that the establishment of such enhanced protection responds to the structure of Italy’s industrial landscape, which is mostly made up of SMEs. It is generally believed that firms of this type usually regard the patent system as being too costly and in most cases prefer to resort to secrecy as a means of appropriating returns from innovation.361 Thus, Article 99 was tailored so as to meet the needs of Italy’s SMEs. This, however, begs the question of whether the trade-off imposed by the patent system has been in some way bypassed.362 Germany The legal nature of trade secrets has also been extensively examined in Germany, particularly in connection to the relevant provisions of the German Civil Code (“BGB”) applicable to their enforcement.363 Indeed, the discussion is not only a doctrinal one. If trade secrets are considered an IPR, they should be protected pursuant to the property guarantee of the German Constitution (Article 14) and §§ 823 I, 812 I, and 687 II BGB.364 However, only a few judicial decisions from the 1950s have actually dealt with the issue. In 1955, in the context of a bankruptcy case, the Supreme Court of b) 359 Article 99(1) of the Italian Industrial Property Code provides that: “Without prejudice to unfair competition law, the rightful holder of the information and the experiences set forth in Article 98, shall be entitled to prevent third parties not having his consent from acquiring, using and disclosing the information in an abusive manner , unless acquired independently by the third party” (translation by the author). 360 Giorgio Floridia and others, Diritto Industriale Proprietà Intellettuale e concorrenza (4th edn, G Giappichelli Editore 2012) 207. 361 Gustavo Ghidini and Valeria Falce 2011(n 358) 149-150. 362 Gustavo Ghidini and Valeria Falce 2011(n 358) 149-150. 363 Bürgerliches Gesetzbuch in der Fassung der Bekanntmachung vom 2. Januar 2002 (BGBl. I S. 42, 2909; 2003 I S. 738), das zuletzt durch Artikel 6 des Gesetzes vom 12. Juli 2018 (BGBl. I S. 1151) geändert worden ist. 364 Ansgar Ohly 2014 (n 100) 3. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 101 the Republic of Germany held that the holder of a secret process had an exclusive right in it (“Auschlussrecht”).365 Notwithstanding this, some months later, the same court stated in another case dealing with technical undisclosed information that the holder did not have an absolute exclusive and prohibitory right in the information and that the applicable laws were the relevant provisions of the BGB and the Act Against Unfair Competition (“UWG”).366 From an academic perspective, the debate remains unsettled. While some view trade secrets as an absolute IPR,367 others reject such a categorisation.368 In this regard, Drexl suggests that trade secrets lack one of the features common to all IPRs, i.e. their exclusive nature. As a result, they cannot be considered as one of the rights that fall under the broader umbrella of intellectual property. He convincingly argues that IPRs afford erga omnes protection to their right holders against use by any third parties in the manner set forth in the relevant statutes.369 Trade secrets, instead, are only protected against unlawful acquisition, use and disclosure. According to Drexl, this difference is an essential one, as it renders trade secrets protection a tort law (“Deliktsrecht”) resulting from the unlawfulness of the behaviour.370 In a similar vein, Beyerbach concludes that the undisclosed character of trade secrets precludes their inclusion within the IPRs spectrum. Crucially, any trade secret holder achieves protection without publicising the information, and hence does not participate in the trade-off between the holder and the general public envisaged by the intellectual property system.371 365 BGH GRUR 1955, 388, 389 ‒ Dücko. 366 Gesetz gegen den unlauteren Wettbewerb in der Fassung der Bekanntmachung vom 3. März 2010 (BGBl. I S. 254), das zuletzt durch Artikel 4 des Gesetzes vom 17. Februar 2016 (BGBl. I S. 233) geändert worden ist (UWG); BGH GRUR 1955, 468, 472 ‒ Schwermetall-Kokillenguß. 367 Christoph Ann, ‘Know-how- Stiefkind des Geistiges Eigentums?’ [2007] GRUR 39, 42 highlighting the economic dimension of know-how as an IPR. 368 Hans-Jürgen Ahrens and Mary-Rose McGuire, Modellgesetz für Geistiges Eigentum, Normtext und Begründung (GRUR 2012) 50; Mary-Rose Mcguire, ‘Knowhow:Stiefkind, Störenfried oder Sorgenkind?’ [2015] GRUR 424, 426. 369 Josef Drexl, ‘Die Verweigerung der Offenlegung von Unternehmensgeheimnissen als Missbrauch marktbeherrschender Stellung’ 437, 449 in Reto Hilty and others (eds), Schutz von Kreativität und Wettbewerb (C.H. Beck 2009). 370 Josef Drexl 2009 (n 369) 449; Gintare Surblyte 2011(n 182) 59-60. 371 Hannes Beyerbach, Die geheime Unternehmensinformation (Mohr Siebeck 2012) 222. Chapter 1. Concept, justifications and legal nature of trade secrets 102 Dorner is also wary of categorising trade secrets as property rights, as he believes that this amounts to an “Hypertrophy of IPRs”.372 In the case of trade secrets, this is achieved by expanding the subject matter protected, rather than creating a sui generis right.373 He illustrates this by referring to the broad scope of paragraph 2 of § 17(2) UWG, the simultaneous protection of software through copyright and trade secrets and the protection of confidential information through procedural law.374 A middle ground approach is purported, among others, by Ohly, who is of the opinion that trade secrets protection appears to fall somewhere between one of the market behaviour rules set forth in the UWG and an IPR.375 Following this viewpoint, trade secrets are regarded as an “imperfect intellectual property right” (“unvollkommenes Immaterialgüterrecht”), owing to the fact that they share some of the features of traditional IPRs and others of the market behaviour rules enshrined in the UWG.376 From a dogmatic perspective, Ohly suggests that not every IPR confers upon its holder the right to enforce it without taking into account the lawfulness of the alleged infringer’s conduct, as in the case of patent rights.377 This is best illustrated by referring to trade marks and copyright. The infringement of the former is usually conditioned upon unfair behaviour such as the creation of likelihood of confusion or taking unfair advantage 372 Michael Dorner 2013 (n 305) 315-318; the concept of Hypertrophy of IPRs is further developed by Brigitte Zypries, ‘Hypertrophie der Schutzrechte?’ [2004] GRUR 977, 980. 373 William Cornish, ‘The Expansion of Intellectual Property Rights’ 9 in Gerhard Schricker, Thomas Dreier and Annette Kur (eds), Geistiges Eigentum im Dienst der Innovation (Nomos 2001). 374 Michael Dorner 2013 (n 305) 315-318. 375 Ansgar Ohly 2014 (n 100) 3. 376 Ansgar Ohly 2014 (n 100) 4; a similar view is expressed by Hans-Jürgen Ahrens and Mary-Rose McGuire 2012 (n 366) where trade secrets are conceptualised as a special protection position (“sonstige Schutzposition”); this argument is further developed by Mary-Rose McGuire 2015 (n 368) 424, where the author suggests that the system articulated by §§ 17-19 UWG together with § 823 II BGB does not afford absolute protection to the secret holder. Rather, it confers subjective right against unlawful acquisition, use and disclosure. Hence, the author purports that the legal nature debate results from the different ways in which the concept intellectual property is understood. For some, IPRs confer an absolute right to the holder of the intangible good, while others view it as a set of rules that regulate different types of extisting conduct (“Lebenssachverhalten”); see further Harte-Bavendamm/Henning-Bodewig, Gesetz gegen den unlauteren Wettbewerb (UWG)( 4th edn, C.H. Beck 2016) ‘§§ 17-19’ Rdn 2. 377 Ansgar Ohly 2014 (n 100) 4. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 103 of the distinctive character and reputation of the mark.378 Similarly, copyright does not afford protection against independently created works. Hence, he concludes that IPRs constitute a bundle of rights, some of which are tighter laced than others. It is in this context that he submits that trade secrets can be regarded as an “imperfect species of IPRs”. However, this dogmatic characterisation should not lead to enhancing the material limits laid down in the protection of trade secrets, particularly vis-àvis bona fide third party acquirers, as the right in a trade secret is not a right in rem with erga omnes effects.379 In the following section, it is argued that such a conceptualisation should be extended to the interpretation of the TSD. Indeed, this seems to be the approach adopted by the German legislature in the implementation of the TSD, as noted in the comments to § 3 of the Proposed Trade Secrets Act.380 European Union approach As outlined in the previous sections, EU Member States have different views on whether trade secrets should be considered a species of IPRs or a set of unfair competition rules. Interestingly, there is not a single provision of the acquis communautaire that expressly addresses this issue and even the wording of the TSD appears unclear. The Technology Transfer Block Exemption Regulation, in force until the end of April 2014, defined IPRs as including “industrial property rights, know-how, copyright and neighbouring rights”.381 However, in its newest version, IPRs are defined as “industrial property rights, in particu- 4. 378 See Article 10(2)(c) TMD. 379 Ansgar Ohly 2014 (n 100) 4. 380 See § 3 of the Proposed Trade Secrets Act: “(...) es sich bei Geschäftsgeheimnissen zwar in gewisser Weise um Immaterialgüterrechte handelt, aber anders als bei Patenten, Marken und Urheberrechten keine subjektiven Ausschließlichkeits- und Ausschließungsrechte vorliegen können, weil der rechtliche Schutz allein von der Geheimhaltung der Information abhängt und nicht von anderen Voraussetzungen wie einer Eintragung oder einer besonderen Schöpfungshöhe. Um Innnovation und Wettbewerb weiterhin zu ermöglichen, werden daher Geschäftsgeheimnisse nicht völlig der Gemeinfreiheit entzogen und ihrem Inhaber mit Wirkung gegenüber jedermann zugeordnet, sondern es wird lediglich ein bestehender Zustand rechtlich abgesichert”. 381 See Article 1 (1)(g) of the Commission Regulation (EC) No 772/2004 of 27 April 2004 on the application of Article 81 (3) of the Treaty to categories of technology transfer agreements [2004] OJ L123/11. Chapter 1. Concept, justifications and legal nature of trade secrets 104 lar patents and trade marks, copyright and neighbouring rights”.382 Thus, the latter version has omitted any reference to know-how. More recently, the EU legislator has adopted an ambiguous wording when addressing the legal nature of trade secrets in the TSD. On the one hand, it incorporates the “honest commercial practices” benchmark contained in the PC in the assessment of the types of conduct that are deemed unlawful and the exceptions and limitations thereto.383 The non-proprietary nature of trade secrets is reinforced by the language used in Article 2(2), which refers to trade secrets holders instead of trade secrets owners.384 In the same vein, the Impact Assessment notes that the application of the Enforcement Directive to trade secrets was declined because “trade secrets are not intellectual property rights” and that regarding them as an IPR would add confusion.385 However, on the other hand, Recital 16 expressly mentions that the provisions of the Directive shall not create an exclusive right on the information they protect, but notably no reference to intellectual property is made.386 In the light of the above, it is submitted that the Directive does not require Member States to protect trade secrets as IPRs.387 Instead, the legislature has opted to emphasise the unfair competition nature of the relevant 382 Commission Regulation (EU) No 316/2014 of 21 March on the application of Article 101 (3) of the Treaty on the Functioning of the European Union to categories of technology transfer agreements [2014] OJ L93/17 (TTBER). 383 Annette Kur, Reto Hilty and Roland Knaak, ‘Comments of the Max Planck Institute for Innovation and Competition of 3 June 214 on the Proposal of the European Commission for a Directive on the Protection of Undisclosed Know- How and Business Information (Trade Secrets) Against Their Unlawful Acquisition, Use and Disclosure of 28 November 2013, COM(2013) 813 Final’ [2014] IIC 45, para 11 (MPI Comments). 384 As noted by Tanya Aplin, ‘A critical evaluation of the proposed Trade Secrets Directive’ [2014] IPQ 257, 260-261. 385 Commission, ‘Impact Assessment accompanying the document proposal for a Directive of the European Parliament and of the Council on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure’ SWD(2013) 471 final, 267-268; Tanya Aplin 2014 (n 384) 260 further refers to the fact that Recital 1 of the TSD views trade secrets protection as a compliment or alternative to IPRs. 386 Recital 16 TSD: “In the interest of innovation and to foster competition, the provisions of this Directive should not create any exclusive right to know-how or information protected as trade secrets”. 387 Tanya Aplin 2014 (n 384) 260-261 is of the opinion that the wording used in the Directive is so flexible that it even allows for a certain degree of leeway in terms of whether it is mandatory to implement unfair competition provisions. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 105 liability conduct. Yet, it does not mandate either that Member States that do protect trade secrets as IPRs amend their legislation and regulate trade secret protection only by reference to unfair competition rules.388 This would disregard the overall functioning of the intellectual property system, where unfair competition rules regularly supplement the protection afforded by IPRs, such as trade marks or design rights.389 Against this background, it should be borne in mind that there is also a constitutional dimension to the property debate vis-à-vis trade secrets in the EU. Article 17(2) of the ChFREU mandates Member States to protect intellectual property under the general property clause. However, so far, the CJEU has not ruled on whether trade secrets fall within the scope of protection of this provision and the implications that such a categorisation may entail with respect to the rights conferred by national trade secrets legal regimes. In addition, according to the constitutional approach, confidential information should also be afforded protection pursuant to the general freedom to conduct a business laid down in Article 16 of the ChFREU. This provision encompasses all economic and business activities of a company, as well as the competitive position of all of the economic actors.390 A number of commentators have expressed scepticism regarding the possibility of considering trade secrets as a form of intellectual property rights in the context of the TSD because they understand that this would lead to higher standards of protection to the advantage of corporate actors. In particular, it is argued that this would (i) result in the application of stricter liability principles (in particular with respect to third party liability); (ii) narrow the manner in which exceptions and limitations are construed (with respect to reverse engineering and independent creation); and (iii) impose stringent enforcement remedies.391 Furthermore, it has been suggested that the minimum harmonisation approach adopted in the Directive seems problematic, as in its implementation, Member States may adopt higher standards of protection.392 Consequently, it is submitted that 388 This would be, for instance, the case of Italy. 389 Ansgar Ohly 2014 (n 100) 4. 390 Hannes Beyerbach, Die geheime Unternehmensinformation (Mohr Siebeck 2012) 305. 391 Tanya Aplin 2015 (n 306) 432 noting that “in the context of the EU, it is argued that classification as ‘possessions’ and ‘intellectual property’ within Article 17 Charter is likely to create pressure to increase the scope of protection”. 392 Valeria Falce, ‘Looking for (Full) Harmonization in the Innovation Union’ [2015] IIC 940, 959. Chapter 1. Concept, justifications and legal nature of trade secrets 106 the maximum standards laid down in Article 1(1) TSD, which safeguard the exceptions and lawful means of acquiring, using and disclosing secret information, are essential to ensure a proper balance between the interests of trade secrets holders and the intellectual property system.393 Drawing on the above, it is concluded that the emphasis in the implementation by Member States should not lie in the specific label under which trade secrets are categorised (either as unfair competition rules or imperfect intellectual property rights), but rather in their material limits. As convincingly argued by Ohly, the protection conferred to a trade secret holder should not be enhanced in the event that they are in fact regarded as an imperfect form of IPRs by the national legislators, particularly with respect to the application of the exceptions and limitations and the liability of bona fide third party acquirers. The right in a trade secret should not be viewed as an absolute erga omnes right (such as patent rights) and its enforcement should always be conditioned upon the appraisal of the fairness in the acquisition, use and disclosure of the information concerned.394 Considering information as the object of property rights Preliminary remarks: the problematic conceptualisation of information as such as the object of IPRs Ultimately, the property debate in the context of trade secrets leads to the question of whether information as such should be regarded as the object of property rights and whether it should be protected within the scope of IPRs. Indeed, information and information relationships are regulated by multiple fields such as contract law, tort law, data protection, administrative law and even environment law, to name some.395 Intellectual property is among those fields, as the grant of exclusive rights unquestionably limits the free access to and flow of information. However, a historical analysis shows that one of the goals of the intellectual property regime in the EU II. 1. 393 See chapter 6 § 2. 394 Ansgar Ohly 2014 (n 100) 4. 395 Thomas Dreier, ‘Regulating information: Some thoughts on a perhaps not quite so new way of looking to intellectual property’ 35, 42 in Josef Drexl and others (eds), Technology and Competition, Contributions in Honour of Hanns Ullrich (Larcier 2009); Hannes Beyerbach, Die geheime Unternehmensinformation (Mohr Siebeck 2012) 5-6. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 107 has been to promote the dissemination of information and knowledge, rather than to limit its access through the creation of property rights.396 To be sure, IPRs are granted for a restricted period of time, limited in scope and only for those inventions and creations that meet a certain qualitative threshold.397 For this reason, intellectual property intends to afford the lowest level of protection necessary to encourage innovation and creation.398 Notwithstanding this, in the information society, information as such has become a very valuable commodity, which some consider is worth protecting.399 However, characterising information as the object of property rights is difficult for a number of reasons. In the first place, as noted above, there is no uniform definition of information,400 which allows for distinguishing it 396 In the Communication from the Commission, ‘Europe 2020: a strategy for smart, sustainable and inclusive growth, Brussels,’ COM(2010) 2020 final, 11-14, the Commission established three priorities within the framework of the Europe 2020 Strategy, namely, (i) smart growth, (ii) sustainable growth and (iii) inclusive growth. Particularly, the second pillar, smart growth, intends to enhance the role of knowledge and innovation as drivers for growth in the EU. According to the Commission, this calls for an improvement of the quality of education and research performance, as well as promoting the transfer of innovation and knowledge within the common market. 397 Séverine Dusollier, ‘Pruning the European intellectual property tree: in search of common principles and roots’ 24, 37 in Christophe Geiger (ed), Constructing European intellectual property (Edward Elgar 2013). The author identifies a continuum of four levels, which to some extent are present in the requirements of protection of every IPR, even though not at the same time. These are creationnovelty-adequacy-investment. The creation requirement refers to the intellectual intervention of the author. Novelty is conceptualised as an objective threshold that looks into the prior existence of the intellectual object now produced. Adequacy indicates that the object of protection serves the purpose of the IP for which it is applied. Finally, investment refers to the financial investment in the creation of the object. 398 Mark A. Lemley 2004 (n 109) 1031. 399 Pamela Samuelson 1988 (n 341) 367. 400 Thomas Dreier 2009 (n 395) 42; Thomas Hoeren, ‘Zur Einführung: Informationsrecht’ [2002] JuS 947, 947 notes that “Niemand weiß, was Information ist”; in a similar vein, Hannes Beyerbach, Die geheime Unternehmensinformation (Mohr Siebeck 2012) 5 refers to information as a “definiens indefiniblis”. Chapter 1. Concept, justifications and legal nature of trade secrets 108 from other concepts such as knowledge401 or data.402 Most famously, it has been stated that “information is information, not matter or energy”.403 Dreier notes that information has been defined, as a message, pattern, sensory input or even a property in physics (etc.). He further adds that none of these explanations share a common ground and in some instances they contradict each other. Furthermore, the intangible nature and inherent leakiness of information make it very difficult for the possessor to maintain a certain degree of exclusivity in its use.404 Consequently, information presents the same non-rivalrous and non-exclusive nature, which is common to other forms of intangible assets that are afforded protection under the general umbrella of IPRs. In the light of the above, trade secrets law seems tailored to protect certain categories of information that fall outside the traditional realm of IPRs,405 such as incremental innovations that are considered obvious by the patent office, business models or compilations of data that are not eligible for protection under the Database Directive but are maintained undisclosed. Yet, this in turn may have a negative impact on access to information, innovation and market competition. The following sections further explore the legal problems surrounding the categorisation of information as such as the object of an IPR and its consequences for trade secrets law. First, section 2 starts by analysing the leading case in the U.S. on this topic ; then, some additional arguments following a semiotics approach are presented in section 3; next, in section 4, the sui generis “data producer’s right” proposed by the Commission is used as an example case to illustrate the problems of creating exclusive rights on information as such; finally section 5 concludes. 401 In the Oxford English Dictionary, ‘knowledge, n’ is defined as “Facts, information, and skills acquired through experience or education; the theoretical or practical understanding of a subject” (OED Online, OUP June 2013) accessed 15 September 2018. 402 For the purposes of the present research, ‘data, n’ will be tentatively defined as “Facts and statistics collected together for reference or analysis” (OED Online, OUP June 2013) accessed 15 September 2018. 403 Thomas Dreier 2009 (n 395) 42 (as cited in N. Wiener, Cybernetics, or control and communication in animal and machine (2nd edn, MIT Press 1961) 132). 404 Pamela Samuelson 1988 (n 341) 368-369. 405 Michael Risch 2011 (n 113) 175. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 109 The debate in the U.S.: INS v. Associated Press and its influential dissent The proprietary debate reached the U.S. Supreme Court in the famous INS v. Associated Press case, where the court recognised a quasi-property right in a specific kind of information, news items.406 In the case at hand, the parties competed in the distribution of news throughout the U.S. during the First World War. Associated Press (“AP”) filed a lawsuit against International News Service (“INS”), owned by the newsprint magnate Randolph Hearst, for appropriating its news, after the defendant was barred from using the allied lines.407 In effect, despite the ban, INS continued to report news to the west coast, leveraging the time difference. Crucially, the news was lawfully acquired from bulletin boards and early editions of the newspapers on the east coast and subsequently telegraphed to INS customers on the west coast.408 In the ratio decidendi, the U.S. Supreme Court first noted that no copyright protection was available on the reported news items based on two factors: firstly, most of the news was rewritten and copyright law only affords protection to expression, not ideas; and secondly, the news described daily ordinary matters and as such lacked originality and did not qualify for copyright protection.409 Hence, upon their publication, the news items were deemed to be part of the public domain. Notwithstanding this, Justice Pitney recognised that a property interest subsisted between the parties, which was nevertheless not enforceable against the public in general.410 Such a property right was derived from the amount of time, money 2. 406 INS v. Associated Press, 248 U.S. 215 (1918). 407 The news on First World War was reported using the Allies telegraph lines. Due to the critical reports of the Allies’ performance by INS, the company was denied use of the allied lines; this was reported by the New York Times in ‘News Pirating Case in Supreme Court’ The New York Times (New York, 3 May 1918) 14. 408 In addition, INS bribed AN’s employees in order to receive the information before the publication of the newspapers and induced them to breach their confidentiality obligations. However, these types of conduct were not the object of the appeal before the U.S. Supreme Court. 409 INS v. Associated Press, 248 U.S. 215, 234 (1918). 410 INS v. Associated Press, 248 U.S. 215, 235 (1918): “Regarding the news, therefore, as but the material out of which both parties are seeking to make profits at the same time and in the same field, we hardly can fail to recognize that for this purpose, and as between them, it must be regarded as quasi-property, irrespective of the rights of either against the public”. Chapter 1. Concept, justifications and legal nature of trade secrets 110 and labour that AP had invested in gathering the news and the value that those without knowledge of the news were willing to pay. As a result, the court granted an injunction on the grounds that the competitor had misappropriated the plaintiff’s investment in an enterprise. Next, the majority spelt out four factors that have become central to any misappropriation action in the United States.411 In the first place, there must have been a substantial investment in the production of an article with market value. Second, the defendant must be in direct competition with the plaintiff. Furthermore, there must be some free-riding (reaping without sowing) on his investment. Fourth, the act of misappropriation must result in a substantial reduction in the incentive to yield the goods and services misappropriated.412 The line of reasoning explained above was contested by Justice Brandeis in his famous dissent, where he called into question the extension of property rights in news items based on two arguments. In the first place, he expressed concern about the creation of a new private right that may allow anyone who had invested labour, skill and money in something to claim a semi-property right in it, against third parties.413 In the words of Justice Brandeis: The plaintiff has no absolute right to the protection of his production; he has merely the qualified right to be protected against the defendant’s acts, because of the special relation in which the latter stands, or the wrongful method or means employed in acquiring the knowledge, or the manner in which it is then used.414 411 Matthias Leistner, ‘The Legacy of International News Service v Associated Press (USA)’ 33, 34 in Christopher Heath and Anselm Kamperman Sanders (eds), Landmark Intellectual Property Cases and Their Legacy (Kluwer Law International 2010). 412 Matthias Leistner 2010 (n 411) 34; at 39-41 the author further notes that later in time the INS test for misappropriation was substantially narrowed down by the U.S. Court of Appeal for the Second Circuit in National Basketball Association (BA) v. Motorola Inc. 105 F.3d 841 (2d Cir. 1997). In its legal reasoning, the court noted that a central element in the INS case was the time-sensitivity of news items. Hence, the court argued that the misappropriation action as tailored in INS was only applicable to misappropriation of hot news. 413 INS v. Associated Press, 248 U.S. 215, 262-263 (1918). 414 INS v. Associated Press, 248 U.S. 215, 251 (1918). § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 111 Next, he argued that this situation would result in a limitation of the right to use general knowledge and ideas.415 Against this backdrop, Justice Brandeis considered that in order to reconcile the private right with the public interest, such a right may only be created by the legislature and based on articulate and clear limitations.416 This dissent was very influential in the following years, as it explored for the first time the implications of expanding the intellectual property regime to the mere protection of information based on the cost, time and labour devoted to garnering it.417 Most notably, it drew special attention to one of the cornerstones of the intellectual property system, according to which abstract ideas should not be protected by law, but should remain free:418 The general rule of law is, that the noblest of human productionsknowledge, truths, ascertained, conceptions, and ideas became, after voluntary communication to others, free as the air to common use.419 This general principle is most clearly stated in copyright law under the idea/expression dichotomy: only the expression, not the underlying idea, is protected by copyright.420 Similarly, patent law only protects technical features. This can be inferred from the exclusion list set forth in Article 52(2) EPC and the fact that inventions must be susceptible of industrial application (Article 57 EPC). As regards trade marks, the CJEU clarified in Dyson v Registrar of Trade Marks that a trade mark application consisting of all of the conceivable appearances of a product in a non-specific manner cannot be regarded as a sign under the TMD. Otherwise, the holder of the trade mark would obtain a competitive advantage that may limit competition in the market.421 415 INS v. Associated Press, 248 U.S. 215, 240 (1918); and also at page 250 (Brandeis Dissent). 416 INS v. Associated. Press, 248 U.S. 215, 263 (1918). 417 Matthias Leistner 2010 (n 411) 37-38. 418 Séverine Dussollier 2012 (n 397) 35-37. 419 INS v. Associated Press, 248 U.S. 215, 250 (1918). 420 The idea/expression dichotomy is one of the general principles enshrined in most national copyright systems. At the international level, it has been explicitly codified in Article 9(2) of TRIPs and Article 2 of the WCT. Yet, at the EU level, it is only referred to in Article 1(2) of the Software Directive; see Mireille van Eechoud and others, Harmonizing European Copyright Law (Kluwer Law International 2009) 34-35. 421 In Case C–321/03 Dyson Ltd v Registrar of Trademarks [2007] ECR I-687 the CJEU dealt with the refusal to register as a trade mark all conceivable shapes of Chapter 1. Concept, justifications and legal nature of trade secrets 112 Semiotics approach to the property debate The legal analysis of International News Service v. Associated Press422 underscores that information can be separated from its physical carrier,423 in the same way that a text and the book in which it is embedded are two distinct objects.424 Accordingly, this may lead to the distinction of three different layers when addressing information as an object: (i) the semantic level, as regards the meaning of the information; (ii) the syntactic level, as regards the signs and their interrelation; and (iii) the physical level, as regards the carrier. Against this background, semiotics doctrines have identified three types of information that correlate with the previous sequence of levels: semantic information, syntactic information and structural information.425 Following this rationale, the story told in a book is semantic information, whereas the text of the book, understood as a sequence of letters and words devoid of any meaning, is syntactic information and the book as such is the physical carrier (real property) and, therefore, structural information.426 The creation of IPRs confers exclusivity over certain types of information. For instance, patent rights confer exclusivity over specific technical information, which relates to semantic information, whereas copyright and design rights provide exclusivity over syntactic information.427 Indeed, as outlined in the previous section, pursuant to Article 9(2) TRIPs copyright protection extends only to the expression (syntactic information) of ideas, which are semantic information. Likewise, design rights are only protected against their reproduction in a physical embodiment, which is also syntactical information.428 The case of trade secrets is a particular one, as the object of protection is semantic information, but unlike patent rights, exclusivity is not achieved 3. a transparent collecting bin forming part of the external surface of a vacuum cleaner. 422 INS v. Associated Press, 248 U.S. 215 (1918). 423 Herbert Zech, ‘Information as Property’ [2015] 6 JIPITEC 192 para 9. 424 Herbert Zech 2015 (n 423) para 9. 425 Herbert Zech 2015 (n 423) para 14. 426 This example is presented by Josef Drexl, ‘Designing Competitive Markets for Industrial Data – Between Propertisation and Access’ (2016) Max Planck Institute for Innovation & Competition Research Paper No. 16-13, 12 accessed 15 September 2018. 427 Herbert Zech 2015 (n 423) paras 25-28. 428 Herbert Zech 2015 (n 423) para 28. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 113 by conferring exclusive rights over the said semantic information. Instead, exclusivity is a pre-condition that derives from the factual condition of secrecy.429 Therefore, trade secrets law merely protects factual exclusivity against the unauthorised acquisition, use and disclosure of semantic information that has commercial value due to its secret nature and has been subject to reasonable efforts under the circumstances to protect its concealed nature. Crucially, the protection conferred by trade secrets does not extend to information acquired through independent creation or reverse engineering (unless the parties have contractually agreed to the contrary). Consequently, semantic information is not protected as such, only against specific tortious conduct. Such a distinction is of the greatest importance, because conferring exclusive rights over semantic information vests the holder of the right with greater powers than creating rights over syntactic information. As a result, the reduction of the public domain is also substantially larger in the former case.430 In the light of the above, it is submitted that the “honest commercial practices” benchmark should remain at the centre of the appraisal of the lawfulness of the alleged infringing types of conduct in order to avoid the creation of a right in rem over semantic information. Following this line of reasoning, the limitations laid down with respect to trade secrets protection should also always be observed in their enforcement. Otherwise, trade secrets protection would have a disruptive effect within the overall IPRs legal framework. A similar rationale speaks against the introduction of the data producer’s right contemplated by the Commission in the context of the Building a European Data Economy,431 as analysed in the following section. 429 Herbert Zech 2015 (n 423) para 26. 430 In this context, Herbert Zech 2015 (n 423) para 31 notes that the creation of property rights over semantic information calls for a stronger justification than establishing property rights over syntactic information. Hence, copyright becomes more problematic if the protection of works protected under copyright law extends not only to its expression, but also its content. 431 See Commission, ‘Building a European Data Economy Initiative’ COM(2017) 9 final. Chapter 1. Concept, justifications and legal nature of trade secrets 114 Example case: data producer’s right In the context of the Digital Single Market initiative and mostly owing to the increasing role of data as a driver for innovation,432 the Commission evaluated the possibility of introducing a new EU-wide novel sui generis right for the protection of so-called “machine-generated data”433 (also referred to as “industrial data” or “non personal data”)434 with a potentially erga omnes effect.435 This debate was spurred for the most part by the automotive industry436 and has been particularly intense among German authors, who are divided between those that support the need to create a sui generis right that allocates ownership rights on raw data,437 and those that argue that the existing liability regimes (such as tort law, criminal and trade secrets law) are applicable to the emerging data markets and are wary of the consequences for innovation and competition that the creation of such a new right would entail.438 As a result of this debate, in January 10, 2017, the Commission announced that it was considering the possibility of introducing a new sui 4. 432 OECD, ‘Data-Driven Innovation: Big Data for Growth and Well-Being’ (OECD Publishing 2015) 4 accessed 15 September 2018. 433 Herbert Zech 2016 (n 278) 53 and 74 defines data as “machine-readable encoded information”. However, in the context of the sui generis right, the author suggests that the subject matter of protection should be limited to “machinereadable coded information that is defined only by its representative characters (bits) irrespective of its content (data delimited on the syntactic level)”. 434 See Andreas Wiebe 2016 (n 287); in the following, the term “industrial data” will be used. 435 P. Bernt Hugenholtz 2017 (n 279) 5; Commission, ‘Building a European Data Economy Initiative’ COM(2017) 9 final, 13 and more specifically Commission, ‘Commission Staff Working Document on the free flow of data and emerging issues of the European data economy’ SWD(2017) 2 final, 33-38. 436 P. Bernt Hugenholtz 2017 (n 279) 1-2. 437 Herbert Zech 2016 (n 278) 51-79; Michael Lehmann, ‘European Market for Digital Goods’ 111-126 in Alberto de Franceschi (ed), European Contract Law and the Digital Single Market – the Implications of the Digital Revolution (Intersentia 2016). 438 Josef Drexl and others, ‘Position Statement of the Max Planck Institute for Innovation and Competition of 26 April 2017 on the European Commission’s Public consultation on Building the European Data Economy’ (2017) Max Planck Institute for Innovation & Competition Research Paper No. 17-08 accessed 15 September 2018. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 115 generis right for industrial data439 in order to foster “the tradability of nonpersonal or anonymised machine-generated data as an economic good”.440 The contours of the right were not precisely defined, even though in the Building a European Data Economy Communication it was noted that it related to the “right to use and authorise the use of non-personal data”, which would be vested on the “data producer”, which could be either the owner or long-term user (i.e. the lessee) of the device concerned.441 This would allow for unlocking machine-generated data controlled de facto by the manufacturer of the device.442 According to the Working Document, two possibilities were considered: (i) the introduction of a right in rem allowing the data producer to enforce it against third parties with erga omnes effect, including the right to assign and license such a right, or (ii) the creation of a defensive right of a tortious nature imposing liability in case of misappropriation, similar to the liability regime laid down in the TSD. The proposal garnered substantial criticism among academics and stakeholders, as it was perceived that the creation of such a right was not well founded and was alien to the general IPRs system, particularly if the EU legislator opted to introduce an in rem right with erga omnes effects.443 From an economic perspective, it was argued that neither of the two utilitarian justifications most frequently invoked for IPRs were applicable in the context of industrial data, namely (i) the incentives to innovate theory, and (ii) the prospect theory. In connection to the former, it was noted that the Commission had not provided sufficient evidence regarding the need to confer exclusivity to data producers in order to provide additional incentives to generate and collect data.444 Indeed, in the Data Economy sheer amounts of data were already being generated as by-products of most of the services provided therewith, such as platforms, or in the context of 439 Commission, ‘Building a European Data Economy Initiative’ COM(2017) 9 final, 12. 440 Commission, ‘Commission Staff Working Document on the free flow of data and emerging issues of the European data economy’ SWD(2017) 2 final, 5. 441 Commission, ‘Building a European Data Economy Initiative’ COM(2017) 9 final, 13. 442 Josef Drexl and others 2016 (n 438) para 9. 443 P. Bernt Hugenholtz 2017 (n 279) 5; Josef Drexl and others 2017 (n 442) paras 8-19. 444 Josef Drexl 2016 (n 426) 30-33. Chapter 1. Concept, justifications and legal nature of trade secrets 116 the Internet of Things (“IoT”).445 In other words, there was no “public good problem” to be solved.446 The prospect theory submits that IPRs are justified because they provide additional incentives to commercialise the subject matter of protection.447 Yet again, the Commission failed to provide evidence of whether data producers and data holders were in fact facing difficulties in the commercialisation of their data.448 From a legal perspective, the introduction of a new data producer’s right in the acquis communautaire also encountered criticism, mainly on the grounds that it would lead to “disruptive overlaps” with existing IPRs, generate legal uncertainty and hinder the free flow of information.449 In particular, Hugenholtz holds that if a property right is recognised over machine-generated data, tension will arise with existing copyright rules, leading to “competing claims of ownership in the same content”.450 He illustrates this in a very convincing manner by reference to the protection afforded by copyright to cinematographic works. If a sui generis right over digital data were introduced, a picture shot with a digital camera would be protected both under copyright and under the sui generis data producer’s right. Furthermore, in such a context, the owner of the camera could claim ownership of the digital images, along with the competing ownership 445 P. Bernt Hugenholtz 2017 (n 279) 4; for the purposes of the present analysis, the broad definition of Internet of Things (“IoT”) outlined by the OECD, ‘Digital Economy Outlook’ (OECD Publishing 2015) 61 accessed 15 September 2018 will be followed. According to this definition, the IoT encompasses “all devices and objects whose state can be read or altered via the Internet, with or without the active involvement of individuals. This includes laptops, routers, servers, tablets and smartphones, all of which are often considered to form part of the “traditional Internet”. However, as these devices are integral to operating, reading and analysing the state of IoT devices, they are included here. The IoT consists of a series of components of equal importance – machine-to-machine communication, cloud computing, big data analysis, and sensors and actuators. Their combination, however, engenders machine learning, remote control, and eventually autonomous machines and systems, which will learn to adapt and optimise themselves”. 446 An overview of the public good problem is provided by Wolfgang Kerber, ‘A New (Intellectual) Property Right for Non-Personal Data? An Economic Analysis’ [2016] GRUR Int 989, 997. 447 The prospect theory was developed by Edmund Kitch, ‘The Nature and the Function of the Patent System’ [1977] 20 Journal of Law and Economics 265; Josef Drexl 2016 (n 426) 33-34. 448 Wolfgang Kerber 2016 (n 446) 998. 449 P. Bernt Hugenholtz 2017 (n 279) 10. 450 P. Bernt Hugenholtz 2017 (n 279) 10-11. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 117 claim by the authors of the film (music composer, producer, director and scriptwriter).451 In turn, this would affect the exceptions and limitations under copyright law and the sui generis database right, unless similar exceptions and limitations were introduced for the sui generis data producer’s right.452 For instance, the right to extract and use insubstantial parts of a database by the lawful user regulated under Article 8(1) of the Database Directive could be undermined by the operation of the data producer’s right in the individual data. As a final note, Hugenholtz convincingly argues that the fact that the Commission claimed that the subject matter of protection under the new sui generis right only covers syntactic information (not semantic information) would not prevent disruptive overlaps, because in many instances the reproduction of the semantic layer (for example, a film) requires the use of the syntactic layer (such as the digital file in which the film is embedded).453 Similar criticism was echoed by stakeholders in the context of the Consultation on the Building a European Data Economy Initiative, where most of the respondents noted that the investment made in the collection of data was sufficiently protected “through the Database and Trade Secrets Protection Directives, requiring no additional regulation”.454 In the same document, it was noted that the majority had submitted that the crucial issue was not to vest ownership rights in raw data, but rather to promote access to the said data.455 As a result, in a more recent communication, “Towards a common European data space” the Commission acknowledged the respondent’s view and proposed a number of principles that should inform contractual practices in order to ensure “fair and competitive markets for the IoT objects and for products and services that rely on non-personal machine-generated data created by such objects”.456 The five principles that were spelt out refer to: (i) transparency in the access and sharing of data; (ii) the shared value of industrial data; (iii) the need to respect the commercial interests of data holders and data users; (iv) the need to ensure undistorted 451 P. Bernt Hugenholtz 2017 (n 279) 10-11. 452 P. Bernt Hugenholtz 2017 (n 279) 12. 453 P. Bernt Hugenholtz 2017 (n 279) 11-12. 454 Commission, ‘Synopsis Report on the Consultation on the Building a European Data Economy Initiative,’ 5. 455 Commission, ‘Synopsis Report on the Consultation on the Building a European Data Economy Initiative,’ 5. 456 Commission, ‘Towards a common European data space’ COM(2018) 232 final, 9-10. Chapter 1. Concept, justifications and legal nature of trade secrets 118 competition and (v) the need to minimise data-lock in.457 In addition, due to the dynamic nature of the emerging data markets, further consultations with stakeholders and sectorial measures were announced.458 Concluding remarks on the treatment of information as property The analysis conducted above underscores the disruptive effects that the creation of a new IPR covering information as such (raw data at the syntactic level) would have on the protection of information at the semantic level. IPRs are granted not only as a reward for creators and innovators. One of the main objectives of the intellectual property system is to incentivise the dissemination of information and allow its use for subsequent innovation and creation and, at the same time, foster competition in the market. However, affording protection to abstract ideas and information as such runs counter to the disclosure function459 and may also have a negative impact on market competition and follow-on innovation. If access to information is essential in order to enter a given market, monopolisation may occur if the law affords protection against such access. As a result, it is crucial that the protection of information and access to it is not regulated in a restrictive manner.460 Ultimately, regarding information as the object of a property right may also affect fundamental freedoms such as the freedom of expression and information laid down under Article 10 ECHR and Article 11 of the ChFREU. Even though the ECtHR has stated that the protection afforded under these provisions to commercial speech is less than for political discourse,461 states cannot impose information restrictions, for instance, by 5. 457 Commission, ‘Towards a common European data space’ COM(2018) 232 final, 9-10. 458 Commission, ‘Towards a common European data space’ COM(2018) 232 final, 10-11. 459 Similar criticism has been raised in connection to the sui generis right in the EU created by the Database Directive. In this regard see Estelle Derclaye, ‘Intellectual Property Rights on Information and Market Power- Comparing European and American Protection of Database’ [2007] IIC 275, 297. 460 Josef Drexl 2011 (n 50) 183. 461 See Hertel v Switzerland (1998) 28 EHHR 534. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 119 introducing property rights over information, unless this is mandated by law and appears necessary in the context of a democratic society.462 In the light of the above considerations, it appears necessary to find a suitable definition of information vis-à-vis intellectual property and establish clear boundaries between protectable and non-protectable types of information.463 Indeed, an adequate definition of information should always be contextualised and tailored according to the problem it intends to solve.464 This is particularly relevant in order to avoid the creation of an exclusive right over semantic information, if none of the utilitarian rationales for intellectual property apply. In this context, it seems advisable to include a general provision within the acquis communautaire where it is specifically mentioned that abstract ideas and general principles should be free for everyone to use, in order to limit the ever-extending trend of granting proprietary rights over intangible assets without sound justifications.465 This is also consistent with one of the governing principles of unfair competition, whereby beyond the realm of exclusivity afforded by intellectual property law, any achievement that provides a competitive advantage to its users should be free for everyone to enjoy. In fact, it is a well-established principle that unfair competition is not concerned with valuable achievements, but rather looks into the appraisal of a conduct.466 Yet again, this raises the issue of defining whether an idea is sufficiently abstract and whether a conduct is contrary to honest commercial practices. Similar concerns would apply in the event that trade secrets were regarded as the object of an IPR with exclusive erga omnes effects. In such a case, the protection of subject matter explicitly excluded by other types of IPRs, such as incremental innovations that do not meet the inventive step test or databases that do not qualify for protection under the two-tier harmonised system of protection, may end up enshrined within the intellectual property system for the mere fact of being kept undisclosed.467 With these considerations in mind, some of the implications of the interplay between intellectual property and unfair competition in the realm of trade secrets are presented in the following section, in the wake of the TSD. 462 P. Bernt Hugenholtz 2017 (n 279) 13-14; in this regard see Ashby Donald and Others v France App no 36769/08 (ECtHR, 10 January 2013). 463 Pamela Samuelson 1988 (n 341) 398. 464 Thomas Dreier 2009 (n 395) 37. 465 Also suggested by Séverine Dussollier 2012 (n 397) 35-37. 466 Annette Kur 2014 (n 27) 16. 467 See chapter 1 § 3 B) II. 1. Chapter 1. Concept, justifications and legal nature of trade secrets 120 Dissecting the proprietary debate in the light of the harmonised framework created by the TSD The examination conducted throughout this chapter shows that there is lack of consensus concerning the legal nature of trade secrets. Drawing on the previous analysis, this section outlines some policy considerations regarding the relevance and consequences of characterising trade secrets as a species of IPRs. Even though this debate is mostly of an academic nature, it has important practical implications, particularly as regards the application of the Enforcement Directive and the relevant provisions under the Rome II Regulation.468 The first topic is discussed in greater detail in chapter 3, where the TSD is analysed. At this point, it suffices to note that only a few EU Member States apply the Enforcement Directive in connection to trade secrets469 and that the TDS does not clarify its relationship with the Directive already in force. From a private international law perspective, it is noteworthy that if the protection of trade secrets is regarded as an act of unfair competition, the law applicable to such obligations should be governed by Article 6(2) (together with Article 4) of the Rome II Regulation (i.e. the law of the country where the damage occurs). If, in contrast, trade secrets are deemed to be one of the categories of IPRs, Article 8(1) should be applied (i.e. the law of the country in which protection is sought).470 The guiding principle pursuant to the Commission’s Proposal of July 2003, is that industrial espionage, breach of contract and disclosure of business secrets fall within the categories of bilateral unfair commercial practices regulated in Article 6(2) of the Rome II Regulation, which refers to Article 4 of the same Regu- III. 468 Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II) [2007] OJ L199/40. 469 Pursuant to the Baker McKenzie, ‘Study on Trade Secrets and Confidential Business Information in the Internal Market’ (MARKT/2011/128/D) (2013), 26 accessed 15 September 2018 these countries are Italy, Portugal (to the extent the law implementing the Enforcement Directive is applicable to unfair competition), the Slovak Republic, Romania and arguably also the UK according to Vestergaard Frandsen A/S v Bestnet Europe Ltd [2011] EWCA Civ 424 (CA), [56]. 470 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 17. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 121 lation.471 Following the latter provision, the applicable law is that of the place where the damage occurs (lex loci damni) (Article 4(1)).472 Yet, if the parties have a common residence, the law of that country shall be applicable (Article 4(2)), whereas Article 4(3) introduces a so-called “escape clause” to the previous paragraphs and deems applicable the law of the country that has manifestly the closest connection to the misappropriation of the confidential information. From a dogmatic perspective, trade secrets present some features that are similar to those of an IPR and at the same time others that are fundamentally different and seem closer to those of unfair competition.473 Turning first to the similarities, both trade secrets and IPRs protect non-rival and non-exclusive intangible goods. In practice, this may lead to an overlap between the two regimes of protection, as examined in previous sections.474 For instance, as noted above, copyright and trade secrets overlap in regard to the protection of source code.475 Also, secrecy can protect technical in- 471 Commission, ‘Proposal for a Regulation of the European Parliament and the Council on the Law Applicable to non-contractual obligations (“ROME II”)’ COM (2003) 427 final, 16; the Proposal notes that even though industrial espionage, breach of contract and disclosure of business secrets may have a negative impact on a particular market, these cases should be regarded as bilateral and not as falling under the more general conflict of law norm laid down in Article 6(1). 472 Christopher Wadlow, ‘Trade secrets and the Rome II Regulation on the law applicable to non-contractual obligations’ 30 EIPR [2008] 309-319; Valeria Falce 2015 (n 392) 960. 473 Ansgar Ohly 2013 (n 13) 35; Matthias Leistner, ‘Unfair Competition and Freedoms of Movement’, Max Planck Encyclopaedia of European Private Law (OUP 2012) 1718 provides a very illustrative first approximation to the concept of unfair competition. He notes that: “from a European Perspective, ʻunfair competitionʼ does not exist as a clearly defined, unitary concept. However, despite all the differences in the scope and characterization, all Member States have developed instruments based on the principle of fairness to control Commercial activities. A common feature of all these mechanisms is the condition that the regulated activities or practices must be of commercial nature. Thus, unfair competition law regulates market behaviour. Beyond this common starting point, a clear-cut demarcation of unfair competition from other fields of law as well as common identification of the objectives of the law of unfair competition can hardly be achieved, given the wide variety of statutes and case law in the Member States”. 474 See chapter 1 § 3 A); a detailed account of the overlap between trade secrets and IPRs is provided in Estelle Derclaye and Matthias Leistner, Intellectual Property Overlaps (Hart 2011) 21. 475 See chapter 1 § 3 A) II. Chapter 1. Concept, justifications and legal nature of trade secrets 122 formation that actually meets the patentability standards, but for competitive reasons is kept undisclosed. In favour of their characterisation as IPRs, it should be noted that trade secrets can be the object of a licensing agreement and that they can also be sold and assigned.476 In effect, trade secrets are a very valuable asset for their holders, just like any other IPR.477 The remedies available in most jurisdictions are similar to those available in the event of IPR infringement.478 As a final remark, it should be noted that trade secrets protection, just like any other IPR, is subject to limitations. The most widely accepted ones are reverse engineering and independent creation.479 Yet, there are also substantial differences. Undisclosed information need not be novel and inventive (as in patent law) or meet a certain originality threshold (as in copyright).480 Its protection depends to a large extent on the factual assessment of whether the secrecy requirement is fulfilled. Central to the protection of trade secrets in every jurisdiction is that once information becomes generally known it falls into the public domain and thus ceases to be eligible for protection481 and that secret information must derive independent value from its undisclosed nature, which is frequently expressed in terms of the cost of creation.482 Crucially, trade secrets do not afford any sort of protection against the independent generation of information.483 As a result, two competitors may possess the same secret and in both instances be worthy of protection. Information remains free. In contrast, patent law protects against independent creation or reverse engineering of the patented invention. Similarly, copyright protects against the reproduction of the same exact expression, while trade marks preclude the use of identical or similar signs for identical or similar goods and services. In this regard, it has been suggested that trade secrets are fundamentally different to IPRs, which, by definition, have an exclusive nature. The latter 476 Stanisław Sołtysiński 1986 (n 111) 332 noting that this is the case at least in Switzerland and Germany. 477 Harte-Bavendamm/Henning-Bodewig (n 376) §§ 17–19 UWG Rdn 2. 478 A detailed account of the relationship between Enforcement Directive and the TSD is provided in chapter 3 § 5 C) II. 1. 479 Mark A. Lemley 2008 (n 15) 138 purports that conceptualizing trade secrets as IPRs draws attention to the requirements and limitations of trade secrecy law. 480 See chapter 4 § 4 E) II. 481 Ansgar Ohly 2014 (n 100) 3; Tanya Aplin and others 2012 (n 22) chapter 5 on the attributes if confidentiality; also James Pooley 2002 (n 66) § 4.04. 482 Michael Risch 2011 (n 113) 175. 483 This is developed further in chapter 6 § 2 A). § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 123 afford absolute erga omnes proprietary rights to their holders if the relevant liability conditions are fulfilled.484 Indeed, exclusivity is one of the pillars upon which the intellectual property system is built. This is best illustrated by taking the case of patent law, where direct infringement is found irrespective of whether the defendant knew that his behaviour amounted to the violation of a patent right.485 However, it is also true that other formal IPRs require unlawful action by the defendant as a precondition for finding liability. This is the case in trade mark law, where infringement is subject to creating likelihood confusion by the conflicting sign or taking unfair advantage of the reputation of the registered mark.486 To be sure, secrecy encourages some degree of exclusivity, as it confers upon its holder the right to restrict others from using the information concerned until it becomes public.487 The characterisation of trade secrets as intellectual property ultimately begs the question of whether there is a numerus clausus of IPRs, meaning that they must be statutorily recognised, as in the case of property law.488 In this regard, it is worth noting that intellectual property attempts to strike a balance between two conflicting interests: the interest of holders in protecting their intangible goods, and the interest of the general public in accessing information.489 From a dogmatic perspective, it has been suggested that case law can ascertain the intellectual property nature of certain legal positions (“Rechtsposition”) even if these are not statutorily defined, as in the case of trade secrets (or know-how).490 Yet, access to information can be hindered by the recognition of such new rights. This, in turn may run counter to the general principle that propounds the freedom to imi- 484 Josef Drexl 2009 (n 369) 449. 485 Lionel Bently and Brad Sherman 2014 (n 125) 610; conversely, indirect infringement requires, among others, knowledge by the defendant that the supplied items are suitable and intended for the infringement. For an overview of the requirements for finding indirect patent infringement in Germany see Peter Mes, ‘Indirect Patent Infringement’ [1999] IIC 531, 535; Neils Holder and Josef Schmidt, ‘Indirect patent infringement – latest developments in Germany’ [2006] 28 EIPR 480-484. 486 Ansgar Ohly 2014 (n 100) 3. 487 See Mark A. Lemley 2008 (n 15) 122. 488 Ansgar Ohly, ‘Gibt es einen Numerus clausus der Immaterialgüterrechte?’ 105 in Ansgar Ohly and others (eds), Perspektiven des Geistiges Eigentums und Wettbewerbsrechts (C.H. Beck 2005). 489 Ansgar Ohly 2005 (n 488) 107. 490 Ansgar Ohly 2005 (n 488) 114. Chapter 1. Concept, justifications and legal nature of trade secrets 124 tate products in the market, unless covered by an IPR.491 To avoid such a conflict, Ohly indicates that it is essential that in those areas with legal lacunae, courts weigh the conflicting interests against each other and, only when appropriate, accord legal protection akin to that of IPRs. He is of the opinion that such a judicial practice would allow for delineating in a more precise manner the contours of permitted and forbidden acts of imitation, rather than restricting in general the possibility of copying in the market.492 With respect to the consequences of expanding the scope of intellectual property rights, many have propounded that in recent decades we have witnessed a hypertrophy of IPRs.493 Most notably, at the turn of the century, Cornish warned that “the expansion of IPRs is not an automatic good”.494 Property rights confer upon their owners broad exclusivity to realise the “economic potential” of the protected good and enforce it against third parties, without the limitations posed by unfair competition and equity rules.495 In this context, characterising trade secrets as an IPR may amount to an expansion of intellectual property law by expanding the scope of the subject matter covered by IPRs, as in the case of the protection of databases through copyright law. Such an expansion may further lead to restricting lawful uses of confidential information.496 On the contrary, some commentators have purported that including trade secrets within the realm of IPRs would in practice constrain, rather than expand, the scope of protection, by attaching sound limitations to the exercise of the rights conferred, such as reverse engineering, independent discovery or whistle-blowing.497 In this regard, Bently argues that from a taxonomic perspective, “intellectual property” has become a separate category, different to property as such. Owing to its novel status, its contours are imprecise, as are the consequences that derive from attaching such a label, which are different to those derived from traditional property rights. He thus concludes that trade secrets are intellectual property, but not property.498 491 Michael Dorner 2013 (n 305) 313-314. 492 Ansgar Ohly 2005 (n 488) 121. 493 Michael Dorner 2013 (n 305) 313-318. 494 William Cornish 2001 (n 373) 21. 495 William Cornish 2001 (n 373) 16-17. 496 Michael Dorner 2013 (n 305) 313-314, 317. 497 Lionel Bently 2013 (n 307) 92; also Mark A. Lemley 2008 (n 15) 353; Charles Tait Graves 2007 (n 337) 45. 498 Lionel Bently 2013 (n 307) 89-91. § 3 Dissecting the legal nature of trade secrets: between IPRs and unfair competition 125 On the basis of the foregoing analysis several conclusions can be drawn. First, applying the metaphor of property to trade secrets is a complex matter, mainly due to the broad meaning and flexible interpretations that the different jurisdictions give to the concept. Finding a universal consensus on the legal nature issue appears rather implausible.499 It is submitted that trade secrets regimes are bound to sit on the fence between unfair competition and intellectual property law. Ohly refers to the entitlement of a trade secret “as an imperfect form of intellectual property”.500 After all, the TRIPs Agreements conceptualises undisclosed information as one of the “categories of intellectual property” that fall under their scope of protection. Thus, it seems advisable and consistent with the TSD that no legal consequences derive from the characterisation of trade secrets either as the object of an IRR or as protected under unfair competition rules.501 In the former case, trade secrets protection should not be enhanced by those Member States that adopt a property-oriented approach, particularly in the assessment of the lawfulness of the means used to acquire, use and disclose the information concerned and the liability of third party acquirers and employees. By the same token, the existing limitations to the rights conferred by a trade secret should always be observed.502 Otherwise, the balance of interests struck by the patent system (and also the general intellectual property legal framework) will be negatively affected to the detriment of the general interest in accessing information.503 Conclusion The starting point in the examination of the optimal scope of secrecy is to understand the extent to which valuable information merits protection for the mere fact of being kept secret. To this end, § 2 has underscored that both deontological and utilitarian explanations justify trade secrets legal regimes. Yet, it is submitted that utilitarian rationales provide more convincing grounds, particularly with regard to the configuration of the rights conferred. As noted by the Commission, “every IPR starts with a secret”.504 § 4 499 This was best illustrated during the negotiation of the TRIPs Agreement. 500 Ansgar Ohly 2013 (n 13) 35. 501 Ansgar Ohly 2013 (n 13) 35. 502 Ansgar Ohly 2014 (n 100) 4. 503 Tanya Aplin 2015 (n 306) 435-436. 504 Commission, ‘Proposal for a Directive of the European Parliament and of the Council on the protection of undisclosed know-how and business information Chapter 1. Concept, justifications and legal nature of trade secrets 126 Drawing on the statement above, § 3 has looked into the legal nature of trade secrets following a two-tier approach. On the one hand, the relationship between trade secrets and formal IPRs has been examined with regard to patents, copyright and the database right. The results of this enquiry highlight that the former supplement the patent system in a number of ways and are crucial not only in early-stage inventions (the so-called “Laboratory Zone”), but also when innovations can be protected simultaneously by informal and formal means. Yet, the assessment of the interplay between patents (but also copyright and the database right) and trade secrets appears more problematic when they are mutually exclusive. Indeed, data shows that secrecy is the preferred option to appropriate returns on innovation, together with other informal means of protection, such as lead time advantage or product configuration. Hence, throughout chapter 1, it has been argued that resorting to secrecy for the protection of patentable subject matter may have a negative effect on the disclosure function on which the patent system (and in general the intellectual property system) is built, and may lead to a wasteful duplication of efforts, hinder the competitive process in the market and ultimately affect negatively follow-on innovation. Against this background, it has been suggested that trade secrets protection should not extend to mere abstract ideas, in line with the limitations set forth in the realm of formal IPRs. Bearing the above in mind and following the analysis of the legal nature of trade secrets, this chapter has looked into the suitability of characterising trade secrets as pure IPRs or rather as falling into the realm of unfair competition rules and the implications that such a characterisation may have on the appropriate scope of secrecy. The better view, it is submitted, is that the legal system for the protection of trade secrets has an inherently hybrid nature. The relevant liability rules appear to be drafted as unfair competition norms, whereas their enforcement resembles that of IPRs. In this vein, it is argued that no legal consequences should derive from characterising trade secrets protection as one or the other, i.e. the scope of protection should not be enhanced if trade secrets are regarded as IPRs. On the basis of the foregoing analysis, chapter 2 first looks into the minimum standards of protection set forth in the applicable multilateral international treaties (i.e. the TRIPs Agreement and the soft law WIPO Model Provisions) and then examines the main features of the U.S. legal regime, which has had a great influence on the development of trade secrets pro- (trade secrets) against their unlawful acquisition, use and disclosure’ COM (2013) 813 final, 2 (Explanatory Memorandum). § 4 Conclusion 127 tection in most EU jurisdictions and, in particular, in the configuration of the minimum standards of protection set forth by the TSD. Chapter 1. Concept, justifications and legal nature of trade secrets 128 Trade secrets protection in the international context International legal sources for the protection of undisclosed information A comprehensive and insightful understanding of the secrecy-openness dichotomy requires an in-depth analysis of the minimum standards of protection set forth at the international level. The contours of the secrecy requirement within the EU should be shaped in light of the obligations and flexibilities set forth in international treaties (§ 1) and by taking into account the legal system in place in the U.S., the jurisdiction upon which such obligations were modelled (§ 2). Indeed, the international protection of trade secrets was only explicitly included in multilateral conventions in 1994 with the adoption of the TRIPs Agreement.505 Before then, academics had extensively discussed whether Article 10bis PC was applicable to trade secrets protection. The following sections map out the international legal framework set forth by Article 10bis PC together with Article 39 TRIPs.506 To that end, section A looks into the legal system for the protection of undisclosed information established in Article 39 TRIPs. In particular, this section provides a critical analysis of (i) the general framework created by TRIPs; (ii) the negotiation history of the relevant provisions dealing with trade secrets; (iii) the general obligation to protect undisclosed information established in Article 39(1) TRIPs; and (iv) the scope and requirements for protection laid down in Article 39(2). Then, section B examines the WIPO Model Provisions on unfair competition and their implications for trade secrets protection.507 Chapter 2. § 1 505 Daniel Gervais, The TRIPs Agreement (4th edn, Sweet&Maxwell 2012) 541. 506 For a general overview of the international IPRs convention system, see Annette Kur and Thomas Dreier, European Intellectual Property Law (Edward Elgar 2013) 10-31. 507 The study of Article 39(3) TRIPs has been deliberately left outside the scope of the present research, because providing a comprehensive and rigorous analysis of the legal issues that it poses falls outside the limits of this study. 129 International minimum standards of protection: The TRIPs Agreement and the protection of undisclosed information General framework Some regard the TRIPs Agreement as the “most innovative” of the WTO agreements.508 It was negotiated to address the deficiencies of the Convention system in force at the time.509 In essence, it intended to overcome (i) the fragmented coverage of IPRs; (ii) the lack of effective enforcement mechanisms and dispute settlement systems and (iii) the problems posed by the limited membership.510 Against this background, developed countries pushed to enhance the standards of IPRs protection enshrined within the system of the General Agreement of Trade and Tariffs of 1947.511 Initially, this was addressed during the Uruguay Round of Multilateral Trade Negotiations, which ultimately led to the adoption in 1994 of the “Agreement Establishing the World Trade Organisation”, whereby the WTO was set up.512 The TRIPs Agreement was included as ANNEX C and is therefore an integral part of the WTO Agreement adopted in Marrakech on 15 April 1994.513 The inclusion of TRIPs within the WTO legal framework entails a number of advantages. First, due to its “single undertaking nature”, all WTO A) I. 508 Peter Van den Bossche and Werner Zdouc, The Law and Policy of The World Trade Organization (3rd edn, CUP 2013) 952; in the same vein Daniel Gervais 2012 (n 505) para 1.12 notes that the TRIPs Agreement “together with the 1967 Stockholm Conference that adopted the revise Berne and Paris Convention and Created the World Intellectual Property Organization (WIPO), is undoubtedly the most significant milestone in the development of intellectual property in the twentieth century”. 509 The issues posed by the international conventions before TRIPs is explained in greater detail by Paul Katzenberger and Annette Kur, ‘TRIPs and Intellectual Property’ 10-16 in Friedrich-Karl Beier and Gerhard Schricker (eds), IIC Studies, Studies in Industrial Property and Copyright Law, From GATT to TRIPs – The Agreement on Trade-Related Aspects of Intellectual Property Rights (Weinheim 1996). 510 Peter Van den Bossche and Werner Zdouc, The Law and Policy of The World Trade Organization (3rd edn, CUP 2013) 953. 511 General Agreement on Tariffs and Trade (adopted 30 October 1947) 55 UNTS 194 (GATT Agreement); Articles XX (d), IX, XII:3(c)(iii) and XVIII:10 of the GATT Agreement made explicit reference to IPRs. 512 Marrakesh Agreement Establishing the World Trade Organization (adopted 15 April 1994) 1867 UNTS 154 (WTO Agreement). 513 For a more detailed analysis of the background that led to the adoption of the TRIPs Agreement see Annette Kur and Thomas Dreier 2013 (n 506) 21-25. Chapter 2. Trade secrets protection in the international context 130 members are bound to implement into their domestic legal orders the minimum standards of protection514 for all of the categories of IPRs set forth in TRIPs, including trade secrets or “undisclosed information”.515 Ultimately, this has resulted in a substantial “approximation of extra-territorial treatment of immaterial property”516 across the 164 Members of the WTO.517 Likewise, one of the most significant achievements of TRIPs is that it brings IPRs-related disputes between states under the WTO’s Dispute Settlement Understanding (“DSU”), thus providing an effective international enforcement mechanism.518 Despite its limitations and the rise of bilateralism,519 it is undisputed that TRIPs has achieved a minimum level of harmonisation of intellectual property protection at the international level. The following section maps out the negotiation history of Article 39 TRIPs, upon which the international legal framework for the protection of trade secrets is built. 514 See Article 1(1) TRIPs: “Members may, but shall not be obliged to implement in their law more extensive protection than is required by this Agreement, provided that such protection does not contravene the provisions of this Agreement”. 515 Marco Bronckers, ‘The Impact of TRIPs: Intellectual Property Protection in Developing Countries’ [1994] 31 Common Market LR 1245, 1249 while discussing the “single package nature” of the WTO notes that “the Uruguay Round negotiations towards a single package have been criticised for weakening the resistance of developing countries to proposals like the TRIPs agreement that may be inimical to their interests”, as trade concessions were conditioned upon stronger IP protection. 516 Josef Straus, ‘Implications of the TRIPs Agreement in the Field of Patent Law’ 160, 163 in Friedrich-Karl Beier and Gerhard Schricker (eds), IIC Studies, Studies in Industrial Property and Copyright Law, From GATT to TRIPs – The Agreement on Trade-Related Aspects of Intellectual Property Rights (Weinheim 1996). 517 According to the WTO’s website accessed 15 September 2018. 518 See Article 64(1) TRIPs; for a more in-depth analysis on the interplay between TRIPs and the WTO’s DSU see Karen D. Lee and Silke von Lewinski, ‘The Settlement of International Disputes in the field of Intellectual Property’ 278-328 in Friedrich-Karl Beier and Gerhard Schricker (eds), IIC Studies, Studies in Industrial Property and Copyright Law, From GATT to TRIPs – The Agreement on Trade- Related Aspects of Intellectual Property Rights (Weinheim 1996); see also Daniel Gervais 2012 (n 505) paras 2.704-2.716. 519 For a discussion on this topic see Graeme B. Dinwoodie, ‘The International intellectual property law system: new actors, new institutions, new sources’ [2006] 10 Marquette IPLR 206, 214. § 1 International legal sources for the protection of undisclosed information 131 Negotiation history of Article 39 TRIPs520 During the initial discussions of the Uruguay Round in 1986, intellectual property did not occupy a prominent position in the negotiation agenda, and it only acquired a notorious role in the last few years prior to the adoption of TRIPs.521 As some sources note, IPRs were included in the Punta del Este Declaration522 due to the efforts of a group of U.S. industry leaders who sought to establish an international system for the protection of IPRs that mirrored the United States’ intellectual property legislation.523 Against this background, Sandeen distinguishes three stages in the negotiation process of Article 39 TRIPs. During the early phase (1987–1988) the U.S., the EC and the representatives of different industry groups issued several proposals addressing the potential scope of trade secrets protection.524 Most notably, the U.S. advocated for treating trade secrets as IPRs.525 During the “Mid-Term Phase” (1989–1990), the discussions about whether trade secrets were a form of IPRs and hence should be included under the shelter created by TRIPs and how comprehensive their regulation should be, were the prime focus of the negotiations.526 The Indian government strongly objected to affording proprietary protection to trade secrets and insisted that protection should be premised on Article 10bis PC. It further noted that it would be preferable to regulate trade secrets protection through contract and under civil laws.527 In 1990, fourteen other developing countries endorsed India’s position and expressed their opposition to negotiating further on trade secrets, as they should not be considered as II. 520 For a comprehensive analysis of the negotiation of Article 39 TRIPs see UNCTAD-ICTSD, Resource Book on TRIPS and Development (CUP 2005) 520-526. 521 Marco Bronckers, ‘The Impact of TRIPs: Intellectual Property Protection in Developing Countries’ [1994] 31 Common Market LR 1245, 1245. 522 WTO/GATT Ministerial Declaration on the Uruguay Round (Declaration of 20 September 1986). 523 Sharon K. Sandeen, ‘The limits of trade secret law: Article 39 of the TRIPs Agreement and the Uniform Trade Secrets Act on which it is based’ 537, 539 in Rochelle C. Dreyfuss and Katherine J. Strandburg (eds), The Law and Theory of Trade Secrecy: A Handbook of Contemporary Research (Edward Elgar 2011). 524 This section follows the approach adopted by Sharon K. Sandeen 2011 (n 523) 542. 525 UNCTAD-ICTSD, Resource Book on TRIPS and Development (CUP 2005) 523. 526 Sharon K. Sandeen 2011 (n 523) 542. 527 See GATT Doc. MTN.GNG/NG11/W/37, paras 46-47. Chapter 2. Trade secrets protection in the international context 132 IPRs.528 As a result, the standards of protection of trade secrets were mostly negotiated by developed countries.529 During the final stage, the so-called “Drafting Phase” (1990–1991), each of the delegations of the EC,530 the U.S.531 and Switzerland532 submitted a draft agreement on trade-related aspects of IPRs. These were used as the basis for “The Anell (or Chairman’s) Draft”.533 The wording of the latter agreement shows that in July of 1990 divergences persisted regarding substantive standards for trade secrets protection, as a number of items appeared bracketed. First, there was a difference of opinion regarding whether actual commercial value was required or if potential value would suffice. Furthermore, the parties to the negotiation failed to agree on a single term to designate the subject matter of protection, and several terms were used interchangeably. The U.S. leaned towards the term “trade secrets”; while Switzerland suggested “proprietary information” and the EC proposed “undisclosed information”, the latter of which eventually prevailed over the other proposals.534 Finally, a non-exclusive list of acts that were deemed contrary to honest commercial practices was included in the main body of the text. There was also a lack of consensus on whether liability should extend to third parties who “had reasonable grounds to know” that the information had been acquired unlawfully.535 After a number of discussions, the Group of Negotiation on Goods submitted another draft agreement on IPRs (the so-called “Brussels Draft”) included in the Draft Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations.536 In essence, it contained three 528 See GATT Doc. MTN.GNG/NG11/16. 529 According to Nuno Pires de Carvalho, The TRIPS Regime of Antitrust and Undisclosed Information (Kluwer Law International 2008) paras 39.2.26-39.2.27 the unwillingness of developing countries to participate in the discussions on trade secrets resulted in the adoption of Article 39(2) TRIPs with a wording that does not reflect the actual interests of developing countries. He refers to it as a “strategic mistake” during the negotiation process. 530 See GATT Doc. MTN.GNG/NG11/W/68. 531 See GATT Doc. MTN.GNG/NG11/W/70. 532 See GATT Doc. MTN.GNG/NG11/W/73. 533 See GATT Doc. MTN.GNG/NG11/W/76. 534 On the terminology issue, Nuno Pires de Carvalho 2008 (n 529) para 39.2.22 highlights that the EC’s proposed term ʻundisclosed informationʼ was crucial to the negotiations because many parties opposed to include ʻtrade secretsʼ within the text of the agreement, as they believed that it would directly imply the recognition of proprietary or exclusive rights. 535 Sharon K. Sandeen 2011 (n 523) 550-551. 536 See GATT Doc. MTN.TNC/W/35/Rev. 1. § 1 International legal sources for the protection of undisclosed information 133 minor changes to the Anell Draft.537 First, any reference to actual or potential commercial value of the protected information was deleted. Most notably, the examples of dishonest commercial practices were listed in a footnote, as proposed by the U.S. Likewise, only one of the provisions regarding government use, the one that referred to test data submitted to governments, was included in the Brussels Draft. In the months that followed the adoption of the Brussels Draft, agricultural provisions were the main focus of the negotiations.538 Hence, discussions concerning IPRs were pushed into the background until December 1991, when a new and simplified version of the agreement was included in the second Draft Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, generally known as the “Dunkel Draft”.539 This preliminary version was presented on a “take-it-or-leave-it basis”540 and served as the basis for the TRIPs Agreement. With regard to trade secrets, the outcome of the above negotiation process led to the adoption of Article 39, which governs the protection of undisclosed information in the international legal system created by TRIPs. It consists of three paragraphs and a footnote: Article 39 1. In the course of ensuring effective protection against unfair competition as provided in Article 10bis of the Paris Convention (1967), Members shall protect undisclosed information in accordance with paragraph 2 and data submitted to governments or governmental agencies in accordance with paragraph 3. 2. Natural and legal persons shall have the possibility of preventing information lawfully within their control from being disclosed to, acquired by, or used by others without their consent in a manner contrary to honest commercial practices (10) so long as such information: (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. 537 Sharon K. Sandeen 2011 (n 523) 551. 538 Daniel Gervais 2012 (n 505) para 1.25. 539 See GATT Doc. MTN.TNC/W/FA. 540 Daniel Gervais 2012 (n 505) paras 1.27-1.28. Chapter 2. Trade secrets protection in the international context 134 3. Members, when requiring, as a condition of approving the marketing of pharmaceutical or of agricultural chemical products which utilize new chemical entities, the submission of undisclosed test or other data, the origination of which involves a considerable effort, shall protect such data against unfair commercial use. In addition, Members shall protect such data against disclosure, except where necessary to protect the public or unless steps are taken to ensure that the data are protected against unfair commercial use. Footnote 10 For the purpose of this provision, “a manner contrary to honest commercial practices” shall mean at least practices such as breach of contract, breach of confidence and inducement to breach, and includes the acquisition of undisclosed information by third parties who knew, or were grossly negligent in failing to know, that such practices were involved in the acquisition. As is apparent from the above, the first section links the protection of undisclosed information and test data submitted to governments to the general obligation of ensuring protection against unfair competition established in Article 10bis PC. Paragraph 2 focuses on the right of individuals and undertakings to prevent the acquisition, disclosure and use of secret information in a manner contrary to honest commercial practices. More specifically, footnote 10 provides a list of non-exclusive types of conduct that are regarded as unfair commercial practices. Paragraph 3 creates an obligation for Member States to protect undisclosed data submitted to governmental agencies in order to obtain marketing approval for pharmaceutical or agricultural chemical products. Each of these sections are analysed in turn, with the exception of Article 39(3) TRIPs. The legal and public policy implications of the obligations laid down in this provision are so far-reaching that providing a comprehensive analysis of them falls outside the scope of the present research. The architecture of the general obligation to protect undisclosed information: Article 39(1)TRIPs Hybrid nature of the protection Article 39(1) TRIPs serves two purposes: it declares that Member States are bound to protect undisclosed information by means of unfair competition III. 1. § 1 International legal sources for the protection of undisclosed information 135 pursuant to Article 10bis PC and it provides the general framework for the interpretation of paragraphs 2 and 3.541 However, it is not the only provision in TRIPs that refers to the PC. By virtue of Article 2(1) TRIPs, WTO Member States are compelled to comply with the minimum standards of protection set forth in Articles 1 through 12 and Article 19 PC.542 Thus, the specific reference in Article 39 TRIPs to Article 10 PC reinforces the hybrid legal nature of trade secrets and anchors their protection in unfair competition rules. To provide greater legal certainty, the following section investigates the meaning of Article 10bis PC in the context of TRIPs. Construing Article 10bis PC in the context of undisclosed information Following the line of argument explained above, the international protection of unfair competition is premised on Article 10bis PC, which has been the object of several revisions since it was first included in the PC.543 The wording of the provision now in force is as follows: Article 10bis (1) The countries of the Union are bound to assure to nationals of such countries effective protection against unfair competition. (2) Any act of competition contrary to honest practices in industrial or commercial matters constitutes an act of unfair competition. (3) The following in particular shall be prohibited: 2. 541 Markus Peter and Andreas Wiebe 2013 (n 304) Art. 39 Rdn 10-11. 542 Article 2(1) TRIPs: “In respect of Parts II, III and IV of this Agreement, Members shall comply with Articles 1 through 12, and Article 19, of the Paris Convention (1967)”; see further Josef Drexl, ‘Nach “GATT und WIPO”: Das TRIPs- Abkommen und seine Anwendung in der Europäischen Gemeinschaft’ [1994] 43 GRUR Int 777, 787; Gintare Surblyte 2011 (n 182) 26. 543 For an exhaustive analysis of the legislative evolution see Stephen P. Ladas, Patents; Trademarks, and Related Rights – National and International Protection (HUP 1975) 1684; Christopher Wadlow, The Law of Passing-off (4th edn, Swett&Maxwell 2011) 65 - 93; also Marcus Höpperger and Martin Senftleben, ‘Protection Against Unfair Competition at the International Level – The Paris Convention, the 1996 Model Provisions and the Current Work of the World Intellectual Property Organisation’ 61, 62-63 in Retro Hilty and Frauke Henning- Bodewig (eds), Law Against Unfair Competition (Springer 2007). Chapter 2. Trade secrets protection in the international context 136 (i) all acts of such a nature as to create confusion by any means whatever with the establishment, the goods, or the industrial or commercial activities, of a competitor; (ii) false allegations in the course of trade of such a nature as to discredit the establishment, the goods, or the industrial or commercial activities, of a competitor; (iii) indications or allegations the use of which in the course of trade is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose, or the quantity, of the goods. Paragraph (1) contains a “general clause” that mandates contracting parties to protect nationals of (other) Union Member States against acts of unfair competition.544 Crucially, paragraph (2) defines what constitutes an act of unfair competition.545 This definition is completed in paragraph (3) with a list of three specific instances that are regarded as unfair and thus prohibited at the national level.546 The first example refers to the creation of confusion in the market, while the second alludes to acts aimed at the disparagement of a competitor. Both of them fall under the category of traditional consumer protection. On the other hand, the third instance refers to misleading practices and, as such, intends to protect the interests of both competitors and consumers.547 Notably, no reference to trade secrets or undisclosed information is made. Since the Hague Conference in 1925, there has been much debate about whether the general clause set forth in paragraph (1), together with the definition provided in paragraph (2) has an overarching normative effect 544 In order to comply with this requirement, Member States are not obliged to enact special legislation; see further Georg H. C. Bodenhausen, Guide to the application of the Paris Convention (BIRPI 1967) 143. 545 For an exhaustive analysis of the actual meaning of “act of competition contrary to honest practices” in Article 10bis PC see Frauke Henning-Bodewig and Heijo E. Ruijsenaars, Protection against Unfair competition (WIPO 1994) 28-134; Christopher Wadlow 2011 (n 543) 2-014 - 2-031 546 In this regard, Georg H. C Bodenhausen 1977 (n 544) 143 notes that the wording of paragraphs (ii) and (iii) of Article 10bis PC is phrased in such a manner that these provisions should be considered as “self-executing” in the jurisdictions where such possibility is envisaged. 547 Frauke Henning-Bodewig and Heijo E. Ruijsenaars 1994 (n 545) 18, noting that the last example spelt out in Article 10bis(3) was only added to the body of the Treaty in 1958 during the Revision Conference in Lisbon. § 1 International legal sources for the protection of undisclosed information 137 on the specific examples listed in Article 10bis(3).548 Today, most commentators agree that protection against unfair competition extends beyond the scope of the three examples listed in Article 10bis. Bodenhausen resorts to the Washington Act549 to conclude that these examples “constitute only a minimum”.550 Similarly, the WIPO study on the “Protection against unfair competition” takes the same view and submits that these instances are not to be construed as being exhaustive, but rather as minimum standards to be afforded by Union Member states.551 In addition, the study provides a list with a number of “acts not expressly mentioned in Article 10bis” that are frequently regarded by courts as unfair practices and accordingly are more often regulated by statues. Crucially for the purposes of the present research, these include (i) the violation of trade secrets, but also (ii) comparative advertisement; (iii) taking undue advantage of another’s achievements “free riding”; and (iv) other acts of unfair competition.552 In contrast, Cornish highlights that the obligation set forth in Article 10bis PC has generally been interpreted as referring to making false and misleading statements. He notes that it is not generally understood to include actions against the appropriation of ideas marketed in a competitor’s product. In particular, he adds that trade secrets and the slavish imitation of products do not fall within its scope.553 548 The third example of Article 10bis (paragraph 3) was only included to the text at the Lisbon Conference in 1958. 549 Washington Act (adopted 2 June 1911, entered into force 1 May 1913) TRT PARIS 006. 550 Georg H. C. Bodenhausen 1977 (n 544) 145. 551 Frauke Henning-Bodewig and Heijo E. Ruijsenaars 1994 (n 545) 18. 552 Frauke Henning-Bodewig and Heijo E. Ruijsenaars 1994 (n 545) 48-68. 553 William Cornish, ‘The International Relations of Intellectual Property’ 52 Cambridge LJ 46, 61; Gerald Reger, Der internationale Schutz gegen unlauteren Wettbewerb und das TRIPS-Übereinkommen (Carl Heymanns Verlag 1999) 122; in the same vein Christopher Wadlow, ‘Regulatory data protection under TRIPs Article 39(3) and Article 10bis of the Paris Convention: Is there a doctor in the house?’ [2008 ] IPQ 355, 368 noting that “Art. 10bis, despite the superficial breadth of its language, in fact confines itself to requiring protection against a range of misrepresentation-based acts of unfair competition corresponding to those enumerated in para 3 (i)-(iii). I entirely agree, and with the corollary that doctrines of unfair competition based on supposed acts of misappropriation alone are altogether outside the scope of Art. 10bis,because there was never sufficient international consensus as to what was fair and what was unfair in this context”. Chapter 2. Trade secrets protection in the international context 138 In the light of the foregoing, it is submitted that Article 39 expands the scope of Article 10bis PC to the protection of trade secrets, which is therefore lex specialis to the latter provision.554 What seems more problematic is clarifying the meaning of “any act of competition contrary to honest practices”, which lies at the core of Article 10bis(2) PC. The starting point should be to construe the term “competition” in each jurisdiction according to the specific parameters usually applied therein.555 The PC is an international treaty, and as such it should be interpreted in an autonomous manner.556 Consequently, official and private acts fall clearly outside the scope of application of Article 10bis PC.557 Yet, the open wording of the provision leaves a certain margin of discretion to the Member States so that for instance, in some jurisdictions a direct competitive relationship between the parties is not necessarily required.558 Second, the Convention introduces an element of fairness when referring to honest practices.559 Following the general rule of interpretation in the VCLT, treaties are to be interpreted “in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose”.560 Consequently, as is apparent from paragraph 3, the scope of Article 10bis is limited to honest practices in the context of industrial or commercial matters, which may be different to the standards applied in other areas, such as liberal professions.561 These may also vary from country to country or may evolve with time.562 As Ladas indicates: 554 Gintare Surblyte 2011 (n 182) 27; Markus Peter and Andreas Wiebe 2013 (n 304) Art. 39 Rdn 10. 555 Georg H. C. Bodenhausen 1977 (n 544) 144. 556 Frauke Henning-Bodewig, ‘International Unfair Competition Law’ 53, 57 in Reto Hilty and Frauke Henning-Bodewig (eds), Law Against Unfair Competition (Springer 2007). 557 Frauke Henning-Bodewig, ‘Internationale Standards gegen unlauteren Wettbewerb’ [2013] GRUR Int 1, 5. 558 Frauke Henning-Bodewig and Heijo E. Ruijsenaars 1994 (n 545) 23; Georg H. C. Bodenhausen 1977 (n 544) 144. 559 Christopher Wadlow 2011 (n 543) para 2-025. 560 See Article 31 VCLT. 561 Christopher Wadlow 2011 (n 543) para 2-025; notwithstanding this, Marcus Höpperger and Martin Senftleben 2011 (n 543) 64 critically note that the establishment of the relevant behavior pattern will strongly depend on how the circle is defined. 562 Frauke Henning-Bodewig and Heijo E. Ruijsenaars 1994 (n 545) 23. § 1 International legal sources for the protection of undisclosed information 139 morality, which is the source of the law of unfair competition, is a simple notion in theory only. In fact it reflects customs and habits anchored in the spirit of a particular community. There is no clear objective standard of feelings, instincts, or attitudes toward a certain conduct. Therefore, specific prescriptions involving uniform evaluation of certain aspects are extremely difficult.563 Bearing this in mind, Bodenhausen highlights that when establishing the meaning of “honest practices in industrial or commercial matters” courts will also have to consider “honest practices established in international trade”.564 Thus, it is submitted that the splendidly imprecise565 expression of “any act of competition contrary to honest commercial or industrial practices” can be narrowed down through objective criteria.566 As a whole, Article 10bis PC set a general and flexible minimum standard of protection against acts of unfair competition and defined three conducts that should always be deemed unlawful across all members of the Union. Modern unfair competition is premised on (i) the protection of competitors (the original purpose), (ii) the protection of consumers and more recently (iii) the safeguarding of competition in the interest of the public at large.567 The open nature of Article 10bis has enabled it to adapt to evolving trends in unfair competition and encompass all of the interests referred to above under its normative framework. Most importantly, it provides the basis upon which the assessment of when the acquisition, use and disclosure of trade secrets is unlawful, as per Article 39(2) TRIPs examined in section IV. 563 Stephen P. Ladas 1975 (n 543) 1685. 564 Georg H. C. Bodenhausen 1977 (n 544) 144. 565 In the words of William Cornish, ‘The International Relations of Intellectual Property’ [1993] 52 Cambridge LJ 42, 61. 566 Frauke Henning-Bodewig, ‘Internationale Standards gegen Unlauteren Wettwerb’ [2013] GRUR Int 1, 7; along these lines, Jacob notes referring to the TMD in Case C–2/00 Hölterhoff v Freiesleben [2002] ECR I-4187 that: “The precise delimitation of ‘honest practices’ is of course not given in the Trade Marks Directive. By its very nature, such a concept must allow of certain flexibility. Its detailed contours may vary from time to time and according to the circumstances, and will be determined in part by various rules of law which may themselves change, as well as by changing perceptions of what is acceptable, however, there is a large and clear shared core concept of what constitute honest conduct in trade, which may be applied by the courts without great difficulty and without any excessive danger of diverging interpretations”. 567 Frauke Henning-Bodewig and Heijo E. Ruijsenaars 1994 (n 545) 24-25. Chapter 2. Trade secrets protection in the international context 140 Article 39(2) TRIPs Scope of the obligation Article 39(2) TRIPs defines the scope of the obligations outlined in section III. In essence, it compels Member States to ensure that the person lawfully in control of undisclosed information is entitled to prevent its unauthorised disclosure, acquisition or use in a manner contrary to honest commercial practices by a third party. This shows that trade secrecy law is not concerned with the subject matter of secrecy, but instead focuses on the manner in which trade secrets are acquired, used or disclosed.568 What is actually protected is the selective disclosure of information under specific circumstances.569 Hence, the acquisition of information based on someone’s own effort, such as reverse engineering or independent discovery, should be deemed lawful.570 In order to comply with the obligation laid down in paragraph 2, Member States are not required to enact specific legislation dealing with trade secrets protection, in line with Article 1(1) TRIPs.571 As long as trade secret holders have the possibility of preventing unlawful acquisition, use or disclosure, WTO Member States are not in breach of the TRIPs obligations.572 This is particularly relevant in common law jurisdictions that have no specific legislation on the subject. In these cases, effective protection is usually achieved through the development of “a body of case law” that clarifies the means of redress available in the event of trade secret misappropriation. If such body does not exist, it may seem advisable for Member States to take legislative measures.573 IV. 1. 568 Nuno Pires de Carvalho, The TRIPs Regime of Patent Rights (3rd ed, Kluwer Law International 2010) para 39.1.49. 569 Daniel Gervais 2012 (n 505) para 2.486. 570 Nuno Pires de Carvalho 2010 (n568) para 39.1.49. 571 Article 1 TRIPs: “1. Members shall give effect to the provisions of this Agreement. Members may, but shall not be obliged to, implement in their law more extensive protection than is required by this Agreement, provided that such protection does not contravene the provisions of this Agreement. Members shall be free to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice”. 572 Nuno Pires de Carvalho 2010 (n 568) para 39.94; Markus Peter and Andreas Wiebe 2013 (n 304) Art. 39 Rdn13. 573 Tanya Aplin and others 2012 (n 22) para 22-07; Nuno Pires de Carvalho 2010 (n 568) para 39.94 § 1 International legal sources for the protection of undisclosed information 141 In addition, the wording of Article 39 specifically accords protection to both natural and legal persons. To avoid any explicit reference to “property” or “ownership” of the information, Article 39(2) resorts to the notion of “control”.574 The use of this term is closely connected with the requirement to take reasonable steps to keep the information secret, as spelt out in littera (c) of Article 39(2) TRIPs. The person who takes measures to keep the information undisclosed is regarded as the possessor of the information in question and thus, as the trade secret holder, irrespective of the nature of his legal title in the secret. Hence, if the creator of the secret data decides to share them with a second party for their mutual benefit, in the event of misappropriation both parties are regarded as holders, such as in the licensor-licensee relationship. Therefore, both may seek legal redress against a third party who obtains the information improperly.575 Protection is subject to the condition that the holder lawfully acquires the trade secret. If the information is obtained in an improper or illegal manner, the person in control of the information will not be able to enforce it against third parties. For instance, if an employee bound by a confidentiality agreement discloses secret information to a competitor because of bribery, the competitor is not considered to be in control of the information for the purposes of Article 39(2) TRIPs. The unlawful holder is consequently unable to prevent any third party from acquiring, using or disclosing the information.576 Ultimately, the unlawfulness of the conduct shall be determined according to national law.577 The rights relating to trade secrets include the rights to (i) prevent their disclosure, (ii) acquisition and (iii) use by third parties.578 The inclusion of use as a relevant conduct that may trigger liability is particularly relevant, as it does not require the trade secret holder to provide evidence that the information was acquired without consent from a specific source, which in practice is not always feasible. The mere unlawful use of secret information is deemed enforceable.579 The exercise of these rights is subject to two cumulative conditions: (i) the actions previously listed must be carried out without the holder’s consent and (ii) in a “manner contrary to honest com- 574 Tanya Aplin and others 2012 (n 22) para 22.10. 575 Tanya Aplin and others 2012 (n 22) 22.10. 576 Tanya Aplin and others 2012 (n 22) para 22.11. 577 Markus Peter and Andreas Wiebe 2007 (n 304) Art. 39 Rdn 15. 578 Daniel Gervais 2012 (n 505) para 2.486 notes that “the inclusion of ‘use’ is helpful as it does not require a positive identification of the source of information, which may not always be easy to determine”. 579 Daniel Gervais 2012 (n 505) para 2.487. Chapter 2. Trade secrets protection in the international context 142 mercial practices”. Thereby, Article 39(2) introduces an element of fairness, which should be interpreted in the light of the normative framework created by the PC. In this regard, and as noted above,580 there is no single interpretation of honest commercial practices; it is a flexible test in which all relevant interests can be weighed against each other. Such an assessment depends upon the values that govern each society at a particular moment in time.581 Nevertheless, its open-ended nature unavoidably entails a degree of legal uncertainty.582 Crucially, footnote 10 attempts to shed light on the meaning of this phrase in the context of trade secret misappropriation. However, as no standard definition seems suitable, the provision provides two examples of practices that should always be deemed unlawful and that constitute the minimum standards of protection: breach of contract (or inducement to do so) and breach of confidence.583 This reference seems problematic insofar as it does not limit the admissibility and content of confidentiality clauses.584 In the footnote, it is further explained that acquisition by third parties who knew or were grossly negligent in failing to know that breach of contract or breach of confidence had occurred should be deemed contrary to honest commercial practices. This clarifies that any other conduct carried out by third parties such as industrial espionage, theft or bribery also fall under the scope of TRIPs. Hence, gross negligence triggers the same legal response as actual knowledge.585 In light of this, the main criterion to assess whether an obligation of secrecy exists is the knowledge (or the obligation to know) that the information was acquired, used and disclosed in confidence.586 However, the final draft, unlike previous proposals, does not afford protection in the event of accidental disclosure.587 580 See chapter 2 § 1 A) III. 2. 581 Carlos Correa 2007 (n 306) 371. 582 Ansgar Ohly 2013 (n 13) 41. 583 Daniel Gervais 2012 (n 505) para. 2.487. These are just examples, the protection of trade secrets goes further. 584 Hanns Ullrich, ‘Techchnologieschutz nach TRIPS: Prinzipien und Probleme’ [1995] GRUR Int 623, 630, footnote 36. 585 Rudolf Kraßer, ‘The Protection of Trade Secrets in the TRIPs Agreement’ 216, 224 in Friedrich-Karl Beier and Gerhard Schricker (eds), IIC Studies, Studies in Industrial Property and Copyright Law, From GATT to TRIPs – The Agreement on Trade-Related Aspects of Intellectual Property Rights (Weinheim 1996). 586 Nuno Pires de Carvalho 2008 (n 529) para 39.2.46. 587 Gerald Reger 1999 (n 553) 275. § 1 International legal sources for the protection of undisclosed information 143 Likewise, it is also noteworthy that TRIPs does not afford protection against the lawful acquisition of third parties who are not in a contractual relationship with the holder of the information. This would be the case, for instance, if the information were acquired through reverse engineering.588 Crucially, TRIPs provisions regulating undisclosed information do not specifically refer to the exceptions and limitations to the rights conferred by a trade secret.589 These are thus inherent to its definition: trade secrets are only enforceable against unlawful conduct. Requirements for protection Article 39(2) also lays down the three requirements that information has to meet to be “protectable”. Namely, it (i) has to be secret, (ii) have commercial value due to its secret nature and (iii) have been subject to reasonable steps to keep it secret under the circumstances. As a general remark, it should be noted that these were tailored following the conditions for liability described in section 1(4) Uniform Trade Secrets Act (“UTSA”), although minor amendments were introduced.590 Each of these elements is analysed in turn. Information TRIPs defines trade secrets as information.591 As explained above,592 the expression “undisclosed information” was adopted over the more common terms “trade secret” or “proprietary information” because it seemed a neutral concept and thus avoided a link to a particular legal system or existing intellectual property standards.593 However, TRIPs also refers to trade se- 2. a) 588 Rudolf Kraßer 1996 (n 585) 223. 589 Unlike three-step test enshrined for copyright (Article 13 TRIPs), patents (Article 30 TRIPs), industrial designs (Article26(2) TRIPs) and more generally trade marks (Article 17 TRIPs); for an overview of the exceptions and limitations subject to the three-step-test see Henning Grosse Ruse-Kahn, ‘The Protection of Intellectual Property in International Law’ (OUP 2016) para 12.43. 590 Uniform Trade Secrets Act (Am. Law Inst. 1979) (UTSA); see chapter 2 § 2 B) I. 591 Nuno Pires de Carvalho 2008 (n 529) para 39.2.36. 592 See chapter 1 § 3 B) I. 1. 593 Daniel Gervais 2012 (n 505) para 2.486; Gerald Reger 1999 (n 553) 256. Chapter 2. Trade secrets protection in the international context 144 crets as “manufacturing and business secrets” in Article 34(3) and as “confidential information” in Article 43(1). Bearing in mind the difficulties of finding one suitable definition of the concept of “information” outlined in chapter 1,594 such a term should be construed vis-à-vis trade secrets in the widest possible manner to include any kind of “knowledge obtained from investigation, study, or instruction”,595 but not abstract ideas. In contrast to patentable subject matter, it covers both technical and commercial information such as formulas, test data, customer lists and negative knowledge.596 Unlike Article 1711 (2) NAFTA, TRIPs does not require WTO Member States to protect information embodied or fixated in a given instrument.597 Yet, to be protected, information must be related to trade, interpreted in a broad sense.598 Such a limitation derives from the commercial value requirement mentioned in subparagraph (b) of Article 39(2) TRIPs. Therefore, private information falls outside the scope of protection of the agreement.599 Against this background, Carvalho suggests that the key element is the possibility of “economic competition of any sort” and puts forth the example of non-profit universities who compete for subsidies.600 Consequently, protection could extend beyond those cases where there is a direct competitive relationship between the parties. 594 See chapter 1 § 3 B) II. 1. 595 See The Merriam-Webster Dictionary definition of ‘information, n’ (Merriam- Webster Dictionary Online) accessed 15 September 2018; in the same vein, Pamela Samuelson 1988 (n 341) 368 footnote 19 notes that “Information is not an easy term to define with precision. Yet, at least some tentative definition of the term is necessary to address such questions as whether information is the same as or different from data, knowledge or rumour”. 596 Markus Peter and Andreas Wiebe 2013 (n 304) Art. 39 Rdn 7; but see more generally chapter 1 § 3 B) II. 597 North American Free Trade Agreement (United States-Canada-Mexico) (adopted 17 December 1992, entered into force 1 January 1994) ILM 289 (NAFTA); Article 1711 (2) NAFTA: “A Party may require that to qualify for protection a trade secret must be evidenced in documents, electronic or magnetic means, optical discs, microfilms, films or other similar instruments”. 598 Nuno Pires de Carvalho 2008 (n 529) para 39.2.32; Gerald Reger 1999 (n 553) 256-257. 599 Markus Peter and Andreas Wiebe 2013 (n 304) Art. 39 Rdn 7; Gerald Reger 1999 (n 553) 256. 600 Nuno Pires de Carvalho 2008 (n 529) para 39.2.32. § 1 International legal sources for the protection of undisclosed information 145 Secrecy: Information not generally known or readily accessible The secrecy requirement in Article 39 is defined in subparagraph (a) as a relative standard.601 This means that to be protected, information must not be known solely by the holder of the information (which amounts to absolute secrecy). Hence, a secret will not lose its confidential nature if it is imparted to employees or if it is disclosed in the context of a licensing agreement.602 According to TRIPs, trade secrets remain undisclosed so long as they are not “generally known among or readily accessible to persons within circles that normally deal with the kind of information in question”.603 Some authors compare this reference to the knowledge of the person having ordinary skills in the art in patent law.604 The secret nature of information is lost somewhere between absolute secrecy and general knowledge. However, TRIPs does not provide an absolute test to assess whether a certain piece of information should be considered part of the public domain. The practical implementation of the criterion spelt out in subparagraph (a) is left to Member States to regulate.605 Hitherto, no case law stemming from the WTO Dispute Settlement Bodies has interpreted the meaning of this provision. b) 601 Nuno Pires de Carvalho 2008 (n 529) para 39.2.48; for a more detailed analysis of the relative nature of secrecy see François Dessemontet, ‘Protection of Trade Secrets and Confidential information’ 271, 283 in Carlos Correa and Abdulqawi A. Yusuf (eds), Intellectual Property and International Trade (2nd edn, Wolters Kluwer 2008). 602 Nuno Pires de Carvalho 2008 (n 529) para 39.2.52; Markus Peter and Andreas Wiebe 2013 (n 304) Art. 39 Rdn 19; Gerald Reger 1999 (n 553) 261. 603 This expression is very similar to the wording used both in the Restatement (First) of Torts and in the UTSA, which state that the information must be “readily ascertained by proper means”. Indeed, the definition of secrecy included in Article 39(2) of TRIPs was also largely influenced by the definition of Article 1 Sec. 7(2) of the Commission Regulation (EEC) No 556/89 of 30 November 1988 on the application of Article 85 (3) of the Treaty to certain categories of know-how licensing agreements [1989] OJ L061, where it was noted that: “The term “secret” means that the know-how package as a body or in the precise configuration and assembly of its components is not generally known or easily accessible, so that part of its value consists in the lead-time the licensee gains when it is communicated with him; it is not limited to the narrow sense that each individual component of the know-how should be totally unknown or unobtainable outside the licensor’s business”. 604 Daniel Gervais 2012 (n 505) para 2.486. 605 Gerald Reger 1999 (n 553) 260. Chapter 2. Trade secrets protection in the international context 146 Finally, Article 39(2)(a) clarifies that information can be protected even if it is known as a whole (“body”) but the precise configuration and assembly of its components remains unknown. This is to be understood as meaning that even if some of the elements of a particular secret are in the public domain, the information considered as a whole may still remain secret. That may be the case, for instance, of a customer list where some of the names and contact data embodied therein are known to competitors. The list considered as a unit could still be protected as a trade secret.606 This is also the main argument used to justify the application of the trade secrets legal regime to test data protection or big data scenarios. Commercial value Undisclosed information only falls under the scope of protection of Article 39(2) TRIPs if it has (i) commercial value due to its (ii) secret nature.607 This means that there must be a causal link between the secret nature of the information and its value (i.e. the information must provide a competitive advantage to its holder).608 The commercial value must not derive solely from the secrecy of the information.609 Nonetheless, its secret nature must have an impact on the competitive advantage it confers. If the disclosure, use or acquisition of the information does not affect its value, Article 39(2) TRIPs is not applicable.610 However, it is possible that information maintains some value after disclosure. The relevant yardstick is the fact that the information that is kept undisclosed confers a competitive advanc) 606 Gerald Reger 1999 (n 553) 262; Markus Peter and Andreas Wiebe 2013 (n 304) Art. 39 Rdn 19. 607 According to Gerald Reger 1999 (n 553) 262 this requirement is similar to the “Geheimhaltungsinteresse” under German law. 608 Markus Peter and Andreas Wiebe 2013 (n 304) Art. 39 Rdn 22; Daniel Gervais 2012 (n 505) para 2.487; Nuno Pires de Carvalho 2008 (n 529) para 39.2.58 highlights that “commercial value” means “competitive value”. 609 Markus Peter and Andreas Wiebe 2013 (n 304) Art. 39 Rdn 22. 610 Nuno Pires de Carvalho 2008 (n 529) para 39.2.60; in the words of François Dessemontet 2008 (n 601) 280: “The Commercial value requirement is but a threshold, below which no protection may be granted”. § 1 International legal sources for the protection of undisclosed information 147 tage to the trade secret holder.611 Similarly, secret information without commercial value does not fall under the scope of this provision.612 At first glance, the term “commercial” may indicate that the minimum standards of protection are only applicable with respect to information that relates to “the activity of buying and selling, especially on a larger scale”.613 However, most commentators and WTO Member States have construed the term “commercial” beyond trading activities, in line with the second broadest acceptation laid down in the Oxford English Dictionary: “making or intended to make a profit”.614 Consequently, the relevant yardstick is that the unauthorised disclosure of the information hinders the competitive position of the person lawfully controlling the information.615 Hence, it is submitted that the results of research and development activities carried out by non-profit organisations, such as universities, should fall under the subject matter protected by Article 39(2) TRIPs. There has been a longstanding debate on whether the value of information should be actual or potential, which has also recently been discussed with regard to the TSD. During the negotiation of the TRIPs Agreement, the U.S proposed the inclusion of an explicit reference to both concepts, even though the final text is silent on this point.616 Correa believes that information must have actual value, while Carvalho holds the opposite view.617 The latter convincingly argues that potential value should also be protected because the only difference is that potential value is unlocked af- 611 Markus Peter and Andreas Wiebe 2013 (n 304) Art. 39 Rdn 22; Nuno Sousa e Silva, ‘What exactly is a trade secret under the proposed Directive?’ [2014 ] 9 JI- PLP 923, 930. 612 Markus Peter and Andreas Wiebe 2013 (n 304) Art. 39 Rdn 22. 613 Definition of ‘commerce, n’ (OED Online, OUP June 2013) accessed 15 September 2018. 614 According to the definition of ‘commercial, adj’ (OED Online, OUP June 2013) accessed 15 September 2018. 615 NunoPires de Carvalho, The Trips Regime of Patents and Test Data (4th edn, Wolters Kluwer Law 2014) 535; similar views were expressed by the EU legislator in Recital 14 TSD: “Such know-how or information should be considered to have a commercial value, for example, where its unlawful acquisition, use or disclosure is likely to harm the interests of the person lawfully controlling it, in that it undermines that person’s scientific and technical potential, business or financial interests-, strategic positions or ability to compete” and by the U.S. legislature in the Restatement (Third) of Unfair Competition §39 (Am. Law Inst. 1995) Reporters’ Note 449. 616 See Article 13 GATT Doc. MTN.GNG./NG11/W/70. 617 Carlos Correa 2007 (n 306) 373. Chapter 2. Trade secrets protection in the international context 148 ter the fulfilment of conditions that are not verified.618 However, denying protection to information with potential value would exclude information generated in the context of research and development. In turn, this would undermine the complementary relationship between trade secrets and the patent system, as every company should have a space in which to develop its innovations without the interference of competitors or third parties.619 In this context, it is submitted that it suffices if the trade secret confers “an advantage that is more than trivial”.620 Reasonable steps to maintain secrecy The only formality spelt out in TRIPs vis-à-vis the protection of undisclosed information is that “it is subject to reasonable steps under the circumstances to keep it secret”.621 Such a condition stems from the UTSA, and its suitability has been the object of a long standing debate.622 Essentially, its inclusion in the body of the law of trade secrecy has been justified on two grounds. First, the adoption of precautionary measures reveals that the holder of the information has an interest in keeping it undisclosed. It provides notice of confidentiality in a manner similar to the notice of registration in other IPRs, such as trade marks.623 Similarly, it has been argued that it provides evidence of the existence and value of a secret that deserves protection.624 As a final remark, undisclosed information does not have to be fixated to be protected under TRIPs nor does it have to be identifiable. Criticism has been raised regarding the absence of the latter criterion, as it does not d) 618 Nuno Pires de Carvalho 2008 (n 529) para 39.2.56. 619 See chapter 1 § 2 B) IV. 620 Nuno Pires de Carvalho 2008 (n 529) para 39.2.57; similarly, Tanya Aplin and others 2012 (n 22) para 22.14 argue that “The information must have some objective commercial value which is more than trivial”. 621 Nuno Pires de Carvalho 2008 (n 529) para 39.2.62 622 Robert G. Bone 2011 (n 15) 46. 623 François Dessemontet 2008 (n 601) 284. 624 Mark A. Lemley, ‘The surprising virtues of treating trade secrets as IP rights’ 109, 136 in Rochelle C. Dreyfuss and Katherine J. Strandburg (eds), The Law and Theory of Trade Secrecy: A Handbook of Contemporary Research (Edward Elgar 2011); Rockwell Graphic Systems, Inc. v. DEV Industries, Inc., 925 F.2d 174 (7th Cir. 1991). § 1 International legal sources for the protection of undisclosed information 149 seem possible to enforce the obligation of confidence, the object of which has not been clearly identified in judicial proceedings.625 Considerations from a soft law perspective: The WIPO Model Provisions on the protection of unfair competition In 1996, the WIPO Model Provisions on the protection of unfair competition (“WMP”) were issued following the publication of an international WIPO-commissioned study on the same topic.626 The intention was to provide standard provisions to be used in drafting or improving the unfair competition legislations of different Member States based on Article 10bis PC.627 In fact, the notes accompanying the body of the text highlight that the WMP’s objective is to implement the obligations established in Article 10bis PC.628 As regards the content, Article 1 establishes a general prohibition of unfair commercial practices, similar to Article 10(2)bis PC. This general clause is supplemented with five additional provisions that spell out acts or practices that should be regarded as unlawful. The WMP expressly refer to causing confusion with respect to another’s enterprise or its activities (Article 2); damaging another’s goodwill or reputation (Article 3); misleading the public (Article 4); discrediting another’s enterprise or activities (Article 5); and unfair competition with respect to secret information (Article 6). Before discussing Article 6 on secret information, some remarks should be made regarding the legal nature of the WMP. This instrument is not a binding international treaty for all Member States that ratify it. In fact, it has not been formally ratified by any member of the WTO.629 Similarly, it is not to be regarded as a body of soft law principles as such,630 even though it aims at achieving similar objectives i.e. to serve as a model for B) 625 Daniel Gervais 2012 (n 505) para 2.486. 626 Frauke Henning-Bodewig and Heijo E. Ruijsenaars 1994 (n 545). 627 Charles Gielen,‘WIPO and Unfair Competition’ [1997] 19 EIPR 78, 78; a critical view is provided by William Cornish ‘Genevan Bootstraps’ [1997] 19 EIPR 336-338. 628 Frauke Henning-Bodewig and Heijo E. Ruijsenaars 1994 (n 545) 6, note 1.01. 629 Marcus Höpperger and Martin Senftleben 2011 (n 543) 73. 630 For an overview of the legal nature of soft law principles see Hartmut Hillgenberg, ‘A Fresh Look at Soft Law’ [1999] 10 EJIL 499-515. Chapter 2. Trade secrets protection in the international context 150 lawmakers and courts.631 The WMP were adopted to guide the implementation of international obligations in the field of unfair competition.632 Regarding substantive law, Article 6 WMP seems to nest the protection of undisclosed information in unfair competition provisions, even more clearly than Article 39(2) TRIPs. In fact, the former has a similar structure to Article 39 TRIPs. Paragraph (1) sets forth a general obligation to protect secret information in commercial and industrial activities against disclosure, acquisition or use without the consent of the holder in a manner contrary to honest commercial practices. In contrast to TRIPs, “the person lawfully in control of the information” is referred to as the “rightful holder”. Next, paragraph 2 provides a list of acts that should be deemed contrary to honest commercial practices, similar to footnote 10 of the TRIPs Agreement, but with an additional example, namely, industrial or commercial espionage. Paragraph (3) defines secret information in the same terms as Article 39(2) TRIPs, that is, information must be secret, have commercial value due to its secret nature and be subject to reasonable steps under the circumstances to keep it secret. Finally, paragraph 4 proposes a regulation of test data submitted for marketing approval.633 One of the main differences with Article 39(3) TRIPs is that it is aimed at entrepreneurs who use information provided by authorities. Unlike TRIPs, paragraph 4 WMP it is not addressed to the authorities that should ensure the relevant protection.634 Looking back and from a legislative perspective, it seems that the impact of the WMP on the regulation of trade secrets protection has been rather limited, having most certainly been outshined by the minimum standards set forth in the TRIPs Agreement. Trade secrets protection in the U.S. As discussed in § 1, the international legal regime for the protection of trade secrets has been greatly influenced by the U.S. legal regime. A com- § 2 631 Marcus Höpperger and Martin Senftleben 2011 (n 543) 73; as Frauke Henning- Bodewig, International Handbook on Unfair Competition (C.H. Beck 2013) 29 highlights: “It should be unambiguously pointed out that the Model Provisions are neither binding law nor soft law, but merely a model for law-making activities without any legal commitment”. 632 Marcus Höpperger and Martin Senftleben 2011 (n 543) 73. 633 Similar to Article 39(3) TRIPs. 634 Charles Gielen,‘WIPO and Unfair Competition’ [1997] 19 EIPR 78, 81. § 2 Trade secrets protection in the U.S. 151 prehensive analysis of the law of trade secrets in most EU Member States and, in particular, the way in which the secrecy requirement has been construed is not possible without a deeper understanding of its regulation in this jurisdiction. The protection of intangible assets through trade secrets has garnered more scholarly attention in the U.S. than in any EU Member State, both from a legal and an economic perspective.635 Indeed, trade secret litigation in the U.S. has increased exponentially since the 1950s,636 unlike in any EU Member States, where the evidence shows that trade secret holders are still reluctant to take up legal proceedings in the event of misappropriation out of fear of disclosing secret information during litigation.637 The remainder of the chapter investigates the legal system for the protection of trade secrets in the U.S., in order to examine the way in which secrecy has been construed therein. Section A starts by outlining the evolution of trade secrets protection and its underlying justifications along with the most relevant legal sources. Next, section B focuses on the definition of trade secrets and the legal requirements for their protection, and particularly, the secrecy requirement. Thereafter, section C discusses the legal regime for the protection of trade secrets created by the UTSA, together with the Restatement (First) of Torts, the Restatement (Third) of Unfair Competition and the recently adopted Defend Trade Secrets Act of 2016. Finally, some conclusions are drawn. Evolution of trade secret law in the U.S.: main legislative sources As opposed to other IPRs, the law of trade secrecy was only developed in the U.S. in the XIX century with the rise of industrial capitalism.638 While A) 635 For a general account of trade secret law in the United States see: Roger M. Milgrim 2014 (n 160); James Pooley 2002 (n 66); Vincent Chiappetta 1999 (n 24); Charles Tait Graves 2007 (n 337) 39; Chris Montville, ‘Reforming the Law of Proprietary Information’ [2007] 56 Duke LJ 1159; Christopher Rebel J. Pace, ‘The Case for a Federal Trade Secrets Act’ [1995] 8 Harvard Journal of Law & Technology 427, 435-442; Michael Risch 2007 (n 15). 636 David S. Almeling and others, ‘A Statistical Analysis of Trade Secret Litigation in Federal Courts’ [2009-2010] 45 Gonzaga LR 291, 301. 637 Baker McKenzie 2013 (n 469) 129. 638 Robert G. Bone 1998 (n 15) 251. Chapter 2. Trade secrets protection in the international context 152 patent and copyright protection were premised on the U.S. Constitution639 and regulated mostly in federal statutes, trade secrets protection was built upon common law principles and has only recently been codified into law. Until the adoption of the DTSA in May 2016, trade secrets protection in the U.S. was mostly state law.640 It is generally agreed that only in 1868 did the Supreme Court of Massachusetts provide for the first time a complete view of trade secrets protection in Peabody v. Norfolk.641 In the development of the law of trade secrecy in the U.S., it is possible to differentiate five phases.642 In the early days (1860 –1920) trade secrets were regarded as a form of property. During this period, the secrecy precautions requirement was developed by the courts with two purposes. On the one hand, it gave notice of confidentiality to employees and other third parties. On the other hand, the adoption of such measures was interpreted by some courts as a form of possession, necessary to assert property rights in common law.643 During the second phase (1920–1940), the courts relied less on the property theory, whilst unfair competition became the dominant approach to justify trade secrets protection. Accordingly, case law placed special emphasis on the unfairness of the defendant’s conduct, i.e. the unlawfulness 639 Famously, U.S. Const. art. I, § 8, cl.8 empowers Congress “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries”. 640 Michael Risch 2007 (n 15) 6; notwithstanding, prior to the adoption of the DT- SA there were two federal sources of trade secret protection, namely (i) the criminal provisions of the Economic Espionage Act Pub. L. No. 104-294, 110 Stat. 3488 (1996) (codified as amended at 18 U.S.C.§§ 1831 et seq. (2016) (EEA)), and (ii) the prohibition to disclose trade secrets by federal employees codified in 18 U.S.C. § 1905 (2012). 641 Peabody v. Norfolk, 98 Mass. 452, 458 (1868): “If (a person) invents or discovers, and keeps secret, a process of manufacture, whether a proper subject for a patent or not, he has not indeed an exclusive right to it as against the public, or against those who in good faith acquire knowledge of it; but he has a property in it, which a court of chancery will protect against one who in violation of contract and breach of confidence undertakes to apply it to his own use, or to disclose it to third persons”. 642 Robert G. Bone 2011 (n 15) 49-58; for a more a general account of the evolution of trade secret protection in the U.S. see Catherine Fisk, ‘Working Knowledge: Trade Secrets, Restrictive Covenants in Employment, and the Rise of Intellectual Property’ [2001] 52 Hastings LJ 441 and Sharon K. Sandeen, ‘The Evolution of Trade Secret Law and why courts commit error when they do not follow the Uniform Trade Secrets Act’ [2010] 33 Hamline LR 493. 643 Robert G. Bone 2011 (n 15) 49-50. § 2 Trade secrets protection in the U.S. 153 of the acquisition, use or disclosure, rather than the existence of ownership rights.644 As a result of the increasing importance of unfair competition as a means to protect trade secrets, the American Law Institute included trade secrets protection in the Restatement (First) of Torts published in 1939.645 Of its 971 sections, only two deal with the protection of trade secrets: while § 757 provides the necessary liability requirements, § 758 limits the liability of third parties that acquire undisclosed information without notice of its secret nature.646 Notably, the Restatements are not to be regarded as a source of primary law.647 Their main purpose is to provide an account of the common law principles developed in the U.S. as a result of judicial decisions and case law derived from the application of statutes enacted and in force.648 During the third period (1940–1979), the so-called “Dominance of the Unfair Competition Theory” courts relied mostly on the unlawful nature of the defendant’s conduct following the stipulations of the Restatement (First) of Torts.649 Notwithstanding this, some decisions still referred to the notion of property.650 The adoption of the UTSA in 1979 was a real turning point in the harmonisation of trade secrets protection in the U.S. and marked the begin- 644 Robert G. Bone 2011 (n 15) 52 -54. 645 Restatement (First) of Torts § 757 (Am. Law Inst. 1939). 646 Remarkably the Restatement (First) of Torts § 759 (Am. Law Inst. 1939) establishes liability for the acquisition of business information that does not qualify for trade secrets protection. 647 Robert Denicola, ‘The Restatements, the Uniform Act and the status of American trade secret law’ 18, 19 in Rochelle C. Dreyfuss and Katherine J. Strandburg (eds), The Law and Theory of Trade Secrecy: A Handbook of Contemporary Research (Edward Elgar 2011). 648 Restatement (First) of Torts § 757 (Am. Law Inst. 1939); for a critical analysis of the Restatements and the role of the American Law Institute see Kristen David Adams, ‘Blaming the Mirror: The Restatements and the Common Law’ [2007] 40 Indiana LR 205-270 and Sharon K. Sandeen 2010 (n 642) 539, who notes that “The purpose of the Restatement was (and is) not to codify the law, but rather to clarify and simplify the law by providing an easy-accessible and clear statement of what the members of the ALI thought was the majority of the states on various points of law”. 649 Robert G. Bone 2011 (n 15) 55. 650 See for instance, National Starch Products, Inc. v. Polymer Industries, Inc., 273 App. Div. 732, 735 (1948). Chapter 2. Trade secrets protection in the international context 154 ning of the fourth phase.651 It was approved by the National Conference of Commissioners on Uniform State Laws following a recommendation from the American Bar Association with the aim of (i) addressing the uneven development of the law among states and (ii) clarifying the remedies and the standards provided for in common law.652 Its main purpose was to achieve uniformity and to codify the common law rules on trade secrets protection.653 Ultimately, it sought to establish a unitary definition of the notions of trade secret and misappropriation as well as a statute of limitations.654 It has been suggested that its publication was partially triggered by the fact that the Restatement (Second) of Torts included no provisions on trade secrets protection, unlike the first version of 1939.655 Regarding its legal nature, similar to the Restatements, the UTSA has “no law-making authority”.656 Its main goal is to serve as a model to be followed by states when regulating trade secrets protection.657 It is not merely intended to “restate existing law, but to make and codify the law”.658 Thus far, the UTSA has been implemented by 47 states, the District of Columbia, Puerto Rico and the Virgin Islands. In addition, the states of New York and Massachusetts have introduced bills to implement it.659 In 1995, the American Law Institute issued the Restatement (Third) of Unfair Competition, which regulated, among others, deceptive marketing, 651 A second version of the UTSA was approved in 1985 with some amendments as regards the injunctions, damages and the effect of legislation provisions; James Pooley 2002 (n 66) § 2.03 [7] highlights that the existence of two versions and the nuances in the implementation at a state level are a hurdle in the achievement of uniformity. 652 See UTSA Preparatory Note (1979) 1; see also James Pooley 2002 (n 66)§ 2.03 [1]; Robert Denicola 2011 (n 647) 20-21. 653 James Pooley 2002 (n 66) § 2.03 [1]. 654 James Pooley 2002 (n 66) § 2.03 [1] 2-13 critically suggests that as a result “one might argue that the state of trade secret law is today more conflicting and uncertain than it was in 1979”. 655 See UTSA Preparatory Note (1979) 1. 656 Robert Denicola 2011 (n 647) 20-21; contrary, Sharon K. Sandeen 2010 (n 642) 540 notes that “whereas the Restatement series is secondary authority of what the law is, the UTSA is primary authority”. 657 William E. Hilton, ‘What sort of improper conduct constitutes misappropriation of a trade secret’ [1990] 30 IDEA 287, 290. 658 Sharon K. Sandeen 2010 (n 642) 540. 659 According to the National Conference of Commissioners and Uniform State Laws accessed 15 September 2018. § 2 Trade secrets protection in the U.S. 155 trade mark law, the right of publicity and trade secrets protection.660 The inclusion of the latter after the promulgation and success of the UTSA may appear superfluous.661 As noted by the reporters, “the rules in this Restatement are applicable both to common law actions and actions under the Uniform Trade Secrets Act or analogous civil legislation”.662 Hence, the provisions in the Restatement (Third) have been applied to construe the provision of the UTSA and at the same time overcome the deficiencies of the Restatement (First) of Torts 1939.663 The extent to which the UTSA displaced the application of the common law principles embedded in case law and § 757 and § 758 of the Restatement (First) of Torts has been widely discussed. Indeed, the evidence shows that in most cases both federal and state courts apply the UTSA’s principles.664 They refer to the UTSA alone, but also to case law decided as a result of its application. Notwithstanding this, sometimes courts also cite the UTSA together with case law where the UTSA is not mentioned. Finally, some courts also refer to cases where the UTSA is not hinted at whatsoever. In this context, regarding the definition, it is noteworthy that according to a study conducted by Risch, 75,36% of the surveyed state cases refer primarily to the one provided in the UTSA, while in federal courts this percentage rises to 81,03% of the cases cited.665 In line with the codification process described above, in 1996 the U.S. Congress passed the Economic Espionage Act (“EEA”) with the aim of enhancing criminal protection against the unlawful appropriation of information.666 In the early 1990s, there was growing concern about the importance of intangible assets for U.S. companies and their increasing vulnera- 660 Restatement (Third) of Unfair Competition (Am. Law Inst. 1995). 661 Robert Denicola 2011 (n 656) 21. 662 See Reporters’ Note of the Restatement (Third) of Unfair Competition §39 (Am. Law Inst. 1995). 663 James Pooley 2002 (n 66) § 2.04 [1] 2-32 and Robert Denicola 2011 (n 656) 22. 664 Michael Risch, ‘An Empirical Look at Trade Secret Law’s Shift from Common to Statutory Law’ (2013) Working Paper No. 2012-2008, 11-12 accessed 15 September 2018; in the article the author conducts an empirical study with the purpose of assessing the influence of common law principles after the enactment of the UTSA. The cases selected for the study are the same ones as the ones used by David S. Almeling and others 2009-2010 (n 636) 291. 665 Michael Risch 2013 (n 664) 11-12. 666 Economic Espionage Act, Pub. L. No. 104-294, 110 Stat. 3488 (1996) (codified as amended at 18 U.S.C. §§ 1831 et seq. (2016)). Chapter 2. Trade secrets protection in the international context 156 bility to (international) industrial espionage.667 Crucially, the EEA set forth a federal criminal action for trade secrets misappropriation with a focus on international espionage.668 Yet, owing to its criminal law nature, its study falls outside the scope of the present research. As a whole, due to the prevalence of state law and the overlap of legislative sources, it was not accurate to refer to a single law of trade secrets in the U.S. Indeed, there were multiple laws that resulted from the courts’ applications of different theories and interpretations of the scope of protection conferred by trade secrets law.669 In view of this, and after a five-year negotiation process,670 in 2015 the U.S. Senate Committee reported to Congress the proposal to amend the EEA, the so-called DTSA with the aim of providing federal jurisdiction for private civil actions derived from trade secret misappropriation. On April 27, 2016, Congress passed the bill, which became Public Law No. 114-153 on May 11, 2016, thereby creating a civil federal action for trade secret misappropriation. Notably, pursuant to 18 U.S.C. § 1836 (b)(1), the competence of Congress to legislate on trade secrets protection at the federal level stems from the so-called “Commerce Clause” embedded in the U.S. Constitution,671 and not in the “Progress of Science and Useful Arts Clause”, which served as the legislative basis to regulate patent and copyright protection at the federal level.672 As a result, it is only possible to bring a civil federal claim for trade secret misappropriation when the secret in question relates to a product or service used in or intended for use in interstate or foreign commerce.673 The following section explores the different concepts of trade secrets and the legal requirements embodied in the Restatements, the UTSA and the DTSA. 667 See H.R. No 3723, 4023-4024 (1996). 668 For a general account of the EEA see Rochelle C. Dreyfuss, ‘Trade Secrets: How Well Should We Be Allowed to Hide them? The Economic Espionage Act of 1996’ [1998] 9 Fordham IP Media & Entertainment LJ 1-44. 669 Robert Denicola 2011 (n 656) 20-21. 670 John Cannan, ‘A [Mostly] Legislative History of the Defend Trade Secrets Act of 2016’ [2017-2019] 109 Law Library Journal 363, 372. 671 U.S. Const. art. I, § 8, cl. 3. 672 U.S. Const. art. I, § 8, cl.8. 673 See Sharon K. Sandeen and Christopher B. Seaman,‘Toward a Federal Jurisprudence of Trade Secret Law’ [2017] 32 Berkeley Technology LJ 829, 888 comparing the Commerce Clause Provision in the DTSA with the one in the Lanham Act and concluding that “the DTSA’s jurisdiction appears narrower because (unlike the Lanham Act) there must be actual or intended use of the secret ‘related to a product or service’ in ‘interstate or foreign commerce.’” § 2 Trade secrets protection in the U.S. 157 Definition of a trade secret and requirements for protection in the U.S. Definitional aspects In the U.S., there is no uniform definition of a trade secret. Instead, it is regarded that virtually any useful information674 is eligible for protection, as opposed to the subject matter protected under copyright and patent laws.675 The difficulty of establishing a suitable definition is because trade secret regulation was originally developed on the basis of common law and consequently resulted from a factual assessment conducted on a case bycase basis.676 Notwithstanding this, courts most often refer to the following three definitions: The first is embedded in comment b of § 757 of the Restatement (First) of Torts (1939) and stipulates: A trade secret may consist of a formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. This definition has been extensively quoted in case law and is still often referred to by courts despite the fact that the Restatement (Second) of Torts (1979) omits any reference to trade secrets protection.677 It has often been regarded as the bedrock of modern trade secret law.678 In addition to providing a definition, comment b in the Restatement (First) of Torts spells B) I. 674 The four definitions analysed under this section provide that trade secrets’ subject matter is information. The considerations outlined in chapter 2 § 1 A) IV. 2. a) are therefore also applicable to the U.S. jurisdiction. 675 James Pooley 2002 (n 66) § 1.01; similarly, Roger M. Milgrim 2014 (n 160) § 1.01 1-4 notes that “the definition of trade secret is thus unlimited as to any particular class or kind of matter and may be contrasted with matter eligible for patent or copyright protection, which must fall into statutorily defined categories”; in this regard the Iowa Supreme Court concluded that “there is virtually no category of information that cannot, as long as the information is protected from disclosure to the public, constitute a trade secret”. U.S. West Communications, Inc. v. Office of Consumer Advocate, 498 N.W.2d 711, 714 (Iowa 1993). 676 James Pooley 2002 (n 66) § 1.01 1-3. 677 James Pooley 2002 (n 66) § 1.01 1-3; this definition is applied in old decisions, but also in more recent judgements; see for instance Vacco Indus., Inc. v. Van Den Berg, 5 Cal. App. 4th 34, 49-50 (Cal. Ct. App. 1992). 678 James Pooley 2002 (n 66) § 2.02[1] 2. Chapter 2. Trade secrets protection in the international context 158 out a list of non-exclusive factors to be considered in establishing the existence of a trade secret. The relevant text reads as follows:679 An exact definition of a trade secret is not possible. Some factors to be considered in determining whether given information is one’s secret are: (1) the extent to which information is known outside the of his business; (2) the extent to which it is known by and other involved in his business ; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and his competitors; (5) the amount of effort or money expended by him in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated. The second definition that is most commonly quoted by courts was included in § 1(4) UTSA and, unlike the previous definition, enumerates three specific and binding requirements: Information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is subject to efforts that are reasonable under the circumstances to maintain its secrecy. The third definition is in the Restatement (Third) of Unfair Competition § 39 (1995): A trade secret is any information that can be used in the operation of a business or other enterprises and that is sufficiently valuable and secret to afford actual or potential economic advantage over others. 679 Restatement (First) of Torts § 757 Comment b (Am. Law Inst. 1939). § 2 Trade secrets protection in the U.S. 159 Table 2 shows a comparison of the Restatement First factors and the UTSA requirements for the protection of trade secrets:680 TABLE 2: The Restatement First factors and the UTSA Restatement First Factors UTSA Requirements 1. The extent to which the information is known outside the claimant’s business Not generally known (UTSA § 1(4) (i)) 2. The extent to which it is known by employees and others involved in the business. Not generally known and subject to reasonable efforts to maintain secrecy (UTSA § 1 (4)(ii)) 3. The extent of measures taken by the claimant to guard the secrecy of the information. Subject to reasonable efforts to maintain secrecy (UTSA § 1 (4)(ii)) 4. The value of the information to the business and its competitors Derives independent economic value from not being generally known or readily ascertainable (UTSA § 1(4)(i)) 5. The amount of effort and or money expended by the business in developing the information. 6. The ease or difficulty with which the information could be properly acquired or duplicated by others. Readily ascertainable by proper means (UTSA § 1(4)(i)) As is apparent from Table 2, the most important difference between the Restatement (First) of Torts and the UTSA is that the latter does not require the trade secret holder to invest money or effort in the creation of the information. This is in line with the Supreme Court’s viewpoint in the Feist decision, where the “sweat of the brow doctrine” was explicitly rejected in the context of copyright.681 Accordingly, pursuant to the UTSA, information created with little effort can be protected under trade secrets law 680 Table 2 is a reproduction of the one included in Sharon K. Sandeen 2010 (n 642) 522. 681 See Feist Publ’ns, Inc. v. Rural Tel. Serv. Co. 499 U.S. 340, 349-350 (1999): “It may seem unfair that much of the fruit of the compiler’s labor may be used by others without compensation. (…) As applied to a factual compilation, assuming the Chapter 2. Trade secrets protection in the international context 160 in the same manner as information that is developed over the course of a long time and with substantial investment.682 Likewise, as opposed to the definition of a trade secret set forth in comment b § 757 of the Restatement (First) of Torts, the UTSA deleted any reference to the use of the trade secret by its holder. Initially, such a requirement was introduced following the same rationale that governs the “use in commerce” requirement in trade mark law, and it was drafted with the purpose of avoiding the information’s owner preventing its use in commerce in the event that he did not use it.683 However, in the UTSA, a different approach was adopted, as it was deemed that undisclosed information that is not used commercially may still have independent commercial value.684 This would be true in the case of a market leader who develops a trade secret manufacturing process and, with time, develops a better one. Even if the first one is no longer applied by the company, he may still want to keep it undisclosed to avoid its use by competitors.685 In addition, the UTSA stated most clearly that there must be causality between the secret nature of the information and its commercial value and that the holder should adopt measures to protect it. Hence, the adoption of measures was codified as a requirement for protection under the UTSA, not just as a factor signalling the existence of valuable information worth protecting. Similarly, the comments on the UTSA further clarified that protection is also to be afforded to negative knowledge; that is, information resulting from experiments that do not work and hence cannot be used in practice, but which may nevertheless be of great value for competitors, as it would allow them to avoid costly and lengthy experiments.686 absence of original written expression, only the compiler’s selection and arrangement may be protected; the raw facts may be copied at will. This result is neither unfair nor unfortunate. It is the means by which copyright advances the progress of science and art”. 682 Sharon K. Sandeen 2010 (n 642) 522, 523. 683 Michael Risch 2007 (n 15) 48. 684 Restatement (First) of Torts § 757 Comment b (Am. Law Inst. 1939): “The definition of ‘trade secret’ contains a reasonable departure from the Restatement of Torts (First) definition which required that a trade secret be “continuously used in one’s business”. The broader definition in the proposed Act extends protection to a plaintiff who has not yet had an opportunity or acquired the means to put a trade secret to use”. 685 Michael Risch 2007 (n 15) 48. 686 See UTSA Comments to § 1: “The definition includes information that has commercial value from a negative viewpoint, for example the results of lengthy and § 2 Trade secrets protection in the U.S. 161 The UTSA also overcame some definitional issues posed by the Reporter’s comment to the Restatement (First) of Torts. According to comment b, business information about singular events was regarded as ephemeral and hence did not fall under the scope of trade secrets protection. This referred to the salary of employees, the date for launching a product or the amount of a secret bid for a contract, to name some.687 Such a limitation does not appear in the UTSA and seems better suited for protecting information resulting from research activities.688 In the light of these considerations, it is important to note that the definition of a trade secret is inconsistently applied in case law. This leads to striking consequences particularly in the field of departing employees with respect to the information that they are allowed to use after the termination of their employment.689 Under similar circumstances, courts will allow some employees to use certain information, while they will prevent others from using it based on the cause of action invoked, the state where the case is litigated or the judge that hears the case.690 For instance, the same NDA regulating the use of a trade secret after the termination of an employment relationship may be considered enforceable by some courts even if the alleged trade secret is part of the public domain, whereas others expensive research which proves that a certain process will not work could be of great value to a competitor”. 687 Restatement (First) of Torts § 757 Comment b (Am. Law Inst. 1939): “It differs from other secret information in a business (see § 759) in that it is not simply information as to single and ephemeral events in the conduct of the business, as, for example, the amount or other terms of a secret bid for a contract or the salary of certain employees, or the security investments made or contemplated, or the date fixed for the announcement of a new policy or for bringing out a new model or the like”. 688 James Pooley 2002 (n 66) § 4.05[1] 4-45, 4-46. 689 Charles Tait Graves, ‘Trade Secrecy and Common Law Confidentiality: The Problem of Multiple Regimes’ 77, 79-80 in Rochelle C. Dreyfuss and Katherine J. Strandburg (eds), The Law and Theory of Trade Secrecy: A Handbook of Contemporary Research (Edward Elgar 2011). 690 Charles Tait Graves 2011 (n 689) 79-80. Chapter 2. Trade secrets protection in the international context 162 consider that the object of protection has ceased to exist,691 thereby forfeiting trade secrets protection.692 Having the above in mind, the Federal legislator in the recently adopted DTSA seemingly leans towards a definition of trade secret that is practically identical to the one laid down in the EEA, with some minor variations: (3) the term “trade secret” means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if— (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information;693 The main difference between the definition enshrined in the UTSA and the one above is that the latter defines the type of information eligible for protection (i.e. financial, business, scientific, technical, economic or engineering information) and provides additional examples of the subject matter covered. It refers to tangible and intangible “plans, designs, prototypes, procedures and programs or codes”. In addition, it clarifies that the information may be stored or compiled, not only in a physical support, but also electronically, photographically, graphically or in writing. Information need not be fixated at all to merit protection. A side-by-side comparison of 691 According to Charles Tait Graves 2011 (n 689) 89 footnote 23 citing Allen v. Creative Serv., Inc., 1992 WL 813643 2 (R.I. 1992) (unpublished), where the court noted that “while every business interest is not worthy of protection through a restrictive covenant, a business interest worthy of such protection need not rise to the level of a trade secret”. 692 According to Charles Tait Graves 2011 (n 689) 89 footnote 23 citing International Settlement Design, Inc. v. Hickez, 1995 WL 864463, 5 (Penn. Ct., 1995), (unpublished) where the court noted that “since we have already concluded that the information here does not rise to the level of a ‘trade secret’ as defined in the Pennsilvania law, it cannot be contractually protected”. 693 18 U.S.C. § 1839 (3). § 2 Trade secrets protection in the U.S. 163 both definitions reveals that the DTSA spells out categories of protectable information instead of resorting to the broader term of “information” like the UTSA does, which may limit the subject matter of actions brought under the former. This will ultimately depend on the interpretation carried out by federal courts.694 As a final note, the DTSA clarifies that private information falls outside the scope of federal criminal and civil actions. Despite the divergence in how the notion of a trade secret is construed, three common requirements for protection appear in the UTSA and the DTSA and are most frequently invoked by courts.695 These coincide with those set out in Article 39(2) TRIPs and refer to fact that the information (i) is not generally known or readily ascertainable, (ii) has economic value due to its secrecy and (iii) is subject to reasonable measures to keep it secret. Each of these is analysed in turn. Requirements for protection Secrecy: information not generally known or readily ascertainable The secrecy requirement is essential in the legal framework for the protection of confidential information.696 Indeed, “by definition, a trade secret is something which has not been placed in the public domain”.697 The U.S. Supreme Court has repeatedly indicated that state laws dealing with unfair competition cannot afford protection to information that is publicly known. In one of its seminal decisions on trade secrets, Kewanee Oil Co. v. Bicron Corp., the court noted, “that which is in the public domain cannot be removed therefrom by action of the State”.698 Ultimately, this reflects one of the key underlying policies of the intellectual property system, ac- II. 1. 694 Sharon K. Sandeen and Christopher B. Seaman 2017 (n 673) 888-905. 695 Sharon K. Sandeen and Christopher B. Seaman 2017 (n 673) 906. 696 Mark A. Lemley 2008 (n 15) 342. 697 Sinclair v. Aquarius Electronics, Inc., 116 Cal.Rptr. 654, 661 (Cal. Ct. App. 1974). 698 See Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 481 (1974); similarly in Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 156-157 (1989) the U.S. Supreme Court clarified that “A State law that substantially interferes with the enjoyment of an unpatented utilitarian or design conception which has been freely disclosed by its author to the public at large impermissibly contravenes the ultimate goal of public disclosure and use which is the centrepiece of federal patent policy”. Chapter 2. Trade secrets protection in the international context 164 cording to which there is a public interest and social benefit in sharing ideas.699 The UTSA and DTSA, similar to Article 39(2) TRIPs, use two expressions to define the notion of secrecy. They stipulate that the information object of the trade secret should be neither “generally known” nor “readily ascertainable” by people who could obtain economic advantage from its disclosure. This is to be understood as meaning that information must be unknown to the public at large, but also to those who could obtain economic advantage from the disclosure of the information.700 Consequently, even if the trade secret is only well-known within a given industry, but not the general public, it loses its confidential nature.701 The UTSA and the DTSA, in the same way as the Restatement (First) of Torts and the Restatement (Third) of Unfair Competition, adopt a relative secrecy approach, which is essential for the economic exploitation of the information concerned.702 As underscored in Metallurgical Industries Inc. v. Fourtek. Inc.: 699 Charles Tait Graves and Alexander Macgillivray, ‘Combination Trade Secrets and the Logic of Intellectual Property’ [2004] Santa Clara High Technology LJ 261, 268-269. 700 According to UTSA Comment to § 1(4): “The language ‘not being generally known to and not being readily ascertainable by proper means by other persons’ does not require that information be generally known to the public for trade secret rights to be lost. If the principal person/persons who can obtain economic benefit from information is/are aware of it, there is no trade secret”. 701 The Supreme Court has clearly enshrined this principle in two of the most important decisions in trade secrets law. In Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1002 (1984) it noted that “information that is public knowledge or that is generally known in an industry cannot be a trade secret”. Similarly, in Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 475 (1974) it was argued that “the subject of a trade secret must be secret, and must not be of public knowledge or of a general knowledge in the trade or business”; see further Sharon K. Sandeen 2010 (n 642) 523. 702 The first two factors of the Restatement (First) of Torts § 757 comment b (Am. Law Inst. 1939) refer to the extent to which the information is known outside the plaintiff’s business and the extent to which it is known by employees and others involved in the business; similarly, the Restatement (Third) of Unfair Competition §39 (Am. Law Inst. 1995) comment b notes that “to qualify as a trade secret, the information must be secret. The secrecy, however, need not be absolute(...) Information known by persons in addition to the trade secret owner can retain its status as a trade secret if it remains secret from other to whom it has potential economic value”. § 2 Trade secrets protection in the U.S. 165 A holder may divulge his information to a limited extent without destroying its status as a trade secret. To hold otherwise would greatly limit the holder’s ability to profit from his secret. If disclosure to others is made to further the holder’s economic interests, it should, in appropriate circumstances, be considered a limited disclosure that does not destroy secrecy.703 Indeed, one of the soundest theories underlying trade secrets protection, the so-called “incentives to disclose theory”, holds that trade secrets legislation lowers transaction costs associated with the commercial exploitation of confidential information (such as licensing agreements) and therefore enhances cooperation between market participants and facilitates organisation within a company.704 With respect to the interplay between the secrecy requirement and the disclosure function in the patent system, case law has considered that the issuance of a patent discloses the trade secrets described in the specification. This is crucial to ensure the appropriate balance between both legal regimes.705 Regarding patent applications, pursuant to 35 U.S.C § 122 of the U.S. Patent Act,706 the information contained therein remains confidential during the examination process and only enters the public domain after the publication of the application (18 months after the filing if international protection is sought) or upon issuance of the patent.707 In con- 703 Metallurgical Industries v. Fourtek Inc., 790 F.2d 1195, 1200 (5th Cir. 1986). 704 Chapter 1 § 2 B) II. 705 For instance, On-Line Technologies, Inc. v. Bodenseewerk Perkin-Elmer GmbH, 386 F.3d 1133, 1141 (Fed. Cir. 2004) it was noted that: “after a patent has been issued, the information contained within it is ordinarily regarded as public and not subject to protection as a trade secret”; similarly the Texas Supreme Court in Hyde Corporation v. Huffines, 314 S.W.2d 763, 773 (1958) concluded that “upon the granting of a patent upon any of the claims contained in the application, the file is no longer held in confidence by the Patent office but the contents thereof become public property (…) Consequently, the secrets disclosed by the application and its amendments are available to the world”. 706 35 U.S.C. § 122. Confidential status of applications: “Application for patents shall be kept in confidence by the Patent and Trademark Office and no information concerning the same given without authority of the applicant or owner unless necessary to carry out the provisions of any Act of Congress or in such special circumstances as may be determined by the Commissioner”. 707 Restatement (Third) of Unfair Competition §39 (Am. Law Inst. 1995) comment f: “Information disclosed in a patent or contained in published materials reasonably accessible to competitors does not qualify for protection”. Chapter 2. Trade secrets protection in the international context 166 trast, the abandonment or rejection of the application prior to publication does not result in the disclosure of the information contained therein.708 The second prong of the secrecy requirement set forth by the UTSA and DTSA is that information is not “readily ascertainable by proper means”. The comment in § 1 UTSA explains that information that is available in trade journals, reference books or published materials is deemed as being “readily ascertainable”.709 Similarly, it is noted that when a trade secret is apparent through observation of the product in which it is embodied, it loses its secret nature. Consequently, marketing a product does not necessarily reveal all related trade secrets.710 First, information about its process of development and manufacture may remain undisclosed unless it can be inferred from the examination of the product. Second, the item’s design or other secrets may not be evident. In such cases, the trade secret lasts for as long as it takes to reverse engineer the product.711As noted in Hamer Holding Group, Inc. v. Elmore: The key to secrecy is the ease with which information can be developed through other proper means: if the information can be readily duplicated without involving considerable time, effort or expense, then it is not secret.712 Notwithstanding this, in practice, defining when the acquisition of information is readily ascertainable and when it is subject to a process of reverse engineering is complex, but nonetheless relevant. Information that can on- 708 35 U.S.C § 122. 709 UTSA Comment § 1: “Information is readily ascertainable if it is available in trade journals, reference books, or published materials. Often, the nature of the product lends itself to being readily copied as soon as it is available on the market. On the other hand, if reverse engineering is lengthy and expensive, a person who discovers the trade secret through reverse engineering can have a trade secret in the information obtained from reverse engineering”. 710 James Pooley 2002 (n 66) § 4.04[3]4-34; Restatement (Third) of Unfair Competition §39 (Am. Law Inst. 1995) comment f: “Public sale of product does not preclude continued protection against the improper acquisition or use of information that is difficult, costly or time-consuming to extract through reverse engineering; ” along the same lines see American Can Co. v. Mansukhani, 728 F.2d 818, 819 -820 (7th Cir. 1982) stating that the fact that someone else might have discovered the secret by fair means such as reverse engineering does not protect the unlawful acquirer. 711 This is particularly relevant in industries with short product life cycles such as the computer software industry. 712 See Hamer Holding Group, Inc. v. Elmore, 560 N.E.2d 907, 918 (Ill. App. Ct. 1990). § 2 Trade secrets protection in the U.S. 167 ly be obtained through reverse engineering is protectable as a trade secret prior to the reverse engineering process. By contrast, readily ascertainable information is not accorded protection at all, as it is regarded that it does not fulfil the secrecy requirement. A more detailed study of specific scenarios under which secret information is disclosed and its effect on the protectability of said information is provided in chapter 4. Independent economic value Similar to Article 39(2) TRIPs, the UTSA and DTSA demand that information derives independent economic value resulting from its secret nature.713 This phrase codifies the “competitive advantage” factor set forth in comment b of § 757 of the Restatement (First) of Torts (1939).714 In essence, it means that the secret nature of the information must confer upon the trade secret holder an advantage over its competitors, irrespective of the inherent value of the good or service in which it is embodied.715 In the words of the Supreme Court in Ruckelshaus v. Monsanto, “the value of a trade secret lies in the competitive advantage it gives to its owner over competitors”.716 Thus, the asserted trade secret must not be valuable only in the abstract.717 However, such an advantage need not be considerable, just “more than trivial”.718 This requirement is crucial, as it allows to draw the line between protectable and non-protectable information. Most information concerning professional matters is deemed confidential. Yet, only information that confers a competitive advantage to its holder is deemed a trade secret.719 This has been construed in the widest sense, in line with 2. 713 See UTSA § 1(4)(i): “derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable (…)”. 714 Similarly, comment e of the Restatement (Third) of Unfair Competition §39 (Am. Law Inst. 1995) stresses that “a trade secret must be of sufficient value in the operation of a business or another enterprise to provide an actual or potential economic advantage over others who do not possess the information”. 715 Abba Rubber Co. v. Seaquist, 286 Cal.Rptr. 2d 518, 526 (Cal. Ct. App. 1991). 716 Ruckelshaus v. Monsanto Co., 467 U.S. 986, footnote 15 (1984). 717 Sharon K. Sandeen 2010 (n 642) 524. 718 Restatement (Third) of Unfair Competition §39 (Am. Law Inst. 1995) comment e. 719 Roger M. Milgrim 2014 (n 160) § 1 understands that “not every commercial secret can be regarded as a trade secret. In business most matters are considered confidential; however only secrets affording a demonstrable competitive advantage may be properly considered trade secrets”. Chapter 2. Trade secrets protection in the international context 168 comment b of the Restatement (Third) of Unfair Competition, which provides that: “Although rights in trade secrets are normally asserted by businesses and other commercial enterprises, nonprofit entities such as charitable, educational, governmental, fraternal, and religious organizations can also claim trade secret protection for economically valuable information such as lists of prospective members or donors”. Notably, the Church of Scientology relied on this requirement to enforce trade secret rights over the Church’s funder works that had been disseminated through the Internet.720 In Religious Tech. Ctrl. v Netcom On-Line Com, the District Court for the Northern District of California noted that religious materials can be the object of a trade secret, because there is “no category of information (that) is excluded from protection as a trade secret because of its inherent qualities”.721 In addition, it was further noted that the Church’s spiritual training materials were eligible for trade secret protection because they had a “significant impact on the donations received by the Church”, and therefore had commercial value.722 Crucially, the UTSA, the DTSA and the Restatement (Third) of Unfair Competition indicate that value may be actual or potential. This approach departs substantially from the “continuous use” requirement laid down in the Restatement (First) of Torts, and according to some commentators, it was introduced to ensure the protection of research and development efforts.723 Some of the criteria that have been suggested to assess whether information is valuable and therefore worth copying are: (i) whether a competitor or another third party is trying to obtain the information; (ii) the identification of the information as having commercial value by competitors and consumers;724 (iii) the actual use of the information; and (iv) the measures taken by the holder to prevent misappropriation.725 720 Religious Technology Center v. Netcom On-Line Com., 923 F. Supp 1231(N.D. Cal. 1995). 721 Religious Technology Center v Netcom On-Line Com., 923 F. Supp 1231, 1251 (N.D. Cal. 1995). 722 Religious Technology Center v Netcom On-Line Com., 923 F. Supp 1231, 1253 (N.D. Cal. 1995). 723 James Pooley 2002 (n 66) § 2.03[2] 2-14, 2-15. 724 Daniel Gervais 2012 (n 505) para 2.488. 725 Nuno Pires de Carvalho 2008 (n 529) para 39.2.57; in the U.S., case law refers tot he following factors based on Restatement (First) of Torts § 757 (Am. Law Inst. 1939): “(1) the extent to which the information is known outside of the plaintiff's business; (2) the extent to which the information is known by employees and others involved in the plaintiff's business; (3) the extent of measures § 2 Trade secrets protection in the U.S. 169 The quantification of commercial value is most complex in the field of undisclosed information, and it usually appears in connection with the assessment of damages in the event of trade secret misappropriation.726 It has been generally accepted that it should be calculated on the basis of the holder’s lost profits, the reasonable royalties that should have been paid in the context of a licensing agreement or the account of the defendant’s profits.727 By way of illustration, consider a hypothetical market for goods lifts consisting of 10 sellers and 10.000 businesses that may use this equipment within their premises. In this hypothetical market, it is uncertain which of these companies use goods lifts and which rely on other transportation means such as escalators. Seller A has a list of 1.500 businesses to which he has sold goods lifts in the past. If the content of A’s customer list is unknown to the other nine competitors, it will be regarded as a trade secret, as its disclosure would allow the other market participants to target individual consumers. In the event that the other nine competitors are aware that each of the businesses enumerated in A’s list are goods lift consumers, the list has no independent economic value. Under those circumstances, the identities are already known to A’s competitors and cannot be protected under the law of trade secrecy, as they do not provide a competitive advantage. The burden of proving that the information confers a competitive advantage by virtue of its secret nature lies with the trade secret holder. He can provide direct evidence by showing advantageous use in his own business.728 Yet, in practice, most holders rely on circumstantial evidence, such as investments in research and development,729 security measures adopted to protect the secrecy of the information730 and that others may be willing taken by the plaintiff to guard the secrecy of the information; (4) the value of the information to the plaintiff's business and to its competitors; (5) the amount of time, effort and money expended by the plaintiff in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others”, according to Learning Curve Toys Incorporated v. Playwood Toys Incorporated, 342 F. 3d 714, para 38 (7th Cir. 2003). 726 Nuno Pires de Carvalho 2008 (n 529) para 39.2.59. 727 Nuno Pires de Carvalho 2008 (n 529) para 39.2.59. 728 Restatement (Third) of Unfair Competition §39 (Am. Law Inst. 1995) comment e. 729 Gates Rubber Co. v. Bando Chemical Industries, Ltd et al., 9 F.3d 823, 848 (10th Cir. 1991). 730 Rockwell Graphic Systems, Inc. v. DEV Industries, Inc., 925 F.2d 174, 179 (7th Cir. 1991). Chapter 2. Trade secrets protection in the international context 170 to pay to access the information.731 From a legal perspective, it has been suggested that the economic value due to the secrecy requirement differentiates trade secrets protection from common law. In a breach of contract or tort law claim, it is not necessary to show either economic value or secrecy.732 As a final remark, research shows that the value requirement is rarely invoked before U.S. federal courts during the litigation of trade secrets. In the few instances where it has been, the existence of value has been assumed or its threshold has been interpreted to be low.733 Reasonable measures to maintain secrecy The third and last requirement set forth in § 1(4) UTSA (and the DTSA)734 specifies that information must be subject to “efforts that are reasonable under the circumstances to maintain its secrecy”. This is consistent with the relevant case law, which provides that this requisite be fulfilled separately from the secrecy requirement,735 but departs from the multifactor test approach enshrined in the Restatement (First) of Torts and the Restatement (Third) of Unfair Competition. In the latter, precautionary measures were regarded as mere evidence of secrecy, value and improper appropriation.736 It has been argued that its inclusion in the UTSA as a separate condition derives from the negotiation history of the act and the removal of the originally envisaged requirement that secret information had to be in a tangible form. The adoption of protective measures was aimed at defining the scope of trade secrets, similar to the copyright fixation requirement.737 3. 731 Tan-Line Studios Inc. v. Bradley, 1 U.S.P.Q.2d 2032, 2038 (E.D. Pa. 1986). 732 Michael Risch 2007 (n 15) 38. 733 David S. Almeling and others 2009-2010 (n 636) 319. 734 18 U.S.C. § 1839(3) (B). 735 Robert G. Bone 2011 (n 15) 57. 736 Restatement (Third) of Unfair Competition §39 (Am. Law Inst. 1995) comment g: “Whether viewed as an independent requirement or as an element to be considered with other factors relevant to the existence of a trade secret, the owner’s precautions should be evaluated in light of the other available evidence relating to the value and secrecy of the information. Thus, if the value and secrecy of the information are clear, evidence of specific precautions taken by the trade secret owner may be unnecessary”. 737 Robert G. Bone 2011 (n 15) 57 footnote 45 citing an informal conversation with Sharon K. Sandeen; see also Sharon K. Sandeen 2010 (n 642) 526-527. § 2 Trade secrets protection in the U.S. 171 Subsequently, and due to the influence of the U.S. delegation during the negotiations of the TRIPs Agreement, the reasonable measures requisite was included as a requirement for protection in Article 39(2)(c) TRIPs and is now a minimum standard for the protection of trade secrets in all WTO Member States.738 However, such an inclusion has not been without criticism. Assessment of the “reasonableness” of the measures adopted The UTSA and the DTSA do not require the holder of the information to take all possible measures, nor do they demand any level of efficacy. Essentially, they require the trade secret owner to adopt “reasonable measures under the circumstances”. From an economic perspective, trade secret holders should aim at achieving a balance between the measures taken and their viability.739 In the words of Posner, “The question is whether the additional benefit in security would have exceeded (the) cost (of protection)”.740 Indeed, the adoption of all possible measures would lead to an over-investment in the protection of information, which may adversely affect innovation, create inefficiencies and ultimately hinder the “spirit of inventiveness”.741 a) 738 See chapter 2 § 1 A) IV.2. d). 739 Victoria A. Cundiff, ‘Reasonable Measures to Protect Trade Secrets in a Digital Environment’ [2009] 49 IDEA 359, 363. 740 Rockwell Graphic Systems, Inc. v. DEV Industries, Inc., 925 F.2d 174, 180 (7th Cir. 1991); similarly, Richard Posner, ‘Trade Secret Misappropriation: A Cost-Benefit Response to the Fourth Amendment Analogy’ [1992] 106 Harvard LR 461, 473-478 arguing that instead of comparing the “reasonable measures under the circumstances” yardstick with the “reasonable expectation of privacy” benchmark set forth in the Fourth Amendment, courts should apply a cost-benefit analysis to assess whether the owner has taken reasonable precautions: “Courts should require to firms to invest in precautionary measures until the marginal cost of those measures equals the marginal expected economic loss in the event of misappropriation, that is, the value of the to the trade secret to the owner multiplied by the decrease of the risk that the trade secret will be discovered by a competitor brought about by taking additional precautions”. 741 Victoria A. Cundiff 2009 (n 739) 363; William Landes and Richard Posner 2003 (n 38) 369; Douglas Gary Lichtman 2004 (n 80) 32; see also E.I. du Pont deNemours & Company v Christopher et al., 431 F.2d 1012, 1016 (5th Cir. 1970): “Our tolerance of the espionage game must cease when the protections required to prevent another’s spying cost so much that the spirit of inventiveness is damped”. Chapter 2. Trade secrets protection in the international context 172 This is best illustrated in the DuPont v. Cristopher742 case decided by the Court of Appeals of the Fifth Circuit in 1970. DuPont was in the process of building a plant for the production of methanol through an unpatented process that gave DuPont a competitive advantage over other producers. One of its competitors hired the defendant to take aerial photographs while the facilities were under construction and before the roof was built. As a result, parts of the secret process were exposed from a bird’s eye view, and the court had to decide whether aerial photography under these circumstances is an improper means of obtaining a trade secret. The court ruled that taking secret information without the permission of its right holder, if reasonable precautions to preserve secrecy are adopted, is improper. In particular, the court noted that it would be too burdensome to ask DuPont to cover the manufacturing facility while it was under construction: We should not require a person or a corporation to take unreasonable precautions to prevent another from doing that which he ought not to do in the first place. Reasonable precautions against predatory eyes we may require, but an impenetrable fortress is an unreasonable requirement, and we are not disposed to burden industrial inventors with such a duty in order to protect the fruits of their efforts.743 In the light of the above, the reasonableness of the measures should be assessed against the specific circumstances of each case and considering the nature of the threat to disclosure, the value of the trade secret and the cost of the potential security mechanisms.744 In fact, “what may be reasonable measures in one context may not necessarily be so in another”.745 The UTSA and DTSA are silent on the nature of the measures to be adopted by trade secrets holders.746 Notwithstanding this, legal commenta- 742 E.I. du Pont deNemours & Company v. Christopher et al., 431 F.2d 1012, 1017 (5th Cir. 1970). 743 E.I. du Pont deNemours & Company v. Christopher et al. 431 F.2d 1012, 1017 (5th Cir. 1970). 744 James Pooley 2002 (n 66) § 4.04. [2] 2-27. 745 See also Matter of Innovative Construction Systems, Inc., 793 F.2d 875, 884 (7th Cir. 1986). 746 Restatement (Third) of Unfair Competition §39 (Am. Law Inst. 1995) comment g: “Precautions to maintain secrecy may take many forms, including physical security designed to prevent unauthorized access, procedures intended to limit disclosure based upon the "need to know”, and measures that emphasize to recipients the confidential nature of the information such as nondisclosure agreements, signs, and restrictive legends”. § 2 Trade secrets protection in the U.S. 173 tors have drawn a distinction between “standard” and “non-standard” measures.747 The former include physical methods (e.g. building fences); technical methods (e.g. protecting information through passwords or encryption); legal methods (e.g. NDAs) and enforcement/detection methods (e.g security cameras), as well as IT measures. The latter refer to measures adopted when the holder does not rely on standard measures. They usually consist of fragmenting information, and a prime example is the assembly of products containing secret information in different locations.748 The evidence suggests that during litigation, the most relevant measures courts take into account to support a finding that reasonable efforts have been adopted are agreements with employees and third parties and, to a lesser extent, establishing restrictions to access information within an undertaking.749 Agreements with employees can consist of non-competition covenants, non-solicitation, employment contracts, confidentiality agreements and invention assignment agreements. For third parties, such as suppliers, trade secret holders most frequently resort to NDAs.750 Criticism Three reasons are most frequently invoked by case law and academia in the U.S. to explain the imposition of such a requirement: (i) to give notice of confidentiality to third parties, (ii) to provide evidence of the value of the trade secret and (iii) to prevent misappropriation through the adoption of self-help measures.751 However, in recent years, it has been widely discussed whether the reasonable measures requirement is entirely in line with the above outlined modern justifications for trade secrets protection. Bone, in his seminal article “Trade secrecy, innovation and the requirements of secrecy precautions”,752 casts doubt upon the adverse impact that such a requirement may have on access to information.753 The author submits that two of the arguments generally put forward to justify demanding such measures in all b) 747 Michael Risch 2007 (n 15) 43. 748 Michael Risch 2007 (n 15) 43. 749 David S. Almeling and others 2009-2010 (n 636) 322-323. 750 David S. Almeling and others 2009-2010 (n 636) 322. 751 Victoria A. Cundiff 2009 (n 739) 363; Rockwell Graphic Systems, Inc. v. DEV Industries, Inc,. 925 F.2d 174, 179 (7th Cir. 1991); Michael Risch 2007 (n 15) 45-47. 752 Robert G. Bone 2011 (n 15) 46-76. 753 Robert G. Bone 2011 (n 15) 46. Chapter 2. Trade secrets protection in the international context 174 cases are in fact superfluous: (i) notice of confidentiality can be provided without resorting to specific measures and (ii) it is possible to provide evidence of the actual existence and value of a trade secret without showing that particular precautions were adopted.754 Against this background, the author reviews the general policies supporting the protection of trade secrets and their intersection with the “reasonable steps requirement”.755 From an economic perspective, the first justification argues that trade secrets protection should be encouraged to promote incentives to create. However, demanding reasonable steps to protect the secrecy of information ultimately increases the cost of innovation and the enforcement of trade secrets.756 The second economic reason presented is that providing effective legal protection in the event of trade secret misappropriation avoids (over) investing in costly self-help measures. However, by requiring firms to adopt reasonable protective measures, the law gives normative value to investment in precautionary measures, as their adoption becomes a requirement of protection that defines the subject matter covered, which may easily lead to over-investment. As a third justification, trade secrets laws encourage licensing and the commercial exploitation of information. In this context, Bone argues that these activities would be encouraged by the law of trade secrets, even if the holders of secret information were not required to adopt reasonable measures under the circumstances to protect the information. From a deontological perspective, it has been suggested that trade secrets protection should be understood in terms of a firm’s right to privacy.757 However, Bone dismisses this argument in the context of the reasonable steps requirement, essentially due to the fact that privacy does not always call for specific measures and is not appropriate in the context of trade secrets protection.758 Notwithstanding this, the author concludes that it could be possible to justify such a requirement based on a potential reduc- 754 Robert G. Bone 2011 (n 15) 46. 755 As outlined in chapter 1 § 2. 756 Robert G. Bone 2011 (n 15) 58-62. 757 Robert G. Bone 2011 (n 15) 66. 758 Robert G. Bone 2011 (n 15) 66; in this regard, it is submitted that Bone does not contemplate the utilitarian dimension of privacy in trade secrets protection, as outlined in chapter 1 § 2 B) IV. § 2 Trade secrets protection in the U.S. 175 tion of enforcement costs759 and signalling benefits.760 However, he is of the opinion that further research is required to demand the application of the “reasonable steps requirement” in all cases.761 It is noteworthy that Lemley comes to the same conclusion. He essentially holds that the main advantage of the law of trade secrets is that it limits the investment in the event that no such legislation existed. Consequently, conferring normative value to the establishment of a minimum level of investment should not be regarded as an end in itself.762 Risch conversely argues that demanding some efforts to maintain secrecy ensures that the adopted measures are efficient from an economic perspective. If no protection against trade secret misappropriation is afforded, the holders of valuable, confidential information would still adopt precautionary measures to avoid losing it. Similarly, if the holders of undisclosed information could adopt less than reasonable precautions, they would tend to under-protect information. Hence, requiring reasonable measures serves the purpose of finding an equilibrium in investments to protect secret information763 In the light of the above, it is submitted that it is not possible to establish a clearly defined standard that provides the number and types of mea- 759 Robert G. Bone 2011 (n 15) 67-75 argues that a potential explanation for the “reasonable measures requirement” is that it prevents process costs, i.e. the adoption of very costly self-help measures, which may be higher than litigation costs, as well as the error costs that arise in the context of “frivolous” trade secrets lawsuits, particularly against former employees. 760 In this context, Robert G. Bone 2011 (n 15) 72-74 notes that the adoption of reasonable measures under the circumstances may be justified because it provides information to competitors about the value of the secret concerned and the behaviour of the holder. By reducing such information asymmetries it allows to invest in the obtention of the most valuable trade secrets and avoids “the waste that results from obtaining the trade secrets unlawfully only to be sued and enjoined from using it”. 761 Robert G. Bone 2011 (n 15) 76. 762 Mark A. Lemley, ‘The surprising virtues of treating trade secrets as IP rights’ 109, 136 in Rochelle C. Dreyfuss and Katherine J. Strandburg (eds), The Law and Theory of Trade Secrecy: A Handbook of Contemporary Research (Edward Elgar 2011); similarly, Jonathan R. Chally 2004 (n 44) 1293-1295 arguing that the “reasonable measures requirement” should only be taken into consideration by courts when an innovator may have revealed the information voluntarily. Furthermore, it is suggested that not demanding trade secret holders to adopt reasonable efforts is the most efficient approach, as it guarantees that the holder and potential competitors do not undertake unnecessary activities. 763 Michael Risch 2007 (n 15) 45. Chapter 2. Trade secrets protection in the international context 176 sures necessary to define “reasonable”, this will have to be assessed according to the specific circumstances of each case.764 Furthermore, despite Risch’s arguments, it seems unlikely that, in the event that no trade secrets protection is afforded, holders of valuable confidential information would under-invest in protective measures. Applying the prisoner’s dilemma line of reasoning, if the parties are uncertain about the efforts and investments competitors make in finding their valuable information, they will most likely adopt the highest possible means to protect the competitive advantage the trade secret confers. Ultimately, the maximum threshold of investment is determined by the value of the advantage conferred by the subject matter of the trade secret. The legal regime for the protection of trade secrets under the UTSA, the DTSA and the Restatements of the law Trade secrets protection cannot only be achieved through the regime of confidentiality created by the Restatements of the Law, the UTSA and more recently the DTSA. Other regimes play a crucial role in achieving such protection, including non-competition covenants, confidentiality agreements and tort law. The overlap between the multiple regimes has crucial doctrinal and practical implications, but its analysis falls outside the scope of the present research.765 This study focuses on the interpretation of misappropriation as regulated in the UTSA and the Restatements as well as the case law that applies them. Finally, some remarks on the new features introduced by the DTSA are made. The Restatement (First) of Torts in § 757766 prevents the unauthorised use or disclosure of a trade secret.767 Some years later, the UTSA extended the misappropriation conduct to the acquisition of another’s trade secret by improper means and condemned both actual and threatened behaviours.768 In § 1(2) UTSA (which has been almost identically reproduced C) 764 David S. Almeling and others 2009-2010 (n 636) 321. 765 For an in-depth study of the four regimes of protection and their practical implications see Charles Tait Graves 2011 (n 689) 77-108. 766 See Restatement (First) of Torts § 757 (Am. Law Inst. 1939). 767 Similarly, the U.S. Supreme Court in Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 475-476 (1974) indicated that the protection accorded to a trade secret was against the disclosure or use of information as a result of a breach of a confidentiality duty or the acquisition of knowledge through improper means. 768 See § 2(a) UTSA. § 2 Trade secrets protection in the U.S. 177 in the DTSA)769 misappropriation may consist of six specific types of conduct. The first one, as described in § 1(2)(i) refers to acquisition knowing (or with reason to know) that the trade secret was obtained through improper means. Next, § 1(2)(ii)(A) alludes to the use or disclosure of secret information without consent by a person who had used improper means to acquire it. The third conduct in § 1(2)(ii)(B) (I) extends liability to those used or disclosed another’s trade secret with knowledge (or who should had known under the circumstances) that it had been acquired through improper means. The behaviours subsequently described refer to acts of misappropriation resulting from a breach of a duty of confidence. Section 1(2)(ii)(B)(II) prevents the use or disclosure of a trade secret when the information was acquired under a duty to maintain its secrecy or limit its use. The fifth category imposes liability on the use or disclosure of secret information by a third party when such information was obtained knowing or with reason to know that the acquirer was under a duty of confidence with the trade secret holder. Specifically, it encompasses the disclosure of former employees in the context of their new employment relationship.770 Finally, § 1(2) (ii)(C) governs liability in the event of accidental or mistaken acquisition. As discussed in chapter 1, one of the main features of trade secrets in contrast to other IPRs is that they only confer protection against improper taking or “misappropriation”.771 This does not prevent mere copying; anyone is free to inspect a publicly available product or reverse engineer it.772 Hence, the use of “improper means” lies at the very foundation of the law of trade secrecy: the maintenance of commercial morality.773 Comment f in § 757 of the Restatement (First) of Torts convincingly notes that providing a list with numerus clausus of such means is not feasible. The UTSA attempts to shed light on the matter by giving an open-ended list of exam- 769 18 U.S.C. § 1839(5). 770 James Pooley 2002 (n 66) § 2.03. 771 Misappropriation is the term used in the UTSA; similarly, the Supreme Court in Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 475-476 (1974) stated that “the protection accorded to a trade secret holder is against the disclosure or unauthorized use of the trade secret by those to whom the secret has been confided under express or implied restrictions of nondisclosure and none-use. The law also protects the holder of a trade secret against disclosure or use when the knowledge is gained, not by the owner’s volition, but by some ʻimproper means.’” 772 Robert G. Bone 1998 (n 15) 250. 773 Restatement (First) of Torts § 757 (Am. Law Inst. 1939) comment f noting that improper means “In general (…) are means which fall below the generally accepted standards of commercial morality and reasonable conduct”. Chapter 2. Trade secrets protection in the international context 178 ples, including “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means”.774 However, the means used to acquire a trade secret can be regarded as “improper” even if they are not independently wrongful.775 Ultimately, the assessment of whether the means can be deemed “improper” should be based on a flexible case-by-case analysis considering a number of factors and leaving considerable room for judicial discretion.776 As noted by the 5th Circuit in DuPont v. Cristopher: Improper will always be a word of many nuances, determined by time, place and circumstances. We therefore need not proclaim a catalogue of commercial improprieties. Clearly, however, one of its commandments does say that ʻthou shall not appropriate a trade secret through deviousness under circumstances in which countervailing defences are not reasonably available.777 Crucially, in the Commentary in § 1 UTSA notes that “proper means” encompass, among others, (i) discovery by independent invention;778 (ii) discovery by reverse engineering;779 (iii) discovery as a result of licensing a product by the trade secret owner; (iv) observation of the item in public use or display; and (v) review of published literature.780 In a similar vein, the DTSA sets forth that “reverse engineering” and “independent derivation” constitute lawful means of acquiring a trade secret.781 774 See UTSA § 1 (1) and 18 U.S.C. § 1839 (6) (A) ; in the same vein, Restatement (Third) of Unfair Competition § 43 (Am. Law Inst. 1995) comment c refers among others to the following types of conduct: entering a competitor’s offices without permission; spying a competitor’s telephone conversations; inducing a trade secret holder to disclose secret information through using deceptive means as regards representation; see 18 U.S.C. § 1839 (6) (A). 775 Restatement (Third) of Unfair Competition § 43 (Am. Law Inst. 1995) comment c. 776 For a detailed analysis of the way in which courts in the U.S. have construed “improper means” William E. Hilton, ‘What sort of improper conduct constitutes misappropriation of a trade secret’ [1990] 30 IDEA 287. 777 E.I. du Pont deNemours & Company v. Christopher et al., 447 431 F.2d 1012, 1017 (5th Cir. 1970). 778 Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476 (1974); also Roger M. Milgrim 2014 (n 160) § 7.02. 779 Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476 (1974); also Roger M. Milgrim 2014 (n 160) § 7.02. 780 Commentary to § 1(1) UTSA. 781 18 U.S.C. § 1839 (6) (B). § 2 Trade secrets protection in the U.S. 179 With regard to enforcement, if the plaintiff prevails, state courts usually award monetary damages, as well as injunctive relief.782 Against this background, the adoption of the DTSA has introduced greater legal certainty, as it sets forth a comprehensive array of remedies in the event of trade secret misappropriation. These include (i) the grant of an injunction against threatened or actual misappropriation;783 (ii) the award of damages for the actual loss caused by the misappropriation of the trade secret; as well as of any damages derived from any unjust enrichment caused by the infringing conduct784 and (iii) the award of exemplary damages (up to twice the amount of regular damages) if the trade secrets is misappropriated with wilfulness and malice.785 When a claim is made in bad faith, the prevailing party may apply for attorney’s fees.786 Remarkably, as a novel feature, the DTSA allows the holder of a trade secret to apply (ex parte) for an order providing the civil seizure of property to prevent further dissemination of the secret information.787 Yet, such an order is only granted under exceptional circumstances if an immediate and irreparable injury is likely to occur if such seizure is not ordered.788 Likewise, the DTSA provides that the owner of a trade secret has legal standing to bring legal proceedings.789 This aspect was not regulated in the UTSA and ultimately bears the question of whether licensees have legal standing to sue.790 As a final remark, the DTSA expressly provides that its provisions should not be interpreted as pre-empting or displacing any remedies of civil and criminal nature on the misappropriation of trade secrets set forth by federal, state and common law.791 However, Sandeen and Seaman have warned of the difficulties that federal courts will encounter in interpreting the DTSA and applying the pre-existing body of state case law to fill the gaps of the DTSA.792 782 For a general overview of the remedies available, see James Pooley 2002 (n 66) Chapter 7 and Roger M. Milgrim 2014 (n 160) chapter 3. 783 18 U.S.C. § 1836 (b) (3) (A). 784 18 U.S.C. § 1836 (b) (3) (B) (i). 785 18 U.S.C. § 1836 (b) (3) (C). 786 18 U.S.C. § 1836 (b) (3) (D). 787 18 U.S.C. § 1836 (b) (2) (A) (i). 788 18 U.S.C. § 1836 (b) (2) (A) (ii). 789 18 U.S.C. § 1836 (b) (1); see further Victoria A. Cundiff and others, ‘The Global Harmonisation of Trade Secret Law: The Convergence of Protection for Trade Secrets in the US and EU’ [2016] 38 EIPR 738, 741. 790 See further Victoria A. Cundiff and others 2016 (n 789) 741. 791 18 U.S.C.§ 1838. 792 Sharon K. Sandeen and Christopher B. Seaman 2017 (n 673) 912. Chapter 2. Trade secrets protection in the international context 180 Conclusion Chapter 2 has reviewed the minimum standards of protection set forth at the international level regarding trade secrets (i.e. Article 39 TRIPs and Article 10bis PC), which all WTO Member States are bound to implement in their domestic legal regimes. These mostly coincide with those laid down in the most relevant sources of law in the U.S. (the UTSA and the DTSA), which shows the prevalence of the U.S. delegation during the negotiation process of Article 39 TRIPs. To merit protection, information must (i) be secret; (ii) derive independent commercial value from its concealed nature, and (iii) the holder must adopt reasonable measures under the circumstances to keep it undisclosed. These three cumulative requirements are closely interconnected and ultimately reveal that the law of trade secrets is concerned with the protection of investments made in the creation of valuable information, but only against specific behaviours that do not comply with the accepted market practices. Information is protected by the mere fact of being kept undisclosed and providing its holder with a competitive advantage. No additional qualitative threshold beyond secrecy has to be met. As a result, if the information is disclosed, the competitive advantage disappears. In this context, this chapter has argued that the “commercial value” requirement laid down in Article 39(2)(b) TRIPs shall be interpreted in a broad sense so as to include any potential act of competition between the parties, as well as both actual or potential value in line with Article 1(4) UTSA. In the same vein, the expression “readily ascertainable” should be considered synonymous to “readily accessible”, which under Article 1(4) UTSA must be carried out “through or by proper means”. As such, only when the acquisition, use or disclosure is carried out in a manner contrary to honest commercial practices is the holder of the information able to seek legal redress. With the above in mind, the following chapter looks into the scattered regulation of trade secrets protection across several EU Member States, which led to the alignment of national legal regimes in this field of law. In particular, the methodology of comparative law is applied to study the legal regimes for the protection of trade secrets in England and Germany before the implementation of the TSD and the emerging harmonised legal framework according to the provisions of the TSD. § 3 § 3 Conclusion 181 Fragmented protection of trade secrets across the EU leading to a harmonised system: study of the English and German models and the emerging common framework Scattered protection across the internal market before the implementation of the Trade Secrets Directive: Different models Until the adoption of the TSD, the legal framework for the protection of trade secrets had not been harmonised in the EU. However, all Member States offered some level of redress, in line with the minimum standards set forth in Article 39 of the TRIPs Agreement. The regimes, nevertheless, differed substantially and the level of protection was very limited in some jurisdictions.793 Such a fragmented legislative landscape was described by some as a “patchwork”794 and to some extent resulted from the overlap of regimes that are applicable to safeguarding secret information within national jurisdictions. Beyond specific rules dealing with trade secrets, contractual agreements between the parties play a central role in their enforce- Chapter 3. § 1 793 Hogan Lovells, ‘Study on Trade Secrets and Parasitic Copying (Look-alikes) – Report on Trade Secrets’ (MARKT/2010/20/D) (2012) para 290 accessed 15 September 2018; see also Recital 6 TSD: “Notwithstanding the TRIPS Agreement, there are important differences in the Member States’ legislation as regards the protection of trade secrets against their unlawful acquisition, use or disclosure by other persons. For example, not all Member States have adopted national definitions of a trade secret or the unlawful acquisition, use or disclosure of a trade secret, therefore knowledge on the scope of protection is not readily accessible and that scope differs across the Member States. Furthermore, there is no consistency as regards the civil law remedies available in the event of unlawful acquisition, use or disclosure of trade secrets, as cease and desist orders are not always available in all Member States against third parties who are not competitors of the legitimate trade secret holder. Divergences also exist across the Member States with respect to the treatment of a third party who has acquired the trade secret in good faith but subsequently learns, at the time of use, that the acquisition derived from a previous unlawful acquisition by another party”. 794 Hogan Lovells 2012 (n 793) para 5. 182 ment, along with labour law provisions. Furthermore, most Member States set forth criminal penalties in the case of industrial espionage.795 Despite the myriad of legal sources that regulated trade secrets protection in national jurisdictions before the adoption of the TSD, Ohly identified six pre-eminent models across the Single Market.796 In the first place, he referred to Sweden, the only Member State where a specific statute for the protection of trade secrets had been passed before the adoption of the TSD. The Swedish Act on the Protection of Trade Secrets (1990:409) was enacted in 1990, prior to the approval of the TRIPs Agreement, mainly as a result of the absence of a general unfair competition act and the increasing legal challenges posed by industrial espionage and employee mobility.797 Next, he mentioned the so-called “IP model”, which is best exemplified by the Italian legal system. As noted above,798 the Italian Industrial Property Code of 2005 included trade secrets within the spectrum of rights traditionally protected under Intellectual Property Law. Indeed, Italy was the first jurisdiction to adopt such a strong property approach. Thirdly, France followed a so-called “hybrid model”, whereby manufacturing trade secrets (“secrets de fabrique”) were included within the Intellectual Property Code.799 However, trade secrets in the broadest sense (“secret d’affaires”) were afforded protection only on the basis of general tort law, unfair competition and criminal sanctions.800 Certain jurisdictions like Spain or Switzerland built their trade secret regimes on civil provisions enshrined within their unfair competition acts.801 This was the case with Article 6 of 795 By way of illustration, see Articles 278-80 of the Spanish Criminal Code (Ley Orgánica 10/1995, de 23 de noviembre, del Código Penal). 796 Ansgar Ohly 2013 (n 13) 27-28; however, some jurisdictions do not follow any of the above identified models. This is, for instance, the case of Malta, where trade secrets are only protected contractually. In the Netherlands, a general principle of tort law, unlawful act, is applied to misappropriation cases; see further Hogan Lovells 2012 (n 793) paras 159-170. 797 Marianne Levin, ‘Trade Secret Protection and the Computation of Damages under Swedish Law’ 735, 737 in Thomas Dreier, Horst-Peter Götting, Maximilian Haedicke, Michael Lehmann (eds), Perspektiven des Geistigen Eigentums und des Wettbewerbsrechts (C.H. Beck 2005). 798 See chapter 1 § 3 B) I. 3, a). 799 See Article L621-1 Code de la propriété intellectuelle (version consolidée au 25 avril 2016) (French Intellectual Property Code). 800 Jérôme Passa, ‘La protection des secrets d’affaires en droit français’ 47 in Jacques de Werra (ed), La protection des secrets d’affaires (Schulthess 2013). 801 Ansgar Ohly 2013 (n 13) 27-28. § 1 Scattered protection across the internal market before the implementation of the TSD 183 the Swiss Unfair Competition Act802 and Article 13 of the Spanish Act against Unfair Competition.803 Notwithstanding this, in these legal systems accessory criminal liability was also foreseen in the event of industrial espionage. In the fifth model, the one followed in countries like Austria, Poland and Germany, protection was built upon criminal provisions that were part of the respective unfair competition acts.804 Finally, common law jurisdictions such as England and the Republic of Ireland had not enacted any provisions to deal with trade secrets, not even from a criminal law perspective. Effective protection was achieved through the breach of confidence action, which covers confidential information in general i.e. private information, government secrets, and artistic and literary information.805 In the light of such a scattered legal framework, the last two models are studied, taking as example cases the German (§ 2) and English jurisdictions (§ 3). By application of the methodology of comparative law, the following sections analyse the legal mechanisms in place in these two national systems, which furthermore belong to two different legal traditions (civil and common law, respectively), in order to achieve effective protection of valuable secret information. Furthermore, both legal regimes were highly influential during the negotiation and configuration of the harmonised system and therefore constitute the point of departure to critically analyse the emerging common framework introduced by the TSD (§ 5). From a methodological perspective, it should be noted that the research for this thesis was completed before the implementation of the TSD in both jurisdictions, and consequently, no reference to resulting harmonised framework in these jurisdictions is made. Trade secrets protection in Germany before the implementation of the TSD The present section delves into the protection of trade secrets in Germany prior to the implementation of the TSD. The German jurisdiction is a civil law jurisdiction with a long tradition of protecting confidential informa- § 2 802 Bundesgesetz gegen den unlauteren Wettbewerb (UWG) vom 19. Dezember 1986 (Stand am 1. Juli 2016). 803 Ley 3/1991, de 10 de enero, de Competencia Desleal (Spanish Unfair Competition Act). 804 Ansgar Ohly 2013 (n 13) 27-28. 805 See more generally Tanya Aplin and others 2012 (n 22). Chapter 3. Fragmented protection of trade secrets across the EU 184 tion, which has led to a rich body of case law. Section A briefly examines the development of trade secrecy law since its inception in the late XIX century. Next, section B looks into three of the main fields of law that regulated trade secrets disclosure. In this context, special emphasis is given to the intersection between unfair competition law and criminal law. Development of the law of trade secrets The protection of trade secrets in Germany until the mid-XIX century consisted mostly of scattered pieces of legislation that set forth criminal liability with respect to the misappropriation of trade secrets in specific sectors that were considered of particular relevance for the states economies.806 Indeed, legislatures concentrated mostly on criminal protection due to the particular vulnerability of secret information and the fact that it was deemed that the persons liable for misappropriation did not have the financial resources to pay for the damages arising from their conduct.807 The seed of the system was built upon the German Unfair Competition Act, dated 27 Mai 1899,,808 which was mostly concerned with the protection of the duty of confidence that the employee owed to the employer, as per § 9 paragraph 1 UWG 1896.809 In addition, liability was also extended to third parties that had obtained secret information as a result of any of the breaches described in paragraph 1 or in breach of any other law or in a manner contrary to honest commercial practices (and to the detriment of competitors in all instances).810 Some years later, in 1909, following the influence of embroidery and lace manufacturers, the German legislature de- A) 806 As noted by Florian Schweyer 2012 (n 99) 390. 807 Harte-Bavendamm/Henning-Bodewig (n 376) §§ 17-19 UWG Rdn 6. 808 Gesetz zur Bekämpfung des unlauteren Wettbewerbs 1986 (“UWG 1986”). 809 According to Florian Schweyer 2012 (n 99) 390; § 9 paragraph 1 UWG 1886 provided the following: “Mit Geldstrafe bis zu dreitausend Mark oder mit Gefängniß bis zu einem Jahre wird bestraft, wer als Angestellter, Arbeiter oder Lehrling eines Geschäftsbetriebes Geschäfts- oder Betriebsgeheimnisse, die ihn vermöge des Dienstverhältnisses anvertraut oder sonst zugänglich geworden sind, während der Geltungsdauer des Dienstverhältnisses unbefugt an Andere zu Zwecken des Wettbewerbes oder in der Absicht, dem Inhaber des Geschäftsbetriebes Schaden zuzufügen, mittheilt”. 810 According to Florian Schweyer 2012 (n 99) 390, § 9 paragraph 2 UWG 1896 provided the following: “Gleiche Strafe trifft denjenigen, welcher Geschäfts- oder Betriebsgeheimnisse, deren Kenntniß er durch eine der im Absatz 1 bezeichneten Mittheilungen oder durch eine gegen das Gesetz oder die guten Sitten § 2 Trade secrets protection in Germany before the implementation of the TSD 185 cided to regulate in a separate provision protection against the so-called “piracy of models” (“Vorlagenfreibeuterei”), which now corresponds to § 18 UWG. The following section provides an overview of three of the main legal regimes under which the protection of trade secrets is regulated in Germany. To this end, first, the constitutional dimension of trade secrets protection is briefly examined (§ I). Next, the dissertation looks into the unfair competition provisions that deal with trade secrets and their intersection with criminal law (§ II). Finally, some remarks regarding the applicability of general civil law provisions are made (§ III). Legal regime for the protection of trade secrets Constitutional Law As outlined in chapter 1, from a civil law perspective, in Germany, it is unclear to what extent trade secrets fall under the category of IPRs or property rights. However, such a discussion has a constitutional dimension. In effect, if trade secrets are regarded as a species of property or a “legal interest” that merits protection,811 the so-called “property guarantee” (“Eigentumsgarantie”) provided for in § 14(1) of the German Constitution812 and all of the implications derived from it should apply to their protection,813 in particular, §§ 823 I, 812 I, and § 687 II of the BGB. Against this backdrop, tension arises between “the property guarantee” and the “occupational freedom right” set forth in § 12(1) of the German B) I. verstoßende eigene Handlung erlangt hat, zu Zwecken des Wettbewerbes unbefugt verwerthet oder an Andere mittheilt”. 811 Stanisław Sołtysiński 1986 (n111) 351; in the same vein, Axel Beater, Unlauterer Wettbewerb (2nd edn, C.H. Beck 2011) § 9 Rdn 24 noting that: “Eigentum ist weit auszulegen und erfasst nicht allein Sacheigentum im Sinne des bürgerlichen Rechts, sondern sämtliche vermögenswerten privaten Rechte, die dem Einzelnen ähnlich wie das Sacheigentum zur privaten Nutzung und Verfügung zugeordnet sind. Solche vermögenswerten Rechtspositionen können z.B. Geschäftsgeheimnisse im Sinne der §§ 17 ff UWG. ” 812 Grundgesetz für die Bundesrepublik Deutschland in der im Bundesgesetzblatt Teil III, Gliederungsnummer 1001, veröffentlichten bereinigten Fassung, das zuletzt durch Artikel 1 des Gesetzes vom 13. Juli 2017 (BGBl. I S. 2347) geändert worden ist. 813 Ohly/Sosnitza, Gesetz gegen den unlauteren Wettbewerb (7th edn, C.H. Beck 2016) §§ 17-19 Rdn 8. Chapter 3. Fragmented protection of trade secrets across the EU 186 Constitution, particularly in the context of departing employees and the information that they should be free to use in a new position.814 This issue garnered a lot of attention during the negotiation of the TSD, and is mostly decided on a case-by-case basis, taking into consideration all of the relevant interests of each specific situation. A more detailed account of this topic and the principles applied by German courts in the ponderation of both rights is provided in chapter 6.815 Unfair competition law and its intersection with criminal law The main provisions that govern the legal regime for the protection of trade secrets in the German jurisdiction are enshrined in §§ 17 through 19 UWG. In essence, the primary objective of this statute is to regulate market practices in order to protect competitors, consumers, other market participants and, ultimately, the general public.816 To this end, § 3 UWG (as amended in 2015) sets forth a general broad clause (§ 3(1) UWG) prohibiting unfair commercial practices (i) among companies in business-to-business relations; (ii) from non-business entities (such as non-governmental organisations); and (iii) with respect to consumers in business-to-consumer relations.817 In addition § 3(2) UWG establishes a second general clause specifically for the protection of consumers, in the sense harmonised under Article 5(2) of the Unfair Commercial Practices Directive.818 Both gen- II. 814 Ansgar Ohly 2014 (n 100) 10. 815 Chapter 6 § 1 A) II. 1. a) cc). 816 See § I UWG: “This Act shall serve the purpose of protecting competitors, consumers and other market participants against unfair commercial practices. At the same time, it shall protect the interests of the public in undistorted competition; ” Ansgar Ohly, ʻUnfair Competitionʼ, Max Planck Encyclopaedia of European Private Law (OUP 2012) 1172; Frauke Henning-Bodewig, ‘A New Act Against Unfair Competition IIC [2005] 421, 423 stating that: “Originally, the UWG only served the interest of “honest competitors”, and thus, to use modern terminology, a “B2B” regulation” and concluding that with time public interest and consumer protection were also recognised as “being of equal importance”. 817 Ohly/Sosnitza (n 813) § 3 Rdn 6-7. 818 Ohly/Sosnitza (n 813) § 3 Rdn 69; Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council [2005] OJ L149/22 (Unfair Commercial Practices Directive). § 2 Trade secrets protection in Germany before the implementation of the TSD 187 eral clauses are drafted in a flexible manner so as to allow a broad construction of the “unfair commercial practices” notion, which inevitably entails a certain degree of legal uncertainty.819 To some extent, this uncertainty is narrowed down by the inclusion of a number of examples of unfair commercial practices with regard to competitors in § 4 UWG and with respect to consumers in § 4a UWG (aggressive commercial practices), § 5 UWG (misleading commercial practices) and § 5a UWG (misleading by omission).820 For the purposes of this research, §§ 17 and 18 UWG set out criminal liability in the event of unauthorised communication, acquisition, securing or exploitation of trade secrets, which furthermore trigger civil liability as acts of unfair competition. Drawing on these provisions, § 19 UWG provides that abetting to commit the offences therein established shall also be penalised.821 This regulation is rather uncommon in view of the systems implemented in other European jurisdictions, where criminal law sanctions and unfair competition remedies are regulated in separate statutes.822 However, in Germany, the criminal law regime was considered the most appropriate system to protect trade secrets mainly for two reasons, namely: (i) the special vulnerability of trade secrets (“die besondere Verletzlichkeit”), and (ii) the difficulty of obtaining appropriate and effective remedies in law.823 The approach adopted by the German legislature when regulating trade secrets protection demands conditional intent to trigger not only criminal liability, but also civil liability, which is a much higher standard than the one introduced by the TSD (and differs from the applicable gross negligence standard in the U.S. and footnote 10 TRIPs). Accordingly, the two-fold nature of the provisions regulating trade secrets protection in the UWG is likely to be reviewed with the implementation of the TSD.824 819 Ansgar Ohly 2014 (n 98) 541. 820 Ansgar Ohly 2014 (n 98) 541. 821 Natalie Ackermann-Blome and Joanna Rindell, ‘Should trade secrets be protected by private and/or criminal law? A comparison between Finnish and German laws’ [2018] 13 JIPLP 78, 78. 822 Hogan Lovells 2012 (n 793) 251, according to which only Austria, Poland and Romania have adopted a similar approach. 823 Henning Harte-Bavendamm, ‘§ 77 Schutz von Geschäfts- und Betriebsgeheimnissen (§§ 17-19 UWG)’ in Michale Loschelderr and Willi Erdmann (eds), Wettbewerbsrecht (4th edn, C.H. Beck 2010) § 77 Rdn 3. 824 Mary-Rose McGuire, ‘Der Schutz von Know-how im System des Immaterialgüterrechts’ [2016] GRUR 1000, 1002; Natalie Ackermann-Blome and Joanna Rindell (n 821) 86; the proposed Trade Secrets Act deletes §§ 17-19 UWG and Chapter 3. Fragmented protection of trade secrets across the EU 188 Throughout the next sections, the main provisions that regulate trade secrets protection under the two-fold unfair competition and criminal law regime are studied. § 17 UWG Trade secrets disclosure As already stated, the core regulation of trade secrets protection in Germany is built upon § 17 UWG, which provides the following: (1) Whoever as the employee of a business communicates, without authorisation, a trade or industrial secret with which he was entrusted, or to which he had access, during the course of the employment relationship to another person for the purposes of competition, for personal gain, for the benefit of a third party, or with the intent of causing damage to the owner of the business shall be liable to imprisonment not exceeding three years or to a fine. (2) Whoever for the purposes of competition, for personal gain, for the benefit of a third party, or with the intent of causing damage to the owner of the business, acquires or secures, without authorisation, 1. a trade or industrial secret a) by using technical means; b) by creating an embodied communication of the secret; or c) by removing an item in which the secret is embodied; or 2. without authorisation, uses or communicates to anyone a trade secret which he acquired through one of the communications referred to in subsection (1), or through an act of his own or of a third party pursuant to number 1, or which he has otherwise acquired or secured without authorization shall incur the same liability.825 In essence, § 17 identifies three types of conduct as criminal offences, i.e. (i) the unauthorised disclosure of trade secrets by an employee; (ii) the unauthorised procurement (acquisition) or securing of trade secrets by any third party; and (iii) the unauthorised exploitation or communication of the information obtained. Each of these is analysed in turn. 1. adopts a gross negligence standard with respect to civil liability. However, it still contains criminal provisions. 825 English Translation extracted from accessed 15 September 2018. § 2 Trade secrets protection in Germany before the implementation of the TSD 189 Unauthorised trade secret disclosure in the course of employment Section 17(1) UWG proscribes the unauthorised disclosure of trade secrets in the course of employment. The essential feature of the behaviour described in this provision is that it can exclusively be carried out by a person in an employment relationship with the company.826 The term employed person (“beschäftigte Person”) refers not only to employees (“Angestellter”), but also to workers (“Arbeiter”) and apprentices (“Lehrlinge”).827 In fact, the courts have construed this expression in a wide sense, so as to include not only business executives and members of the board,828 but also unskilled workers, such as trainees, cleaning staff and messengers.829 The driving factor is that the infringer learnt about the secret information as a result of his relationship with the company.830 His qualification, the salary that he receives or the type of tasks that he performs are irrelevant for the purposes of this provision.831 Thus, partners and shareholders are deemed to fall outside the scope of § 17(1) UWG if they do not have a direct relationship with the undertaking.832 Crucially, there must be causality between the obtention of the trade secret and the employment relationship. In this context, the decisive factor is whether the information could have been acquired outside of the employment relationship.833 The object of protection of § 17(1) UWG is a commercial or industrial secret that was entrusted to the employee, or that became known to him by reason of his employment relationship.834 In particular, a secret is deemed to have been entrusted (“anvertraut”) when it is conveyed to the employee under an explicit obligation of confidentiality or when such an a) 826 Ohly/Sosnitza (n 813) § 17 Rdn 13. 827 Ohly/Sosnitza (n 813) § 17 Rdn 13. 828 Ohly/Sosnitza (n 813) § 17 Rdn 13; Richard Schlötter, Der Schutz von Betriebsund Geschäftsgeheimnissen und die Abwerbung von Arbeitnehmern (Carl Heymanns Verlag 1997) 144-145. 829 Henning Harte-Bavendamm 2010 (n 823) § 77 Rdn 18. 830 Ohly/Sosnitza (n 813) § 17 Rdn 13. 831 Rudolf Kraßer, ‘Der Schutz des Know-how nach deutschem Recht’ [1970] GRUR 587, 591; Henning Harte-Bavendamm (n 823) § 77 Rdn 18. 832 Ohly/Sosnitza (n 813) § 17 Rdn 13. 833 Richard Schlötter 1997 (n 828) 145-146; Gintare Surblyte 2011 (n 182) 57. 834 Michael Knospe, ‘Germany’ 62 in Melvine F. Jager (ed), Trade secrets throught the world (2012 Thomsom West) 15:12. Chapter 3. Fragmented protection of trade secrets across the EU 190 obligation can be inferred from the specific circumstances of the case.835 Similarly, access (“zugänglich geworden ist”) to undisclosed information during the performance of work activity also gives rise to confidentiality obligations.836 Furthermore, the employee is bound not to disclose the information developed by him in the course of his employment relationship.837 This is particularly relevant with regard to inventions, as follows from the Act on Employee Inventions (“Arbeitnehmererfindungsgesetz”).838 Specifically, § 24 of this statute sets forth a general presumption, whereby the ownership of the invention is vested on the undertaking instead of the employee, irrespective of whether the former had actual knowledge of its existence.839 As regards the scope of the liable conduct, it includes the unauthorised communication of the trade secret to anyone when carried out for at least one of the following purposes (“Absicht”): (i) for competitive purposes; (ii) for personal gain, (iii) for the benefit of a third party, or (iv) with the intention of causing damage to the enterprise or its owner.840 Case law has interpreted that the act of communication (“Mitteilung”) covers any disclosure that makes trade secrets available to any third parties.841 However, § 17(1) UWG does not require the recipient to have acquired active knowledge of the information, as the mere possibility of accessing it is regarded as sufficient.842 As such, the disclosure can be carried out either orally or in a written form.843 Likewise, pursuant to § 13 of the 835 Köhler/Bornkamm/Feddersen, Gesetz gegen den unlauteren Wettbewerb (36 edn, C. H. Beck 2018) § 17 Rdn 51. 836 Ohly/Sosnitza (n 813) § 17 Rdn 14; Henning Harte-Bavendamm 2010 (n 823) § 77 Rdn 19. 837 Henning Harte-Bavendamm 2010 (n 823) § 77 Rdn 19. Ohly/Sosnitza (n 813) § 17 Rdn 14. 838 Gesetz über Arbeitnehmererfindungen in der im Bundesgesetzblatt Teil III, Gliederungsnummer 422-1, veröffentlichten bereinigten Fassung, das zuletzt durch Artikel 7 des Gesetzes vom 31. Juli 2009 (BGBl. I S. 2521) geändert worden ist (Act on Employee Inventions). 839 Michael Knospe (n 834) 15:17; BGH GRUR 1977, 539, 540–Prozessrechner; see further § 24 of the Act on Employee Inventions. 840 Michael Knospe (n 834) 15:17; Harte-Bavendamm/Henning-Bodewig (n 376) § 17 Rdn 14-17. 841 Ohly/Sosnitza (n 813) § 17 Rdn 15; Köhler/Bornkamm/Feddersen (n 835) § 17 Rdn 19; Harte-Bavendamm (n 823) § 77 Rdn § 21. 842 Köhler/Bornkamm/Feddersen (n 835) § 17 Rdn 28. 843 Ohly/Sosnitza (n 813) § 17 Rdn 15; Köhler/Bornkamm/Feddersen (n 835) § 17 Rdn 19; Henning Harte-Bavendamm 2010 (n 823) § 77 Rdn 21. § 2 Trade secrets protection in Germany before the implementation of the TSD 191 German Criminal Code,844 an omission that leads to the disclosure of a trade secret may also be penalised under § 17(1) UWG, but only if the offender is in a guarantor position.845 In that regard, it is worth noting that the recipient of the information can be anyone that it is not acquainted with the secret, such as competitors or colleagues of the infringer. The act of communication carried out by the employee must be unauthorised (“unbefugt”), that is, contrary to an obligation of confidentiality.846 Notwithstanding this, courts have ruled that such a disclosure might not trigger criminal liability when a ground of justification exists.847 Likewise, in its criminal law dimension, § 17(1) UWG requires that the secret is intentionally disclosed and that the infringer has actual knowledge of the secret nature of the information. Although negligent activity does not qualify for a relevant disclosure pursuant to § 17(1) UWG,848 it has been generally accepted that conditional intent (“Bedingter Vorsatz”) suffices with regard to all of the objective elements of the actus reus.849 In the same vein, a mere attempt is also subject to criminal liability pursuant to § 17(3) UWG.850 In order to trigger liability, the act of communication must have been completed during the term of the infringer’s employment. Accordingly, the disclosure of secret information after termination of the employment relationship can only give rise to an action for a breach of contractual obligations or an offence under paragraph 2 of § 17(2) UWG.851 The rationale behind this provision is to promote labour mobility and this is examined in greater detail in chapter 6.852 844 Strafgesetzbuch in der Fassung der Bekanntmachung vom 13. November 1998 (BGBl. I S. 3322), das zuletzt durch Artikel 1 des Gesetzes vom 30. Oktober 2017 (BGBl. I S. 3618) geändert worden ist (StGB or German Criminal Code). 845 Ohly/Sosnitza (n 813) § 17 Rdn 15. 846 Köhler/Bornkamm/Feddersen (n 835) § 17 Rdn 21. 847 Typical examples of justification grounds include Einwillung (§ 138 StGB), Aussagepflicht (§ 38I Nr 6); Rechfertigender Notstand (§ 34 StGB); Notwehr (§ 32 StGB) and Selbdthilfe (§ 229 BGB); as noted by Köhler/Bornkamm/Feddersen (n 835) § 17 Rdn 21-21a, 848 Michael Knospe (n 834) 15:52. 849 Gerhard Janssen and Gabriele Maluga, ‘§ 17 Verrat von Geschäfts- und Betriebsgeheimnissen’ in Wolfgang Joecks and Klaus Miebach (eds), Münchener Kommentar zum StGB (1st edn, C.H. Beck 2010); Harte-Bavendamm/Henning- Bodewig (n 376) § 17 Rdn 13. 850 Axel Beater (n 811) § 22 Rdn 1885. 851 Ohly/Sosnitza (n 813) § 17 Rn 15-16; Köhler/Bornkamm/Feddersen (n 835) § 17 Rdn 22. 852 Axel Beater (n 811) § 22 Rdn 1885. Chapter 3. Fragmented protection of trade secrets across the EU 192 In sum, it appears that the scope of § 17(1) UWG is limited to the protection of trade secret holders from the unauthorised disclosure of confidential information by their employees during the course of their labour relationship. However, the UWG in subsequent provisions expands the scope of protection afforded to trade secrets. In particular, the following section examines the legal framework set forth with regard to so-called “industrial espionage”. Industrial espionage The German trade secrets legal regime draws on the roots of the special vulnerability of confidential information against acts of industrial espionage.853 Under the current legislation, this unlawful behaviour is captured in paragraph 1 of § 17(2) UWG. Pursuant to this provision, the unauthorised procurement (“sich verschaffen”) or securement (“sichern”) of a trade secret triggers criminal liability if it is carried out through (i) the use of technical devices or means; (ii) the physical reproduction of the secret information; or (iii) the misappropriation of the object in which the confidential information is incorporated. One of the distinguishing features of paragraph 1 of § 17(2) UWG is that the unlawful conduct described therein can be carried out by any person (not only employees, unlike § 17(1) UWG).854 However, the actus reus is limited to the unauthorised procurement and securement of trade secrets. The former consists of the acquisition of secret information. Hence, if the trade secret is embodied in a given object, its procurement requires obtaining possession of the said item (e.g. a CD containing confidential information).855 By contrast, if the trade secret is not embodied in any object, its procurement arises from the mere acquisition of the information that constitutes the trade secret. For instance, this would be the case if the infringer memorised the chemical formula used to manufacture a pharmaceutical product. An act of securement takes place when the infringer incorporates secret information in a permanent form; among others, through recording or scanning the data.856 Yet, often establishing the exact boundaries between these concepts appears rather implaub) 853 Harte-Bavendamm/Henning-Bodewig (n 376) §§ 17-19 Rdn 6. 854 Harte-Bavendamm/Henning-Bodewig (n 376) § 17 Rdn 43. 855 Ohly/Sosnitza (n 813) § 17 Rdn 17; Richard Schlötter 1997 (n 828) 156-157. 856 Ohly/Sosnitza (n 813) § 17 Rdn 18. § 2 Trade secrets protection in Germany before the implementation of the TSD 193 sible, as some acts encompass both types of conduct simultaneously.857 By way of illustration, this would be the case if the infringer acquired a CD with secret data (procurement), made a copy of the confidential information on his personal desktop and sent it through his private e-mail account to a third party (securement).858 The conduct referred to above must be carried out by at least one of the improper means described in paragraph 1 of § 17(2) UWG. If the trade secret is acquired in any other way, the conduct falls outside the scope of this provision.859 As such, it is regarded that paragraph 1 of § 17(2) UWG identifies and penalises three types of behaviours that constitute a particularly dangerous form of espionage, irrespective of whether the acquired confidential information is subsequently used or disclosed.860 The first of the improper means described in paragraph 1 of § 17(2) refers to the procurement or securement of information through “technical means”. Case law has construed these terms in a wide sense, so as to include all devices that can be used for such purposes;861 for example, photographic and recording cameras, as well as the use of computers or other devices to decompile and analyse secret information.862 Secondly, the “physical reproduction of the secret information” also constitutes one of the unlawful means of acquiring a trade secret pursuant to paragraph 1 § 17(2) UWG. This provision refers to the reproduction of the trade secret and typically occurs when the infringer makes a photocopy or builds a replica of a machine.863 Finally, paragraph 1 of § 17(2) UWG prevents the “misappropriation of an object or device incorporating the secret”. This provision refers to the unauthorised acquisition of the item in which the trade secret is embodied, and it includes all actions that allow the infringer to possess the object and use it or allow its use by a given third party.864 Among others, courts 857 Ohly/Sosnitza (n 813) § 17 Rdn 18. 858 Ohly/Sosnitza (n 813) § 17 Rdn 18. 859 Ohly/Sosnitza (n 813) § 17 Rdn 19. 860 Harte-Bavendamm/Henning-Bodewig (n 376) § 17 Rdn 43; Thomas Hören und Reiner Münkner, ‘Die neue EU-Richtlinie zum Schutz von Betriebsgeheimnissen und die Haftung Dritter’ [2018] CCZ 85, 85. 861 Harte-Bavendamm/Henning-Bodewig (n 376) § 17 Rdn 44. 862 Harte-Bavendamm/Henning-Bodewig (n 376) § 17 Rdn 44. 863 Ohly/Sosnitza (n 813) § 17 Rdn 19. 864 Ohly/Sosnitza (n 813) § 17 Rdn 19; Harte-Bavendamm/Henning-Bodewig (n 376) § 17 Rdn 44. Chapter 3. Fragmented protection of trade secrets across the EU 194 have held that the misappropriation of photographs and storage devices may fall within the scope of paragraph 1 of § 17(2) UWG.865 As a final note, it should be stressed that in its criminal law dimension, paragraph 1 of § 17(2) UWG requires that the offender acts at least with intent (“Vorsatz”) or conditional intent (“Bedingter Vorsatz”).866 The infringer must know or at least have reason to know that he had acquired or secured a trade secret under at least one of the improper means described in paragraph 1 of § 17(2) UWG and with one of the following purposes: (i) for competitive purposes; (ii) for personal gain, (iii) for the benefit of a third party, or (iv) with the intention of causing damage to the enterprise or its owner.867 The following section, in which the general prohibition set out in paragraph 2 of § 17(2) UWG is examined, analyses in more detail the implications of demanding intent on the side of the infringer. General prohibition Finally, paragraph 2 of § 17(2) UWG sets forth a broader prohibition, whereby (i) the use or communication of a secret obtained through an unlawful disclosure from an employee pursuant to § 17(1) UWG or (ii) the unauthorised procurement or securement of confidential information by any of the means set out in paragraph 1 of § 17(2) UWG or by any other means shall trigger criminal liability. Notably, such a broad prohibition renders unlawful any unauthorised acquisition of a trade secret, if it is carried out by either an employee or a third party.868 In this regard, it should be noted that the use of the same terminology as in the previous types of conduct but in a completely different context has been vehemently criticised.869 This provision is particularly relevant with regard to the behaviour of former employees, as it captures the exploitation of secrets obtained by employees in an unlawful way while they were still in an employment relationship with the trade secret holder.870 c) 865 Ohly/Sosnitza (n 813) § 17 Rdn 19; Harte-Bavendamm/Henning-Bodewig (n 376) § 17 Rdn 44. 866 Natalie Ackermann-Blome and Joanna Rindell (n 821) 82; Ohly/Sosnitza (n 813) § 17 Rdn 24 refers to dolus eventualis. 867 Harte-Bavendamm/Henning-Bodewig (n 376) § 17 Rdn 25. 868 Harte-Bavendamm/Henning-Bedewig (n 376) 17 Rdn 47. 869 Thomas Hören und Reiner Münkner 2018(a) (n 860) 85. 870 Ohly/Sosnitza (n 813) § 17 Rdn 20; Harte-Bavendamm/Henning-Bodewig (n 376) § 17 Rdn 44. § 2 Trade secrets protection in Germany before the implementation of the TSD 195 Crucially, due to its criminal law nature, paragraph 2 of § 17(2) UWG, just like the other relevant types of conduct analysed under § 17 UWG, restricts the liability of former employees and third parties to cases where they acted with intent (“Vorsatz”). Yet, positive knowledge that the information has been acquired through the means set out in § 17(1) UWG and paragraph 1 of § 17(2) UWG is not required. It is generally accepted that conditional intent suffices (“Bedingter Vorsatz”).871 Accordingly, if the infringer is aware that the information may have been obtained in an unlawful manner pursuant to the previous relevant types of conduct and willingly closes his eyes to it, liability will also arise with respect to indirect acquisition.872 Crucially, the intent comprises all of the objective elements of the offence. Hence, if the infringer mistakenly believes that he is under an obligation to disclose a trade secret, no liability will arise.873 In addition, the employee or any other third party must have disclosed the trade secret for at least one of the following purposes (“Absicht”): (i) for competitive purposes; (ii) for personal gain, (iii) for the benefit of a third party, or (iv) with the intention of causing damage to the enterprise or its owner.874 In view of this, it appears that the standard of liability set out in the UWG with respect to third parties is higher than under the TRIPs Agreement (under footnote 10 of Article 39(2)), and Article 4(4) TSD, by virtue of which gross negligence suffices.875 Hence, the level of protection of trade secret holders against third party misappropriation is much lower than in other EU jurisdictions, such as England (or even the U.S.). § 18 UWG Use of models In the UWG of 1909 the German legislature decided to regulate in a separate provision protection against the so-called “piracy of models” (“Vorlagenfreibeuterei”). This amendment was introduced as a result of complaints raised by embroidery and lace manufacturers, who argued that their trade 2. 871 Thomas Hören und Reiner Münkner 2018(a) (n 860) 85. 872 Mary-Rose McGuire, Björn Joachim, Jens Künzel and Nils Weber,‘Protection of Trade Secrets through IPR and Unfair Competition Law’ (2010) AIPPI Report Question Q215, 10 accessed 15 September 2018. 873 Ohly/Sosnitza (n 813) § 17 Rdn 20; Thomas Hören und Reiner Münkner 2018(a) (n 860) 85. 874 Harte-Bavendamm/Henning-Bodewig (n 376) § 17 Rdn 14-17. 875 Rudolf Rudolf Kraßer 1996 (n 585) 224. Chapter 3. Fragmented protection of trade secrets across the EU 196 secrets were being revealed through the unlawful use of their templates and models.876 In its current wording, § 18 UWG provides the following: § 18 UWG Use of models (1) Whoever, acting without authorisation, uses or communicates to another person models or instructions of a technical nature, particularly drawings, prototypes, patterns, segments or formulas, entrusted to him for the purposes of competition or for personal gain shall be liable to imprisonment not exceeding two years or to a fine. (2) An attempt shall incur criminal liability. (3) The offence shall be prosecuted upon application only, unless the criminal prosecution authority considers that it is necessary to take ex officio action on account of the particular public interest in the criminal prosecution. (4) Section 5, number 7, of the Criminal Code shall apply mutatis mutandis.877 Nowadays, this provision aims at protecting technical knowledge that is supplied by the trade secret holder in the context of know-how agreements or during the negotiation of other kinds of contracts.878 However, its scope of application is limited to two specific kinds of industrial secrets, i.e. models (“Vorlagen”) and technical instructions (“Vorschriften technischer Art”). The former refer to means that are used as prototypes for the production of new items or the delivery of new services, subject to fixation.879 The latter include the commands and teachings that must be followed in the implementation of technical processes.880 Segments and formulas, as well as computer programs are often cited by academia and case law as paradigmatic examples of instructions of a technical nature in the sense of § 18 (UWG).881 876 Ohly/Sosnitza (n 813) § 18 Rn 2. 877 Translation obtained from the German Ministry of Justice website accessed 15 September 2018. 878 Harte-Bavendamm/Henning-Bodewig (n 376) § 18 Rdn 55. 879 Köhler/Bornkamm/Feddersen (n 835) § 18 Rdn 9 stating that: “Vorlagen sind Mitteln, die als Grundlage oder Vorbild für die Herstellung von neuen Sachen oder Dienstungen dinen sollen”; Köhler further notes that the Models (“Vorlagen”) can be fixated either in a particular embodiment (an exemplary) or in an abstract depiction (such as a description or representation). 880 Köhler/Bornkamm/Feddersen (n 835) § 18 Rdn 10. 881 Ohly/Sosnitza (n 813) § 18 Rdn 5. § 2 Trade secrets protection in Germany before the implementation of the TSD 197 The actus reus consists of the unauthorised communication of models and technical instructions that were entrusted to the infringer in the course of trade for the purposes of hindering competition or for a personal gain.882 Case law has again construed the term entrusted (“anvertraut”) in a wide sense. It includes all the models and technical instructions that the trade secret holder conveyed to another undertaking under an obligation of confidentiality (express or implied from the specific circumstances of the case).883 However, it is essential that the trade secret was communicated to the confidant with the sole purpose of it being used in the interest of the holder.884 Finally, it is necessary that the secret information is conveyed in the course of trade (“im geschäftlichen Verkehr”) in order to be protected pursuant to § 18 UWG. The limited scope of application of this provision has been criticised by a number of commentators, who regard that it is out of date in the digital world and, consequently, it will most likely be deleted with the implementation of the TSD in Germany. Civil law The current wording of the UWG sets forth criminal sanctions in the event that §§ 17 and 18 are infringed, but makes no reference to the civil protection afforded in such circumstances.885 Notwithstanding this, it is generally accepted by courts and academia that trade secret holders are entitled, among other remedies, to claim damages, exercise the right of information and apply for injunctive relief.886 In that regard, it is worth noting that since § 19 UWG was amended in 2004,887 no general consensus exists on a III. 882 Axel Beater (n 811) § 22 Rdn 1887. 883 Ohly/Sosnitza (n 813) § 18 Rdn 6; Köhler/Bornkamm/Feddersen (n 835) § 18 Rdn 11. 884 Ohly/Sosnitza (n 813) § 18 Rdn 6. 885 Köhler/Bornkamm/Feddersen (n 835) § 17 Rdn 51. 886 Harte-Bavendamm/Henning-Bodewig (n 376) § 17 Rdn 58. 887 Before the 2004 UWG amendment, § 19 UWG set forth the right to claim damages in the event of infringement of §§ 17 and 18 UWG. Accordingly, § 19 provided that: “Violations of the provisions of Sections 17 and 18 also result in liability for damages caused thereby. Where there are several parties, they are jointly and severally liable” (translation from Michael Knospe (n 834) para § 15:32). Notwithstanding this, such a provision was deemed superfluous and was consequently deleted from the Act in the UWG reform of 2004; see in this regard Chapter 3. Fragmented protection of trade secrets across the EU 198 civil legal basis that triggers their applicability. As regards the available means of redress, Ohly makes a clear-cut distinction between criminal accessory claims (“Strafrechtsakzessorische Ansprüche”) and civil autonomous claims (“Zivilrechtsautonome Ansprüche”).888 The former only arise if the objective elements of the offence (“objektiver Tatbestand”) and the mens rea or subjective elements of the offence (“subjektiver Tatbestand”) described in §§ 17 and 18 UWG are carried out by the infringer. The latter, on the other hand, can be claimed irrespective of any finding of criminal liability.889 In the following section, for the purposes of clarity, the different legal mechanisms available to enforce trade secrets protection in the civil jurisdiction are outlined in accordance with Ohly’s classification, with the aim of providing a better and clearer understanding of the legal issues surrounding the enforcement of trade secrets in Germany. Criminal accessory claims Despite the lack of statutory provisions dealing with the enforcement of trade secrets, as stated above, case law provides that any violation of §§ 17 and 18 UWG may trigger claims both for damages and injunctive relief. Hence, in order to award damages, courts resort to the general clause of 823 II BGB, which provides that a duty of compensation arises if a breach of statute intended to protect another person is found.890 Likewise, injunctive relief is usually granted in accordance with Article 1004 BGB, pursuant to which the possibility of obtaining an injunction if an interference with a property right occurs is established.891 1. Ohly/Sosnitza (n 813) § 17 Rdn 35; Köhler/Bornkamm/Feddersen (n 1299) § 17 Rdn 52. 888 For a more detailed analysis see Ansgar Ohly 2014 (n 13) 7-11. 889 Ansgar Ohly 2014 (n 13) 12. 890 § 823BGB Liability in damages: “(1) A person who, intentionally or negligently, unlawfully injures the life, body, health, freedom, property or another right of another person is liable to make compensation to the other party for the damage arising from this.(2) The same duty is held by a person who commits a breach of a statute that is intended to protect another person. If, according to the contents of the statute, it may also be breached without fault, then liability to compensation only exists in the case of fault” (translation obtained from the German Ministry of Justice website accessed 15 Sepember 2018). 891 § 1004 BGB – Claim for removal and injunction: “(1) If the ownership is interfered with by means other than removal or retention of possession, the owner § 2 Trade secrets protection in Germany before the implementation of the TSD 199 Against this background, an infringement of a trade secret pursuant to § 17 and § 18 UWG is regarded as a breach of § 3a UWG, by virtue of which “the breach of a statutory provision that is also intended to regulate market behaviour in the interest of market participants if the infringement affect the interests of consumers, other entrants or competitor shall be deemed unfair”. In the light of the above, a violation of §§ 17 or 18 UWG is deemed to contravene the general prohibition of unfair commercial practices set forth in § 3 I UWG through the application of § 3a UWG.892 Based on § 3 I UWG, the trade secret holder is entitled to claim the remedies set forth in chapter 2 of the UWG, namely elimination and injunctive relief (§ 8 UWG);893 compensation for damages (§ 9 UWG); and confiscation of profits (§ 10 UWG). Nonetheless, such a possibility has been highly contested by some commentators on the basis that the behaviours described in §§ 17 and 18 UWG cannot be understood as a provision regulating market behaviour. In particular, it has been argued that IPRs do not fall under such a category, as indeed they are meant to protect individual rights.894 may require the disturber to remove the interference. If further interferences are to be feared, the owner may seek a prohibitory injunction” (translation obtained from the German Ministry of Justice website accessed 15 Sepember 2018). 892 Ohly/Sosnitza (n 813) § 17 UWG Rdn 44; Franz Hofmann, ‘“Equity” im deutschen Lauterkeitsrecht? Der “Unterlassungsanspruch” nach der Geschäftsgeheimnis-RL’ [2018] WRP 1, 3 para 10. 893 BGH GRUR 1964, 31 – Petromax II. 894 Against this background, Wolfgang Schaffert, ‘4 Nr 11’ Rdn 68 in Peter W. Heermann and others (eds), Münchener Kommentar zum Lauterkeitsrecht (1st edn, C.H. Beck 2006) argues that exclusive rights and particularly §§ 17-18 UWG do not intended to regulate competition in the market through the establishment of the equal barriers and the creation of equal opportunities among competitors. Contrariwise, he concludes that such provisions do not establish any market behaviour rules (“Marketverhaltungsregeln”) in the interest of consumers and thus, fall outside the scope of § 3a UWG. As such, the infringement of the above- mentioned provisions cannot be regarded as anticompetitive if it systematically leads to a competitive advantage; the opposite view is held by Ohly 2014 (n 13) 12, who notes that the behaviours described in the UWG provisions that regulate trade secret protection, i.e. §§ 17-18 UWG do not take place before any market activity, as in this scenario the relevant market consists of information and not the products. Hence, he concludes that the tension between market behaviour rules and individual rights is only apparent, as he affirms that IPRs protect individual rights and at the same time establish market behaviour rules. In particular, it is stressed that IPRs determine the behaviours that are allowed in the market. Chapter 3. Fragmented protection of trade secrets across the EU 200 Civil autonomous claims Civil autonomous claims arise irrespective of the finding of criminal liability pursuant to § 17 and § 18 UWG. Their applicability has proven extremely relevant in practice, as the UWG provisions that expressly regulate trade secrets protection only sanction wilful infringement.895 The most relevant civil autonomous claims refer to contractual obligations, and are applicable to the breach of know-how agreements and the use and disclosure of trade secrets by departing employees. In such a context, performance or damages can be claimed on the basis of § 280 I BGB.896 The applicability of this provision only requires negligence (“Leichte Fahrlässigkeit”).897 In addition, fault is presumed in those cases where the breach of a duty is established, as per the second phrase of § 280 I BGB.898 Likewise, § 4(3)(c) UWG precludes the offering of goods or services that are replicas of goods or services of a competitor if he dishonestly obtained the knowledge or documents needed for the replicas. This provision may be applied in the event that the replicas embody a trade secret obtained unlawfully.899 More generally, if not all of the liability conditions set out in §§ 17-18 UWG are fulfilled, courts may still regard that the conduct of a competitor falls under the general obstruction of competition clause set out in § 4(4) UWG, which in turn contravenes the general prohibition of unfair commercial practices set forth in § 3 I UWG and the remedies established in connection with it.900 As a final note, it should be pointed out that if trade secrets are regarded as the object of a property right, they shall be protected pursuant to § 823 I (damages in the event of unlawful, wilful or negligent injury of another’s property), § 812 I (duty of restitution), and § 687 II (false agency without 2. 895 Ohly/Sosnitza (n 813) § 17 Rdn 36. 896 § 280 (1) BGB sets out that: “If the obligor breaches a duty arising from the obligation, the obligee may demand damages for the damage caused thereby. This does not apply if the obligor is not responsible for the breach of duty”; (translation obtained from the German Ministry of Justice website accessed 15 September 2018). 897 Ohly/Sosnitza (n 813) § 17 Rdn 43. 898 Ohly/Sosnitza (n 813) § 17 Rdn 43. 899 Ansgar Ohly 2014 (n 13) 12. 900 Köhler/Bornkamm/Feddersen (n 1299) § 17 Rdn 52. § 2 Trade secrets protection in Germany before the implementation of the TSD 201 specific authorisation) BGB.901 However, this remains highly contested, as no consensus on the legal nature of trade secrets in Germany exists.902 Trade Secrets Protection in England before the implementation of the TSD – The law of confidentiality The analysis of the law of confidentiality should start by noting that in the UK three different jurisdictions coexist, namely (i) England and Wales; (ii) Northern Ireland; and (iii) Scotland. The first two are common law jurisdictions, while the law in Scotland has a hybrid nature, as it draws both from common law and Roman law origins.903 As regards trade secrets, the England and Wales jurisdiction has the most developed body of case law and will be used as the case of study in this dissertation. In fact, judicial review regards that the law of confidentiality in Northern Ireland and Scotland is very similar to the law in England and Wales, even though the Scottish system is viewed as being less developed.904 In England, trade secrets protection is mostly achieved through contractual provisions and the breach of confidence action, which protects confidential information in general.905 Notably, trade secrets are protected through the same action that covers other kinds of confidential information, such as artistic and literary information, government secrets906 and private information,907 without distinction by subject.908 Unlike most civil law countries and the U.S., in England no specific provisions dealing with the protection of trade secrets have been enacted into law.909 Remarkably, the English legal regime does not contain criminal law provisions penalising industrial espionage,910 the most common form § 3 901 Ansgar Ohly 2014 (n 100) 3. 902 See chapter 1 § 3 B) 3. b). 903 Hogan Lovells 2012 (n 793) paras 240-241. 904 Hogan Lovells 2012 (n 793) paras 241. 905 Tanya Aplin and others 2012 (n 22) para 1.01. 906 Attorney General v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109 (HL). 907 Campbell v MGN Ltd [2004] 2 AC 457 (HL). 908 William Cornish, David Llewellyn and Tanya Aplin 2013 (n 209) para 8-07. 909 In the Law Commission 1981 (n 327) 101 it was argued in favour of establishing a statutory action for breach of confidence in the interests of clarity and legal certainty. 910 The Law Commission published a Discussion Paper (Law Commission, Legislating the Criminal Code: Misuese of Trade Secrets (Law Com No 150, 1997)) arguing in favour of the establishment of a criminal liability regime for the deliberate Chapter 3. Fragmented protection of trade secrets across the EU 202 of trade secrets protection found in other jurisdictions. Consequently, criminal liability for the misappropriation of trade secrets is covered by other offences, such as conspiracy to defraud or theft (but only with regard to a physical object in which a trade secret is embodied).911 It is a well-established principle that “there is no confidence as to the disclosure of inequity”.912 The breach of confidence action has considerable breadth, as it “enables any person who has an interest in information that is confidential to prevent others who have received, or acquired the information with notice of its confidential quality from using or disclosing the information”.913 Case law has set forth that information must present three elements in order to be protected.914 First, it must entail the quality of confidence. Second, it must have been disclosed in circumstances implying an obligation of confidence. Third, an unauthorised use of the information detrimental to the owner of the information must have taken place.915 The following sections delve into the protection of trade secrets in England and Wales under the legal framework created by the breach of confidence action, with the aim of providing a better understanding of the notion of confidentiality. To this end, first section A introduces a number of preliminary remarks regarding the withdrawal of the UK from the EU and its effects on the trade secrets legal regime. Thereafter, section B examines the development of the action since the mid-XIX century, while section C analyses the four causes of action that have traditionally been invoked in cases of breach of confidence and the applicable liability requirements. misuse of trade secrets, but this proposal was never passed; see further Carl Steele and Anthony Trenton, ‘Trade secrets: the need for criminal liability’ [1998] 20 EIPR 188-192. 911 William Cornish, David Llewellyn and Tanya Aplin 2013 (n 209) para 8-55; Lionel Bently and Brad Sherman 2014 (n 125) 1197; Allison Coleman, The Legal Protection of Trade Secrets (Sweet&Maxwell 1992) Chapter 7; pursuant to the Theft Act 1968, s 1 “theft”, is the “dishonest appropriation of property belonging to another with the intention of permanently deriving the other of it”. In turn, s 4 establishes that property also refers to “intangible property”. However, a substantial number of cases have stated that information does not fall under the category of “intangible property”. 912 Law Commission Report 1997 (n 910) 59, citing Garstide v Outram [1857] 26 LJ Ch 113. 913 Tanya Aplin and others 2012 (n 22) para 1.01. 914 The three elements that constitute the breach of confidence action were first established in Coco v. A.N.Clark (Engineers) Ltd [1969] RPC 41 (Ch), 46. 915 Coco v A.N.Clark (Engineers) Ltd [1969] RPC 41 (Ch), 48. § 3 Trade Secrets Protection in England 203 A note on Brexit On June 23, 2016, 51,9% of the electorate in the UK voted in favour of leaving the EU, following a referendum called for by the European Union Referendum Act of 2015.916 The results of the referendum were confirmed by the Parliament of the UK in both of its Houses, leading to the adoption of the European Union Notification of Withdrawal Bill.917 Consequently, on March 29, 2017 the UK Government notified the European Council about its decision to abandon the EU (popularly referred to as “Brexit”), in accordance with the procedure set out in Article 50(2) TUE.918 At this stage, the European Council and the UK are still in the process of negotiating the terms of the Withdrawal Agreement, which will establish the specific date after which the EU Treaties and secondary legislation of the EU will no longer be applicable in the UK and will also govern the relationship between the parties after that date. In the absence of such an agreement and pursuant to Article 50(3) TEU, the EU legal system will cease to apply two years after the withdrawal notification date (29 March 2019). Despite the imminent withdrawal of the UK from the EU, the United Kingdom Intellectual Property Office (“UKIPO”) has launched a consultation, which includes a proposal to implement the Directive.919 Irrespective of the outcome of the consultation, the UK played a fundamental role during the negotiation of the TSD, mostly due to the sophisticated and diverse body of case law developed by English courts that allowed stakeholders to achieve an effective level of protection against trade secrets misappropriation. Therefore, the study of the English model in the context of the TSD remains relevant for the purposes of the present research, even after the withdrawal of the UK from the EU. A) 916 European Union Referendum Act 2015 (c. 36) 917 European Union Notification of Withrawal Bill 2017. 918 According to the UK notification under Article 50 TEU dated 29 March 2017 accessed 15 September 2018. 919 According to Will Smith and Robert Williams, ‘Brexit and the Trade Secrets Directive - the Clock is Ticking (16 October 2017) accessed 15 September 2018. Chapter 3. Fragmented protection of trade secrets across the EU 204 Development of the law of confidentiality The origin of the breach of confidence action has often been described as “obscure”. Until the early XIX century, the protection of confidentiality was articulated through an array of legal doctrines established in contract law, employment law, criminal law, copyright law and patent law, as well as in the law of inheritance.920 The basis for the existing breach of confidence action was not settled until the mid-XIX century through two landmark cases: Prince Albert v Strange921 and Morison v Moat.922 These decisions set out the core principles upon which the current breach of confidence action is built, as outlined below. In the first ruling, the plaintiff obtained an injunction preventing the publication of a catalogue of etchings made by Prince Albert and Queen Victoria for their amusement and private use. The defendant was an employee of the printer in Windsor where the etchings were printed. He decided to make additional copies and compile them in a catalogue, without authorisation from Prince Albert and Queen Victoria. In its ruling, the court stated that the plaintiff had a property right in the etchings and was therefore entitled to exclude the defendant “against the invasion of such right”. Notwithstanding this, the most significant contribution of the decision was the finding that a duty of confidence might exist separately from a contractual obligation.923 In Morison v Moat,924 the plaintiffs were granted an injunction to prevent the use of a secret recipe to manufacture a cure-all medicine called “Morison’s Universal Medicine”. The inventor, the plaintiff’s father (James Morison), had entered into a partnership with the defendant’s father, Thomas Moat, to exploit the invention, under the condition that he did not disclose it. Shortly before his death, Thomas Moat revealed the secret to his son, Horatio Moat, who started producing and marketing the medicine on his own account. As a result, the plaintiffs sought an injunction to restrain such marketing activities. The High Court of Chancery granted the injunction and held that Thomas Moat must have revealed the secret recipe to his son in breach of the contract (and confidence) or he B) 920 Tanya Aplin and others 2012 (n 22) para 2.02. 921 Prince Albert v Strange [1849] 2 De G & Sm 652. 922 Morison v Moat [1851] 9 Hare 241. 923 In Prince Albert v Strange [1849] 2 De G & Sm 652; ER 293; 1 Mac & G 25, 44 the Court stated that: “a breach of trust, confidence or contract would of itself entitle the plaintiff to an injunction”. 924 Morison v Moat [1851] 9 Hare 241. § 3 Trade Secrets Protection in England 205 must had acquired it “surreptitiously”. Notably, Morison v. Moat is regarded as the first authority where “the liability for third-party recipients of trade secrets” was established.925 In the mid-XX century, the English courts established a broader equitable jurisdiction, on the basis of good faith rather than property and contract.926 In Saltman Engineering v Campbell Engineering the court stated that “the obligation to respect confidence is not limited to cases where the parties are in contractual relationship”.927 Instead, the court found an implied duty of confidentiality, whereby an obligation of confidence may stem from a relationship where information is imparted under certain circumstances and without a contract.928 Despite the recent developments, many aspects of the breach of confidence action remain open, such as the jurisdictional basis and the liability of innocent acquirers. Likewise, the rise of new technologies, such as Artificial Intelligence and Big Data, poses additional challenges that courts will have to address in the near future. The following section analyses the legal regime for the protection of confidential information under the breach of confidence action in England. Legal regime for the protection of confidential information under the breach of confidence action Jurisdictional basis for the action The legal nature and scope of the breach of confidence action has been the object of debate by scholars and case law, and hitherto no consensus exists on this matter.929 On the one hand, it has been argued that there is no single concept that clarifies or comprises all of the causes of action for what has traditionally C) I. 925 Tanya Aplin and others 2012 (n 22) para 2.90. 926 William Cornish, David Llewellyn and Tanya Aplin 2013 (n 209) para 8-07. 927 Saltman Engineering v Campell Engineering [1948] 65 RPC 203 (CA), 211. 928 Tanya Aplin and others 2012 (n 22) para 2.90; Roger M. Toulson and Charles M. Phipps 2012 (n 326) paras 1-046 - 1-050; Law Commission 1981 (n 327) para 3.11. 929 Law Commission 1981 (n 327); Gareth Jones, ‘Restitution of Benefits Obtained in Breach of Another’s Confidence’ [1970] 86 LQR 463. Chapter 3. Fragmented protection of trade secrets across the EU 206 been called breach of confidence.930 On the other hand, more recently, it has been suggested that the said action is of a sui generis nature and, as such, does not fall strictly under one conventional category.931 The latter view became increasingly popular during the negotiation of the TSD in the light of the new obligations set forth by its implementation.932 Courts have mostly relied on four different causes of action, (predominantly contract, equity and to a lesser extent tort and property) to decide on an alleged breach of confidence case.933 In the light of the above, the following sub-sections intend to provide an overview of the doctrinal grounds of the action. Contract Courts have extensively invoked contractual obligations in order to protect confidential information, on the basis of both express and implied terms of a contract.934 The main issues raised by the enforcement of express terms relate to post-employment obligations that prevent employees from using their acquired skills and knowledge.935 As such, these contractual provisions have often been deemed unenforceable as an “unreasonable restraint of trade”.936 In contrast, courts have stated that it is possible to infer an obligation of confidence from a contract, even though the contract is silent on 1. 930 Roger M. Toulson and Charles M. Phipps, Confidentiality (2nd edn, Sweet&Maxwell 2006) 2 noting that “No single concept satisfactorily explains or encompasses all species of the action for what has traditionally been called breach of confidence”. 931 Tanya Aplin and others 2012 (n 22) para 4.09 932 Lionel Bently and Brad Sherman 2014 (n 125) 1139. 933 Tanya Aplin and others 2012 (n 22) para 4.09; Allison Coleman 1992 (n 911) 37 arguing that contract is the main jurisdictional base for actions. 934 John Hull, ‘The licensing of trade secrets and know-how’155, 167 in Jacques de Werra (ed), Research Handbook in Intellectual Property Licensing (Edward Elgar 2013) argues that the modern course of action is grounded on an equitable duty of good faith; Tanya Aplin and others 2012 (n 22) para 4.13; Allison Coleman 1992 (n 911) 38. 935 Kate Brearley and Selwyn Bloch, Employment covenants and confidential information (Butterworths1993) 70. 936 Allison Coleman 1992 (n 911) 41-44. § 3 Trade Secrets Protection in England 207 that point, if the said obligation is necessary to comply with the object of the contract.937 Notwithstanding this, contract law is also subject to limitations and has proven insufficient in answering questions regarding third party liability in breach of contract i.e. situations where there is a disclosure from the confidant who received the information under a duty of confidence to a third party.938 In these cases, the protection of confidential information should be sought through equity or tort law, as contract law does not provide a legal basis to enjoin the use of the trade secret by the third party outside of the contractual relationship .939 Equity Originally, the equitable jurisdiction940 provided supplementary remedies in situations in which authorities or statutory law might not fully address the issue concerned or provided inequitable solutions.941 In the mid-IVX century, the Court of Chancery was established as a new and distinct court in England,942 with the aim of creating a body of law based on “principles of justice”943 that afforded remedies not granted by the increasingly rigid system developed in common law courts.944 Within this legal framework, the breach of confidence action sought to protect an “equitable right in the confidentiality of information”.945 Nowadays, the equitable jurisdiction essentially plays two roles vis-à-vis the breach of confidence action. First, it supports the legal jurisdiction exercised by courts on the basis of contractual confidence obligations. In the 2. 937 Tanya Aplin and others 2012 (n 22) para 4.18. 938 Tanya Aplin and others 2012 (n 22) para 4.36. 939 Tanya Aplin and others 2012 (n 22) para 4.36. 940 The Black’s Law Dictionary defines ‘equity,n’ as “The system of law or body of principles originating in the English Court of Chancery and superseding the common and statute law (together called “law” in the narrower sense) when the two conflict” Black’s Law Dictionary (9th edn, West Publishing 2009). 941 ‘equity, n’, Black’s Law Dictionary (9th edn, West Publishing 2009). 942 Encyclopaedia Britannica, ‘Equity’ accessed 15 September 2017. 943 ‘equity, n’, Black’s Law Dictionary (9th edn, West Publishing 2010). 944 Encyclopaedia Britannica, ‘Equity’ accessed 15 September 2017. 945 Andrew Burrows and David Feldman, Oxford Principles of English Law (2nd edn, OUP 2009) 1311. Chapter 3. Fragmented protection of trade secrets across the EU 208 event that courts find a breach in the contractual obligation of confidence, an injunction may be granted only on the basis of equitable conduct. Second, equity provides an additional jurisdiction to prevent breach of confidence irrespective of the existence of any legal rights, substantially expanding courts’ jurisdiction on this subject.946 In particular, the independent equitable jurisdiction allows courts to restrain the breach of confidence in three situations where the law provides no remedy.947 First, equity can serve to restrain parties to a confidential disclosure that are not in a contractual relationship. This may occur, for example, if one of the parties to a negotiation that ultimately broke off seeks to benefit from the disclosed information. Second, equity provides the basis for court intervention where a third party receives confidential information from a confidant in breach of his obligation of confidence. Typically, this might be the case where the recipient of the information knows that the said information was acquired in breach of an equitable or contractual obligation. Third, the equitable jurisdiction also allows for restraining third parties that have acquired information without being bound by a confidential relationship. This covers both the surreptitious acquisition of information and acquisition with knowledge of its confidential nature by any third party.948 Against this backdrop, it is noteworthy that from the same fact pattern both contractual and equitable obligations may arise and eventually even overlap.949 In this scenario, courts have either applied both jurisdictions or proceeded on the equitable basis alone, at their own discretion.950 In fact, the Supreme Court of England, in one of its latest decisions on trade secrets protection, Vestergaard v Bestnet,951 relied on equity as the applicable cause of action. Property The possibility of restraining unauthorised uses of confidential information has frequently been justified on the basis of a property right.952 How- 3. 946 Tanya Aplin and others 2012 (n 22) para 4.38. 947 Tanya Aplin and others 2012 (n 22) paras 4.43-4.46. 948 Tanya Aplin and others 2012 (n 22) para 4.46. 949 Allison Coleman 1992 (n 911) 46-47. 950 Tanya Aplin and others 2012 (n 22) para 4.48. 951 Vestergaard Frandsen A/S v Bestnet Europe Ltd [2013] UKSC 31. 952 Allison Coleman 1992 (n 911) 48. § 3 Trade Secrets Protection in England 209 ever, this argument has been, and still is, the object of a vehement debate both by case law and the legal scholarship, and is by no means settled, as discussed in chapter 1.953 Tort954 In the past, tort law was frequently invoked by courts to take action for the protection of confidential information. Nowadays such a jurisdictional basis seems confined to the protection of personal privacy, pursuant to Article 8 ECHR.955 Indeed, as noted above,956 one of the most remarkable features of the English breach of confidence action is that it protects a wide range of interests, and among them, the protection of personal information has given rise to a rich body of case law.957 This is particularly relevant because under English law there is no specific legislation that explicitly recognises the right to privacy.958 Notwithstanding this, for years courts repeatedly rejected the creation of a general tort of privacy, as it was deemed that this fell under the scope of the competences of the Parliament.959 Accordingly, several bills aiming at 4. 953 A more detailed account of this topic is provided in chapter 1 § 3 B) I. 2. a). 954 ‘Tort,n’, Black´s Law Dictionary (9th edn, West Publishing 2009) “A tort is a legal wrong committed upon the person or property independent of contract. It may be either (1) a direct invasion of some legal right of the individual; (2) the infraction of some public duty by which special damage accrues to the individual; or (3) a violation of some private obligation by which like damage accrues to the individual”. 955 Roger M. Toulson and Charles M. Phipps 2012 (n 326) 2-017: “It is therefore right that the courts have now come to recognise explicitly that there are separate (sometimes overlapping) causes of action in contract of equity for breach of confidence and in tort for infringement of privacy”. 956 See chapter 3 § 3 B). 957 Ansgar Ohly and Agnès Lucas-Schloetter, Privacy, Property and Personality (CUP 2005) 85. 958 Tanya Aplin, ‘The future of the breach of confidence action and the protection of privacy’ [2007] Oxford University Commonwealth J 137, 137 refers to the “piecemeal protection of privacy by different areas of the law”. 959 See Lord Hoffman in Campbell v MGN Limited [2004] 2 AC 457 (HL), [14] and Wainwright v Home Office [2003] 3 WLR 1137 (HL); contrary, Tanya Aplin 2007 (n 958) 137 argues in favour of the establishment of a limited tort of privacy, namely misuse of private information; also Lord Nicholls in Campbell v MGN Limited [2004] 2 AC 457 (HL), [43]. Chapter 3. Fragmented protection of trade secrets across the EU 210 the creation of a statutory right of privacy were debated during the second half of the XX century, even though none of them was successfully passed.960 Instead, the effective protection of privacy was achieved through the application of existing causes of action, such as breach of confidence.961 The major turning point in the protection of privacy and its intersection with the breach of confidence action was the enactment of the Human Rights Act in 1998 (“HRA”), which implemented the European Convention of Human Rights.962 Most notably, Lord Nicholls, in his minority opinion in Campbell v MGN Ltd,963 argued in favour of the inclusion of the misuse of private information within the scope of the breach of confidence action as a liability tort on the basis of the new developments in the privacy right introduced by the HRA. This opinion was followed in some subsequent decisions, such as McKennith v Ash.964 By contrast, several commentators have argued in favour of establishing a separate tort for the misuse of private information, instead of including it within the already broad scope of the breach of confidence action.965 This was also the view purported in the Law Commission Report and it remains the object of an intense debate.966 Yet, providing a more detailed account on the law of privacy in England falls outside the scope of this study. 960 A number of Bills intending to provide a statutory regulation of privacy were proposed first by Lord Mancroft in 1961, Alexander Lyon in 1967, Brian Walden in 1969, William Cash in 1987 and John Browne in 1989; among the many Reports that studied the subject of privacy, two are particularly relevant: Gerald Dworkin, ‘The Younger Committee Report on Privacy’ [1973] 36 Modern LR 399-406 and the Law Commission 1981 (n 909). 961 Tanya Aplin 2007 (n 958) 137; Ansgar Ohly and Agnès Lucas-Schloetter 2005 (n 957) 75-77 state that there are four objections that have impeded the definition of a general right of privacy, namely: (i) the difficulty of providing a definition; (ii) whether privacy is a sufficiently distinctive and coherent value to form the basis of a corresponding coherent substantive legal right; (iii) the inherent difficulty of striking a balance between personal privacy and wider public interest values in freedom of expression; and (iv) a general right to privacy does not seem to fit well. 962 Ansgar Ohly and Agnès Lucas-Schloetter 2005 (n 957) 86 note that, “In a more recent phase of development, breach of confidence has been given a new breadth and strength in the wake of the Human Rights Act 1998 in a series of cases involving press intrusions and the disclosure of private facts” 963 Campbell v MGN Ltd [2004] 2 AC 457 (HL), [14]. 964 McKennitt v Ash [2006] EWCA Civ 1714 (CA), [8]. 965 Tanya Aplin and others 2012 (n 22) paras 4.114-1.117. 966 Law Commission 1981 (n 327) para 6.2; Allison Coleman 1992 (n 911) 47. § 3 Trade Secrets Protection in England 211 After examining the potential causes of action invoked for the protection of confidential information, it is possible to conclude that, to some degree, they overlap with the ones resorted to by German legislation and courts. Indeed, trade secrets in both jurisdictions are enforced mostly on the basis of contractual (express or implied) obligations, but also tort law. Similarly, in both jurisdictions, the debate as to the legal nature of trade secrets remains inconclusive and consequently there is uncertainty surrounding their enforcement. Yet, in Germany no correlation with the equitable jurisdiction cause of action exists. In the light of the above analysis, the following section examines the relevant liability requirements in the form of a four-step-test, which aims to interrogate the confidential (or secret) nature of the information. Liability requirements The conditions necessary to find liability under the breach of confidence action were first established in the landmark case Coco v A.N.Clark (Engineers) Ltd967 and have been repeatedly followed by subsequent case law. The relevant facts of the case and the legal reasoning are scrutinised in the following paragraphs. In 1965, the plaintiff, Marco Paolo Coco, designed a new motorcycle, which was known among the parties as the “Coco moped”. In April 1967, he entered into negotiations with the defendant, A.N. Clark (Engineers) Limited, with the aim of establishing a partnership to manufacture the vehicle. After some time and the disclosure of very precise information relating to the design of the motorbike the negotiations ultimately broke off. Shortly afterwards, the defendant learnt that A.N. Clark (Engineers) Ltd had started to produce their own motorcycle, the so-called “Scamp moped”, which incorporated an engine based on the plaintiff’s design. As a result, the plaintiff brought a motion for interlocutory relief on the basis of an alleged breach of confidence. In its ruling, Megarry J set forth the requirements that trigger liability under this action: First, the information itself, in the words of Lord Greene, M.R. in the Saltman case (...), must “have the necessary quality of confidence about it”. Secondly, that information must have been imparted in circum- II. 967 Coco v A.N.Clark (Engineers) Ltd [1969] RPC 41 (Ch). Chapter 3. Fragmented protection of trade secrets across the EU 212 stances importing an obligation of confidence. Thirdly, there must be an unauthorised use of that information to the detriment of the party communicating it.968 The three cumulative relevant requirements described above have been followed by most of the subsequent authorities in finding a breach of confidence. They are: (i) the quality of confidence of the information; (ii) the verification of specific circumstances importing an obligation of confidence; and (iii) the existence of an unauthorised use detrimental to the party source of the communication. In its legal reasoning, the court started by analysing the second of these requirements and concluded that the information had been conveyed in circumstances importing an implied obligation of confidence. In doing so, Megarry J developed a test according to which: If the circumstances are such that any reasonable man standing in the shoes of the recipient of the information would have realised that upon reasonable grounds the information was being given to him in confidence, then this should suffice to impose him the equitable obligation of confidence (emphasis added).969 Notwithstanding this, the analysis of the first requirement led the court to conclude that Mr Coco had not provided strong evidence that the information was of a confidential nature, as all of the engine components were available on the market separately. As the three conditions were deemed cumulative, the court dismissed the motion subject to the payment of 5s 0d per engine produced. On the basis of the previous requirements, the English courts have developed a four-step test in order to assess whether information shall be protected under the breach of confidence action. The four steps are as follows:970 (i) Is the subject matter of the information eligible for protection under the breach of confidence action? (ii) Does the information possess the necessary quality of confidence? (iii) Has the information been imparted in circumstances importing an obligation of confidence? 968 Coco v A.N.Clark (Engineers) Ltd [1969] RPC 41 (Ch), 47. 969 Coco v A.N.Clark (Engineers) Ltd [1969] RPC 41 (Ch), 48. 970 As noted by John Hull in a personal communication with the author. § 3 Trade Secrets Protection in England 213 (iv) Has the information been disclosed in an unauthorised manner detrimental to the confider? The following sections analyse the last three liability requirements. First, some remarks as to the quality of confidence are laid down. Section 2 then looks into the content of the obligation of confidence, while section 3 studies the types of conduct that fall within the “unauthorised use” requirement. The first step of the test, which enquires about the subject matter eligible for protection under the breach of confidence action, is examined in chapter 4.971 The quality of confidence The quality of confidence of information is a requirement for protection under each of the jurisdictional causes of action examined under section I.972 Yet, in the case of private information it seems that case law has emphasised that there should be a “reasonable expectation of privacy”, which may trigger protection under Article 8 HRA.973 The general principle is that for information to qualify as confidential it must not be generally accessible and, consequently, must not form part of the public domain. In such an assessment, courts usually interrogate whether skill and labour are required to access or obtain the information concerned. Thus, in the realm of trade secrets, the term “confidential” appears to be a synonym of the term “secret”, which follows from the fact that the breach of confidence action was developed to protect the undisclosed nature of information.974 It is for this reason that case law does not 1. 971 See chapter 4 § 2 B) II. 972 Tanya Aplin and others 2012 (n 22) para 5.02; Roger M. Toulson and Charles M. Phipps 2012 (n 326) 3-078. 973 Human Rights Act 1998; Tanya Aplin and others 2012 (n 22) para 5.02; Campbell v MGN Ltd [2004] 2 AC 457 (HL), 465-466. 974 Roger M. Toulson and Charles M. Phipps 2012 (n 326) 3-112; in the words of Bingham L.J. in Attorney General v Guardian Newspapers Ltd (No 2) [1988] 2 WLR 805 (CA): “Forty-four years ago there can have been few, if any, national secrets more confidential than the date of the planned invasion of France. Any crown servant who divulged such information to an unauthorised recipient would plainly have been in flagrant breach of his duty. But it would be absurd to hold such a servant bound to treat the date of the invasion as confidential on or after (say) 9 June 1944 when the date had become known to the world. A pursuit might say that the Allies, as confiders and owners of the information, had by their own act destroyed its confidentiality and so disabled themselves Chapter 3. Fragmented protection of trade secrets across the EU 214 require formalities with respect to the mode of expression of the information: the object of protection is the underlying ideas and thoughts (semantic information) and not their expression, unlike copyright.975 Consequently, the general principle is that information need not be expressed in a tangible form to merit protection.976 The attributes of confidence and the specific circumstances under which the confidential nature of information is lost are examined further in chapter 4. The obligation of confidence As mentioned above,977 in order to find liability under the breach of confidence action, “information must have been imparted in circumstances importing an obligation of confidence”.978 This obligation may arise in a variety of contexts, as a result of a contract (express or implied) or in equity. Below, the four main situations that give rise to such an obligation are examined, namely (a) disclosure by confider to confidant; (b) accidental acquisition; (c) surreptitious acquisition; and (d) third party liability.979 Disclosure by confider to confidant In the most common case of liability for breach of confidence a person provides information to another on the condition that he will not disclose it.980 Such an equitable obligation of confidence arises when there is a direct relationship between the parties; among others, as a result of a contract, due to the existence of a fiduciary relationship between the parties or depending on the manner in which the information is conveyed.981 This 2. a) from enforcing the duty, but the common sense view is that the date, being public knowledge, could no longer be regarded as the subject of confidence”. 975 Tanya Aplin and others 2012 (n 22) para 5.10. 976 For instance, in Terrapin Ltd v Builders’ Supply Co (Hayes) Ltd [1962] RPC 375 (Ch), 389 Roxburgh J noted that no distinction should be made with respect to the form in which information is expressed, whether orally or in writing. 977 See chapter 3 § 4 B) II. 2. 978 Coco v A.N.Clark (Engineers) Ltd [1969] RPC 41 (Ch), 47. 979 Private information may also give rise to an obligation of confidence; yet, its study falls outside the scope of the present research. 980 William Cornish, David Llewellyn and Tanya Aplin 2013 (n 209) para 8.20. 981 Lionel Bently and Brad Sherman 2014 (n 125) 1160-1161. § 3 Trade Secrets Protection in England 215 latter case appears particularly controversial, as identifying in a precise manner all of the circumstances that give rise to an obligation of confidentiality seems problematic.982 Furthermore, numerous cases point to different tests to determine whether such an obligation arises.983 When assessing the existence of a confidentiality obligation on the recipient, most authorities resort to the so-called “reasonable man” test outlined by Megarry J in Coco v Clark,984 whereby an obligation of confidence exists if a “reasonable man” would deem that the information was communicated in a confidential manner. To a large extent, this is an objective factual assessment based on the knowledge of the recipient.985 Consequently, if information is conveyed, and it is expressly stated that it is secret, it is going to be difficult to argue that a reasonable man would regard it otherwise. However, this has proven more challenging if confidentiality is to be inferred from the circumstances of the case, where a number of elements such as the commonly held views, usages and trade practices of the industry are taken into account by the court deciding on the matter.986 Against this background, it is submitted, in line with recent scholarly work, that the preferred test should be the so-called “notice of confidentiality” test, which to a large extent is built on the “reasonable man” yardstick 982 Lionel Bently and Brad Sherman 2014 (n 125) 1161; Roger M. Toulson and Charles M. Phipps 2012 (n 326) para 3-008 noting that it would be “almost impossible to compile a list of all the relationships likely to give rise to duties of confidentiality. They include agents, trustees, partners, directors, employees; professional people; holders of public and private offices; people in close personal relationships; and many others”; similarly, Law Commission 1981 (n 327) para 4.2: “to compile an exhaustive list of such relationships would not be practicable and even if it were, the list would be of limited value because the extent of the obligation of confidence varies according to the exact nature of the relationship”. 983 As reviewed in Tanya Aplin and others 2012 (n 22) para 7.02-7.52. 984 Among others, this test is referred to in De Maudsley v Palumbo [1996] FSR 447 (Ch); Mars UK Ltd v Teknowledge Ltd [2000] FSR 138 (Pat); likewise, Roger M. Toulson and Charles M. Phipps 2012 (n 326) 3-008 highlight that “the common thread is that a reasonable person would understand them as involving an obligation of confidentiality”. 985 Lionel Bently and Brad Sherman 2014 (n 125) 1161 highlight that “it is a subjective but assessed in the light of the knowledge of the recipient”; William Cornish, David Llewellyn and Tanya Aplin 2013 (n 209) para 8-20 consider that this test implicitly refers to a “somewhat diffuse notion of good faith”, as the obligation of confidence may be breached by unintentional behaviours. 986 Lionel Bently and Brad Sherman 2014 (n 125) 1161. Chapter 3. Fragmented protection of trade secrets across the EU 216 referred to above.987 The former considers whether “the circumstances in which the information was acquired or received indicate (objective) knowledge or notice of confidentiality of the information”.988 To conduct this assessment, a number of factors are weighed against each other, namely, (i) the nature of the information; (ii) the measures adopted to preserve confidentiality; (iii) the manner of in which the information was acquired or disclosed; (iv) the perception of the parties, that is, whether they regard the information as being confidential; and (v) whether the information was disclosed for a limited purpose.989 Similar to the “reasonable man” yardstick, the notice of confidentiality test demands that the alleged confider has an objective knowledge that the information in question is being disclosed in a confidential manner. However, under the second test, such an assessment may be influenced by the subjective intention or tacit views of the parties.990 Hence, the subjective element is introduced not with regard to the confidential (secret) nature of 987 Tanya Aplin and others 2012 (n 22) para 7.36. 988 Tanya Aplin and others 2012 (n 22) para 7.37 989 Tanya Aplin and others 2012 (n 22) para 7.36; on this point, the Second edition of Gurry on Breach of confidence departs from the first edition, where it was deemed that the limited purpose test should be the prevailing criterion to assess confidentiality, as per para 7.02: “an obligation will exist whenever confidential information is imparted by a confider for a limited purpose. In these circumstances the confidant will be bound by a duty not to use the information or any purpose other than that for which it was disclosed”; similarly, Roger M. Toulson and Charles M. Phipps 2012 (n 326) 3-012 argue that “where information of a personal or confidential nature is obtained or received in the exercise of a legal power or to furtherance of a legal duty, the recipient will in general owe a duty to the person from whom it was obtained or to whom it relates not to use it for unrelated purposes”. 990 Tanya Aplin and others 2012 (n 22) paras 7.38-7.39; De Maudsley v Palumbo [1996] FSR 447 (Ch), 457, where Judge Knox favoured an objective test informed by the appraisal of subjective views: “The test in my view is objectivethe question is where the circumstances such as to import a duty of confidence and, if so, the obligation is not to be avoided simply by not addressing the problem. On the other hand, I accept that a factor, and it may be an important factor, is whether the parties did in fact regard themselves as under an obligation to preserve confidence, just as is a proven trade or industry usage in that regard but I do not accept that the test is exclusively subjective as to the parties’ intentions”; by contrast, Jacob J in Carflow Products (UK) Ltd v Linwood Securities [1996] FSR 424 (Ch), 428 favoured a subjective test. He argued that under the breach of confidence action, unlike in contract law, the subjective views of the parties had to be taken into consideration, because equity “looks at the conscience of the individual. § 3 Trade Secrets Protection in England 217 the information, but rather with respect to the appraisal of whether an obligation to keep it secret arises. Accidental acquisition The accidental acquisition of secret information takes place when no direct relationship between the parties exists. It covers situations where one of the parties obtains certain information that is regarded as confidential by the other, as a result, directly or indirectly, of an accident, negligence or a mistake on the part of the party who knew that the information was of a confidential nature.991 This would be the case, for example, if a member of the public fortuitously found a confidential document on the street that had been lost by the holder of the information.992 The information is acquired without surreptitious means, merely as a result of carelessness. Nonetheless, despite the fact that no relationship between the parties exists, a duty of confidence may arise.993 The leading opinions among legal scholars restrict such a possibility to situations where the acquirer knows that the information is confidential or “is deliberately blind to the likelihood of it being confidential”.994 The underlying rationale is to protect confidential information as such based on b) 991 Tanya Aplin and others 2012 (n 22) para 7.46. 992 Lionel Bently and Brad Sherman 2014 (n 125) 1163. 993 Lionel Bently and Brad Sherman 2014 (n 125) 1163. 994 Roger M. Toulson and Charles M. Phipps 2012 (n 326) para 3-07.6 This statement is based on a passage from Lord Goff in Attorney General v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109 (HL), 281-282: “A duty of confidence arises when confidential information comes to the knowledge of a person (the confidant) in circumstances where he has notice, or is held to have agreed, that the information is confidential, with the effect that it would be just in all circumstances that he should be precluded from disclosing the information to others. I have used the word “notice” advisedly, in order to avoid the (here unnecessary) question of the extent to which actual knowledge is necessary; though I of course understand knowledge to include circumstances where the confidant has deliberately closed his eyes to the obvious (…) I have expressed the circumstances in which the duty arises in broad terms (…) to include certain situations beloved of law teachers –where an obviously confidential document is wafted by an electric fan out of the window into a crowded street into a crowded street, or when an obviously confidential document, such as a private diary, is dropped in a public place, and it is then picked by a passer-by”. Chapter 3. Fragmented protection of trade secrets across the EU 218 the knowledge that the information was confidential, instead of a pre-existing confidential obligation.995 Surreptitious acquisition The surreptitious acquisition of information refers to the obtention of information through “reprehensible means”.996 It encompasses a broad array of activities, such as theft of confidential documents or products to name a few, and may arise in a variety of contexts.997 The main difficulty in applying the breach of confidence action stems from the lack of a relationship between the parties involved.998 In fact, The Law Commission Report on Breach of Confidence from 1981 concluded that it was questionable whether an obligation of confidence might arise based only on the use of reprehensible means in the acquisition of information.999 Notwithstanding this, subsequently commentators and a number of cases argued in favour of establishing liability on the basis that the acquirer knew that the information was confidential and such knowledge derived from the means through which it was obtained.1000 One of the most relevant cases in this regard was Shelley Films v Rex Featured Limited,1001 which concerned the publication of photographs taken during the shooting of a film based on the famous novel Frankenstein by Mary Shelley. The disputed photographs depicted one of the actors in character and were taken inside the studio premises without authorisation c) 995 Tanya Aplin and others (n 22) para 7.51. 996 Law Commission 1981 (n 327) para 4.7. 997 Tanya Aplin and others (n 22) para 7.53 provide a non-exhaustive list of types of conduct that can be considered to be “surreptitious acquisition”. In particular, they mention the following examples: “secret photographic filming, or otherwise recording activities of a person or business, hacking into an encrypted computer to access documents or email correspondence; tapping a telephone or intercepting mail into the post”. 998 Tanya Aplin and others 2012 (n 22) para 7.54. 999 Law Commission 1981 (n 327) para 4.10; Roger M. Toulson and Charles M. Phipps 2012 (n 326) 3-031 argue that this statement is largely based on the finding of Megarry VC in Malone v Commissioner of Police of the Metropolis (No 2) [1979] 2 All ER 620 (Ch), where it was argued that the accidental acquisition of information (in the case at hand by overhearing a conversation or tapping a phone conversation) did not give rise to an obligation of confidence. 1000 Tanya Aplin and others 2012 (n 22) para 7.55. 1001 Shelley Films Limited v Rex Features Limited [1994] EMLR 134 (Ch). § 3 Trade Secrets Protection in England 219 and despite the existence of signs that prohibited the taking of pictures. The plaintiff, the company that produced the film, sought an injunction on the basis of copyright infringement and breach of confidence and argued that the dissemination of the photographs would run counter to the film’s marketing strategy. In the legal grounds of the decision, Martin Mann QC ruled that it was impossible under the specific circumstances of the case that the photographer was not aware that the information was of a confidential nature and that he was not allowed to convey it to others.1002 It further noted that the producing company had an “obvious and stated commercial interest in protecting its substantial investment by, minimally, being able to provide an undisrupted production environment and to control the timing and manner of the release of information about the film (…)”.1003 Hence, the existence of a commercial interest also appears to be one of the elements that courts weigh up when assessing breach of confidence.1004 Third party liability The liability of third parties is still, to date, one of the most controversial topics in the field of trade secrecy law. It refers to situations where information is imparted during the course of a confidential relationship and is later disclosed in breach of confidence to a third party by the confidant. Thus, it differs from the accidental or surreptitious acquisition of information in that negligence, mistake or reprehensible means are not involved (just unauthorised disclosure) and there is an obligation of confidence between the holder of the information and the party that reveals it.1005 The main legal question that arises is whether the recipient outside of the initial confidential relationship is bound by an obligation of confidence.1006 Against this background, a distinction must be drawn between two main d) 1002 Shelley Films Limited v Rex Features Limited [1994] EMLR 134 (Ch), 148. 1003 Shelley Films Limited v Rex Features Limited [1994] EMLR 134 (Ch),148. 1004 Chris D.L. Hunt, ‘Rethinking Surreptitious Takings in the Law of Confidence’ [2011] IPQ 66 where it is argued that obligations of confidence should not extend to surreptitious takers owing to the absence of a pre-existing relationship. The author argues that imposing liability under breach of confidence would distort the main policies underpinning the action, i.e. relationship preservation and remedying unconscionable conduct. 1005 Tanya Aplin and others 2012 (n 22) para 7.103. 1006 Lionel Bently and Brad Sherman 2014 (n 125) 1028. Chapter 3. Fragmented protection of trade secrets across the EU 220 situations: (i) the acquisition of information that occurs with knowledge of the breach, and (ii) acquisition by an indirect recipient who is not aware of the confidential nature of the information. In the first scenario, the case law provides that a third party who receives confidential information knowing that it is confidential will come under an obligation not to disclose it at the time that he receives it.1007 The extent of knowledge required to come under such a duty is linked to the failure of the third party to “observe the standard which would be observed by an honest person placed under those circumstances”,1008 in line with footnote 10 of the TRIPs Agreement.1009 Similarly to the accessory liability for breach of trust or fiduciary obligation, dishonesty has been cited by some commentators and in some authorities as a prerequisite to finding third party recipients liable for breach of confidence. In this regard, Toulson and Phipps concluded that: The important thing is that for a third party to be held liable in equity for a breach of confidence, more is required than merely careless, naive or stupid behaviour; there must be awareness of the fact that the information was confidential or willingness to turn a proverbial blind eye.1010 This passage was later interpreted by Buxton LJ in Thomas v Peace1011 as meaning that dishonesty could be inferred both from the fact that the recipient had actual knowledge of the wrongness and the mere fact that he closed his eyes to it. Bearing this in mind, Aplin, Bently, Johnson and Malynic hold a different view in the second edition of Gurry on Breach of Confidence.1012 In essence, they suggest that dishonest behaviour on the part of the third party should not be considered as a requisite to finding liability. Rather it should be interpreted as a factor pointing towards the existence of actual knowledge. In support of this view, reference is made to Prince 1007 Schering Chemicals Ltd v Falkman Ltd [1982] QB 1(CA), 27 (Shaw LJ); Attorney General v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109 (HL), 260 where Lord Keith stated that: “it is a general rule of law that a third party who comes into possession of confidential obligation which he knows to be such, may come under a duty not to pass it to anyone else”. 1008 Royal Brunei Airlines Sdn. Bhd v Philip Tan Kok Ming [1995] 2 AC 378 (PC), 390. 1009 Roger M. Toulson and Charles M. Phipps 2012 (n 326) 3-069 and Lionel Bently and Brad Sherman 2014 (n 125) 1028-1029. 1010 Roger M. Toulson and Charles M. Phipps 2012 (n 326) para 3-071. 1011 Susan Thomas v Elizabeth Pearce and Another [2000] FSR 718, 721. 1012 Tanya Aplin and others 2012 (n 22) paras 7.110-7.111 § 3 Trade Secrets Protection in England 221 Albert v Strange and the legal position of one of the defendants, Mr Judge. He acquired a number of copies of etchings made by the Queen and Prince Albert for their private use from one of the employees (Mr Middelton) of the printer at Windsor where the impressions had been printed off and intended to make a public exhibition with them. Mr Middelton had in turn taken copies of them in a surreptitious manner.1013 As regards the liability of Mr Judge, the court ruled that he had obtained the etchings knowing that Mr Middelton must have acquired them with “faithlessness, fraud and treachery”.1014 Hence, the Court of Chancery granted an injunction on the basis of an equitable jurisdiction, restraining him from exhibiting the etchings and publishing the catalogue. In the second scenario, the recipient acquires information without being aware of its confidential nature. This would be the case, for instance, if an employer conveyed a trade secret to one of his employees and the latter revealed it to his subsequent employer without him knowing that the information was in fact one of his competitor’s secrets.1015 In such cases, the general principle is that if a person receives information innocently, he is liable as of the date on which he was given notice that the information was obtained as a result of a breach of confidence.1016 Both approaches seem to be in line with the solution presented by the EU legislature in Article 4(4) of the TSD, by virtue of which, the liability of third parties is established if at the time of the acquisition, use or disclo- 1013 Prince Albert v. Strange [1849] 2 De G & Sm 652, 714. 1014 Prince Albert v. Strange [1849] 2 De G & Sm 652, 714. 1015 A similar case was decided in English & American Insurance Co Ltd. v Herbert Smith 2 [1988] FSR 232 (Ch), where the papers of the council acting for the plaintiff in an action pending in the Commercial Court were sent by mistake to the solicitors of the other party. Upon reception of the documents the solicitors did not read the content, but informed their clients, who instructed them to look through the documents. As a result, an action for breach of confidence was brought against the solicitors of the defendant in order to restrain the use of information obtained from those papers. The Judge granted the injunction, arguing that as a general rule, the equitable jurisdiction may provide relief against the world and that only bona fide purchasers for value without notice were excluded from liability. He further noted that in the case at hand, there had been a deliberate decision to acquire the confidential information, which was taken with knowledge that the papers were of a confidential nature. Hence, he concluded that the defendants had no right to use the information contained in the privileged document, as it belonged to the plaintiff. 1016 John Hull, Commercial Secrecy (1st edn, Sweet&Maxwell 1998) para 4.185; see Malone v Commissioner of Police of the Metropolis (No 2) [1979] 2 All ER 620 (Ch). Chapter 3. Fragmented protection of trade secrets across the EU 222 sure they knew (or should have known under the circumstances) that the information had been obtained unlawfully. Hence, knowledge (or reason to know) are at the centre of the assessment of the liability of third parties, both in the English jurisdiction and the TSD, following a gross negligence liability standard. As a final note, it is worth highlighting that the position of bona fide purchasers for value remains controversial, as it has been argued that innocent third parties that in good faith “incurred detriment by paying for the information or perhaps incurring expense of money or effort in consequence of obtaining it (for example in further research and development)” may be exempted from liability.1017 This approach stems from one of the passages in Morison v. Moat, where Turner V.C. noted that the purchaser for value in good faith may be in a different position from other innocent third parties: It might indeed be different if the Defendant was a purchaser for value of the secret without notice of any obligation affecting it; and the Defendant’s case was attempted to be put upon this ground…but I do not think that this view of the case can avail him … So far as the secret is concerned he is a mere volunteer deriving under a breach of trust or of contract.1018 In the light of the above, some commentators have debated the existence of a bona fide defence for value that covers innocent third party recipients in good faith.1019 The implications of adopting this general defence are better explained with an example. Let us take the case of a businessman (X) who pays for confidential information from another (Y) without knowing that the information was obtained by Y breaching the confidence of another person (P). If the above referred to defence is generally accepted, P will not be able to obtain either an injunction or damages against X, even after giving him notice of confidentiality.1020 As a result of the foregoing analysis, the preferred approach is a flexible one, where all of the circumstances of the case are balanced against each other taking into account the divergent interests of the parties.1021 The 1017 Tanya Aplin and others 2012 (n 22) para 7.129. 1018 Morison v Moat [1851] 9 Hare 241, 263-264. 1019 For a more in-depth analysis of this issue see Tanya Aplin and others 2012 (n 22) para 7.121. 1020 A similar example was first presented by Gareth Jones, ‘Restitution of Benefits Obtained in breach of another’s Confidence’ [1970] 86 LQR 463, 48. 1021 Tanya Aplin and others 2012 (n 22) paras 7.136-7.143. § 3 Trade Secrets Protection in England 223 bona fide acquisition of information should not afford an absolute right to continue using the information.1022 Rather, it should be one of the factors taken into consideration by courts when deciding whether to grant the relief. Among these, a key factor should be whether the acquirer of the information changed his position on the information before learning about its confidential nature.1023 That would be the case, for instance, if the acquirer of the information had invested in new machinery or hired new employees based on the disclosure of confidential information. Under such circumstances, providing economic compensation for using the confidential information appears to be more appropriate than granting an injunction.1024 The EU legislature has included a similar approach in Article 13 TSD, by virtue of which national courts may allow a third party to continue using a trade secret after receiving notice of its infringing nature provided that adequate compensation is paid (damages in lieu of injunctions).1025 Unauthorised use Pursuant to Coco v AN Clark, the third requirement to find breach of confidence requires that the information is communicated without authorisation and to the detriment of the party conveying it.1026 Thus, in the first place it is necessary to establish the scope of the obligation of confidence in order to determine whether it has been breached by use, disclosure or some other act.1027 If the obligation stems from an express term in a contract, the scope is determined by means of interpreting the relevant provisions. By contrast, if the duty of confidentiality arises implicitly or in equity, the assessment will be a factual one. It will ultimately depend upon the specific circumstances surrounding each particular case.1028 Accordingly, 3. 1022 Roger M. Toulson and Charles M. Phipps 2012 (n 326) paras 3-063- 3-064 are also reluctant to accept a general bona fide defence for value, as the transfer of property rights does not apply to the position of third party acquirers. 1023 For a more detailed analysis see Tanya Aplin and others (n 22) 7.140 1024 Tanya Aplin and others 2012 (n 22) para 7.140. 1025 See further chapter 3 § 5 C) IV. 4. b). 1026 Coco v A.N.Clark (Engineers) Ltd [1969] RPC 41 (Ch). 1027 Lionel Bently and Brad Sherman 2014 (n 125) 1172-1173 highlight that under English law the use and disclosure of information may be restricted, but not the acquisition. Accordingly, they argue that British law might be in breach of TRIPS, which refers to the disclosure, acquisition and use of information. 1028 Lionel Bently and Brad Sherman 2014 (n 125) 1161. Chapter 3. Fragmented protection of trade secrets across the EU 224 the scope of the obligation is to be determined by what “a reasonable person standing in the shoes of the defendant would understand is not permitted”.1029 In order to find liability under the breach of confidence action it is crucial to show “derivation”, that is, that the information in question has been “directly or indirectly” acquired from the confider.1030 Hence, when information has been generated independently or obtained from other sources no liability arises.1031 In practical terms, this means that during litigation the plaintiff should provide evidence that the defendant acquired the information from him. A clear example would be the case of an employee who uses one of his former employer’s secrets. In this case, the employer should prove that the employee acquired the information from him. Furthermore, the defendant’s state of mind at the time that he receives or uses the information should not be taken into consideration for the purposes of determining whether an obligation has been breached (the fourth prong).1032 It is irrelevant for the breach whether the defendant acted in good faith or not, or had actual knowledge of the secret nature of the information.1033 As stated above, Megarry J in Coco v AN Clark raised the question of whether the misuse of confidential information must be detrimental to the confider in order to trigger liability under the breach of confidence action; i.e. whether damage is an essential element of the action. To date the answer to this question remains unclear, as the case law has provided divergent solutions.1034 1029 Tanya Aplin and others 2012 (n 22) para 10.50. 1030 Saltman Engineering v Campell Engineering [1948] 65 RPC 203 (CA), 213 (Lord Green MR). 1031 Tanya Aplin and others 2012 (n 22) para 15.03; Lionel Bently and Brad Sherman 2014 (n 125) 1176. 1032 William Cornish, David Llewellyn and Tanya Aplin 2013 (n 209) para 8-38 . 1033 Lionel Bently and Brad Sherman 2014 (n 125) 1177. 1034 William Cornish, David Llewellyn and Tanya Aplin 2013 (n 209) para 8-39; in Douglas v Hello! Ltd and others [2007] UKHL 21, [111]-[115] and in Attorney General v Guardian (No 2) [1990] 1 AC 109 (HL), 270 (Lord Griffith), it is submitted that it is necessary to show detriment to find liability under a breach of confidence action, whereas in the same decision at 256 Lord Keith states, “So I would think it a sufficient detriment to the confider that the information given in confidence is to be disclosed to persons whom he would prefer not to know of it, even though the disclosure would not be harmful to him in any positive way”. § 3 Trade Secrets Protection in England 225 Cornish argues that the finding of liability by the mere breaking of confidence is problematic. In particular, he observes that the breach of confidence action imposes limitations on the freedom to use information. Thus, as a matter of public interest, such a restriction requires “sufficient reason”.1035 He further supports the detrimental use requirement by noting that in most economic torts proof of damage is an essential part of an actionable tort.1036 By contrast, Aplin, Bently, Johnson and Malynic suggest that the detriment requirement is already encompassed by the nature of the information and the scope of the obligation. Where an obligation exists, it is indeed likely that an infringement will cause a detriment. However, in certain scenarios where that might not be the case, such as technical secrets and private information, it is argued that the detriment is conceived as a loss of the potential licence fee.1037 Indeed, a review of the relevant case law shows that damage is a condition to find liability only with regard to government secrets, not private information1038 or commercial secrets.1039 The “springboard doctrine” One of the most notable features of the English legal system in the field of confidential information is the development of the so-called “springboard doctrine”. Basically, this doctrine seeks to prevent a situation where a person who breaches an obligation benefits from such conduct.1040 Accordingly, courts may grant injunctive relief in order to prevent the recipient of confidential information obtaining an “unfair start” over their competitors.1041 It mainly aims at fulfilling two policy objectives, i.e. fostering the III. 1035 William Cornish, David Llewellyn and Tanya Aplin 2013 (n 209) para 8-39. 1036 William Cornish, David Llewellyn and Tanya Aplin 2013 (n 209) para 8-39. 1037 Tanya Aplin and others 2012 (n 22) para 15.43. 1038 McKennitt v Ash [2006] EWCA Civ 1714 (CA). 1039 Lionel Bently and Brad Sherman 2014 (n 125) 1177. 1040 Lionel Bently and Brad Sherman 2014 (n 125) 1151; Roger M. Toulson and Charles M. Phipps 2012 (n 326) 4-025 noting that, “The object of the springboard doctrine is merely to ensure that the recipient of confidential information does not obtain an unfair start by misuse of information received in confidence”. 1041 Lionel Bently and Brad Sherman 2014 (n 125) 1151; Roger M. Toulson and Charles M. Phipps 2012 (n 326) 4-025. Chapter 3. Fragmented protection of trade secrets across the EU 226 duty of confidentiality by reducing the potential benefits of using the information disclosed and encouraging “fair relationships” among competitors.1042 It was first formulated in Terrapin Ltd v Builders’ Supply Co (Hayes) Ltd by Roxburh J, who noted that: As I understand it, the essence of this branch of the law, whatever the origin may be, is that as a person who has obtained information in confidence is not allowed to use it as a springboard for activities detrimental to the person who made the confidential communication, and springboard it remains even when all the features have been published or can be ascertained by an actual inspector or member of the public.1043 Notwithstanding this, some of its features are highly controversial. It has been argued that this doctrine goes against the general principle according to which once information enters the public domain it cannot be protected under the breach of confidence action.1044 This issue was addressed by the Law Commission Report on Breach of Confidence. In essence, it was stated that information should not be regarded as effectively in the public domain until it would be “reasonably possible for an interested member of the public in fact to use the information even though some of the information was already available to the public”.1045 In this regard, subsequent decisions have required that protection is only afforded with regard to the unfair advantage that the defendant would obtain if no injunction were granted. Accordingly the scope of such an injunction should not extend beyond the duration of the unfair advantage.1046 Furthermore, in some cases, courts have required the defendants to pay for the information.1047 1042 Lionel Bently and Brad Sherman 2014 (n 125) 1151. 1043 Terrapin Ltd v Builders’ Supply Co (Hayes) Ltd [1962] RPC 375 (Ch), 391; the decision was rendered in 1959 but only reported in 1967. 1044 Roger M. Toulson and Charles M. Phipps 2012 (n 326) 4-025. 1045 Law Commission 1981 (n 327) para 4.31. 1046 Roger M. Toulson and Charles M. Phipps 2012 (n 326) 4-025; in Sun Valley Foods Ltd v Vincent [2000] FSR 825 (Ch), 834-837 it was ruled that the grant of an injunction was subject to the persistence of the unfair advantage on the date of the order. 1047 John Hull 1998 (1016) para 3.43. § 3 Trade Secrets Protection in England 227 Concluding remarks on the comparative law analysis The comparative analysis conducted above underscores that despite the existence of common ground on certain aspects of the protection of trade secrets, there are also substantial differences in their regulation in Germany and England. These range from the lack of clarity as to the cause of action that parties may invoke in England to the two-fold nature of trade secrets protection envisaged in the German UWG. As regards enforcement, there is also uncertainty surrounding the remedies available in Germany and the applicability of the Enforcement Directive in England.1048 Most notably, in both jurisdictions other unsettled issues include the information that departing employees are free to take to their new positions and the assessment of the liability of third parties. Crucially, there is also uncertainty surrounding the circumstances under which reverse engineering should be deemed lawful. Similarly, showing that a detriment to the holder of information has taken place is not necessary in England (per se), whereas in Germany the UWG lays down that the acquisition, use and disclosure of trade secrets must be carried out “for the purposes of competition, for personal gain, for the benefit of a third party, or with the intent of causing damage to the owner of the business, ” which ultimately leads to a different conceptualisation of when misappropriation has taken place. Notably, the standard of liability of third parties seems higher in Germany under the scheme set out in the UWG, where at the minimum conditional intent is required as a result of the criminal law nature of the provision. By contrast, the standard of liability in England is much more flexible and is built upon knowledge and “the observance of the standard which would be observed by a honest man”.1049 In the light of the substantial divergences and their impact on the construction of the Single Market, the EU legislature decided to take legal action to harmonise this area of law. On April 14, 2016 the European Parliament passed the TSD, which provides for minimum standards of protection against the unlawful acquisition, use and disclosure of confidential business information. The main features of the Directive and its legal implications for the assessment of the optimal scope of secrecy constitute the object of study of the remainder of this chapter. § 4 1048 This aspect will become irrelevant after the withdrawal of the UK from the EU. 1049 Roger M. Toulson and Charles M. Phipps 2012 (n 326) para 3-070. Chapter 3. Fragmented protection of trade secrets across the EU 228 The emerging common framework: a critical study of the Trade Secrets Directive Background of the Directive In November 2013, after months of hermetic negotiations, the Commission issued the much-anticipated Proposal for a Directive on the protection of trade secrets.1050 This legislative initiative falls within the framework of the Comprehensive intellectual property strategy adopted in May 2011, aimed at the suppression of the remaining barriers within the Internal Market and the achievement of a “true Single Market” for IPRs by 2020.1051 Strengthening the existing legal regime for the protection of IPRs was identified by the Commission as one of the linchpins of an Innovation Union and an essential factor in order to ensure a growing labour market and the continued competitiveness of the whole EU economy.1052 In the 2011 IPRs Strategy, the Commission took the view that the existing disparities in the national regimes led to a fragmented protection of trade secrets within the Internal Market, as examined throughout chapter 3.1053 In particular, it was noted that the substantial inconsistencies on the national level regarding the nature and scope of trade secrets, as well as the available means of redress and remedies resulted in different levels of protection across the EU. Furthermore, it echoed the increasing vulnerability of trade secrets in relation to unlawful disclosure, acquisition and use. § 5 A) 1050 Commission, ‘Proposal for a Directive of the European Parliament and of the Council on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure’ COM (2013) 813 final (Commission Proposal). 1051 Commission, ‘Communication from the Commission to the European Parliament, the Council, the European and economic and social committee and the committee of the regions. A Single Market for Intellectual Property Rights. Boosting creativity and innovation to provide economic growth, high quality jobs and first class products and services in Europe’ COM (2011) 287 final, 3 accessed 15 September 2018 (Commission, A Single Market for Intellectual Property Rights). 1052 IPRs are regarded by the Commission as a crucial driver for innovation and creativity. As such, it is believed that enhancing the protection of IPRs within the internal market will foster the EU’s economic growth, cultural diversity and international competitiveness; for a more detailed account of the EU’s 2011 IPRs Strategy, see Commission, A Single Market for Intellectual Property Rights (n 1051). 1053 Commission, A Single Market for Intellectual Property Rights (n 1051) 6. § 5 The emerging common framework: a critical study of the Trade Secrets Directive 229 Notwithstanding this, it was concluded that further evidence was required before taking an EU approach in this area. In the light of the above, in March 2011 a study on the legal framework for the protection of trade secrets and parasitic copying in the (at that time) 27 Member States was commissioned to Hogan Lovells International LLP. The primary objective of the study was to conduct a comparative law analysis in order to clarify the legal regime and practices in all of the jurisdictions of the EU. The final report was published in January 2012 and in essence it confirmed what the Commission had hesitantly pointed out in the 2011 strategy: “the law in relation to trade secrets in the EU is a collage”.1054 The outcome of the study showed that there were substantial differences among the 27 Member States with regard to core issues, such as the actual definition of the information that could be protected as a trade secret; the legal basis for protection, i.e. unfair competition, tort law and criminal law; the status of trade secrets as IPRs; the applicability of the Enforcement Directive; and the remedies and means of redress available.1055 In June 2012, the Commission held a conference in Brussels entitled “Trade Secrets: Supporting Innovation, Protecting Know-how” with the aim of facilitating a dialogue with stakeholders. During the conference, the differences among the (at that time) 27 jurisdictions and the economic importance of trade secrets protection in ensuring competitiveness and innovation were analysed and some of the potential policy options were examined.1056 Following the conference with representatives from the industry, a statistical on-the field survey was conducted by Baker McKenzie LLP on behalf of the Commission in order to assess the actual relevance of trade secrets and confidential business information as drivers for innovation, competitiveness and economic growth in the EU. By the end of the consultation period, more than 537 undertakings had participated in the survey, which was included as part of a more extensive study dealing with the economic structure of trade secrets protection in the European Union.1057 From an economic perspective, the Baker McKenzie empirical study revealed that trade secrets constituted an essential element for performance, growth and competitiveness for the vast majority of the companies that re- 1054 Hogan Lovells 2012 (n 793) para 290. 1055 Hogan Lovells 2012 (n 793) paras 288-304. 1056 For further information see accessed 15 September 2018. 1057 Baker McKenzie 2013 (n 469) 12. Chapter 3. Fragmented protection of trade secrets across the EU 230 sponded to the survey (74% of them attached medium or high importance to trade secrets). In the same vein, over a third of them expressed concerns regarding the loss of confidential information.1058 In this context, current and former employees, together with competitors and suppliers were identified as the main sources of risk. The study further indicated that trade secrets misappropriation (whether actual or merely an attempt) results in a “loss of sales (56%), costs for internal investigation (44%), increased expenditure for the protection (35%), cost for negotiating settlements (34%), and costs for prosecuting and litigating (31%)”.1059 Notably, most of the participants supported a potential EU action in order to establish common rules regarding the protection of trade secrets. In particular, participants showed a preference for harmonisation in four areas, which guided the legislative process led by the Commission. The issues of concern highlighted by the participants were: (i) the clarification of the information that can be protected as a trade secret (55%); (ii) the prohibition of acts of misappropriation and the definition of such types of conduct (45%); (iii) the establishment of common rules vis-à-vis criminal sanctions (35, 5%) and (iv) ensuring confidentiality during litigation. At the same time, from December 2012 until March 2013 the Commission carried out an open consultation focussed on the perception and use of trade secrets, which attracted the participation of 386 respondents. Among the contributors were not only private undertakings and business organisations, but also citizens and professionals. The outcome of the consultation showed that most citizens (75%) deemed that trade secrets protection was not a key element for R&D and that the existing legal framework was already too stringent, whereas the vast majority of the responding companies regarded trade secrets as an essential element for R&D and their competitiveness.1060 After conducting the aforementioned studies and consultations, the Commission concluded that there was a case for harmonisation. Thus, the ordinary legislative procedure was initiated,1061 and on November 2012 the “Proposal for a Directive of the European Parliament and of the Council 1058 Baker McKenzie 2013 (n 469) 122-123. 1059 Baker McKenzie 2013 (n 469) 129. 1060 Commission, ‘Explanatory Memorandum of the Proposal for a Directive of the European Parliament and of the Council on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure’ 6. 1061 The ordinary legislative procedure within the EU is regulated in Articles 289 (1) and 294 of the TFEU, and as its name indicates, it is the most common pro- § 5 The emerging common framework: a critical study of the Trade Secrets Directive 231 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure”1062 was published. Along with it, an Impact Assessment was issued by the Commission, in which it was essentially restated that the existing scattered legal protection was detrimental to the competitiveness of the internal market1063 and five potential policy options were analysed.1064 In line with the ordinary legislative procedure, on May 14, 2014 the Council of the European Union presented its General Approach to the proposed Directive.1065 After months of negotiations, the European Parliament and Council adopted the final Draft of the TSD on June 8, 2016. The following sections examine the new legal framework created by the TSD. To this end, section B explores the legal basis and ground for harmonising trade secrets protection within the EU legal framework. Next, a legal analysis of the new obligations set out in the Directive and their implications for the assessment of secrecy is conducted in section C below. cedure followed to enact EU legislation. Prior to the entry into force of the Lisbon Treaty in December 2009, most of the legislative initiatives were started by the Commission upon the request of the Council or the European Council. However, the legislative process is now governed by the co-decision procedure, which essentially consists of the adoption, both by the European Parliament and by the Council of the regulations, directives or decisions, of a proposal presented by the Commission. A more detailed account of the legislative procedures in the EU falls outside the scope of the present research. Nonetheless, the following authors provide an insightful analysis of this topic: Paul Craig and Gráinne de Búrca, EU Law, Text, Cases, and Materials (5th edition OUP 2011) 121-133; Jörn Axel Kämmerer, ‘European Commission’, The Max Planck Encyclopaedia of European Private Law (OUP 2012) 563-565 and Walter Frenz, Handbuch Europa-Recht, vol 6 (1st edn, Springer 2011) 501-528. 1062 Commission, ‘Proposal for a Directive of the European Parliament and of the Council on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure’ COM (2013) 813 final. 1063 Impact Assessment (n 385) 18-21. 1064 Impact Assessment (n 385) 43-45. 1065 Council, ‘General Approach on the Proposal for a Directive of the European Parliament and of the Council on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure’ 2013/0402 (COD) (Council’s Proposal) accessed 15 September 2018. Chapter 3. Fragmented protection of trade secrets across the EU 232 Legal basis and grounds for harmonising trade secrets protection As mentioned in the first chapter of this dissertation, finding a sound justification to harmonise trade secrets protection within the EU is both necessary and desirable to ensure the good functioning of the internal market. For some, the aspirational rhetoric of the TSD resembles that of the Database Directive, which has not fulfilled the economic improvements it was supposed to bring about.1066 The remainder of this section surveys the main objectives of the TSD and analyses the legal basis upon which the legislative initiative is based. The Directive aims to provide a sufficient and comparable level of redress across all Member States against the misappropriation of trade secrets, even though it only provides for minimum standards of protection.1067 One of the main goals of the EU is to ensure the creation of a Single Market without frontiers in which the four freedoms, “free movement of goods, persons, services and capital”, are accomplished.1068 To achieve the creation of the internal market, over time the CJEU has developed a consistent body of case law preventing the adoption of trade rules by Member States that may directly (or indirectly) hinder trade within the EU.1069 B) 1066 This argument is raised by Tanya Aplin 2014 (n 384) 259; a comprehensive evaluation of the economic impact of the Database Directive is provided in Commission, ‘First evaluation of Directive 96/9/EC on the legal protection of databases’ (2005) DG Internal Market and Services Working Paper 24, where it is noted that the sui generis right “economic impact on database production is unproven”. 1067 See Recital 10 TSD. 1068 See Article 26(2) TFEU; in this regard, it is noteworthy that the Treaty does not establish a single right of economic free movement. Instead, a bundle of rights and prohibitions is set forth, in order to limit unjustified restrictions on the freedom of movement and establishment, which would ultimately affect trade between Member States; see further Richard Gordon, EC Law in judicial review (1st edn, OUP 2007) para 16.01. 1069 Case 8/74 Procureur du Roi v Dassonville [1974] ECR I-837, 852: “ All trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, intra-Community trade are to be considered as measures having an effect equivalent to quantitative restrictions”. The scope of this rule was subsequently limited by the CJEU in Joined Cases C-267/91 and C-268/91 Keck and Mithurard [1993] ECR I-6097, para 16, where the Court noted that: “contrary to what has previously been decided, the application to products from other Member States of national provisions restricting or prohibiting certain selling arrangements is not such as to hinder directly or indi- § 5 The emerging common framework: a critical study of the Trade Secrets Directive 233 As regards trade secrets, the disparities among the different national legal regimes resulted in different subject matter being protected and different interpretations of when an unlawful acquisition, use and disclosure of confidential information had occurred.1070 The available means of enforcement also varied from one Member State to another.1071 Consequently, it was regarded that this might hamper the free movement of employees (persons), services and goods. Ohly provided an example of the latter case, which he warned was rather extreme. He explained that it might not be possible to import a product in which a trade secret is embodied into other EU markets, if protection is afforded in the destination market and not the original one.1072 He further added that from an EU law perspective, this would run counter to the principle of free movement of goods, which can only be limited in two instances: (i) to protect intellectual property (Article 36 TFEU);1073 and (ii) to protect fair competition following the doctrine set forth by the CJEU in Cassis de Dijon.1074 Similarly, the different national rules on nonrectly, actually or potentially, trade between Member States within the meaning of the Dassonville judgement (Case 8/74 Procureur du Roi v Dassonville [1974] ECR I-837): “so long as those provisions apply to all relevant traders operating within the national territory and so long as they affect in the same manner, in law and in fact, the marketing of domestic products and of those from other Member States” (emphasis added). 1070 Hogan Lovells 2012 (n 793) para 304. 1071 Ansgar Ohly 2013 (n 13) 39. 1072 Ansgar Ohly 2013 (n 13) 39. 1073 Article 36 TFEU provides the following: “The provisions of Articles 34 and 35 shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States (emphasis added)”;Gintare Surblyte 2011 (n 182) 47 further notes that trade secrets are not covered by Article 36 TFEU. 1074 Case 120/78 Rewe-Zentrale AG v Bundesmonopolverwaltung für Branntwein (Cassis de Dijon) [1979] ECR I-649, para 8: “Obstacles to movement within the Community resulting from disparities between national laws relating to the marketing of the products in question must be accepted in so far as those provisions may be recognized as being necessary in order to satisfy mandatory requirements relating in particular to the effectiveness of fiscal supervision, the protection of public health, the fairness of commercial transactions and the defence of the consumer” (emphasis added). Chapter 3. Fragmented protection of trade secrets across the EU 234 disclosure obligations after the termination of a contractual relationship might negatively affect the mobility of employees from one country to another. In the light of the foregoing, he convincingly concluded that the uneven legislative framework constituted an obstacle to trade and that harmonisation seemed the most appropriate mechanism to overcome it.1075 Aplin held a different view, which was largely based on the results of the Baker McKenzie Industry Survey referred to above. In the first place, she looked into the figures on the risk of exposure and the attempts at misappropriation suffered by the respondents in the last ten years. As regards the first, 38% of the enterprises were of the opinion that the risk had increased, whereas 20,5% reported at least one misappropriation attempt in the last decade. Out of those, only 5,2% had suffered more than five attempts. She considered that those numbers were not particularly alarming and cast doubt upon whether a harmonised system of protection would yield more investment in innovation. According to the survey, 29% of the respondents adopted different measures if they operated in several jurisdictions. In her view, this indicated that there would not be substantial savings in the means adopted by firms in protecting secrecy, which in turn would not result in a higher investment in R&D. The same rationale was applied in connection to collaborative research, as only 24% of the respondent companies were of the opinion that more collaborative opportunities would derive from the alignment of national legislation. However, it is here submitted that the fact that two out of ten market participants had suffered a misappropriation attempt in the last ten years and that three out of ten of the surveyed companies adopted different protection measures if they operated in more than one market seems persuasive enough to justify the alignment of national laws in the field of trade secrets.1076 With the above analysis in mind, the Preamble of the TSD clarifies that the competence to harmonise trade secrets protection across the EU stems from Article 114 TFEU, which sets forth the power of the Parliament and the Council to legislate on measures necessary to ensure the proper functioning of the Single Market. This aspect is further developed in several recitals, where it is explicitly stated that the existing scattered legal framework has a negative impact on the creation of a Single Market without internal barriers to trade.1077 1075 Ansgar Ohly 2013 (n 13) 39. 1076 Tanya Aplin 2014 (n 384) 260; the empirical survey commented results can be found in Baker McKenzie 2013 (n 1057) 126 and the following. 1077 See Recitals (4) and (8) TSD. § 5 The emerging common framework: a critical study of the Trade Secrets Directive 235 Notwithstanding this, legal scholars have warned of the excessive reliance of EU legislative powers on this provision to approximate national regimes, and the little attention that is often paid to whether the national divergences actually have a negative effect on intra-community trade.1078 The CJEU in its Tobacco Advertising decision emphasised that Article 114 TFEU should serve as the legal basis only when the divergences among Member States are likely to hinder the Fundamental Freedoms and thus affect the good functioning of the Single Market.1079 In this context, the role of the Impact Assessment as a means to examine the advisability of taking a legislative action at the EU level is becoming increasingly relevant, as it compels the EU legislature to take into consideration the advantages and disadvantages of each of the policy options analysed.1080 As noted above, the Commission prepared an Impact Assessment in which five potential policy options to address the fragmentation of the Single Market vis-à-vis trade secrets were examined. The first one was to maintain the existing status quo, i.e., keeping the scattered legal protection. The second alternative presented compelled Member States to raise awareness and provide information about the existing means of redress in the case of misappropriation of trade secrets. Option 3 considered the harmonisation of national civil law vis-à-vis the unlawful acts of misappropriation (but excluded remedies and the preservation of confidentiality of trade secrets during legal proceedings). Option 4, by contrast, called upon Member States to harmonise their legal regimes with regard to the available civil law remedies and to implement measures to ensure secrecy during litiga- 1078 Paul Craig and Gráinne de Búrca, EU Law, Text, Cases and Materials (5th edn, OUP 2011) 92-93; this point is further developed by Stephen Weatherhill, ʻCompetence Creep and Competence Controlʼ [2004] 23 Yearbook European L 1. 1079 Case C–376/98 Germany v European Parliament and the Council [2000] ECR I– 8419, para 84 where the Court noted that “(…) A measure adopted on the basis of Article 100a of the Treaty (now Article 114 TFEU) must genuinely have as its object the improvement of the conditions for the establishment and functioning of the internal market. If a mere finding of disparities between national rules and of the abstract risk of obstacles to the exercise of fundamental freedoms or of distortions of competition liable to result therefrom were sufficient to justify the choice of Article 100a as a legal basis, judicial review of compliance with the proper legal basis might be rendered nugatory. The Court would then be prevented from discharging the function entrusted to it by Article 164 of the EC Treaty (now Article 220 EC) of ensuring that the law is observed in the interpretation and application of the Treaty”. 1080 Paul Craig and Gráinne de Búrca, EU Law, Text, Cases and Materials (5th edn, OUP 2011) 93. Chapter 3. Fragmented protection of trade secrets across the EU 236 tion. Finally, harmonising both civil law and criminal law remedies was also considered.1081 In the end, the preferred policy option was to align the laws of the Member States with regard to national civil law remedies against the misappropriation of trade secrets, that is, to implement option 4. This was deemed the most advantageous of the available alternatives, as it would allow the owners to seek protection vis-à-vis infringing parties and stop imports from third countries. According to the Impact Assessment, the harmonisation of rules that ensure the preservation of confidentiality during legal proceedings should boost litigation. All in all, legal certainty should be improved and, accordingly, cooperation between undertakings should also be facilitated. This should ultimately strengthen the incentives to innovate.1082 Consequently, the Impact Assessment concluded that the adoption of the TSD was justified on the basis of two grounds.1083 Firstly, the ineffective protection of trade secrets discouraged innovation activities (including those that take place at a cross-border scale) due to, on the one hand, the low expected value of innovation relying on trade secrets and the higher costs of protecting it, and on the other, the “higher business risk when sharing trade secrets”. This hindered innovation and creativity and diminished investment (Recital 4), which in turn lowered the incentive to engage in cross-border innovative activities (Recital 8). Secondly, it was suggested that the different scope of protection and means of redress available across the 28 Member States caused trade secrets holders to risk losing their competitive advantage and thus reduced their competitiveness. As a result, the Commission determined that there was a case for harmonisation. Legal analysis of the TSD The body of the TSD is divided into a Preamble and four chapters, from which the first three correspond to the three main areas of trade secrets law that are harmonised. The following sections critically analyse the main provisions of the Directive. In the first place, some general remarks regarding the principles that inform it are outlined (section I). Next, the subject matter and scope of application of the Directive are examined (section II). C) 1081 Impact Assessment (n 385) 57-58. 1082 Impact Assessment (n 385) 64-65. 1083 Impact Assessment (n 385) 40-41. § 5 The emerging common framework: a critical study of the Trade Secrets Directive 237 Section III then looks into the types of conduct that are considered lawful, as well as those that are considered infringing and the exceptions thereto. Finally, the main obligations in connection to the enforcement of trade secrets are analysed in section IV. General remarks A detailed analysis of the Directive reveals that the EU legislature has adopted a flexible approach in the regulation of trade secrets protection. This is apparent from the number of open-ended clauses that refer to the general standard of honest commercial practices (in line with Article 10bis(2) PC) enshrined in most of the provisions that regulate the scope of protection, the list of lawful means of acquisition, use and disclosure of trade secrets spelt out in Article 3 and the list of exceptions in Article 5.1084 Flexibility is central in order to achieve a well-balanced Directive that allows for weighing up all of the relevant interests in each individual case.1085 Nonetheless, this legislative technique may interfere with the harmonisation objective pursued by the TSD, as the meaning of “honest commercial practices” may be construed differently in each of the 28 Member States.1086 In fact, this standard is mostly applied as part of the acquis communautaire in the field of trade marks and was excluded from the scope of the Unfair Commercial Practices Directive.1087 Ultimately, divergences in this field should be solved by the CJEU as part of the EU secondary law interpretation.1088 The TSD provides for minimum harmonisation and explicitly mentions that Member States can establish stronger protection than that foreseen in the Directive.1089 Nonetheless, certain restrictions have also been included I. 1084 This argument is raised in Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 10; Mary-Rose McGuire 2016 (n 824) 1006, particularly when compared with the German system as per §§ 17-19 UWG, which followed an “Alles-oder-Nichts-Prinzip” . 1085 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 6. 1086 Tanya Aplin 2014 (n 384) 260; a more detailed account of the meaning of the expression “honest commercial practices” is provided in chapter 2 § 1 A) III. 2). 1087 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 10. 1088 Tanya Aplin 2014 (n 384) 265; see further Article 267 of the TFEU. In the words of Martin Höpner, ‘Der Europäische Gerichtshof als Motor der Integration’ [2011] 21 Berlin J Soziol 203, 204: “The ECJ (now CJEU) has become the engine of European Integration”. 1089 As per Recital 10 TSD. Chapter 3. Fragmented protection of trade secrets across the EU 238 in order to ensure compliance with specific obligations.1090 Some of the most relevant ones provide that Member States shall not adopt higher standards as regards the definition of lawful acquisition, use and disclosure of trade secrets (Article 3) or interfere with the exceptions laid down in Article 5 of the Directive. In this context, it has been suggested that the maximum harmonisation approach adopted by the TSD precludes Member States from including additional exceptions and lawful means of acquiring a trade secret.1091 With respect to the enforcement of secrets, national legal regimes should put in place the procedures, measures and remedies necessary to ensure the availability of civil redress against the misappropriation of trade secrets (Article 6(1)) and ensure that these are governed by the principles of fairness, equity and proportionality (Articles 6(2)) and 7(1)). In the interest of legal certainty, national legislatures are compelled to set forth a statute of limitations, which shall not exceed 6 years (Article 8). In line with the objective of protecting secrecy during litigation, Member States shall ensure that the parties, witnesses or any other persons that have access to a trade secret during the course of a misappropriation proceedings are not allowed to use it or disclose it after the legal proceedings have ended (Article 9(1)), provided that it has not become generally known or a final judicial decision has held that it does not meet the statutory requirements of protection. Likewise, as an alternative to precautionary measures, it shall always be possible to continue using an allegedly infringing secret upon the lodging of specific guarantees by the defendant to compensate for any eventual damage (Article 10(2)). However, this does not include the disclosure of the information. In addition, the possibility of granting an injunction and the conditions to which it is subject are regulated as a maximum standard of protection (Article 13). To be sure, the minimum harmonisation approach conflicts with the ultimate goal of the Directive, i.e. to eliminate barriers within the internal 1090 Article 1(1) paragraph 2 TSD: “Member States may, in compliance with the provisions of the TFEU, provide for more far-reaching protection against the unlawful acquisition, use or disclosure of trade secrets than that required in this Directive, provided that compliance with Articles 3, 5, 6, Article 7(1), Article 8, the second subparagraph of Article 9(1), Articles 9(3) and (4), Articles 10(2), Article 11, 13 and Article 15(3) is ensured. 1091 Christian Alexander, ‘Gegenstand, Inhalt und Umfang des Schutzes von Geschäftsgeheimnissen nach der Richtlinie (EU) 2016/943 1034’ [2017] WRP 1034, para 19. § 5 The emerging common framework: a critical study of the Trade Secrets Directive 239 market.1092 Allowing Member States to provide for stronger protection may also raise concerns as to the relationship between trade secrets and IPRs.1093 From a policy perspective, strengthening the legal regime of trade secrets protection benefits the trade secret holder, but may also have a negative impact on cumulative innovative and creative activities, as there is social value derived from the sharing of information.1094 However, the fact that reverse engineering and independent discovery are regarded as lawful means of acquiring secret information and at the same time maximum standards of protection prevents the creation of an exclusive right and ensures an equilibrium with the IPRs system (and particularly patent law), in accordance with the wording of Recital 16. Another remarkable feature of the Directive is that many central aspects of trade secrets protection are left unregulated. The three most salient ones are: (i) non-disclosure and non-competition agreements after the termination of an employment relationship; (ii) the ownership of trade secrets in cooperation agreements; and (iii) the establishment of claims for information and preserving evidence.1095 As regards the first of these, The Comments of the Max Planck Institute for Innovation and Competition (“the MPI Comments”) highlight that despite the practical relevance of this topic, it does not appear likely that the Directive can provide a univocal answer that foresees all of the potential situations of conflict without interfering with national labour and contract law.1096 The latter points will be dis- 1092 IFRA, ‘Comments on the Proposal for a Directive on the Protection of Undisclosed Know-How and Business Information (Trade Secrets)’ (2014) 2 accessed 15 September 2018; see further Valeria Falce 2015 (n 392) 958, arguing that full harmonisation would allow for ensuring uniform transposition among all 28 EU jurisdictions and creating a “level playing field so as to incentivize and facilitate know-how and the exchange of sensitive information agreements, as well as any form of cooperation among enterprises, inventors and trade secret owners operating in Europe”; similar Mary-Rose McGuire 2016 (n 824) 1005; however, industry representatives have welcomed such an approach, as they believe that the existing differences among Member States are an insurmountable obstacle and Member States should be able to establish stronger protection. In this regard see IP Federation, ‘The EU Trade Secrets Directive’ (2014) Policy Paper PP04/15, 1 15 September 2018. 1093 Valeria Falce 2015 (n 392) 948. 1094 See chapter 1 § 2 B) II. on the incentives to disclose theory in the context of trade secrets. 1095 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) paras 8-9. 1096 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) paras 8-9. Chapter 3. Fragmented protection of trade secrets across the EU 240 cussed in connection with the concept of trade secret holder1097 and the enforcement measures.1098 As a final observation, it should be highlighted that the TSD represents a step forward in the harmonisation of the law of unfair competition in the EU.1099 In line with this, Recital 17 expressly mentions that because of reverse engineering activities, innovators and creators are exposed to parasitic competition and slavish imitation practices “that free ride on their reputation and innovation efforts”.1100 Hence, the Directive calls on the Commission to investigate whether there is a need to take EU-wide action in this area, although it notes that it is not the purpose of the TSD to harmonise unfair competition in general. The wording used in this recital raises concerns insofar as it does not seem to take into account that fairness and legal protection against parasitic copying and slavish imitation are viewed differently across EU jurisdictions1101 and that the general principle in competitive economies is that of freedom of imitation, which may be limited only by the operation of IPRs.1102 Ultimately, such a statement indicates that in the near future these areas will guide the Commission’s legislative action. 1097 See chapter 3 § 5 C) II. 2. 1098 See chapter 3 § 5 C) IV. 1099 Valeria Falce 2015 (n 392) 957. 1100 Recital 17 TSD: “In some industry sectors, where creators and innovators cannot benefit from exclusive rights and where innovation has traditionally relied upon trade secrets, products can nowadays be easily reverse-engineered once in the market. In those cases, those creators and innovators may be victims of practices such as parasitic copying or slavish imitations that free ride on their reputation and innovation efforts. Some national laws dealing with unfair competition address those practices. While this Directive does not aim to reform or harmonize unfair competition law in general, it would be appropriate that the Commission carefully examine the need for Union action in that area”. 1101 Hogan Lovells, ‘Study on Trade Secrets and Parasitic Copying (Look-alikes) – Report on Parasitic Copying’ (MARKT/2010/20/D) paras 106-109 (2012) accessed 15 September; more generally Frauke Henning-Bodewig and others, International Handbook on Unfair Competition (C.H. Beck 2013) para 73. 1102 Ansgar Ohly, ‘The Freedom of Imitation and Its Limits – A European Perspective’ [2010] IIC 506, 520-524. § 5 The emerging common framework: a critical study of the Trade Secrets Directive 241 Scope of application and subject matter covered Scope of application Article 2 lays down the positive scope of application of the Directive, by defining the concepts of “trade secret”,1103 “trade secret holder”, “infringer” and “infringing goods”. Conversely, Article 1(2) sets forth the negative scope of application and expressly notes that the rules laid down in the Directive shall not affect the exercise of the fundamental rights of freedom of expression and information, as laid down in the ChFREU. In addition, the national and EU law provisions that mandate the disclosure of trade secrets for reasons of public interest shall remain unaffected. In a similar vein and in the interest of employee mobility, Article 1(3) clarifies that no restrictions on the mobility of employees can be grounded on the provisions of the TSD.1104 Recital 39 further delimits the material scope vis-à-vis other areas of law and expressly provides that the provisions set forth in the Directive shall not interfere with “the application of other relevant law in other areas including intellectual property rights and the law of contract”. These clarifications are of paramount importance to ensure legal certainty, in particular with regard to employment relations.1105 In addition, Recital 35 provides that the rights and obligations embedded within the Data Protection Directive1106 shall remain unaffected.1107 In this regard, it should be noted that since the adoption of the TSD, the Data Protection Directive has been repealed by the General Data Protection Regulation (“GDPR”),1108 which contains no express clarification as to its relationship with the TSD. However, since Recital 35 TSD expressly pro- II. 1. 1103 A detailed account of the concept of trade secret laid down in the TSD is provided in chapter 4 § 3. 1104 See chapter 6 § 1 A). 1105 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) paras 14 and 15. 1106 Directive of the European Parliament and of the Council 95/46/EC of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data [1995] OJ L281/0031 (Data Protection Directive). 1107 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) paras 14-15. 1108 Regulation (EU) 2016/679 of the European Parliament and of the Council of of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) [2016] OJ L119/01 (GDPR). Chapter 3. Fragmented protection of trade secrets across the EU 242 vides that the rights of the data subject to access, obtain the rectification, erasure or blocking of the data should not be affected by the TSD and as those same rights are included in the GDPR, it seems that the general principle embedded in Recital 35 TSD should also govern the relationship with the GDPR.1109 Yet, uncertainty remains as to the relationship between the TSD and the new rights envisaged in the GDPR, such as data portability.1110 Furthermore, Recital 63 GDPR notes that the right of access to personal data by the data subject “should not adversely affect the rights or freedoms of others, including trade secrets or intellectual property and in particular the copyright protecting the software. However, the result of those considerations should not be a refusal to provide all information to the data subject”. Therefore, it seems that the observance of the rights laid down in the TSD is not absolute and, depending on the specific circumstances of the case, the data subject may have the right to access his personal information, even if it constitutes a trade secret or part of it. Similar concerns were presented in the Opinion of the European Data Protection Supervisor, where it was expressly recommended that an adjudication process be created including national protection authorities, in the event that tension arose between the data subject rights and the trade secret holder rights.1111 The relationship between the Enforcement Directive and the TSD is also problematic. Recital 39 TSD provides that in the event that the two overlap, the application of the latter should be favoured as lex specialis.1112 This statement begs the question of whether the Enforcement Directive is to be 1109 Surblyte Gintare, ‘Data Mobility in the Digital Economy’ (2016) Max Planck Institute for Innovation & Competition Research Paper No. 16-03, 15 accessed 15 September 2018. 1110 Ibid. 1111 See European Data Protection Supervisor, ‘Opinion of the European Data Protection Supervisor on the proposal for a directive of the European Parliament and of the Council on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure’ (2014), para 22 accessed 27 September 2018. 1112 Recital 39 TSD provides that: “This Directive should not affect the application of any other relevant law in other areas, including intellectual property rights and the law of contract. However, where the scope of application of Directive 2004/48/EC of the European Parliament and of the Council and the scope of this Directive overlap, this Directive takes precedence as lex specialis”. § 5 The emerging common framework: a critical study of the Trade Secrets Directive 243 applied to trade secrets in those areas that are not regulated in the latter Directive, namely with regard to the obligation to provide and preserve evidence,1113 information duties,1114 and the liability of intermediaries.1115 Indeed, in 2005 the Commission issued a statement on the rights that were deemed to fall under the scope of protection of the Enforcement Directive and no reference to trade secrets or unfair competition was made.1116 Notwithstanding this, according to Recital 13 of the Enforcement Directive, Member States are free to extend its scope of application to unfair competition. Against this background, a few jurisdictions have extended the obligations enshrined in the Enforcement Directive to the protection of undisclosed information.1117 In this respect, it should be noted that during the initial stage of the TSD negotiations, the Commission considered whether the application of the Enforcement Directive to trade secrets would be an adequate solution to achieve effective protection across the Single Market. This option was dismissed based on the argument that trade secrets were not an IPR.1118 In view of the remaining uncertainty, it is argued that the relationship between the Enforcement Directive and the Trade Secrets Directive will most likely have to be clarified by the submission of a preliminary question to the CJEU. Another potentially conflicting aspect that has already been outlined above is the applicable law from a private international law perspective, which is explicitly excluded from the scope of the Directive pursuant to Recital 37.1119 The law applicable to IPR infringement disputes is governed by Article 8, para 1 of the Rome II Regulation (the law of the place in 1113 Articles 6 and 7 Enforecement Directive. 1114 Article 8 Enforcement Directive. 1115 Article 11(3) of the Enforcement Directive. 1116 Commission, ‘Commission Statement concerning Article 2 of Directive 2004/48/EC of the European Parliament and of the Council on the enforcement of intellectual property rights’ [2005] OJ L94/37: “The Commission considers that at least the following intellectual property rights are covered by the scope of the Directive: copyright, rights related to copyright, sui generis right of a database maker, rights of the creator of the topographies of a semiconductor product, trademark rights, design rights, patent rights, including rights derived from supplementary protection certificates, geographical indications, utility model rights, plant variety rights, trade names, in so far as these are protected as exclusive property rights in the national law concerned”. 1117 Italy, Portugal, Slovak Republic, Rumania and arguably the UK, as noted in Baker McKenzie 2013 (n 1057) 26. 1118 Impact Assessment (n 385) 267-268. 1119 See chapter 1 § 3 B) III; see further Recital 37 TSD: “This Directive does not aim to establish harmonised rules for judicial cooperation, jurisdiction, the Chapter 3. Fragmented protection of trade secrets across the EU 244 which the damage occurs). By contrast, if trade secrets misappropriation is regarded as an act against unfair competition, Articles 6 and 4 of the Rome II Regulation should be applied (the law of the place in which protection is sought). For the sake of legal certainty, it would have been advisable for the TSD to clarify the applicable law in the case of infringement, even though it clearly seems to lean towards an unfair competition approach.1120 As a final remark, it is worth noting that the Directive is limited to civil redress, despite the fact that the comparative law study carried out by Hogan Lovells shows that there are substantial disparities as regards the configuration of criminal penalties and the sanctions imposed in the event of trade secrets infringement.1121 In the Impact Assessment, the Commission took the view that the alignment of criminal law provisions in the field of trade secrets was not appropriate owing to the lack of harmonisation of criminal law at the EU level, the potential deterrence effect it may shield in regard to employment mobility, and the proportionality principle that governs criminal law.1122 Definition of trade secret holder and infringer The concept of “trade secret holder” is defined in Article 2(2) as a natural or legal person who is lawfully in control of the information, in line with Ar- 2. recognition and enforcement of judgements on civil and commercial matters, or deal with applicable law. Other Union instruments which govern such matters in general terms, should, in principle, remain equally applicable to the field covered by this Directive”; and as noted by Thomas Hören and Reiner Münker, ‘Die EU-RL für den Schutz von Geschäftsgeheimnissen und ihre Umsetzug’ [2018] WRP 150, 151 para 4. 1120 This is developed in Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 17. 1121 Hogan Lovells 2012 (n 793) paras 254-256. 1122 Impact Assessment (n 385) 64-65; Björn H. Kalbfus, ‘Die EU-Geschäftsgeheimnis-Richtlinie - Welcher Umsetzungsbedarf besteht in Deutschland?’ [2016] GRUR 1009, 1009; the consultations for the Directive started while the Anti- Counterfeiting Trade Agreement (ACTA) was still being negotiated and was eventually rejected by the European Parliament on June 2012. In this post-AC- TA scenario, the Commission considered that any attempt to harmonise criminal sanctions would face strong opposition from the Parliament and the citizens of the EU in general. § 5 The emerging common framework: a critical study of the Trade Secrets Directive 245 ticle 39(2) TRIPs.1123 Article 4(1) further adds that the trade secret holder is the person entitled to apply for the measures, procedures and remedies set forth in chapter III of the Directive. Against this background, it might be noted that the Directive does not refer to the owner, but instead resorts to the notion of control.1124 Hence, the decisive factor is not who has created the information, but rather who exercises control over it.1125 Yet, the TSD does not provide any rules regarding the assessment of the control over the information and the establishment of the ownership of trade secrets; this is left unregulated.1126 Accordingly, it is up to the Member States to set forth the rules that determine who is the rightful holder and who has a standing to sue. This is particularly relevant in the context of collaborative agreements and with regard to the possibility that exclusive and non-exclusive licensees bring legal action against alleged infringers,1127 in contrast to the DTSA, which refers to “owners”.1128 The wording used by the Directive also leaves open whether those who obtain a trade secret after reverse engineering a marketed product or employees who gain knowledge of secret information during the course of their employment with consent should also be regarded as trade secret holders.1129 It has been suggested that the Directive should not aim at providing such a detailed and precise regulation, but instead it should be agreed upon contractually between the parties or determined by the application of the relevant law.1130 Indeed, the ownership of trade secrets is largely dependent on the regulation of employee creations and in- 1123 Article 39(2) TRIPs provides that: “Natural and legal persons shall have the possibility of preventing information lawfully within their control from being disclosed to, acquired by, or used by others without their consent in a manner contrary to honest commercial practices (10) so long as such information (…)” (emphasis added). 1124 On this specific issue, the TSD differs from the DTSA, pursuant to which only owners have legal standing. 1125 Thomas Hören and Reiner Münker 2018(b) (n1119) para 9. 1126 Thomas Hören and Reiner Münker 2018(b) (n1119) para 9. 1127 Tanya Aplin 2015 (n 306) 435. 1128 Further Victoria A. Cundiff and others 2016 (n 789) 740 note that: “Plaintiffs may argue that this definition confers standing to more than just the owner or exclusive licensee of the trade secret, such as non-exclusive licensee who controls the trade secret, which potentially broadens the application of the Directive as compared with the DTSA”. 1129 Tanya Aplin 2014 (n 384) 264; Christian Alexander 2017 (n 1091) para 69 convincingly argues that those that create the trade secret independently should also be regarded as trade secret holders. 1130 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 9. Chapter 3. Fragmented protection of trade secrets across the EU 246 ventions, which in most Member States consist of a piecemeal regulation in the employment and labour statutes.1131 Consequently, aligning the regulations of Member States with regard to such a complex topic might have exceeded the scope of harmonisation in the context of trade secrets. However, the absence of a uniform approach may lead to a divergent solution among Member States’ courts and may potentially interfere with the harmonisation goals pursued by the Directive.1132 At the other end of the spectrum, the term infringer is defined as “any natural and legal person who has unlawfully acquired, used or disclosed trade secrets”. This provision is one of the milestones of the Directive, as it provides common ground across the EU on the potential liability of legal persons for trade secrets misappropriation. Infringing goods The term infringing goods is used to refer to “goods the design (in French “conception”), characteristics, functioning, production process or marketing of which significantly benefit from trade secrets unlawfully acquired, used or disclosed”. This definition poses a number of interpretative questions, particularly in connection with the causal relationship between trade secrets and the infringing goods. Firstly, in accordance with Recital 26 TSD, it appears that the term “infringing goods” refers both to products and the provision of services. However, while it is true that establishing causality between the design and manufacturing process of a product and a trade secret may be rather straightforward, this appears more problematic in other instances, such as in the provision of services based on the unlawful acquisition, use or disclosure of a trade secret or the marketing strategy followed to commercialise certain products. In particular, it has been suggested that according to the literal wording of Article 2(4) TSD, if a company unlawfully acquires a competitor’s customer list to position his products in the marketplace better, the product as such may be considered as infringing, even though its characteristics bear no connection with the misappropriated 3. 1131 For an overview of the provisions that govern the ownership of employee inventions in Germany see Kurt Bartenbach and Franz-Eugen Volz, Arbeitnehmererfindungen (6 edn, Carl Heynemanns Verlag 2014). 1132 Tanya Aplin 2014 (n 384) 265. § 5 The emerging common framework: a critical study of the Trade Secrets Directive 247 list.1133 In this respect, the MPI Comments convincingly conclude that it is beyond the scope of the Directive to regard as infringing products that are commercialised under a marketing campaign that was conceived on the basis of an unlawfully acquired customer list.1134 In this context, it is worth noting that initially the Draft Proposed by the Commission in 2013 referred to goods, the quality of which significantly benefitted from the misappropriated trade secret. The inclusion of this term was vehemently criticised, as it was noted that ascertaining the relationship between the quality of a product and a trade secret is extremely difficult. It was argued that the term “characteristics” was more suitable, as it encompassed a broader spectrum of features other than just its quality. In the final version of Article 2(4), the expression “quality” was replaced by “characteristics”.1135 However, surprisingly Recital 28 still refers to the quality of the product resulting from the misappropriation of trade secrets in the context of the seizure of products and the prohibition of importation, which may lead to an over-extensive application of this provision. Indeed, requiring that the “infringing goods” “significantly benefit” from the allegedly infringed trade secret seems a very open-ended standard that puts little emphasis on the causal link between the production of the goods and the actual use of a trade secret.1136 This benchmark is manifestly different to the test usually applied in other fields of intellectual property.1137 For instance, in patent law, in order to find an infringement it is required that the products are “directly” obtained from the patented pro- 1133 Thomas Hören und Reiner Münker 2018(a) (n 860) 86. 1134 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 23; GRUR, ‘Opinion on the proposal for a Directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure, COM (2013) 813 final’, para 1.b) accessed 15 September 2018 . 1135 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 23. 1136 GRUR, ‘Opinion on the proposal for a Directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure, COM (2013) 813 final’, 5 accessed 15 September 2018; also Thomas Hören und Reiner Münker 2018(a) (n 860) 86; Björn H. Kalbfus 2016 (n 1122) 1014. 1137 Tanya Tanya Aplin 2014 (n 384) 267-269. Chapter 3. Fragmented protection of trade secrets across the EU 248 cess1138 or that a third party knows that the means supplied to him are intended to infringe a patented invention.1139 Against this background, some have suggested that if at least half of the total expenditure required for the development, production or distribution of a product can be attributed to the trade secret, it should be regarded as “infringing”.1140 However, such an absolute test seems too rigid, because with complex products that incorporate multiple inventions (for example, smart phones), if only one of them is misappropriated, it is likely that it represents less than 50% of the total expenditure in view of the other inventions incorporated in the product. However, the product as such should be considered as infringing. Consequently, it is submitted that courts should follow a more nuanced approach, whereby the percentage of expenditure in the development, production and marketing is just one of the factors to be taken into consideration, alongside the importance of the information for the commercial success of the product or service rendered or the potential harm to the lawful holder, to name some. In this regard English courts resort to a degree test in order to consider whether a given product infringes a trade secret, which seems particularly pertinent:1141 It is not every derived product, process or business which should be treated as camouflaged embodiment of the confidential information and not all on-going exploitation of such products, processes or business should be treated as continued use of the information, it must be a matter of degree whether the extent and importance of the use of the confidential information in such a continued exploitation of the derived material should be viewed as continued use of the information.1142 In the light of the previous arguments, it appears that courts will have to emphasise the need to establish a causal link between the trade secret and the allegedly infringing good, which will ultimately be a matter of degree. Otherwise, the potential to regard goods as infringing may be too far- 1138 See Article 64(2) EPC: “If the subject matter of the European patent is a process, the protection conferred by the patent shall extend to the products directly obtained by such process”; see further Article 25 Agreement on a Unified Patent Court. 1139 Agreement on a Unified Patent Court [2013] OJ C175/1 (Agreement on a Unified Patent Court), Article 26 (1). 1140 Christian Alexander 2017 (n 1091) para 107. 1141 Tanya Aplin 2014 (n 384) 268. 1142 Ocular Sciences Ltd v Aspect Vision Care Ltd [1997] RPC 289, [404]. § 5 The emerging common framework: a critical study of the Trade Secrets Directive 249 reaching, much broader than the concepts traditionally applied in intellectual property law and expand to items that bear no factual connection with the confidential information in question. Ultimately, this may impose undue limitations on the ability of other market participants to commercialise competing products.1143 Scope of protection: the assessment of misappropriation and lawful conducts Chapter III of the Directive sets forth the circumstances under which the acts of acquisition, use and disclosure of trade secrets are deemed lawful (Article 3) or unlawful (Article 4), and the exceptions thereto (Article 5). The following sections delve into the study of the scope of protection of the TSD following the systematic structure of this chapter. Hence, it starts by examining the cases of lawful acquisition, use and disclosure (section 1); next, it looks into the regulation of the types of infringing conduct (section 2) and finally it studies the exceptions to the latter (section 3). Lawful acquisition, use and disclosure Article 3 spells out a number of types of conduct that should be considered lawful, thereby enhancing legal certainty for market participants1144 and maintaining the equilibrium with the intellectual property law system. From a systematic perspective, the types of conduct regulated under Article 3 seem to exclude ex ante liability for misappropriation, while the exceptions set out under Article 5 require the competent judicial authorities to carry out a balancing test, taking into account the specific circumstances of the case.1145 Firstly, in accordance with most Member States’ practice, the Directive clarifies that independent discovery or creation shall be considered lawful means of acquiring undisclosed information (Article 3(1)(a) TSD). This topic is discussed further in chapter 61146 as one of the limitations to secrecy. For now, it suffices to note that regarding independent discovery as a III. 1. 1143 Christian Alexander 2017 (n 1091) para 107. 1144 Christian Alexander 2017 (n 1091) para 74. 1145 Thomas Hören and Reiner Münker 2018(b) (n 1119) para 19. 1146 Chapter 6 § 2 A). Chapter 3. Fragmented protection of trade secrets across the EU 250 lawful way to acquire confidential information is consistent with the fact that trade secrets are not deemed the object of an exclusive right (Recital 16) and at the same time maintains the balance with the intellectual property system.1147 One of the milestones of the Directive is the introduction of a general clause that allows for reverse engineering lawfully acquired products. Article 3(1)(b) defines this as the “Observation, study, disassembly or test of a product or object that has been made available to the public or that is lawfully in the possession of the acquirer of the information who is free from any legally valid duty to limit the acquisition of the trade secret”. The establishment of common ground rules on reverse engineering represents a major step forward in the light of the divergent interpretations adopted by the EU Member States1148 and their economic impact on the Internal Market.1149 Indeed, with the introduction of the general reverse engineering exception, the EU has taken a similar approach to the governing principle in the U.S., where it has been accepted for many years and is deemed a necessary counterbalance to the patent system. In effect, the U.S. Courts and the DTSA regard reverse engineering as a valid and powerful defence against misappropriation actions.1150 The implications of such an approach for the interpretation of secrecy are further discussed in chapter 6.1151 In addition, Article 3(1)(c) deems lawful the acquisition of information that constitutes a trade secrets if it is acquired by employees (or employees’ 1147 James Pooley 2002 (n 66) § 5.01[1] 5-3. 1148 In Germany, for instance, reverse engineering was not allowed as such. Following the German Federal Supreme Court Decision RGZ 1935 149, 329, 335– Stiefeleisenpresse, courts should assess whether the information is obtained through great difficulty and cost, that is, whether it is secret. If that is the case, the obtention of information through reverse engineering will be deemed unlawful. 1149 Baker McKenzie 2013 (n 1057) 125. 1150 Against this background, it is important to note that the UTSA does not expressly refer to independent creation or reverse engineering as exceptions to the rights in a trade secret; Roger M. Milgrim 2014 (n 160) § 1.05(2), 1.07(01) argues that courts have regarded both of them as an inherent corollary to the secrecy requirement. Consequently, a number of States have incorporated these exceptions into the wording of their Trade Secrets Acts. This is the case of § 3426.1(a) of the California Civil Code. 1151 Chapter 6 § 2 B). § 5 The emerging common framework: a critical study of the Trade Secrets Directive 251 representatives) during the exercise of their right to information and consultation, as regulated under EU or national statues.1152 In line with the flexibility principle that informs the Directive, Article 3(1)(d)1153 resorts to a broad unfair competition clause and provides that the acquisition of a trade secret should be regarded as lawful so long as it is in accordance with honest commercial practices. Ultimately, the appraisal of whether secret information has been lawfully acquired will depend upon the interpretation of the broader and splendidly imprecise expression of what is regarded as “honest commercial practices”.1154 As noted above, such a flexible approach may contribute to enhancing the legal fragmentation among Member States, but at the same time may allow for better adaptation to the evolving technological means and the different legal traditions. Some have in fact drawn parallels between this provision and the fair use limitations that govern trade mark and copyright limitations in the U.S. legal system.1155 Finally, Article 3(2) provides that the acquisition, but also the use and disclosure mandated or permitted pursuant to EU or national provisions should be deemed lawful.1156 Types of infringing conduct In line with the minimum standards set out in Article 39(2) TRIPs, the EU legislator stipulated that the unlawful acquisition, use and disclosure of trade secrets constitute infringing types of conduct. Due to their broad scope, these rules appear to be related more to unfair competition than to intellectual property law provisions, which seems to indicate that the Directive leans towards an unfair competition approach, even though this is not expressly mentioned in the text.1157 Remarkably, the Directive does not define any of the infringing types of conduct. Instead, the EU legisla- 2. 1152 Christian Alexander 2017 (n 1091) para 74. 1153 Ultimately, the unlawful acquisition, use and disclosure of secret information is premised on acts contrary to honest commercial practices, as per Art 4(2)(b) TSD. 1154 For a detailed account of the interpretation of the “honest commercial practices” see chapter 2 § 1 A) III. 2. 1155 Thomas Hören and Reiner Münker 2018(b) (n 1119) para 23. 1156 This is discussed further in chapter 4 § 4 C) 2. c). 1157 Contrary, Mathias Lejeune ‘Die neue EU Richtlinie zum Schutz von Know- How und Geschäftsgeheimnissen’ [2016] CR 330, 331. Chapter 3. Fragmented protection of trade secrets across the EU 252 ture preferred to spell out a list of examples and included a final open-ended clause that refers to the general standard of “general commercial practices” enshrined in Article 10bis PC with regard to unlawful acquisition. Consequently, some commentators have argued that Article 4 sets forth a “blacklist” of types of conduct that, when carried out by the infringer, are objectively deemed unlawful (strict liability).1158 However, this statement is not completely accurate, particularly because the liability of third parties and importers requires at least gross negligence. In the light of the above consideration, the following four sections look into the types of conduct that are deemed illicit by the Directive, namely the unlawful acquisition of secret information (section a); the unlawful use and disclosure of trade secrets (section b); the liability of third parties (section c); and the import and export of infringing goods (section d). Unlawful acquisition Pursuant to Article 4(2), the acquisition of a trade secret will only be regarded as unlawful if it is carried out without the consent of the trade secret holder.1159 Next, the Directive provides a number of examples of actions that are to be considered unlawful acquisition of undisclosed information. These are the “unauthorised access to, appropriation of, or copy of any documents, objects, materials, substances or electronic files, lawfully under the control of the trade secret holder, containing the trade secret or from which the trade secret can be deduced”.1160 Thereupon, section (b) clarifies that any other conduct contrary to honest commercial practices may also be deemed an unlawful acquisition under the circumstances. Thereby, it expands the scope of Article 4(2) beyond the acts previously listed. Ultimately, the inclusion of such a flexible clause is in line with Article 10bis of the PC and Article 39(2) TRIPs and underscores the unfair competition nature of the protection afforded by Directive.1161 It also provides sufficient leeway to adapt to future technological developments that a) 1158 Mary-Rose McGuire 2016 (n 824) 1007-1006; Clemens Koós, ‘Die europäische Geschäftsgeheimnis-Richtlinie – ein gelungener Wurf? Schutz von Know-How und Geschäftsinformationen – Änderungen im deutschen Wettbewerbsrecht’ [2016] MMR 224, 225. 1159 Björn H. Kalbfus 2016 (n 1122)1013. 1160 Article 4(2)(a) TSD. 1161 Thomas Hören and Reiner Münker 2018(b) (n 1119) 152. § 5 The emerging common framework: a critical study of the Trade Secrets Directive 253 may create new means of misappropriating information that could not have been foreseen at the time that the TSD was drafted. At this point, it is worth noting that in the first draft presented by the Commission, “intentionality” or “gross negligence” were prerequisites to regard an acquisition as unlawful. Yet, such an approach was criticised because these standards of fault should only be taken into consideration in the establishment of sanctions, not vis-à-vis the infringing conduct as such.1162 In addition, it was suggested that section (b), which has an overarching effect, is an unfair competition law provision, where fault is not a requirement to find liability.1163 In this context, it is not required that the acquisition of a trade secret is detrimental to the trade secret holder or that it is carried out “for the purposes of competition”, “for personal gain”, “for the benefit of a third party”, or “with the intent of causing damage to the owner of the business or trade secret holder”, as required by several national jurisdictions before the adoption of the Directive, such as Spain (Article 13(3) of the Spanish Unfair Competition Act) and Germany (as per § 17 UWG). In the Commission’s draft, additional examples of types of infringing conduct were also included, namely theft, bribery and deception. However, these are criminal law concepts that require, at least, an implicit intent on the part of the infringer to be actionable. Gross negligence is insufficient to find criminal liability in these cases.1164 More importantly, these offences have not been harmonised across the 28 EU Member States. Therefore, inconsistencies in their interpretation may have arisen, thus hampering the ultimate harmonisation objective.1165 In view of this, in the final version “intentionality” and “gross negligence” were omitted as preconditions to find an infringement under Article 4(2).1166 Similarly, theft, bribery and deception were deleted from this provision, in line with the exclusion of harmonisation in the field of criminal sanctions. However, this has given rise to some criticism from commentators, who understand 1162 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 27 noting that “as a matter of principle, fault on the part of the infringer should only play a role when determining the sanctions. As such, a claim for damages usually requires fault, while it is not taken into consideration in a claim for injunctive relief”; Mary-Rose McGuire 2016 (n 824) 1007; Mathias Lejeune 2016 (n 1157) 334. 1163 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 27. 1164 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 27. 1165 Tanya Aplin 2014 (n 384) 265. 1166 Thomas Hören and Reiner Münker 2018(b) (n 1119) 153. Chapter 3. Fragmented protection of trade secrets across the EU 254 that the mere fact that any of the types of conduct spelt out in Article 4(2) TSD are objectively carried out allows for the application of the sanctions set out in chapter III of the TSD is at odds with many national legal regimes (namely Germany) and equates trade secretes protection with IPRs protection.1167 Unlawful use and disclosure Article 4(3) regulates the unlawful “use” and “disclosure” of trade secrets. The term “use” refers to the commercial exploitation of the secret in any manner, whereas the term “disclosure” captures the act of making available information to unauthorised third parties or the general public.1168 Just as in the case of unlawful acquisition, this provision also requires lack of consent. In addition, the infringer (a) must have acquired the trade secret unlawfully, as per article 4(2); or (b) must be in breach of a confidentiality agreement or a duty to maintain secrecy; or (c) must be in breach of a contractual or any other duty to limit the use of the trade secret.1169 Following the legal reasoning applied above in connection with unlawful acquisition, intentionality and gross negligence were deleted from the final draft as preconditions for finding liability in the case of unlawful use and disclosure.1170 This has not been without criticism, as many have suggested that the objective nature of the liability set forth in paragraphs 2 and 3 of Article 4 affords intellectual property-like protection to trade secret holders, because if the types of conduct that they refer to are objectively carried out, they will trigger the same consequences as formal IPRs infringement.1171 However, such an approach disregards the fact that Article 3 and 5 seem to provide sufficient safeguards against erga omnes enforcement of trade secrets irrespective of the manner in which the information is acquired. Consequently, the EU legislature rightfully stipulated that fault should only play a role in connection to acquisition by third parties, as discussed in the following section.1172 b) 1167 Thomas Hören and Reiner Münker 2018(b) (n 1119) 153. 1168 Christian Alexander 2017 (n 1091) para 74. 1169 Mathias Lejeune 2016 (n) 333-334. 1170 Tanya Aplin 2014 (n 384) 265. 1171 Thomas Hören and Reiner Münker 2018(b) (n 1119) para 15. 1172 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 31. § 5 The emerging common framework: a critical study of the Trade Secrets Directive 255 Third party liability The term “third party liability” refers to those situations where information is obtained from someone who is under an obligation of confidence or someone who has acquired it unlawfully, and it is subsequently used or disclosed by the third party, who has not breached any duty of confidence as such, or employed improper means to obtain it. This issue is addressed in Article 4(4) of the Directive, which to a large extent mirrors the wording of § 1(2)(ii)(B) UTSA.1173 In essence, it expands the scope of the unlawful use or disclosure of a trade secret to any third parties who knew or should have known under the circumstances that the information was acquired by a person who acquired it, used it or disclosed it unlawfully.1174 The secret may have been obtained directly or indirectly from another person. The wording of Article 4(4) refers to “knowledge” and the fact that the trade secret holder “should have known under the circumstances” that the information was unlawfully acquired. This seems to introduce an element of fault in the appraisal of liability by imposing a duty of care on the side of the acquirer, in line with footnote 10 of the TRIPs Agreement, where gross negligence (not strict liability) is the applicable liability standard in the case of third party acquisition.1175 The rationale behind this provision is to prevent third parties hiding behind a so-called “veil of wilful ignorance”.1176 However, this has also given rise to criticism from some commentators, who believe that the fact that the mere “knowledge” and “gross negligence” in the use of a trade secret illicitly obtained suffices to trigger the sanctions set out in chapter III of the Directive leads an overprotection of the trade secret holder.1177 Such an approach seems to be in line with the prevailing case law in England, but broadens the liability of third parc) 1173 § 1(2)(ii)(B) UTSA provides that, “Misappropriation includes acquisition by one who knows “or has reason to know” that the secret was acquired by improper means, or who gets it from such a person and thereafter uses or discloses it”; in a similar vein, see Restatement (Third) of Unfair Competition § 40 (Am. Law Inst. 1995) comment d. 1174 Article 4(4) TSD. 1175 Mathias Lejeune 2016 (n 1157) 334; footnote 10 of the TRIPs Agreement, provides as an example of practices contrary to honest commercial practices in the context of undisclosed information “the acquisition of undisclosed information by third parties who knew, or were grossly negligent in failing to know, that such practices were involved in the acquisition”. 1176 James Pooley 2002 (n 66) § 6.04[1] 6-31. 1177 Thomas Hören and Reiner Münker 2018(b) (n 1119)153. Chapter 3. Fragmented protection of trade secrets across the EU 256 ties in Germany, which is limited to conditional intent (“Vorsatz” or “Bedingter Vorsatz”).1178 This complex scenario is best illustrated with an example. Let us take for instance the case of a supplier of raw materials (Raw S.L.) that provides exclusively all the necessary materials and compounds to a French cosmetic firm (Beauty Care) for the production of a very effective antiaging cream (Stop fine lines), which competitors have since unsuccessfully tried to reverse engineer and which is the company’s most valuable trade secret. As the sole supplier, the members of the Board of Raw S.L. and its chemists (Mr. Smith) have had access to the formula of Stop fine lines under strict confidentiality obligations. After some years, the parties cannot reach an economic agreement and the supply contract is terminated. A few weeks after the termination of the agreement, Raw S.L. approaches a competing cosmetic company in Germany (SKIN Harmony) claiming that it has developed a cream that is just as effective as Stop fine lines (the so-called “Magic Cream”) and offers to provide the formula to SKIN Harmony under the condition that Raw S.L. becomes the sole provider of SKIN Harmony. Once the new product reaches the market, SKIN Harmony realises, upon receiving a cease and desist letter from Beauty Care, that the new competing product in fact uses the secret formula of their best-selling cream Stop fine lines, with a few minor variations regarding the perfume used. Under this factual scenario and following the new Directive rules, Raw S.L. could be held liable for trade secrets infringement pursuant to Article 4(3) (unlawful disclosure) and SKIN Harmony under Article 4(4) from the date on which the cease and desist letter was sent.1179 Against this background, Article 13(3) TSD along with Recital 29 provides further guidance regarding the potential liability of a legal or natural person who gained knowledge of a trade secret in good faith but after some time became aware that the information had been acquired from the original holder in an unlawful manner. In such a case, where appropriate, instead of granting injunctions or corrective measures that would disproportionately affect the third party, national courts shall award a pecuniary compensation (i.e. damages in lieu of injunction), in line with the bona 1178 Björn Kalbfus 2016 (1305) 1014. 1179 To avoid such situations in the context of departing employees, in the U.S. it is a common practice that employers demand that their new employees sign written statements declaring that their new position will not require them to breach any duty of confidence; see further James Pooley 2002 (n 66) § 6.04[1] 6-31. § 5 The emerging common framework: a critical study of the Trade Secrets Directive 257 fide defence for value discussed in the context of England.1180 This should not exceed the amount of a reasonable royalty for the period of time for which the use of a trade secret could have been prevented, as analysed below.1181 Finally, the liability of third parties in the digital age raises the question of whether intermediary service providers (such as Reddit or Facebook) may be considered liable under Article 4(4) TSD for the mere hosting of information that was unlawfully acquired, used or disclosed by a third party that uses the services provided by these intermediaries to disseminate the trade secret. In particular, liability may arise if upon being notified by the trade secret holder about the infringing nature of the information, the intermediary service provider does not proceed to take it down. In such a context, it may be considered that the intermediary is carrying out a disclosure that triggers liability under Article 4(4) TSD and which falls outside of the scope of the hosting safe harbour established in Article 14(1) of the Directive on electronic commerce.1182 Pursuant to paragraph (a) of this this provision, “actual knowledge” of the infringing conduct triggers liability for the service provider. Considering this uncertainty and the fact that the TSD does not allude to the responsibility of intermediaries, unlike Article 11 of the Enforcement Directive, it seems that the CJEU will ultimately have to provide guidance regarding the potential liability of intermediary service providers for the disclosure of trade secrets that they host, the relationship between the TSD and Article 11(3) of the Enforcement Directive and the applicability of the safe harbour established in Article 14(1) of the Directive on electronic commerce. Import and export Article 4(5) of the Directive sets out additional circumstances that constitute an unlawful use of a trade secret. This paragraph aims to preserve the good functioning of the internal market against (i) the exportation of infringing goods manufactured within the EU into another Member State, d) 1180 Chapter 3 § 3 C) II. 2. d). 1181 Chapter 3 § 5 C) IV. 4. b). 1182 Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market [2000] OJ L178 (Directive on Electronic Commerce). Chapter 3. Fragmented protection of trade secrets across the EU 258 and (ii) the importation of goods manufactured outside the Single Market. The wording of the provision is as follows: The production, offering or placing on the market of infringing goods, or the importation, export or storage of infringing goods for those purposes, shall also be considered an unlawful use of a trade secret where the person carrying out such activities knew, or ought, under the circumstances, to have known that the trade secret was used unlawfully within the meaning of paragraph 3. In the Explanatory Memorandum, the Commission noted that in recent years confidential information has become increasingly vulnerable due to a number of factors, including globalisation, outsourcing, longer supply chains and the increased use of ICT. This, in turn, can lead to a situation where goods manufactured outside of the EU by an infringer have to compete in the internal market with those produced by the trade secret holder.1183 Accordingly, Recital 28 highlights the importance of banning the importation or storage of these goods with the aim of putting them into the market. Such a prohibition has crystallised in Article 4(5), reproduced above, and appears to echo the spirit of the ACTA, which was finally rejected by the European Parliament in July 2012 after a long and controversial negotiation process.1184 The starting point of this analysis should be to note that Article 4(5) TSD proscribes the use of infringing goods and not the trade secret as such.1185 It suffices that the traders know or have reason to know that the products derived from the trade secrets of a third party are being unlawfully produced, offered or placed in the market, or exported, imported or stored for any of these purposes.1186 In such a context, the liability of importers and exporters extends to every member of the distribution chain who had “knowledge” or should have known under the circumstances that the trade secret was used unlawfully. Consequently, the applicable stan- 1183 Commission, ‘Explanatory Memorandum of the Proposal for a Directive of the European Parliament and of the Council on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure’ 3. 1184 In essence, the Agreement aimed at strengthening the effective enforcement of IPRs at an international level vis-à-vis “the proliferation of counterfeit and pirated goods”. 1185 Thomas Hören und Reiner Münker 2018(a) (n 860) 86. 1186 Thomas Hören und Reiner Münker 2018(a) (n 860) 86. § 5 The emerging common framework: a critical study of the Trade Secrets Directive 259 dard of liability is the same one as with respect to third parties, as set out in Article 4(4) TSD.1187 To be sure, the rules spelt out in Article 4(5) affect not only the export of products from third countries, but also intra-Community trade, which may lead to restraint of the free movement of goods under Article 34 TFEU.1188 Such a limitation could nonetheless be justified as a mandatory requirement to protect fair competition following the Cassis de Dijon Doctrine and its subsequent development by the CJEU.1189 Yet, forbidding the production, offering or placing in the market of infringing goods already ensures the protection of trade secrets across the 28 Member States. Hence, as argued in the MPI Comments, such a restriction appears unnecessary and should only be taken into consideration as regards export and import activities vis-à-vis third countries.1190 The MPI Comments also convincingly note that the Directive should have expressly clarified that any importing and exporting conduct that is carried out for personal use is not to be regarded as infringing, based on the fact that the personal use of goods that embody a trade secret is not regarded as unlawful either.1191 Finally, it should be stressed that trade secrets do not fall under the scope of the Customs Regulation1192 and that the Directive does not refer to the establishment of any border control measures, which may facilitate the entrance of infringing goods into the Single Market. This, on the other hand, is consistent with the fact that trade secrets are not regarded as an exclusive right and thus should not fall under the scope of protection of a Regulation that deals with the enforcement of IPRs by customs authorities. 1187 Thomas Hören and Reiner Münker 2018(b) (n 1119) para 18. 1188 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 34. 1189 See chapter 3 § 5 B). 1190 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 34, stressing that “the European legislature should not enact provisions thar are specifically aimed at hindering the cross-border movement of goods within the internal market”. 1191 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 34. 1192 Council Regulation 608/2013 of 12 June 2013 concerning customs enforcement of intellectual property rights and repealing Council Regulation (EC) No 1383/2003 [2013] OJ L181/1 (Customs Regulation), Article 2 defines “intellectual property” as meaning trade marks; designs; copyright and related rights; geographical indications; patents; supplementary protection certificates for medicinal products and plant protection products; community and national plant varieties right; topography of semiconductor products; and utility model and trade names. Chapter 3. Fragmented protection of trade secrets across the EU 260 Exceptions Article 5 spells out a list of four exceptions to the rights conferred by Article 4, which attempt to reconcile the interests of trade secret holders in keeping their information undisclosed and the concerns of third parties in accessing and using such information.1193 Unlike the types of conduct set out in Article 3 TSD, the exceptions are conceptualised as specific limitations to the rights conferred by a trade secret that should be assessed on a case-by-case basis by courts, weighing the specific competing interests at stake in order to proceed to the enforcement of the rights, where appropriate.1194 These exceptions have been phrased in an open-ended manner to safeguard (a) the right to freedom of expression and information; (b) whistle-blowing; (c) the disclosure of secrets by workers to their representatives in the course of their representation task; and; (d) the protection of a legitimate interest recognised by Union or national law. Each of these will be analysed in turn. One of the main concerns raised during the negotiation of the Directive was that the fundamental right to freedom of expression and information (recognised in Article 11 ChFREU)1195 was not hindered by the establishment of common ground rules on the protection of trade secrets,1196 especially in connection with investigative journalism.1197 To this end, Article 5(a) provides for a general exception that permits the acquisition, use and disclosure of a trade secret, if it is necessary in order to exercise the abovementioned freedoms. This is in line with the case law of the ECtHR that provides that the principle of freedom of information and expression has to be weighed against the interest of maintaining information in confidence considering the specific circumstances of the case, as per Article 10(2) ECHR.1198 Ultimately, the inclusion of such an exception seems redundant, in view of the fact that Article 1(2)(a) TSD already sets forth that 3. 1193 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 38. 1194 Christian Alexander 2017 (n 1091) 1014. 1195 The right to Freedom of expression and information is expressly recognised in Article 11 of the ChFREU. 1196 This point is raised by the Commission, ‘Public Consultation On The Protection Against Misappropriation Of Trade Secrets And Confidential Business Information, Summary Of Responses,’ 11 accessed 15 September 2018; in the same vein see Mathias Lejeune 2016 (n 1157) 334. 1197 Björn H. Kalbfus 2016 (n 1122)1015. 1198 Christian Alexander 2017 (n 1091) para 114. § 5 The emerging common framework: a critical study of the Trade Secrets Directive 261 the Directive shall not affect the exercise of the right to freedom of expression and information, including respect for pluralism and the media. Notably, paragraph (b) introduces common ground rules on the liability of so-called “whistle-blowers”. The Oxford Dictionary defines them as persons who inform “on a person or organisation regarded as engaging in unlawful or immoral activity”.1199 Accordingly, the acquisition, use or disclosure of secret information does not trigger the application of the measures, procedures and remedies set out in the Directive, when they are performed: For revealing a misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest. This is typically the case for an employee who reveals criminal or dangerous conduct by his employer. Prime examples include the sale of tax evaders’ data to the competent national authorities or the disclosure of environmental damage caused by a company.1200 The establishment of such a defence was one of the most contested aspects during the negotiation process and was redrafted on several occasions.1201 It is one of the features that has garnered more attention from media and civil organisations in the wake of the WikiLeaks and Panama Papers cases. However, there are still a number of civil organisations and political parties that claim that the protection for whistle-blowers is too weak and that the most recent political developments call for the enactment of a new and more comprehensive Directive on their protection.1202 The whistle-blower exception is only applicable if the person revealing the information acts with the aim of “protecting the general public interest”.1203 Pursuant to Recital 21 TSD, the public interest would include 1199 ‘whistle-blower, n’ (OED Online, OUP June 2013) accessed 15 September 2018. 1200 Ansgar Ohly 2013 (n 13) 43. 1201 Victoria A. Cundiff and others 2016 (n 789) 744 noting that no similar provision has been included in the DTSA. 1202 The European Corporate Observatory, ‘A New Right To Secrecy For Companies, And A Dangerous EU Legislative Proposal Which Must Be Rejected’ (30 March 2016) accessed 15 September 2018. 1203 Jean Lapousterle, Christophe Geiger, Norbert Olszak and Luc Desaunettes, ‘What protection for trade secrets in the European Union?’ (2015) Centre for International Intellectual Property Studies (CEIPI) Research Paper No. 2015-02, 8 accessed 15 September 2018. Chapter 3. Fragmented protection of trade secrets across the EU 262 among others, disclosures for the benefit of public safety, consumer protection, public health and environmental protection.1204 However, legal uncertainty may arise as regards the interpretation of the wording of paragraph (b), in particular in connection to the differentiation between “misconduct, wrongdoing or illegal activity” and their relationship with the public interest.1205 These terms are undoubtedly broad and the constellation of acts they may cover ranges from the mere misuse of a company’s resources to the disclosure of a hygiene scandal.1206 Furthermore, the wording of the provision does not clarify when the acquisition, use and disclosure of a trade secret is to be regarded as necessary and thus unenforceable.1207 Rather than providing a universal standard, it seems that the assessment of necessity should be appraised on a case-bycase basis, in such a manner that it is possible to take into consideration the individual circumstances and all of the relevant interests at stake. Hence, the protection of whistle-blowers will have to be assessed in accordance with the extensive case law of the ECtHR on the subject.1208 In addition, pursuant to Recital 20, if one of the requirements for the application of Article 5(b) is missing, judicial authorities may not enforce trade secrets protection when the whistle-blower believed in good faith that his conduct complied with the requirements set out in this provision.1209 In this regard, it should further be borne in mind that the Directive does not aim to harmonise criminal law.1210 Consequently, the revelation of a secret, when justified on the basis of a prevailing public interest, may not trigger civil sanctions, but may still be subject to criminal law liability under the relevant national provisions.1211 1204 Christian Alexander 2017 (n 1091) para 116. 1205 IP Federation, ‘The EU Trade Secrets Directive’ (2014) Policy Paper PP04/15, 3 15 September 2018; Thomas Hören and Reiner Münker 2018(b) (n 1119) para 25. 1206 Tanya Aplin 2014 (n 384) 272. 1207 Tanya Aplin 2014 (n 384) 272. 1208 Jean Lapousterle, Christophe Geiger, Norbert Olszak and Luc Desaunettes, ‘What protection for trade secrets in the European Union?’ (2015) Centre for International Intellectual Property Studies (CEIPI) Research Paper No. 2015-02, 8 accessed 15 September 2018. 1209 Christian Alexander 2017 (n 1091) para 117. 1210 Impact Assessment (n 385) 57-58. 1211 Against this background, Mathias Lejeune 2016 (n 1157) 334 notes that in Germany the right of an employee to disclose the circumstances and conduct of an employer is not an absolute one. According to case law from the German Con- § 5 The emerging common framework: a critical study of the Trade Secrets Directive 263 The inclusion of paragraph (c) regarding the disclosure of secrets by workers to their representatives ensures that the rules laid down in the Directive are not used to circumvent the safeguards provided for in national labour legislations. However, the application of this exception is confined to situations where the disclosure (i) is carried out in the course of legitimate exercise by the employee representatives of their functions, (ii) and is necessary in order to perform such functions.1212 Finally, paragraph (d) sets forth that when the acquisition, use and disclosure are carried out with a view to protecting a legitimate interest, liability does not arise. This is an open balancing clause, which allows for weighing in the interests of trade secret holders and third parties,1213 when none of the previously analysed exceptions are applicable.1214 Crucially, this provision provides that the “legitimate interest” must be “recognised by Union or national law”. This allows for taking into consideration some of the objectives promoted by the EU in the assessment of lawfulness. Of particular relevance in the context of trade secrets are innovation (Article 173 TFEU) and competition (Article 101-103, 116 and 117 TFEU).1215 Yet, the scope of this exception is so broad and flexible that it may allow courts to consider any relevant interest that may inform the action of the EU powers in the years to come. Enforcement As noted above, the initial intention of the Commission was to expand the scope of application of the Enforcement Directive to undisclosed information. However, this possibility was declined, based among other reasons, on the argument that trade secrets are not IPRs.1216 Consequently, chapter III of the TSD, which also constitutes its central part, extensively regulates enforcement, mirroring the former Directive, even though some relevant IV. stitutional Court, the interest in the disclosure of information has to be balanced against the right of the company to keep the information undisclosed. However, Lejeune anticipates that the implementation of this provision into German Law will not be very problematic. 1212 Christian Alexander 2017 (n 1091) para 119. 1213 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 38. 1214 Christian Alexander 2017 (n 1091) para 120. 1215 Tanya Aplin 2014 (n 384) 271-272. 1216 The relationship between the Enforcement Directive and the TSD is analysed in chapter 3 § 5 C) II. 1. above. Chapter 3. Fragmented protection of trade secrets across the EU 264 omissions and specific provisions on procedural aspects have been included in order to address the particularities raised by trade secrets protection. The remainder of this chapter analyses the main features of the enforcement of trade secrets as laid down in the TSD. To this end, section 1 examines the general principles that should guide the enforcement of trade secrets. Next, some legal considerations as to the limitation period set forth in Article 8 are presented in section 2. Section 3 then looks into the specific measures that Member States may adopt to preserve confidentiality during litigation. Finally, the remedies against trade secrets infringement are analysed in section 4. General provisions Article 6 of the Directive lays down a general obligation for Member States to implement the measures, procedures and remedies necessary to ensure the availability of civil redress against trade secrets misappropriation. These should not only be fair and equitable, but also effective and dissuasive.1217 Likewise, they should be applied by national courts in a manner that is not too complicated and costly or involves unreasonable delays.1218 Most notably, Article 7 TSD places special emphasis on the principle of proportionality and the prevention of abusive litigation. This echoes the concerns expressed by the respondents in the economic survey carried out by Baker McKenzie, in which 23,6% of the participants considered that harmonisation in the field of trade secrets would spur abusive litigation and consequently raise market barriers for competitors.1219 On this point, the TSD follows the structure implemented in the Enforcement Directive, where compensation in the case of abuse of litigation is left to Member States to regulate. Yet, a lack of harmonisation on such a salient aspect may lead to a structural imbalance, whereby trade secrets holders could seek redress if their rights were infringed, but those who face unfounded claims could not seek compensation across the several EU jurisdictions.1220 1. 1217 Article 6 (2)(a) TSD and Article 6(2)(c) TSD. 1218 Article 6 (2)(b) TSD is very similar to Article 3(1) Enforcement Directive. 1219 Baker McKenzie 2013 (n 1057) 131. 1220 This argument is raised in Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 41; the MPI Comments also highlight that the sanctions envisaged in the case of abusive litigation should be just as efficient and have the same deterring effect as those applicable in the event of infringement; see further Mathias Lejeune 2016 (n 1157) 335. § 5 The emerging common framework: a critical study of the Trade Secrets Directive 265 To offset this potential imbalance, Article 7(2) provides that judicial authorities may, if requested by the defendant, award damages, impose sanctions or order the dissemination of the judicial decision when the claim is deemed manifestly unfounded and the plaintiff is found to have initiated the proceedings in bad faith, in accordance with national law. Pursuant to Recital 22, such conduct may have as its ultimate purpose, for example, delaying or limiting the defendant’s access to the market or harassing or intimidating him.1221 As a whole, the wording of the provision poses several interpretative questions, which will be discussed in the following paragraphs.1222 First, it is worth noting that the Directive does not provide guidance as to how courts are to assess whether a claim is ill-founded and if defendants can bring an action or file a counterclaim.1223 Furthermore, the provision refers to sanctions in a generic manner, and does not specify the particular measures that should be adopted beyond the publication of the decision and the possibility of claiming damages.1224 Following wording of the Directive, the measures that judicial authorities may adopt are left to the Member States. This runs counter to the harmonisation goals pursued by the Directive, as sanctions may vary substantially from country to country. Finally, some authors take the view that the defendant should be able to claim full compensation for the cost that he incurred as a result of the abusive litigation. This is particularly relevant in those jurisdictions where the amount of the attorney’s fees that the prevailing party can recoup is statutorily limited in order to ensure equality of arms between the parties.1225 Limitation period With a view to enhancing legal certainty, Article 8 TSD mandates Member States to lay down a limitation period to take legal action. In essence, such a limitation aims at imposing a duty of care and the obligation to monitor the use of trade secrets on right holders.1226 2. 1221 See Recital 22 TSD. 1222 Mathias Lejeune 2016 (n 1157) 335 notes that such a possibility is not provided for under German law, but its inclusion in the TSD as a minimum standard is to be welcomed. 1223 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 42. 1224 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 43. 1225 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 44. 1226 See Recital 23 TSD. Chapter 3. Fragmented protection of trade secrets across the EU 266 Pursuant to Article 8, it is up to the Member States to determine when the limitation period begins, its duration and the circumstances that may be invoked to interrupt or suspend it. The only restraint is that it shall not exceed six years.1227 Even though the latter approach appears weak from a harmonisation perspective, it might also be overambitious to interfere to such a large degree with Member States’ procedural law.1228 In this context, it has been suggested that information is afforded protection as a trade secret for as long as the requirements set out in Article 2(1) TSD are complied with, similarly to the protection afforded in Germany under § 4 (3) UWG regarding the offering of goods and services that are replicas of the ones offered by competitors.1229 Preservation of confidentiality during litigation Drawing upon the results of the empirical study conducted by Baker McKenzie,1230 the Directive has introduced specific measures to preserve secrecy during litigation. Before its adoption, only a limited number of jurisdictions had put in place effective means to protect confidentiality. This is crucial to ensure that the object of the proceedings, undisclosed information, is not lost during litigation.1231 In the absence of such measures, information would become publicly known by the mere fact of bringing legal proceedings and the enforcement of trade secrets would be substantially hindered. In the light of this and in accordance with the right to a fair trial recognised in Article 47 ChFREU, the Directive sets forth two general obligations. 3. 1227 Thomas Hören and Reiner Münker 2018(b) (n 1119) para 33. 1228 Tanya Aplin 2014 (n 384) 275. 1229 Christian Alexander 2017 (n 1091) para 72. 1230 Baker McKenzie 2013 (n 1057) 131 noting that lack of trust in the judicial system and fear of losing the trade secret were identified as two of the reasons that dissuaded trade secret holders from seeking legal redress after misappropriation. 1231 Hogan Lovells 2012 (n 793) para 301, considers that: “The courts need to have means to protect secret information during proceedings. This can be achieved with confidential schedules to pleadings and restricting the disclosure of information during trial and in the judgement itself. At the moment there is inconsistency between Member States on the use of “in camera” hearings (hearings excluding the public) and the protection of information contained in court documents”. § 5 The emerging common framework: a critical study of the Trade Secrets Directive 267 Firstly, Article 9(1) provides that Member States are bound to ensure that the parties and any other persons who intervene in the legal proceedings do not disclose or use information of a confidential nature that they have acquired during the course of litigation, even after the legal proceedings have ended, provided that the information has not lost its secret nature over time or that there is a final court decision that stipulates that the object of the proceedings no longer meets the requirements of protection.1232 The general obligation set forth in Article 9(1) is conditioned upon the submission of an application by the interested party with the competent judicial authorities where the alleged trade secret is clearly identified. Yet, in the implementation of the TSD, Member States may also allow judicial authorities to act on their own motion. Thereafter, Article 9(2) spells out a list of three specific measures that national courts may adopt ex parte or on their own initiative (if allowed by national law) with the purpose of maintaining secrecy during litigation. These include: (a) restricting access to documents where the trade secret is disclosed, and (b) restricting access to the hearings and their transcripts. In order to avoid the leakage of information to competing parties, the circle of people that have access to evidence or hearings should be limited to those for whom this is strictly necessary. However, in order to comply with the transparency demands set out in Article 47 ChFREU, the Directive provides that such a circle should always include at least the legal representatives of the parties and one natural person from each of the parties, as well as any other legal representatives in accordance with national law, who are also under an obligation of confidence.1233 Finally, paragraph (c) of the provision sets out that any passages of the ruling where trade secrets are disclosed may be deleted or redacted from the published decision. In deciding whether to adopt the measures referred to above, courts should weigh up the interests of the parties to the proceedings, but also any potential harm to third parties (as per Article 9(3) TSD). 1232 Mary-Rose McGuire 2016 (n 824) 1007-1008, highlighting the similarities with the German “in camera hearings”; in this regard, Mathias Lejeune 2016 (n 1157) 335-336 notes that until the implementation of the TSD the application of the said proceedings to trade secrets cases was subject to a balance of interests test of the competing interests of the parties. 1233 As per Recital 25 TSD; consequently Björn H. Kalbfus 2016 (n 1122)1015-1016 notes that the TSD does not call for the introduction of a true “in camera hearing” in the German sense, because at least one representative and legal person from each party should be allowed. Chapter 3. Fragmented protection of trade secrets across the EU 268 Remedies available in case of infringement The remedies laid down in the TSD are very similar to those enshrined in the Enforcement Directive. They are of a civil nature and encompass provisional and precautionary measures (Article 10), injunctions and corrective measures (Article 12), damages (Article 14) and the publication of judicial decisions (Article 15). Yet, there are some salient differences. The TSD does not harmonise the measures for providing and preserving evidence1234 or the right to information, which are left to Member States to regulate.1235 The following sections start by providing an analysis of the remedies set forth in the TSD and conclude by looking into the policy reasons that may justify the exclusion of some of the remedies embedded in the Enforcement Directive. Provisional and precautionary measures It usually takes some time from the moment a trade secret holder realises that their rights are being infringed to the final judicial decision on the merits, just as with any other IPR.1236 To avoid the right holder’s interests being hindered during this time, the Directive lays down in Article 10(1) a number of provisional and precautionary measures that national competent judicial authorities should adopt at the request of the trade secret holder against the alleged infringer. These include: (a) a temporary cessation of, or prohibition on the use or disclosure of the infringed trade secret; (b) a prohibition on the manufacture, offering and placing on the market of the infringing products, as well as their import and export or storage for the same purpose. Finally, paragraph (c) provides for the seizure and delivery of the suspected infringing goods with the purpose of precluding their entrance in the internal market. In line with the Enforcement Directive,1237 the TSD sets out in Article 10(2) the possibility that the allegedly infringing conduct might continue (use, but not disclosure), provided that appropriate guarantees are lodged.1238 Such an approach poses a number of issues as regards trade se- 4. a) 1234 See Article 7 Enforcement Directive. 1235 See Article 8 Enforcement Directive. 1236 Lionel Bently and Brad Sherman 2014 (n 125) 1100. 1237 See Article 9( 1)(a) Enforcement Directive. 1238 Mathias Lejeune 2016 (n 1157) 336. § 5 The emerging common framework: a critical study of the Trade Secrets Directive 269 crets, particularly as the object of protection, undisclosed information, would be put at risk.1239 One of the principles upon which the law of trade secrets is built is that once the secret becomes generally known it no longer merits protection. Hence, if its subsequent use is allowed, secrecy might be lost. In this context, it is noteworthy that the Directive does not mention whether acquisition may be permitted upon the lodging of the appropriate guarantees. Following the above rationale, in the interest of secrecy, it should be deemed as falling outside the scope of Article 10(2) TSD. Consequently, it is submitted that the wording of Article 10(2) interferes with one of the main goals pursued by the TSD, ensuring that secrecy is preserved during litigation. In a similar vein, Article 11(2) spells out a number of criteria that should be duly examined by the competent judicial authority when granting the measures envisaged in Article 10(1). Accordingly, courts should take into consideration the value of the secret, the steps adopted to protect it, the conduct of the defendant, the impact of an unlawful use or disclosure, as well as the effect of the adoption of interim measures on the parties. This provision has no corresponding rule in the Enforcement Directive and it also raises a number of interpretative questions. According to its wording, the assessment of proportionality should be carried out based on the specific circumstances of each case, and deems the criteria listed as an openended enumeration of examples.1240 Yet, surprisingly, among those, no reference is made to the urgency of the measures. From a procedural law perspective, the grant of interim measures is justified by the negative consequences that waiting for a final decision on the main proceedings may entail. Thus, the urgency of the measures is of paramount importance in the appraisal of the pertinence of their adoption.1241 In this vein, it is worth noting that pursuant to Article 11(4) TSD, the grant of precautionary measures is in any case conditioned upon the establishment of the appropriate securities by the applicant.1242 Remarkably, the Directive foresees the revocation of any interim measures adopted in accordance with Article 10 if proceedings are not instituted within a reasonable period, as set forth by the competent judicial authorities, or, in the absence of such a determination, after 20 working days 1239 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 50. 1240 See Article 11(2) TSD. 1241 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 52. 1242 Mathias Lejeune 2016 (n 1157) 337. Chapter 3. Fragmented protection of trade secrets across the EU 270 (or 31 calendar days, whichever is longest).1243 Similarly, if the requirements for protection, as per Article 2(1) TSD, are no longer fulfilled for reasons independent of the conduct of the defendant, the application of interim measures should also be revoked. This would typically be the case for a trade secret that becomes publicly known and thus loses one of its essential qualities, its secret nature. Injunctions and corrective measures A trade secret is infringed when its acquisition, use or disclosure is regarded as unlawful, pursuant to the wording of Article 4 (in conjunction with Article 3 and Article 5). In such a case, the holder is entitled to ask the court to adopt an array of measures against the infringer (Article 12(1)). These include: (a) the cessation of, or prohibition on the use and disclosure of the trade secret; (b) the prohibition on producing, offering and placing on the market goods in which the trade secret is embodied, or their import, export and storage to this end; (c) the adoption of corrective measures in connection to the infringing goods; and (d) the destruction of all or part of any document, object, material, substance or electronic file containing or embodying the trade secret, as well as their delivery to the applicant. The corrective measures available are stipulated in 12(2) and encompass (a) the recall of the infringing goods from the market; (b) the modification of the infringing goods with the purpose of eliminating their infringing features; and, (c) the destruction of the infringing goods, as well as any documents (both physical and electronic) or other items where the trade secret is disclosed. The wording of Article 12(1)(b) has been regarded as redundant and superfluous by some, as the types of conduct therein described are already regarded as infringing by Article 4(5) TDS and thus fall under the scope of Artice 12(1)(a).1244 While such criticism is well-founded, it is true that such clarification, albeit redundant, may avoiding differences in the implementation among Member States. Similarly, bearing in mind that the main purpose of the Directive is to restore the market position of the trade secret holder by conferring upon him a lead time advantage, the content of paragraph 2 of Article 13(1) appears particularly relevant.1245 This provision b) 1243 As per Article 11(3)(a) TSD. 1244 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 54. 1245 Mary-Rose McGuire 2016 (n 824) 1007. § 5 The emerging common framework: a critical study of the Trade Secrets Directive 271 stipulates that the duration of injunctions can be limited, but courts should always ensure that they are sufficient to eliminate commercial advantage gained by the misappropriation, in line with the springboard doctrine discussed in connection with the English breach of confidence action.1246 Considering the interim measures regulation and with a view to limiting the liability of bona fide third parties, Article 13(3) foresees the possibility of establishing alternative financial compensation instead of granting injunctions or corrective measures (i.e. damages in lieu of injunctions). The continuous use of the trade secret or the marketing and distribution of the goods in which it is embodied is only possible if (i) the information was acquired in good faith, as a sort of bona fide defence, (ii) the execution of the injunctions or corrective measures in question would be very harmful to the acquirer, and (iii) the monetary compensation seems reasonable.1247 In addition, Article 13 provides that when damages are awarded instead of an injunction, the said compensation shall not exceed the royalties that the parties would have agreed if the misappropriated trade secret had been licensed.1248 Ultimately, this provision equates the position of the third party infringing user with that of the lawful user.1249 In addition, it shows a clear parallel with Article 12 of the Enforcement Directive, even though its scope of application is more limited (it is only applicable to bona fide acquirers) and its implementation into national legislation is mandatory as a maximum standard of protection, and not optional, as in the case of the Enforcement Directive.1250 As a final note, Recital 29 provides that the award of damages in lieu of injunction shall not be permitted when it results in an infringement of any other provision (such as labour law or criminal law) and it may harm consumers. In view of this, it is submitted here that a central factor in assessing whether granting an injunction is disproportionate should be whether the acquirer of the information changed his position on the information before learning about its confidential nature, for instance, by buying new machines or hiring new 1246 See chapter 3 § 3 C) III. 1247 See Article 13(3) TSD; however, establishing the amount of the said licences may in practice prove quite difficult. 1248 As discussed in chapter 3 § 3 C) II. 2.d) in connection to the liability of third parties. 1249 Clemens Koós 2015 (n1158) 227; Franz Hofmann, ‘“Equity” im deutschen Lauterkeitsrecht? Der “Unterlassungsanspruch” nach der Geschäftsgeheimnis- RL’ [2018] WRP1, para 27. 1250 See Article 1(1) TSD. Chapter 3. Fragmented protection of trade secrets across the EU 272 employees to develop, produce or commercialise a new product on the basis of such information.1251 Also, due consideration should be paid to the likelihood that by allowing the use of the trade secret it becomes generally known or easily accessible. Damages The TSD foresees the award of damages in the event of infringement, the most common remedy in the enforcement of IPRs.1252 Just as in the intellectual property scenario, compensation through damages intends to restore the holder of secret information to the position in which he would have been prior to the unlawful acquisition, use and disclosure.1253 The assessment of damages follows a similar scheme to that laid down in the Enforcement Directive,1254 which represents considerable progress in view of the divergent approaches followed by national regimes before the adoption of the TSD and the legal uncertainty that it entailed. Accordingly, three calculation methods are foreseen.1255 In the first place, the plaintiff can claim the lost profits resulting from the infringement of his trade secret. Alternatively, the compensation can be calculated on the basis of the unfair profits made by the defendant following the misappropriation of the trade secret. In this context, the Directive also mentions that the trade secret holder can claim moral damages derived from the infringement. The third option is the computation of damages as a lump sum, using as a benchmark the reasonable royalties that the trade secret holder would have received in the case of licensing. In all of those cases, the award of damages is conditioned upon the finding of at least gross negligence on the side of the infringer, “who knew or ought to have known” that the acquisition, use or disclosure of the information was illicit.1256 Nonetheless, it should be noted that in the light of the CJEU decision in Jørn Hansson v Jungpflanzen, it has been contested whether damages under Article 13(1)(a) c) 1251 For a more detailed analysis see Tanya Aplin and others (n 22) para 7.140 1252 Lionel Bently and Brad Sherman 2014 (n 125) 1117. 1253 See Recital 30 TSD. 1254 For an overview of the assessment of damages in the Enforcement Directive see Annette Kur, ‘The Enforcement Directive - Rough Start, Happy Landing?’ [2004] IIC 821, 827-830. 1255 Thomas Hören and Reiner Münker 2018(b) (n 1119) para 33. 1256 Mary-Rose McGuire 2016 (n 824) 1007; Franz Hofmann 2018 (n 1249) para 14. § 5 The emerging common framework: a critical study of the Trade Secrets Directive 273 of the Enforcement Directive (and by extension under Article 14(2) TSD) may be calculated on the basis of the infringer’s profits.1257 With respect to the regulation of damages, two features stand out. In the first place, there might be a great asymmetry between the infringer’s profits and the lost profits on the side of the right holder. In effect, the unlawful acquisition, use and disclosure may render the information generally known. In this context and linked to the lack of an exclusive nature of trade secrets as opposed to other IPRs, the trade secret holder would lose the object of protection. By contrast, the profits gained by the infringer may be rather limited if compared to the economic consequences that losing the trade secret entails. Secondly, it is unclear in which context moral (or immaterial) damages should arise, which is an aspect that has been particularly controversial in the implementation of the Enforcement Directive.1258 If one accepts the privacy justification, moral damages could derive from the violation of a privacy right.1259 Against this background, paragraph 2 of Article 14(1) TSD provides that in the implementation of the Directive, Member States may restrict the liability for damages of employees towards their employers in the case of unlawful acquisition, use or disclosure of a trade secret if they have acted without intent. At first glance, the wording of this provision seems obscure, as it is not clear whether it should also apply to former employees. Following a systematic and teleological interpretation, and bearing in mind that fostering employee mobility is one of the principles that informs the Directive, it is submitted that the non-intentional disclosure of departing employees should fall under the scope of such a limitation. Publication of the judicial decision In line with Article 15 of the Enforcement Directive, if the plaintiff prevails, he may request that the court publishes the judicial decision at the expense of the infringer. In such a case, all of the necessary measures to d) 1257 Case C–481/14 Jørn Hansson v Jungpflanzen Grünewald GmbH [2016] (CJEU, 9 June 2016) para 42; Franz Hofmann 2018 (n 1249) para 14. 1258 GRUR, ‘Opinion on the proposal for a Directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure, COM (2013) 813 final’ (2014), para 5.b) accessed 15 September 2018. 1259 See chapter 1 § 2 B) IV. Chapter 3. Fragmented protection of trade secrets across the EU 274 preserve the secret nature of the information should be adopted in accordance with the rules laid down in Article 9 TSD. In the assessment of the suitability of the publication and proportionality of such a measure, a number of factors should be taken into consideration. These include, among others, the potential harm to the reputation of the infringer, the value of the secret and the likelihood of further use or disclosure. During the final phase of the negotiation process, some amendments were introduced with a view to enhancing the privacy of the infringer and preventing his personal identification, which have crystallised in paragraph 2 of Article 15(3) of the Directive.1260 Claims for information and preserving evidence One of the central differences between the Enforcement and the TSD is that the latter does not establish any obligations concerning claims for preserving evidence1261 and for obtaining orders as to the origin or distribution networks of the infringing goods.1262 These are left to Member States to regulate, and, as a result, their availability will ultimately depend on national law provisions. Consequently, the practices among member states may vary from one country to another, putting at risk the harmonisation goals. Yet, it is true that claims for information and preserving evidence may be unduly used to acquire confidential business data. In view of this, it is submitted that a uniform EU framework on the protection of trade secrets should also have included rules on these issues and ensured that the necessary safeguards were adopted to avoid abuses on the side of the plaintiff.1263 Moreover, this approach is consistent with the fact that placing infringing goods on the market, and their import or export is regarded as an unlawful use of a trade secret, pursuant to Article 4(5) of the Directive. As a result, the wording of the provisions regulating claims for information should be adapted to ensure that the plaintiff is able to learn not only the e) 1260 Article 15(3) para 2 TSD: “The competent judicial authorities shall also take into account whether the information on the infringer would be such as to allow a naural or legal person to be identified and, if so, whether publication of that information would be justified, in particular in the light of the possible harm that such measures may cause to the privacy and reputation of the infringer”. 1261 See Articles 6 and 7 Enforcement Directive. 1262 See Article 8 Enforcement Directive. 1263 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 56. § 5 The emerging common framework: a critical study of the Trade Secrets Directive 275 channels of distribution, the quantity and the prices of infringing goods, but also the identities of the subsequent acquirers.1264 This seems crucial to prevent subsequent infringements and assess the extent to which the confidential information has been made available. Conclusion Drawing from the foregoing legal analysis, it is submitted that despite some criticism, the alignment of national Member States’ laws on the protection of trade secrets is justified as a measure that is necessary to ensure the good functioning of a Single Market without barriers, in which the fundamental freedoms are accomplished (particularly the free movement of goods and workers). Indeed, the comparative law examination conducted above has underscored that the legal regimes for the protection of trade secrets across the Single Market prior to the implementation of the TSD were completely scattered and, consequently, the level of protection varied substantially from one member state to another. For instance, the liability threshold for third parties was much higher in Germany than in England. In the former jurisdiction, conditional intent was required on the side of the infringer and at least one of the following purposes in the performance of the relevant conduct: a competitive purpose, a personal gain, to benefit a third party or to hinder the position of the trade secret holder. In contrast, in England liability arose merely if the standard of care followed by a honest person placed under the same circustances was not observed. In the light of the above, it is submitted that the Directive manages to strike a balance between the interest of trade secrets holders in keeping their information concealed and the interest of third parties in accessing such information. This is mostly achieved through the establishment of a number of flexible and open-ended clauses in the provisions that govern the appraisal of the lawfulness of the allegedly infringing conduct, which mostly resort to the general standard of honest commercial practices embedded in Article 10bis PC and the inclusion of common ground regarding the standard of liability of third parties, which requires at least gross negligence on the side of the infringer. Likewise, the consideration of independent discovery and reverse engineering as lawful forms of obtaining a trade secret is also crucial to maintain the aforementioned equilibrium. § 6 1264 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) para 57. Chapter 3. Fragmented protection of trade secrets across the EU 276 They are essential to ensure the complementarity between the patent system and the trade secrets regime. In this context, the EU legislature has further laid down an array of exceptions to the rights conferred by a trade secret that safeguard the fundamental freedoms of expression and information and most notably deem as lawful whistle-blowing conduct. The applicability of such exceptions will ultimately depend on the balance of interests conducted by the competent national authorities, considering the individual circumstances of the case. Such a flexible approach presents both advantages and disadvantages. On the one hand, it allows for considering all of the relevant interests in each individual case and adapting to future technological developments, a key aspect in the protection of trade secrets. Yet, on the other, it may also lead to divergent interpretations of the same provision among Member States, thus hindering the ultimate harmonisation objective. As a whole, it seems that establishing minimum standards with regard to the civil protection of trade secrets (as well as maximum standards with respect to central aspects such as the exceptions, as well as lawful and unlawful conduct) will enhance legal certainty across the Single Market.1265 Remarkably, it is submitted that the Directive does not provide a univocal answer as to the legal nature of trade secrets. Only Recital 16 refers to this matter and spells out that the provisions of the Directive should not create an exclusive right. However, such a statement does not clarify whether the misappropriation of confidential information is to be protected as an infringement of an IPR, a property right or just as an act of competition contrary to honest commercial practices under unfair competition rules. The Directive seems to adopt an unfair competition approach in the provisions that regulate the unlawful acquisition, use and disclosure of trade secrets, as they keep referring to the standard of honest commercial practices. On the other hand, the list of remedies spelt out in chapter III mostly corresponds to those envisaged for the infringement of an IPR. Wisely, the EU legislature has not attached specific legal consequences to the categorisation of information as the former or the latter. However, as noted above,1266 this has implications outside the scope of the Directive vis-à-vis the applicable law in the case of infringement and the relationship 1265 A different view is purported by Tanya Aplin 2014 (n 384) 279, where the author notes that, “only a modest amount of harmonisation is likely to ensue from implementation of this Directive”. 1266 Chapter 1 § 3 III. § 6 Conclusion 277 with the Enforcement Directive. In this context, clarification will ultimately have to be sought by reference to the CJEU. From a policy perspective, the Commission and the Council expect that the implementation of the Directive will yield enhanced competitiveness and cross-border innovation, which ultimately should lead to remarkable employment growth. Yet, only time will tell whether these ambitious objectives will be met or, to phrase it better, if any causal link between the harmonisation of trade secrets law in the EU and an improvement in the economic results within the Single Market can be established. Without doubt, the comprehensive regulation of the measures, procedures and remedies that trade secret holders may claim in the enforcement of their rights creates a level-playing fied for stakeholders across the EU. As a final note, it is also noteworthy that the Directive sheds little light on the interpretation of the secrecy requirement, as the definition provided in Article 2 simply reproduces the wording of Article 39(2) TRIPs. In addition, by virtue of Article 1(3)(b) and Recital 14, the skills and knowledge acquired by employees during the normal course of their employment are excluded from the scope of protection in the interest of employee mobility. Again, the legislature provides little guidance regarding how to delineate the contours of such information. In view of the increasing vulnerability of information in the digital age, the following chapter is devoted to the study of the notion of secrecy and, more specifically, to the analysis of the circumstances under which information enters the public domain. Having regard to the harmonisation goals pursued by the TSD, it proposes a number of case-specific guiding principles to ensure a homogeneous interpretation of this notion across the different EU Member States. Chapter 3. Fragmented protection of trade secrets across the EU 278 Mapping the notion of secrecy Secrecy in the digital age Increasing vulnerability of confidential information The advent of new technologies in the globalised world has allowed individuals and companies to generate and share information at a much faster pace than ever before. The flow of information is unprecedented to the point that some suggest that we now live in a “data centred economy”.1267 In effect, the ever-growing amount of data available, mostly through the Internet, may be deployed to unlock new sources of economic development, foster scientific progress and scrutinise governments’ actions.1268 Despite the numerous advantages, the increase in information is creating a host of new problems. Indeed, it is becoming more and more difficult to ensure data security and personal privacy.1269 Legislators all around the globe are trying to adapt to the changes brought about by the widespread and constant information exchange. A prime example of this is the comprehensive reform of the Data Protection framework undertaken by the EU Commission with the adoption of the GDPR and the publication of the Final Report on the e-commerce sector inquiry led by the Commission.1270 In the same vein, in 2012, the U.S. Federal Government announced the Big Data Research and Development Initiative, which aimed at facilitating the gathering, organisation and access to big sets of digital data.1271 The adoption of the DTSA in the U.S. and the Chapter 4. § 1 A) 1267 ‘Data, data everywhere’ The Economist (London, 25 February 2010) accessed 15 September 2018; see further Gintare Surblyte, ‘6th GRUR Int / JIPLP Joint Seminar: Internet search engines in the focus of EU competition law – a closer look at the broader picture’ [2015] GRUR 127, 130. 1268 ‘Data, data everywhere’ The Economist (London, 25 February 2010) accessed 15 September. 1269 Ibid. 1270 Commission, ‘Final report on the E-commerce Sector Inquiry’ COM(2017) 229 final accessed 15 September 2018. 1271 ‘Obama Administration unveils “Big Data” Initiative: Announces $ 200 million in new R&D investments’ (29 March 2012) accessed 15 September 2018. 1272 Victoria A. Cundiff and others 2016 (n 789) 738. 1273 See chapter 5 § 4 B). 1274 Impact Assessment (n 385) 15-16. 1275 Elizabeth A. Rowe, ‘Contributory Negligence, Technology, and Trade Secrets’ [2009] 17 George Mason LR 1, 14. 1276 In Anadarko Petroleum Corp. v. Davis, 2006 WL 3837518 (S.D. Tex. Dec. 28, 2006) the court denied the preliminary injunction, but the parties entered into an Agreed Order, whereby the competitor unterook to return all proprietary information and to refrain from using such information. 1277 Elizabeth A. Rowe 2009 (n 1275) 14. Chapter 4. Mapping the notion of secrecy 280 the world through virtual private networks (“VPN”).1278 This has facilitated both the physical misappropriation of information (for instance, through the theft of the laptop), as well as unauthorised access to data stored on a server or computer by hackers.1279 Furthermore, the advent of digital technologies has made the dissemination of valuable secret information easier; now it can be done with the “mere push of a button”.1280 Notably, this has been facilitated by the widespread use of email communications within companies that allow employees to send sensitive information from their corporate account to their personal accounts, or even to competitors, as well as instant messaging services, such as Skype and Google Hangouts. Similarly, posting confidential information on the Internet has become an increasing threat for companies, which risk losing their valuable trade secrets if an employee inadvertently or maliciously posts them on an Internet website and, as a result, the information becomes generally known.1281 In view of the above, it is undeniable that in the digital age it has become much harder to conceal information from competitors and the public at large. This, in turn, calls into question how secrecy should be construed vis-à-vis its frontiers with the public domain and, ultimately, enquires about the optimal scope of protection. The following section underscores the main difficulties in this regard. Constructing the public domain Defining the boundaries of the public and private spheres is of utmost importance in every legal system. In the realm of intellectual property, this is particularly challenging, as constructing and defining the contours of private rights and the intangible objects to which they refer is seemingly more complex than with regard to tangible property.1282 In the context of confidentiality, “the public domain” is an expression that has been used for decades to designate information that cannot be the B) 1278 Elizabeth A. Rowe 2009 (n 1275) 14. 1279 Elizabeth A. Rowe 2009 (n 1275) 14. 1280 Elizabeth A. Rowe 2009 (n 1275) 16. 1281 Elizabeth A. Rowe 2009 (n 1275) 16. 1282 Nari Lee, ‘Public domain at the interface of trade mark and unfair competition law: The case of referential use of trade marks’ 309, 309 in Nari Lee, Ansgar Ohly, Annette Kur, Guido Westkamp (eds), Intellectual Property, Unfair Competition and Publicity (Edward Elgar 2014). § 1 Secrecy in the digital age 281 object of trade secrets protection.1283 More generally, it has also been deployed to refer to “material that is unprotected by Intellectual Property Rights”.1284 Indeed, the construction of the public domain has been studied extensively in connection to copyright and patents. However, in the field of trade secrets it has attracted less scholarly discussion. This mostly results from the casuistic nature of trade secrets protection, as well as from the fact that there is no universally accepted definition of the public domain. Its boundaries change from jurisdiction to jurisdiction and evolve with time.1285 Thus, an innovation that was initially kept secret by an undertaking may be discovered by competitors through reverse engineering or independent creation and enter the realm of the public domain after some time. Similarly, it has been suggested that the abstract definition of the public domain does not necessarily correspond to the actual information that a departing employee may use in his new employment.1286 Despite these inherent difficulties, mapping the public domain has normative significance, as it allows for identifying the relevant values underpinning its components.1287 To be sure, a solid public domain is necessary to foster creativity and innovation.1288 More specifically, according to Samuelson, it allows for creating new knowledge, and encourages competition through imitation, as well as follow-on innovation. Thus, a robust public domain is essential to promote access to information in the academic, scientific and cultural spheres.1289 In the field of trade secrets this is even more problematic, as the subject matter protected may never enter 1283 Charles Tait Graves 2007 (n 337) 39, footnote 145; see for instance in the US: Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 484 (1974) stating that “by definition a trade secret has not been placed in the public domain”; similarly Storage Tech. Corp. v. Custom Hardware Eng’g & Consulting Inc., 421 F.3d 1307, 1319 (Fed Circ. 2005) “Information that is in the public domain cannot be appropriated by a party as its proprietary trade secret”; VD, Inc. v. Raytheon Co., 769 F.2d 842 (1st Cir. 1985): “Once a trade secret enters the public domain, the possessor’s exclusive rights to the secret are lost”. 1284 James Boyle, ‘Foreword: The Opposite of Property?’ [2003] 66 Law and Contemporary Problems 1, 30. 1285 Pamela Samuelson, ‘Challenges in Mapping the Public Domain’ 7, 13 in P. Bernt Hugenholtz and Lucie Guibault (eds), The Public Domain of Information (Kluwer International Law 2006). 1286 Charles Tait Graves 2007 (n 337) 87-88. 1287 Pamela Samuelson 2006 (n 1285) 13. 1288 Nari Lee 2014 (n 1282) 311. 1289 Pamela Samuelson 2006 (n 1285) 13; for a more detailed overview of the discussion surrounding the public domain see Lawrence Lessig, Free Culture (The Penguin Press 2004). Chapter 4. Mapping the notion of secrecy 282 the public domain. Unlike formal IPRs, trade secrets are not subject to any time limitation.1290 Thus, the pool of information available to individuals and companies is diminished as the protection of trade secrets increases.1291 In the light of the above, determining whether a specific piece of information has lost its secret nature and accordingly entered the public domain is crucial to assess whether it can be used by third parties other than the original holder or the recipient of the information bound by a confidentiality obligation, or whether such an obligation remains enforceable. This is essential, for instance, in the case of departing employees who may intend to use information that they have acquired during the course of their employment relationship or for licensees that wish to cease paying their licensing fees. At the same time, as explained in chapter 1, the protection of a company’s secret valuable information appears necessary and justified from a utilitarian perspective (and to a certain extent, also from a deontological one).1292 Thus, in view of the increasing challenges in concealing digital information, it is of utmost importance to find the appropriate balance between the secret sphere and the public domain. The following sections are devoted to analysing the principles that govern such an appraisal: namely, whether something is generally known or readily accessible. To this end, first the different concepts and requirements of trade secrets protection followed in Germany and England before the implementation of the TSD are examined (§ 2). From this comparative analysis, some interpretative principles regarding the definition of trade secrets laid down in Article 2 TSD and the subject matter protected are proposed (§ 3). Next, the dissertation goes on to examine the essential features of the notion of secrecy in greater depth, namely the degree of secrecy required (§ 4 A), the concept of readily ascertainability (§ 4 B), and the effects of the disclosure (§ 4 C) through the lenses of English, German and U.S. case law. In the light of this comparative analysis, some conclusions as to the interpretation of the relevant circles doctrine are drawn (§ 4 D). Thereafter, in § 4 E, the secrecy standard is compared to other IPRs, such as novelty in patent law and originality in copyright law, with a view to finding an equilibrium between the different legal regimes. Next, the possibility of resorting to trade secrets protection for Big Data sets is analysed under § 4F (Excursus). 1290 William van Caenegem 2014 (n 7) 13-14. 1291 William van Caenegem 2014 (n 7) 14. 1292 See chapter 1 § 2. § 1 Secrecy in the digital age 283 The ultimate goal of this investigation is to underscore the principles that courts across EU jurisdictions should follow in order to determine, in a consistent manner, whether information is part of the public domain or remains secret pursuant to Article 2(1)(a) TSD. Notwithstanding the aforementioned, such an analysis is largely factually driven. For that reason, it is only possible to outline general guiding principles. Different concepts and requirements for protection of trade secrets before the implementation of the TSD Concept and requirements for the protection of trade secrets in Germany Distinction between Geschäftsgeheimnis and Betriebsgeheimnissen In Germany, unlike other jurisdictions, no statutory definition of trade secrets exists. Instead, the following working definition has been developed by the courts: A trade secret is information which relates to a particular business, is known only to a narrow limited number of persons, so is secret, and under the express or identifiable (as a rule, commercial) owner’s will, which is based on a legitimate interest, is intended to be kept secret.1293 Article 17 UWG distinguishes between two categories of trade secrets, namely commercial secrets (“Geschäftsgeheimnisse”) and industrial secrets (“Betriebsgeheimnisse”). The former refers to the business-related information of an undertaking,1294 such as customers’ and suppliers’ data, or contractual and cost estimation documents,1295 while the latter encompasses technical information.1296 Among others, courts have ruled that industrial § 2 A) I. 1293 Translation by Gintare Surblyte 2011 (n 182) 49; BGH MMR 2006, 815, 816 – Kundendatenprogramm; BGH GRUR 2003, 356, 358 – Präzisionsmessgeräte. 1294 Gintare Surblyte 2011 (n 182) 49. 1295 Ohly/Sosnitza (n 813) § 17 Rdn 5. 1296 Harte-Bavendamm/Henning-Bodewig (n 376) § 17 Rdn 1. Chapter 4. Mapping the notion of secrecy 284 secrets are manufacture and assembly processes,1297 formulas1298 or computer programs.1299 At first glance, the division of trade secrets into two categories might appear merely formal, as no definition of any of these concepts is provided, either in § 17 UWG or throughout the Act. Notwithstanding this, during the travaux préparatoires of the UWG (1896) it was extensively debated whether commercial information should be covered by the legal regime for the protection of trade secrets.1300 Accordingly, an explicit distinction was included for the purposes of clarity, which unequivocally stated that commercial information fell within the scope of § 9 UWG 1896 (now § 17 UWG). However, in practice, no substantial legal consequences arise from such a distinction1301 other than the exclusive application of § 18(1) UWG to industrial secrets (“Betriebsgeheimnisse”).1302 Thus, the terms “business secret” (“Unternehmensgeheimnis”) and “economic secrets” (“Wirtschaftsgeheimnis”) are often used as generic terms (“Oberbegriff”).1303 Requirements for the protection of trade secrets As stated in the previous section, the definition of trade secrets that has been followed by case law requires that (i) information, (ii) must be connected to a particular business, (iii) must not be public, but only known by a limited circle of people, (iv) must be kept secret by the express will of the trade secret holder, and (v) the desire to keep the information secret must be based on an economic interest.1304 II. 1297 BGH GRUR 1963, 367 – Industrieböden. 1298 BGH GRUR 1980, 750 – Pankreaplex. 1299 BGH GRUR 1977, 539 – Prozessrechner; Köhler/Bornkamm/Feddersen (n 835) § 17 Rdn 12a. 1300 Björn H. Kalbfus, Know-how Schutz in Deutschland zwischen Strafrecht und Zivilrecht-welcher Reformbedarf besteht? (1st edn, Carl Heymanns Verlag 2011) 70. 1301 Lutz Lehmer, UWG: Kommentar zum Wettbewerbsrecht (Luchterhand 2007) 555; Ohly/Sosnitza (n 813) § 17 Rdn 5, Axel Beater (n 811) § 22 Rdn 686; Köhler/Bornkamm/Feddersen (n 835) § 17 Rdn 4a. 1302 Lutz Lehmer 2010 (n 1301) 555. 1303 Ohly/Sosnitza (n 813) 17 Rdn 5; Gintare Surblyte 2011 (n 182) 49; Björn H. Kalbfus 2011 (n 1300) 70; Harte- Harte-Bavendamm/Henning-Bodewig (n 376) § 17 Rdn 1; hereinafer, the generic term “trade secret” will be used. 1304 BGH GRUR 2009, 603, Rdn 13 – Versicherungsvertreter; Hirsch/Ann/Brammsen, Münchener Kommentar zum Lauterkeitsrecht (2nd edn, C.H. Beck 2014) § 17 Rdn 8; Florian Schweyer 2012 (n 99) 458. § 2 Different concepts and requirements for protection of trade secrets 285 The following sections analyse the requirements for the protection of information as a trade secret in the German jurisdiction. Information The working definition adopted by the German courts refers to facts (“Tatsachen”). The use of this term has been criticised for not being sufficiently precise, because the law of trade secrets protects information about facts (“Tatsachen”) and not the facts themselves.1305 Information connected to a business — Geschäftsbezogenheit In Germany, information can only be protected as a trade secret if it can be ascribed to a particular business,1306 i.e. the information must be “used in relation to the business”1307 or owned and controlled by the said business.1308 No other requirements regarding the content or the object of the secret information have to be met.1309 Consequently, private secrets1310 and information that stems from universities and research institutions do not fall within the scope of §§ 17 and 18 UWG.1311 This contrasts with the broad scope of the English breach of confidence action and the broad interpretation of commercial value followed by courts in the U.S. The rationale behind such a limitation derives from the very foundations of unfair competition.1312 The legal regime for the protection of trade secrets was established with the intention of safeguarding the “exercise without disruption of the business activity”1313 of 1. 2. 1305 See Stephan Hillenbrand, Der Begriff des Betriebs- und Geschäftsgeheimnisses (Herbert Utz Verlag 2017) 28 and Björn H. Kalbfus 2016 (n 1122)1010 with further references. 1306 See Florian Schweyer 2012 (n 99) 458; Gintare Surblyte 2011 (n 182) 50. 1307 Rudolf Kraßer 1970 (n 831) 589; Michael Knospe (n 834) § 15:5; Gintare Surblyte 2011 (n 182) 49. 1308 Florian Schweyer 2012 (n 99) 458; Michael Knospe (n 834) 15:5. 1309 Axel Beater (n 811) Rdn 1878. 1310 Ohly/Sosnitza (n 813) § 17 Rdn 6. 1311 Florian Schweyer 2012 (n 99) 458 noting that in other jurisdictions, like the United States, they are actually considered trade secrets. 1312 Harte-Bavendamm/Henning-Bodewig (n 376) § 17 Rdn 2. 1313 Harte-Bavendamm/Henning-Bodewig (n 376) § 17 Rdn 2. Chapter 4. Mapping the notion of secrecy 286 the trade secret holder in order to preserve the market position that he had obtained through his secret knowledge and experience.1314 From the outset it was controversially discussed, as happened in most jurisdictions, whether the information protected under the trade secrets legal regime should meet the patentability requirements set forth in the German Patent Act.1315 In 1907, one of the first decisions rendered by the Supreme Court of the German Reich regarding trade secret protection, the Pomril1316 judgement, ruled out such a possibility, stating that: “It is not relevant whether the (…) process was new in the sense of §§ 1,2 of the Patent Act (…)”.1317 Later on in the same decision, it was further noted that a known process could be the object of a trade secret only if by keeping the information secret the trade secret holder could achieve a certain competitive advantage.1318 The principles set out by the Pomril decision have been incorporated by subsequent case law.1319 Likewise, courts have repeatedly stated that it is irrelevant whether the information is secret as such, or whether only its relationship with the business is kept secret. This issue was first clarified by the Supreme Court of the German Reich in the Stiefeleisenpresse decision.1320 In the legal reasoning of this landmark case, the court noted that a known process could be the object of a trade secret, as long as its use by the business was not disclosed. It further added that the relationship with the company lasted for as long as the trade secret holder had a legitimate economic interest in keeping the relationship between the process and the undertaking confidential. Hence, the relationship with the company is not lost by the mere fact of selling the product in which the trade secret is embodied.1321 1314 Harte-Bavendamm/Henning-Bodewig (n 376) § 17 Rdn 2. 1315 See § 3 German Patent Act. 1316 RGZ 1907 65, 333, 335 ‒ Pomril. 1317 RGZ 1907 65, 333, 335 ‒ Pomril (…)“kommt es nicht darauf an, ob das Promil Verfahren in dem Sinne neu war, in dem eine Erfindung nach §§ 1, 2 des Patentsgesetz neu sein muß, wenn die patentfähig sein soll”. This point of view has been reiterated in subsequent case law, for example: RGZ 1935 149, 329, 335– Stiefeleisenpresse; BGH GRUR 1995, 424, 426 – Möbelpaste. 1318 RGZ 1907 65, 333, 335 – Pomril; RGZ 1935 149, 329, 334 – Stiefeleisenpresse, BGH GRUR 1995, 424 – Möbelpaste. 1319 Florian Schweyer 2012 (n 99) 459. 1320 RGZ 1935 149, 329, 335 – Stiefeleisenpresse. 1321 Ohly/Sosnitza (n 813) § 17 Rdn 6. § 2 Different concepts and requirements for protection of trade secrets 287 In this context, it has been stated that the information connected to business requirement correlates with the condition that “information is lawfully within the control” of its holder, spelt out in Article 39(2) TRIPs.1322 Secrecy — Nichtoffenkundigkeit By definition, the subject matter of trade secrets protection must not be in the public domain.1323 Pursuant to the prevailing view in case law, information will be regarded as secret as long as it is neither generally known nor easily accessible.1324 The threshold for assessing these requirements is the so-called “circle of experts” (“Fachkreise”) but also the competitors, whose actions are ultimately the object of the UWG regulation.1325 Information will only be regarded as secret if it is “only known by a limited circle of people”.1326 Consequently, in Germany, the relevant yardstick has become whether the trade secret owner maintains control over the number and type of persons who know or who have access to the information.1327 Thus, courts do not resort to a precise numerical value in order to evaluate if the “number of persons who have knowledge of the information is sufficiently limited”.1328 Instead, a case-by-case analysis is con- 3. 1322 Ohly/Sosnitza (n 813) § 17 Rdn 6. 1323 Michael Knospe (n 834) 15:8. 1324 Florian Schweyer 2012 (n 99) 459, Michael Knospe (n 834) 15:8; Ohly/Sosnitza (n 813) § 17 Rdn 7; Harte-Bavendamm/Henning-Bodewig (n 376) § 17 Rdn 3. 1325 Florian Schweyer 2012 (n 99) 461; Thomas Reimann,‘Einige Überlegungen zur Offenkundigkeit im Rahmen von §§ 17 ff. UWG und von § 3 PatG’ [1998] GRUR 298, 299; BGH GRUR 2012, 1048 Rdn 21 ‒ Movicol (Zulassungsantrag): “Das BerGer. hat zutreffend angenommen, dass es nicht zu einer den Geheimnischarakter ausschließenden allgemeinen Bekanntheit führt, wenn die Zulassungsunterlagen einem begrenzten – wenn auch unter Umständen größeren – Personenkreis zugänglich waren, etwa den auf Grund des Arbeitsvertrags zur Verschwiegenheit verpflichteten Betriebsangehörigen oder auch bestimmten Kunden und Lieferanten. Nichts anderes gilt, soweit die Unterlagen den mit der Vorbereitung und Prüfung des Zulassungsantrags dienstlich befassten Personen bekannt geworden sind”; this topic is further elaborated in chapter 4 § 4 D) III. 1326 Ohly/Sosnitza (n 813) § 17 Rdn 8. 1327 Ohly/Sosnitza (n 813) § 17 Rdn 8; Rudolf Kraßer, ‘Grundlagen des zivilrechtlichen Schutz von Geschäfts- und Betriebsgeheimnissen sowie von Knowhow’ [1977] GRUR 177, 178. 1328 Michael Knospe (n 834) 15:4. Chapter 4. Mapping the notion of secrecy 288 ducted,1329 where the decisive factor is the likelihood of a disclosure to any third parties, in particular competitors, not bound by a confidentiality obligation.1330 Hence, courts have deemed that the trade secret holder is in control of the secret, not only among his employees, who are bound by their labour contracts, but also with regard to licensees and contract manufacturers, so long as they are expressly bound by a confidentiality obligation.1331 As stated above, information will be deemed public and thus not protectable under trade secrets law, not only if it is generally known, but also if it may be easily accessed (“leichte Zugänglichkeit”).1332 This requirement comprises both actual access and the possibility of accessing the information concerned.1333 In patent law, a disclosure that is theoretically accessible by any third party is considered novelty destroying pursuant to § 2 of the German Patent Act,1334 whereas under the trade secrets regime, the accessibility requirement has been construed in a much narrower and “specific” sense.1335 Information that can only be obtained in an extremely difficult manner is considered to meet such a condition and consequently can be protected as a trade secret.1336 This highlights one of the defining features of trade secrets vis-á-vis other IPRs: in order to be protected information must fulfil neither the technical novelty criterion as applied in patent law, nor the originality requirement necessary to grant copyright law.1337 In the light of the above, a new standard for the assessment of secrecy was developed by case law, according to which “information which in its specific manifestation can only be obtained through great difficulty and cost (“große Schwierigkeit und Opfer”) is considered to be secret”.1338 In contrast, information that can be learned by the interested parties without such difficulty is deemed to be dedicated to the public and thus part of the public domain. The development of this standard was considered neces- 1329 Ohly/Sosnitza (n 813) § 17 Rdn 8. 1330 Harte-Bavendamm/Henning-Bodewig (n 376) § 17 Rdn 4; Rudolf Kraßer 1977 (n 1327) 177. 1331 Rudolf Kraßer 1977 (n 1327) 179. 1332 Florian Schweyer 2012 (n 99) 461. 1333 Rudolf Kraßer 1977 (n 1327) 179; Florian Schweyer 2012 (n 99) 462. 1334 See § 2 German Patent Act. 1335 Henning Harte-Bavendamm 2010 (n 823) § 77 Rdn 11. 1336 Rudolf Kraßer 1977 (n 1327) 179; Thomas Reimann 1998 (1325) 298, 299. 1337 Hirsch/Ann/Brammsen (n 1304) § 17 Rdn 13; BGH GRUR 1995, 424, 426 – Möbelpaste. 1338 Rudolf Kraßer 1977 (n 1327) 179. § 2 Different concepts and requirements for protection of trade secrets 289 sary in order to protect competitors who acquired a secret independently and through a high investment of effort and costs.1339 Thus, information does not necessarily lose its secret nature if third parties achieve similar results independently.1340 Will to keep the information secret — Geheimhaltunsgswille The fourth requirement applied by courts sets forth that information must remain undisclosed as a result of the will of the trade secret holder.1341 The rationale behind this subjective requisite1342 is to differentiate mere unknown information from information that is intentionally kept secret.1343 The will to observe confidentiality must stem from the holder and it can be agreed upon orally or in a written form,1344 even though it will often be inferred from the circumstances of the case.1345 Courts have construed the intent requirement in a broad sense, encompassing both the “potential” and the actual intent.1346 In addition, it has been suggested that if such intent is unclear, employees should presume that “all knowledge and processes, whose existence is unknown outside the inner sphere of the particular business and that play a role in its competitive position”,1347 are kept undisclosed as a result of the express will of the trade secret holder.1348 Thus, the burden of proof lies with the employee, who will have to provide evidence that the employer did not intend to keep the information undisclosed.1349 Likewise, actual knowledge of the secret information by the employer is not required, so long as if he had in fact been acquainted 4. 1339 Rudolf Kraßer 1977 (n 1327) 179; Henning Harte-Bavendamm 2010 (n 823) § 77 Rdn 10. 1340 Henning Harte-Bavendamm 2010 (n 823) § 77 Rdn 10. 1341 BGH GRUR 1964, 31 ‒ Petromax II. 1342 Gintare Surblyte 2011 (n 182) 51. 1343 Ohly/Sosnitza (n 813) § 17 Rdn 11; Henning Harte-Bavendamm 2010 (n 823) § 77 Rdn 12. 1344 Henning Harte-Bavendamm 2010 (n 823) § 77 Rdn 12. 1345 Henning Harte-Bavendamm 2010 (n 823) § 77 Rdn 12. 1346 Axel Beater (n 811) § 22 Rdn 1880. 1347 Henning Harte-Bavendamm 2010 (n 823) § 77 Rdn 12; BGH GRUR 2006, 1044 Rdn 19 ‒ Kundendatenprogramm. 1348 Henning Harte-Bavendamm 2010 (n 823) § 77 Rdn 12. 1349 Henning Harte-Bavendamm 2010 (n 823) § 77 Rdn 12; Florian Schweyer 2012 (n 99) 468, Michael Knospe (n 834) 15:4. Chapter 4. Mapping the notion of secrecy 290 with it he would have intended to keep it secret.1350 This general presumption refers to the situation where information was developed by employees but still had to be communicated to employers, and it was introduced for practical purposes, because there is always a period of time between the actual invention and the act of communication. This requirement has been strongly criticised by several commentators, who believe that the way in which it is tailored nowadays renders it a superfluous condition for protection.1351 Some argue that establishing such a fiction appears redundant and should be abandoned.1352 Hence, the only relevant yardstick should be whether the trade secret holder had disclosed the information and consequently it had become generally known.1353 Interest in keeping the information secret — Geheimhaltungsinteresse The will to keep information secret (“Geheimhaltungswille”) is closely connected with the last requirement set forth by case law for protecting trade secrets, namely the interest in keeping the information undisclosed (“Geheimhaltungsinteresse”).1354 Nowadays, it is generally accepted by case law and academia that the trade secret holder must have a justifiable economic interest in keeping the information secret, as the mere intention is deemed an inadequate subjective parameter for assessing trade secrets protection.1355 Such an objective condition was essentially introduced with the aim of ensuring that the owner could not arbitrarily establish the information covered by the trade secret, irrespective of whether an objective un- 5. 1350 Florian Schweyer 2012 (n 99) 468; BGH GRUR 1977, 539 – Prozessrechner. 1351 In that sense, Henning Harte-Bavendamm 2010 (n 823) § Rdn 12 states that “Die Erkannbarkeit dieses Willens mag für die Strafbarkeit wegen Geheimnisverrat von Bedeutung sein, jedoch nicht für den Begriff des Geheimnisses und nicht unbedingt für zivilrechtliches Vorgehen”. 1352 Ohly/Sosnitza (n 813) § 17 Rdn 11. 1353 Ohly/Sosnitza (n 813) § 17 Rdn 11. 1354 Rudolf Kraßer 1970 (n 831) 590. 1355 In this sense, BGH GRUR 1955, 424, 425– Möbelwachspaste: “Der Begriff des Betriebsgeheimnisses außer dem Willen zur Geheimhaltung ein berechtigtes wirtschaftliches Interesse des Betriebsinhabers an der Geheimhaltung voraussetze”; Ohly/Sosnitza (n 813) § 17 Rn 12; Köhler/Bornkamm/Feddersen (n 835) § 17 Rdn 9; Henning Harte-Bavendamm 2010 (n 823) § 77 noting that “Außer dem Willen zur Geheimhaltung ist ein berechtigtes wirtschaftliches Interesse des Betriebsinhabers an der Geheimhaltung erforderlich”. § 2 Different concepts and requirements for protection of trade secrets 291 derlying justification existed.1356 In that regard, it should be noted that §§ 17 and 18 of the UWG are criminal law provisions and accordingly set forth criminal penalties in the event of infringement.1357 The ground for the assessment of the so-called “justifiable interest” is based on the competitive advantage gained by keeping the specific information secret, in line with Article 39(2)(b) TRIPs. Hence, case law has introduced a general presumption, whereby a legitimate economic interest will be assumed if the disclosure of the information hinders the rightholder’s position in the market, or conversely, it leads to an improvement in the competitor’s position.1358 However, this does not mean that the trade secret must have economic value as such.1359 Likewise, as already stated with regard to the secrecy requirement, it is not necessary that the object of protection is undisclosed information from a company, such as a secret method of manufacture. It suffices that its relationship with the business is kept secret. For instance, based on the previous example, the method for manufacture could be generally known, but if its use by a given company remains secret this relationship could constitute the object of trade secrets protection.1360 As a final consideration, it should be pointed out that it is irrelevant whether the protected secret deals with immoral or unlawful information.1361 Notwithstanding this, a disclosure might be justified on the basis of third parties’ best interests and, arguably, an obligation to do so may arise in the event of an emergency situation pursuant to § 34 of the Criminal Code.1362 1356 Henning Harte-Bavendamm 2010 (n 823) 13; Ohly/Sosnitza (n 813) § 17 Rdn 12. 1357 Gintare Surblyte 2011 (n 182) 47. 1358 Köhler/Bornkamm/Feddersen (n 835) § 17 Rdn 9. 1359 Köhler/Bornkamm/Feddersen (n 835) § 17 Rdn 9. 1360 Köhler/Bornkamm/Feddersen (n 835) § 17 Rdn 9. 1361 Henning Harte-Bavendamm 2010 (n 823) § 77 Rn 13; Köhler/Bornkamm/ Feddersen (n 835) § 17 Rdn 9; Stephan Hillenbrand, Der Begriff des Betriebsund Geschäftsgeheimnisses (Herbert Utz Verlag 2017) 75. 1362 Henning Harte-Bavendamm 2010 (n 823) § 77 Rdn 13; Köhler/Bornkamm/ Feddersen (n 835) § 17 Rdn 9. Chapter 4. Mapping the notion of secrecy 292 The notion of confidentiality in England Concepts of confidential information and trade secret in England The inclusion of trade secrets within the general legal framework created by the breach of confidence action has led to the establishment of a very complex system, where the boundaries between privacy and secrecy have progressively faded, causing the concepts to merge. In numerous rulings, English courts have sought to provide a uniform interpretation of essential concepts, such as confidential information, trade secrets and knowhow.1363 The following paragraphs attempt to shed light on the complex and at times confusing terminology used in case law when applying the breach of confidence action. Confidential information is most adequately defined as the general term used to refer to information that is protected under the breach of confidence action.1364 As mentioned previously, its scope covers all types of information without restrictions on the subject matter of protection,1365 irrespective of the format in which it is presented.1366 As regards trade secrets, no statutory definition of this term has been enacted into law in England.1367 A detailed study of the authorities on the subject reveals that the English courts have mostly avoided precisely delineating the semantic contours of this concept.1368 As such, trade secrets refer to one of the several categories of information that are protected under the B) I. 1363 The difficulties of establishing a uniform interpretation of confidential information were already outlined by Lord Megarry in Thomas Marshall (Exports) Limited v Guinle [1979] FSR 208 (Ch), 209 where he held that “it is far from easy to state in general terms what is confidential information or trade secret”. 1364 John Hull, ʻTrade Secret Licensing: the art of the possibleʼ [2009] 14 JIPLP 203, 205. 1365 Tanya Aplin and others 2012 (n 22) para 6.02 state that confidential information can be generally classified in four kinds, i.e. trade secrets, artistic and literary information, government secrets and personal information. However, it is further noted that “the boundaries separating these categories are not always easy to draw and there is a certain amount of overlapping”. 1366 Lionel Bently and Brad Sherman 2014 (n 125) 1144. 1367 Notwithstanding, the Freedom of Information Act 2000, s 43(1) refers to trade secrets. 1368 John Hull 2013 (n 934) 158. § 2 Different concepts and requirements for protection of trade secrets 293 breach of confidence action,1369 although some commentators argue that the courts have applied this phrase such that is has a two-fold meaning.1370 The first and more restrictive approach limits the scope of trade secrets to post-employment restraints on former employees, based both on express and implied duties of confidentiality.1371 This was the case in Helmet Integrated Systems Ltd v Tunnard, where Moses J noted that former employees should be free to use and apply for their own benefit the skill and knowledge acquired and developed during the course of an employment relationship, even if it entails competing with the former employer. However, he added that they should not benefit from information regarded as a trade secret.1372 Conversely, the prevailing and broader approach uses the term trade secrets as a “synonym for commercial and industrial confidential information”,1373 similarly to Article 2(1) TSD. Indeed, Megarry J in Thomas Marshall (Exports) Limited v Guinle stated that trade secrets are information concerning industrial and trade settings that meets the following four requirements: (i) First, the disclosure of the information would be detrimental to its holder or to the benefit of a competitor or any other third party; (ii) Second, the owner should believe that the information concerned is secret; (iii) Third, the holder’s belief under the two previous requirements “must be reasonable”; (iv) Fourth, information must be assessed according to the “usage and practices of the particular industry or trade concerned”.1374 Against this background, the traditional distinction between technical secrets and business secrets is also applicable. In particular, know-how is con- 1369 John Hull 2013 (n 934) 161. 1370 Tanya Aplin and others 2012 (n 22) para 6.06. 1371 See among others Faccenda Chicken Ltd v Fowler [1987] Ch 117 (CA), 136 where Neil LJ highlighted that: “The implied term which imposes an obligation on the employee as to his conduct after the termination of the employment is more restricted in scope than that which imposes a general duty of good faith. It is clear that the obligation not to use or disclose information may cover secret processes of manufacture such as chemical formulae (…), or designs or special methods of construction (…), and other information which is of sufficiently degree of confidentiality as to amount to a trade secret”. 1372 Helmet Integrated Systems Ltd v Tunnard [2007] FSR 385 (CA), 445-446. 1373 Tanya Aplin and others 2012 (n 22) para 6.06. 1374 Thomas Marshall (Exports) Limited v Guinle [1979] FSR 208 (Ch), 229. Chapter 4. Mapping the notion of secrecy 294 sidered to encompass two kinds of technical information.1375 On the one hand, it is used to refer to non-patented practical information that has been developed through experience and testing and that is secret, substantial and identified.1376 On the other hand, know-how has been used to designate the set of skills and knowledge that employees acquire during the course of their employment. This was the view supported, among others, by Sir Thomas Bingham M.R. in Lancashire Fire Ltd v Lyons, where it was held that: The normal presumption is that information which the employee has obtained in the ordinary course of his employment, without specific steps such as memorising particular documents, is information which he is free to take away and use in alternative employment.1377 With the above clarification in mind, the following section delves into two of the four conditions that are necessary to find liability under the breach of confidence action mentioned above: (i) the subject matter capable of protection, and (ii) the confidential nature of the information.1378 Subject matter capable of protection One of the most notable features of the English legal system is the fact that the breach of confidence action places no restrictions on the type of information protected and the format in which it is conveyed.1379 Accordingly, the action has been invoked to protect both oral and written information,1380 as well as drawings,1381 photographs1382 and products.1383 Notwithstanding this, courts have developed four limitations as to the information that falls under its scope of protection. Consequently, trivial information, information that is vague, immoral information and false infor- II. 1375 Tanya Aplin and others 2012 (n 22) para 6.10; John Hull 2009 (n 1364) 206. 1376 Similar to Article 1(i) TTBER. 1377 Lancashire Fires Limited v S.A. Lyons & Company Limited and Others [1996] FSR 629 (CA), 656. 1378 See chapter 3 § 3 C) II. 1379 Lionel Bently and Brad Sherman 2014 (n 125) 1144. 1380 Fraser v Thames Television Ltd [1984] QB 44 (QB). 1381 Morison v Moat [1851] 9 Hare 241. 1382 Douglas v Hello! Ltd and others [2007] UKHL 21. 1383 Vestergaard Frandsen A/S v Bestnet Europe Ltd [2013] UKSC 31; Helmet Integrated Systems Ltd v Tunnard [2007] FSR 16 (CA). § 2 Different concepts and requirements for protection of trade secrets 295 mation are not eligible for protection.1384 Each of these exceptions will be analysed in turn. Commercial value: protection of trivial information? As a first general limitation, case law has provided that trivial information may not be subject to a confidential obligation. Famously, Megarry J in Coco v A.N.Clark (Engineers) Ltd stated that “equity ought not to be invoked merely to protect trivial tittle-tattle, however confidential”.1385 Yet, the decision provided no further guidance on how to assess such a requirement. The Oxford dictionary defines tittle-tattle as referring to “casual conversation about other people, typically involving details that are not confirmed as true; gossip”.1386 In line with this definition, in Attorney General v Guardian Newspapers Ltd Lord Goff stressed “the duty of confidence applies neither to useless information, nor to trivia”.1387 However, in Stephens v Avery1388 the notion that information concerning an extramarital affair between two people published in a tabloid was not eligible for protection under the breach of confidence action was rejected. In this case, the plaintiff, Mrs Stephens, conveyed in confidence certain information of a private nature to one of the defendants, Mrs Avery. In particular, the information related to a lesbian relationship between the plaintiff and Mrs Telling, who because of the affair was murdered by her husband. Subsequently, Mrs Avery communicated the information about the lesbian relationship to one of the most prominent tabloids in the UK, “The Mail on Sunday”, in which an article revealing details of the relationship was published in July 1984. As a result, Mrs Stephens brought an action for a breach of confidence. Upon Appeal, Sir Nicolas noted that the exclusion of “trivial tittletattle” information in Coco v A.N.Clark (Engineers) Ltd was exclusively concerned with information that was of industrial value and expressed scepti- 1. 1384 Lionel Bently and Brad Sherman 2014 (n 125) 1144. 1385 Coco v A.N.Clark (Engineers) Ltd [1969] RPC 41 (Ch), 48; later Judge Dean in Moorgate Tobacco Co, Ltd v Philip Morris Ltd (No 2) [1984] 156 CLR 414, 438. 1386 ‘tittle-tattle, n’ (OED Online, OUP June 2013) accessed 15 September 2018. 1387 Lord Goff in Attorney General v Guardian Newspapers Ltd (No. 2) [1990] 1 AC 109 (HL), 282. 1388 Stephens v Avery [1988] FSR 510 (Ch). Chapter 4. Mapping the notion of secrecy 296 cism about considering the sexual conduct of an individual as trivial tittletattle information.1389 Accordingly, courts have been wary of regarding information as trivial, partially due to the uncertainty and difficulty related to the consideration of what constitutes trivial information,1390 which in practice has led to a reduction in the applicability of this limitation.1391 Notwithstanding this, in the field of trade secrets, some decisions have demanded information to be commercially valuable or at least attractive, in line with Article 2(1)(b) TSD.1392 Yet, a survey of the cases involving trade secrets protection reveals that most of them do not expressly refer to the value of the information, as it is often deemed that companies would not bring legal action if the information concerned did not have a certain “value”.1393 More recently, the notion of “objective value” was used as one of the factors that signalled whether the information possessed the necessary quality of confidence.1394 In addition, in the landmark decision from the House of Lords Douglas v Hello and other Ltd the fact that the parties entered into an agreement covering the protection of information was considered crucial in assessing the confidential nature of the pictures of the wedding that had been misappropriated.1395 In view of this, it appears that “commercial value” as such is not a normative requirement under the breach of confidence 1389 Stephens v Avery [1988] FSR 510 (Ch), 515. 1390 Lionel Bently and Brad Sherman 2014 (n 125) 1000. 1391 Lionel Bently and Brad Sherman 2014 (n 125) 1001. 1392 For instance, in Thomas Marshall (Exports) Limited v Guinle [1979] FSR 208 (Ch), 229 it was stated that one of the requirements to find liability was that the disclosure of the information should cause a prejudice to the owner or an advantage to competitors or third parties; see further Lionel Bently and Brad Sherman 2014 (n 125) 1000; Gintare Surblyte 2011 (n 182) 78. 1393 Tanya Aplin and others 2012 (n 22) para 5.51; however, in Nichrothermc Electrical Co Ltd v Percy [1956] RPC 272 (Ch) the plaintiffs brought legal action for the misappropriation of a machine that presented no commercial value. 1394 HEFCE v Information Commissioner and the Guardian News and Media Ltd (EA/ 2009/0036, 10 January 2010) [48]. 1395 See Douglas v Hello! Ltd and others [2007] UKHL 21 [325] (Lord Brown): “Having paid £1m for an exclusive right it seems to me that OK! ought to be in a position to protect that right and to look to the law for redress were a third party intentionally to destroy it. Like Lord Hoffmann, I would uphold OK!’s claim, as Lindsay J did at first instance, on the ground of breach of confidence”; however Lord Walker [299] held the opposite view, by noting that “the confidentiality of any information must depend on its nature, not on its market value”. § 2 Different concepts and requirements for protection of trade secrets 297 action in England, but it is a strong indicator of the existence of information that is worth protecting.1396 Information that is vague In addition to being non-trivial, the general principle is that confidential information should be specific i.e. clear and identifiable.1397 Vague or general information is excluded from the scope of the breach of confidence action.1398 In effect, as noted in Terrapin Ltd v Builders’ Supply Co (Hayes) Ltd. by Roxburh J, confidential information must be “something that can be traced to a particular source and not something which has become so completely merged in the mind of the person informed that it is impossible to say from what precise quarter he derived the information which led to the knowledge which he is found to possess”.1399 Identifying the information for which protection is sought is crucial not only to establish the duration of an injunction and the amount of damages due, but also to elucidate whether an actual breach has occurred.1400 It also appears of paramount importance in the context of the licensing agreements in order to delineate the scope of the contracts.1401 Such a limitation has often been invoked by courts as a ground to deny granting an injunction preventing the use of a “generalized body of information”.1402 Consequently, injunctions should be drafted in a very specific manner so as to allow defendants to know with certainty which conducts are permitted and which are forbidden. This is particularly relevant, for instance, in injunctions relating to post employment restraints as regards trade secrets.1403 In the event of litigation, the trade secrets that former employees are not allowed to use after the termination of their employment relationship should be clearly identifiable in any potential injunction. It is 2. 1396 Nevertheless, Roger M. Toulson and Charles M. Phipps 2012 (n 326) 3-081 suggest that “There must be some value to the party claiming confidentiality (not necessarily commercial) in the information being treated as confidential”. 1397 Roger M. Toulson and Charles M. Phipps 2012 (n 326) para 3-086. 1398 Lionel Bently and Brad Sherman 2014 (n 125) 1001-1003. 1399 Terrapin Ltd v Builders’ Supply Co (Hayes) Ltd [1962] RPC 375 (Ch), 391; a detaied account of this case is provided in chapter 6 § 2 B) III. 3). 1400 Tanya Aplin and others (n 22) para 5.74. 1401 John Hull 2009 (n 1364) 208. 1402 Tanya Aplin and others (n 22) para 5.74. 1403 Roger M. Toulson and Charles M. Phipps 2012 (n 326) para 3-088. Chapter 4. Mapping the notion of secrecy 298 essential to distinguish them from general skills and knowledge, which every employee should be free to use.1404 The importance of identifying the information that constitutes the trade secret in order to find liability under the breach of confidence action was restated by the Supreme Court in Vestergaard v Bestnet, a case concerning an alleged breach by a former employee.1405 The above should not be understood to mean that simple ideas cannot be protected, even though the more novel or original ideas are, the more likely they are to merit protection.1406 As opposed to copyright law, the breach of confidence action affords protection to ideas without the need to show their specific expression.1407 By way of illustration, the ideas for a new TV programme1408 and an innovative concept of a dance club were deemed confidential.1409 Yet again, the courts have struggled to draw a line with regard to when an idea is sufficiently detailed. Notably, this requirement has been construed as meaning that the concept or idea must be “sufficiently developed to be capable of being realized”.1410 This is analysed further in the assessment of the secrecy requirement vis-à-vis IPRs normative standards.1411 1404 Faccenda Chicken Ltd v Fowler [1987] Ch 117 (CA), 122-123. 1405 Vestergaard Frandsen A/S v Bestnet Europe Ltd [2013] UKSC 31, [22]: “It would seem surprising if Mrs Sig could be liable for breaching Vestergaard’s rights of confidence through the misuse of its trade secrets, given that she did not know (i) the identity of those secrets, and (ii) that they were being, or had been, used, let alone misused. The absence of such knowledge would appear to preclude liability, at least without the existence of special facts”. 1406 See Tanya Aplin and others 2012 (n 22) para 5.55. 1407 William Cornish, David Llewellyn and Tanya Aplin 2013 (n 209) para 8-10 note that “an idea for something to be elaborated may attract legal protection as confidential information where there is nothing that generates copyright”. 1408 Fraser v Thames Television Ltd [1984] QB 44 (QB). 1409 De Maudsley v Palumbo [1996] FSR 447 (Ch). 1410 Lionel Bently and Brad Sherman 2014 (n 125) 1145-1146 noting that this is criterion was first developed in the Supreme Court of Victoria in Tablot v General Television Corp [1981] RPC 1. 1411 Chapter 4 § 4 E) II 2). § 2 Different concepts and requirements for protection of trade secrets 299 Immoral and false information In England the general principle is that immoral information is not eligible for protection under the breach of confidence action.1412 However, as no generally accepted code of morality exists, courts have shown reluctance to apply this limitation. For instance, in Stephens v Avery, while the court ruled that in abstract a duty of confidence would not be enforceable against “matters which have a grossly immoral tendency”, it concluded that no common view existed on the immoral nature of sexual relationships between consenting adults.1413 Another unsettled issue is whether false information (i.e. inaccurate information) can be protected under the breach of confidence action, particularly due to its intersection with the defamation cause of action.1414 A review of leading academic works on confidentiality seems to support that inaccuracies should not affect the confidential nature of the information, provided that such an action is not intended to cover a defamation claim,1415 as noted by the Court of Appeal in McKennitt v Ash.1416 This case concerned the publication of a book on the life of the plaintiff, a Canadian folk singer. In the book, private information about the singer was disclosed by the author, a former friend and business partner. As regards the falsity of the allegations, the court concluded that, “the truth or falsity of the information is an irrelevant inquiry in deciding whether the information is entitled to be protected”.1417 However, some commentators have noted that these arguments seem less persuasive with regard to non-private or non-personal matters, such as government information.1418 Indeed, in Financial Times Ltd & Ors v Interbrew SA the leakage of five documents that contained false information about the acquisition of a brewery in South Africa was not deemed enforceable under the breach of confidence action, because in the words of Sedley J, “there can be no confidentiality in false information”.1419 In sum, it appears that case law under the breach of con- 3. 1412 William Cornish, David Llewellyn and Tanya Aplin 2013 (n 209) paras 8-10. 1413 Stephens v Avery [1988] FSR 510 (Ch). 1414 Roger M. Toulson and Charles M. Phipps 2012 (n 326) para 3-093. 1415 Tanya Aplin and others (n 22) para 5.67; Roger M. Toulson and Charles M. Phipps 2012 (n 326) para 3-093; McKennitt v Ash [2006] EWCA Civ 1714 (CA). 1416 McKennitt v Ash [2006] EWCA Civ 1714 (CA), [86]. 1417 McKennitt v Ash [2006] EWCA Civ 1714 (CA), [86]. 1418 Tanya Aplin and others (n 22) para 5.62 and para 5.72. 1419 Financial Times Ltd. & Ors v Interbrew SA [2002] EWCA Civ 274 (CA), [27]-[28]. Chapter 4. Mapping the notion of secrecy 300 fidence action provides no clear answer as to the protection of false information. Confidential nature of the information Crucially, in order to bring an action under an alleged breach of confidence, it must always be proved that the disclosed information is of a confidential nature i.e. “it possesses the necessary quality of confidence”. Despite the widespread use of this term, few English cases seem to provide a satisfactory definition.1420 In assessing this requirement, courts tend to follow a pragmatic approach, where the analysis of confidentiality is considered against the specific background of every particular case.1421 The following sections examine the general test developed by English courts, along with the main attributes of confidentiality. The general test of inaccessibility The tests developed to assess confidentiality are mostly of an objective nature, as they do not take into account the views of the parties.1422 Indeed the “status of the information is a question of fact, not intention”.1423 Notwithstanding this, Toulson and Phipps have propounded that an implicit principle is that courts should only recognise confidentiality in those cases where it appears reasonable to do so.1424 This is argued on the basis that a number of cases have resorted to the “reasonable man yardstick” when assessing the confidential nature of the information (and not just whether an obligation of confidence arises),1425 and the fact that secrecy is III. 1. 1420 John Hull 1998 (1016) para 3.03. 1421 Tanya Aplin and others 2012 (n 22) 149. 1422 Allison Coleman 1992 (n 911) 8; this was also noted in Lancashire Fires Limited v S.A. Lyons & Company Limited and Others [1996] FSR 629 (CA), 656: “the subjective view of the owner cannot be decisive. There must be something which is not objectively a trade secret, but something which was known, or ought to have been known, by both parties to be so”. 1423 Lionel Bently and Brad Sherman 2014 (n 125) 1148. 1424 Roger M. Toulson and Charles M. Phipps 2012 (n 326) para 3-082. 1425 Thomas Marshall (Exports) Limited v Guinle [1979] FSR 208 (Ch), 229 and chapter 3 § 3 C) II. 2. a). § 2 Different concepts and requirements for protection of trade secrets 301 often defined by its limits, in which “reasonableness” is often invoked.1426 Yet, this view is not supported because it introduces an element of subjectivity, (“the owner’s belief -which must be reasonable- that the information is confidential”) that should only be taken into account in the assessment of whether an obligation on the recipient arises, not as regards the status of the information.1427 In effect, most decisions follow the objective test of confidentiality first developed in Saltman Engineering v Campbell Engineering, where confidentiality was defined by the limitations imposed by the public domain: The information, to be confidential, must, I apprehend, apart from contract, have the necessary quality of confidence about it, namely it must not be something which is public property and public knowledge. On the other hand, it is perfectly possible to have a confidential document, be it a formula, a plan, a sketch, or something of that kind, which is the result of work by the maker upon materials which may be available for the use of anybody; but what makes it confidential is the fact that the maker of the document has used his brain and thus produced a result which can only be produced by somebody who goes through the same process.1428 As is apparent from the above passage, for information to qualify as confidential it should meet two requirements. The first is rather broad and demands that information is not “public property” or “public knowledge”, i.e. part of the “public domain”.1429 Secondly, Lord Griffin suggested a test, according to which information would only be deemed confidential if it could only be acquired through the reproduction of the mental process that led to the creation of the resulting information. In the light of the above, courts have applied the general principle of “inaccessibility” with the aim of assessing whether certain information falls into the public domain.1430 This judgement is based on a confidentiality test developed by subsequent authorities, according to which information 1426 Roger M. Toulson and Charles M. Phipps 2012 (n 326) 3-082 and footnote 142 for an account of the cases in which “reasonableness” is invoked. 1427 John Hull 1998 (1016) para 3.09. 1428 Saltman Engineering v Campell Engineering [1948] 65 RPC 203 (CA), 215. 1429 Law Commission 1981 (n 327) 27 noting that “in referring to this requirement the courts have used a variety of expressions, but it has become increasingly common to say that the information for which protection is sought by the action of breach of confidence must not be in the public domain”. 1430 Tanya Aplin and others 2012 (n 22) paras 5.14 -5.39. Chapter 4. Mapping the notion of secrecy 302 will only be deemed confidential if “special intellectual skill and labour” are essential in order to reproduce it.1431 That is understood to mean that the alleged infringer would have to go through the same burdensome mental process as the confider.1432 This criterion is applied to information considered in its entirety, irrespective of its components.1433 Against this background, it is noteworthy that generally known information can also be deemed confidential, so long as intellectual skill and labour are required in order to compile it.1434 This rationale has been applied to decide on cases concerning the confidential nature of customer lists, where the data on individual customers were also available in other trade databases. However, the lists in their entirety were regarded as confidential, as competitors had to undergo the same intellectual labour as the creators of the lists.1435 Drawing on the foregoing, it appears that courts in England have adopted a “relative secrecy” approach, as opposed to patent law, where the standard for assessing the novelty of an invention is an absolute one. Information can be conveyed to a limited number of people without losing its confidential nature.1436 The issue lies in determining the extent of publication permitted. The general principle is that once information is generally accessible and widespread it cannot be regarded as confidential.1437 Similarly, 1431 Tanya Aplin and others 2012 (n 22) para 5.15; Ocular Sciences Ltd v Aspect Vision Care Ltd [1997] RPC 289 (Ch), 375. 1432 Tanya Aplin and others 2012 (n 22) 5.16. 1433 Coco v A.N.Clark (Engineers) Ltd [1969] RPC 41 (Ch), 47. 1434 Tanya Aplin and others 2012 (n 22) para 5.17. 1435 International Scientific Communications Inc v Pattinson and Others [1979] FSR 429 (Ch), 434. 1436 Lionel Bently and Brad Sherman 2014 (n 125) 1148 ; Franchi v Franchi [1967] RPC 149 (Ch), 152: “Clearly a claim that the disclosure of some information would be a breach of confidence is not to be defeated simply by providing that there are other people in the world who know the facts in question besides the man as to whom it is said that his disclosure would be a breach of confidence and those to whom he had disclosed them. It must be a question of degree depending on the particular case, but if relative secrecy remains, the plaintiff can still succeed”. 1437 See Attorney General v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109 (HL), 282 where Lord Goff stated that: “In particular, once it has entered what is usually called the public domain (which means no more than that the information in question is so generally accessible that, in all the circumstances it cannot be regarded as confidential) then, as a general rule, the principle of confidentiality can have no application to it”. § 2 Different concepts and requirements for protection of trade secrets 303 the fact that information can be obtained from reverse engineering should not deprive the information of its secret nature.1438 In this context, it should be indicated that “the status of information may change over time” and that information that is in the public domain may become secret if the public forgets the information or the relevant public changes.1439 In the light of the above, it is clear that establishing whether information is confidential is a question of fact that should be assessed on a caseby-case basis.1440 Against this background, Hull refers to an Australian case in which a multi-factor test to assist in determining whether a specific piece of information presented the “necessary quality of confidence” was developed. The factors taken into consideration were: (i) The extent to which the information was known outside the plaintiff s business; (ii) The extent to which the information was known to employees and others inside the plaintiff’s business; (iii) The extent to which the plaintiff had taken measures to safeguard the information; (iv) The value of the information to the plaintiff’ competitors; (v) The amount of effort expended by the plaintiff in developing the information; and (vi) The ease or difficulty with which the information could properly be acquired.1441 While these factors are to be weighed against each other, the assessment of secrecy is ultimately factually driven. No normative value can be attached to either of them. In particular, the adoption of measures (factor 3), the value of the information (factor 4) and the cost of development (factor 5) signal the existence of information worth protecting, which may nevertheless be generally known. In sum, it appears that the English notion of confidentiality is very similar to the concept of “Nichtoffenkundigkeit” followed under German law. In both jurisdictions, the crucial test to assess secrecy consists of looking into whether the information can only be obtained through great difficulty and Paul Lavery,‘Secrecy, Springboards and the Public Domain’ [1998] 20 EIPR 93, 95. 1438 John Hull 1998 (1016) para 3.18. 1439 Lionel Bently and Brad Sherman 2014 (n 125) 1153. 1440 John Hull 1998 (1016) para 3.06. 1441 John Hull 1998 (1016) para 3.07 citing the Austalian case Section Pty v DelawoodPty Ltd [1991] 21 IPR 136. Chapter 4. Mapping the notion of secrecy 304 cost (“große Schwierigkeit und Opfer” in Germany), which is just another way of referring to the “intellectual skill and labour” yardstick propounded in the English jurisdiction under the test of inaccessibility. However, a cardinal distinction between the two jurisdictions is that English cases seem to emphasise the need to prove that intellectual skill (not just labour) is necessary to obtain the information. In addition, English case law does not refer to the fact that information loses its secret nature when it is known among the “circle of experts” that usually deal with the information in question.1442 The reason behind this distinction can be traced back to the fact that the scope of the breach of confidence action is not confined to the protection of trade secrets, but also covers artistic and literary information, private information and government information. However, a review of the case law concerning trade secrets reveals that decisions referring to trade secrets define the public domain by reference to a narrow field, industry or profession, similar to the “relevant circle yardstick” followed under German law.1443 Form of the information In England courts have also been confronted with the issue of deciding whether the disclosure of information in a specific form leads to its disclosure in another form. This particular topic was discussed by the House of Lords in the famous Douglas v Hello! case, which concerned the unauthorised publication of pictures of the wedding of the actors Michael Douglas and Katherine Zeta-Jones by Hello! magazine.1444 The pictures published by Hello! were taken without permission by an undercover photographer who had then sold them to the defendant. As a result, both the couple and OK! Magazine brought legal action against Hello! under the breach of confidence action. Crucially, some months before the event, the couple had reached an exclusive licensing agreement with OK! Magazine, granting this publication the exclusive right to publish pictures of the event in exchange for consideration. The salient issue in this case was to decide whether protection under the breach of confidence could extend to pho- 2. 1442 Paul Lavery,‘Secrecy, Springboards and the Public Domain’ [1998] 20 EIPR 93, 93 suggests that this has been required in some cases in Ireland and Australia to find a breach of confidence. 1443 John Hull 1998 (1016) para 3.16. 1444 Douglas v Hello! Ltd and others [2007] UKHL 21. § 2 Different concepts and requirements for protection of trade secrets 305 tographs that were already in the public domain, as the pictures had been published by national newspapers some hours before OK! Magazine came out. In rendering the decision, Lord Hoffman concluded that the object of confidentiality was “any picture of the wedding”, as this was the only possible way of protecting the interests of OK!.1445 No need to adopt reasonable measures One remarkable difference between the English breach of confidence regime prior to the implementation of the TSD and the legal system laid down in Article 39(2) TRIPs (but also in the U.S. under the UTSA and the DTSA)1446 is that protection is not subject to the adoption of reasonable steps by the trade secret holder to safeguard the secret nature of the information. While the adoption of such measures is assessed in a positive manner by the English courts, legal commentators seem to agree on the fact that it is not a precondition for meriting protection.1447 Notwithstanding this, in Thomas Marshall (Exports) Limited v Guinle the adoption of reasonable measures was considered as one of the four requirements for the protection of trade secrets.1448 The concept of trade secret in the Directive: considerations in the light of the comparative analysis Preliminary remarks The subject matter covered by the TSD is set out in Article 1(1), which “lays down rules on the protection against the unlawful acquisition, disclosure and use of trade secrets”. Thereupon, Article 2(1) provides a definition of trade secrets, which is identical to the one set forth in Article 39(2) TRIPs. In order to be protected, trade secrets must (a) be information that 3. § 3 A) 1445 Douglas v Hello! Ltd and others [2007] UKHL 21 [123]; similar considerations were applied in Creations Records Ltd v News Group Newspaper Ltd [1997] EWHC Ch 370 (Ch), [29] which concerned the publication by tabloids in the UK of pictures of the shooting of the cover of a rock band’s forthcoming album. 1446 See § 1(4) UTSA and supra chapter 4. 1447 Lionel Bently 2012 (n 114) para 3.18. 1448 Thomas Marshall (Exports) Limited v Guinle [1979] FSR 208 (Ch), 229. Chapter 4. Mapping the notion of secrecy 306 is not generally known or readily accessible; (b) must have commercial value due to their secret nature; and (c) must be subject to reasonable steps under the circumstances to preserve secrecy. In this regard, it is worth noting that the 28 Member States of the EU are also part of the WTO and, as such, they were bound to implement the TRIPs minimum standards of protection for IPRs in their national regimes by 1 January 1996.1449 1450 Thus, the inclusion in the Directive of the same definition as the one provided in the TRIPs Agreement for “undisclosed information”, as a minimum standard of protection, appears to be a restatement of such an obligation and provides flexibility to Member States in its implementation.1451 To be sure, the object of protection of Article 2(1) TSD is information, which coincides with the subject matter protected under the breach of confidence action in England and §§ 17-19 of the German UWG.1452 Accordingly, information is deemed secret “if 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”. However, upon closer examination, some uncertainty arises in connection with the meaning of some of 1449 TRIPs transitional provisions are essentially regulated in Article 65 of the Agreement. The general rule is set forth in paragraph 1, which established an automatic transitional period of one year for all WTO Members (until 1 January 1996). However, paragraphs (2) and (3) granted a four-year transitional period (until 1 January 2000) for developing countries and countries that were in the process of transformation from a centrally planned economy into a free market economy. The computing of the time referred to in Article 65 is a definite term based on the date of entry into force of the WTO Agreement. Hence, countries acceding after 1995 could not benefit from any additional transitional periods and were requested to amend their legislation before their accession, unless they qualified to benefit from the transitional periods of paragraphs (2) and (3), but only until January 1, 2000. 1450 Likewise, the European Union, as a supranational entity, became a party to the TRIPs Agreement by virtue of the Council, ‘Council Decision 94/800/EC of 22 December 1994 concerning the conclusion on behalf of the European Community as regards matters within its competence, of the agreements reached in the Uruguay Round multilateral negotiations (1986-1994)’ [1994] OJ L336; this is also clarified in Recital 5 TSD. 1451 In Baker McKenzie 2013 (n 1057) 5 it is noted that despite the existence of a common denominator (based on the criteria of Article 39(2) TRIPs) the definitions adopted in the different jurisdictions present divergences and in addition require particular constitutive elements. 1452 But see chapter 4 § 2 A) II. 1. § 3 The concept of trade secret in the Directive 307 the terms used by the EU legislature and the subject matter of protection, as analysed in the following sections. Terminology The terminology used in the Directive to refer to the term trade secret and the types of information that fall under its scope are not consistently applied. Recital 14 highlights the importance of establishing a common definition without limiting the subject matter protected against misappropriation, which should cover the protection of “know-how, business information and technological information” if two conditions are fulfilled, namely, (i) there is a legitimate interest in maintaining the confidentiality of the information, and (ii) there is also a legitimate expectation in the preservation of such confidentiality. The distinction between business and technological information mirrors the practice in most Member States before the implementation of the Directive, where case law and even some statutes differentiated between industrial secrets and commercial secrets, and presents no interpretative questions.1453 However, the reference to know-how is confusing. It is used in the title of the Directive and in the first sentence of Recital 1 as a full synonym of trade secret, whereas Recitals 2 and 14 instead refer to it as one of the categories of undisclosed information. This is particularly problematic, as know-how is autonomously defined in Article 1(i) TTBER in a manner that seems to partially overlap with what is usually understood by “technical trade secrets” or “technological information”, as mentioned in Recital 14. The use of such confusing terminology reflects the current practice in many national jurisdictions, like Germany, where know-how is regarded as an economic term rather than a legal one.1454 Hence, for the sake of legal certainty, it would have been best if the Directive had abandoned the use of “know-how” or clarified its relationship with Article 1(i) of the TTBER.1455 English courts under the breach of confidence action have also used the term “know-how” to designate the set of skills and knowledge that em- B) 1453 As discussed in chapter 4 with regard to Germany and England. 1454 Hannes Beyerbach, Die geheime Unternehmensinformation (Mohr Siebeck 2012) 103; Ohly/Sosnitza (n 813) § 17 Rdn 11. 1455 Tanya Aplin 2014 (n 384) 264. Chapter 4. Mapping the notion of secrecy 308 ployees acquire during the course of their employment.1456 However, such an acceptation is not supported by the TSD, which provides in Recital 14 that “the definition of trade secret excludes trivial information and the experience and skills gained by employees in the normal course of their employment” (emphasis added).1457 The establishment of common ground on the information that departing employees are free to use after the termination of their employment contract represents considerable progress, as Member States’ practice differed substantially on this particular aspect. Notwithstanding this, the Directive provides little guidance on how to assess the boundaries between information that is actually part of a trade secret and information that constitutes “experience and skills” that employees are free to use. The TSD resorts to a vague clause that provides great flexibility to national competent courts to conduct a balancing exercise, taking into account all of the circumstances of the specific case. Some have criticised that such a broad clause will lead to an abuse of litigation,1458 although the Directive already provides a comprehensive array of safeguards against such practices in Articles 6 to 9. From a legislative technique perspective, the exclusion of “experience and skills gained by employees in the normal course of their employment” from the subject matter protected by trade secrets law is more problematic. This approach creates a two-tier definition of trade secret and seems unsystematically placed within the Directive. Indeed, such an assessment should be carried out in the context of the relevant liability conducts1459 and in particular, within the balancing exercised imposed by Article 5 TSD and not at the definition level. We will return to the provisions of the TSD that regulate post-employment obligations in chapter 6, where a number of criteria to differentiate between protected trade secrets and the skill and knowledge that employees are free to use are suggested.1460 1456 See chapter 4 § 2 B) I. 1457 See further Article 1(3)(b) TSD. 1458 IP Federation, ‘The EU Trade Secrets Directive’ (2014) Policy Paper PP04/15, 3-4 15 September 2018. 1459 Tanya Aplin 2014 (n 384). 1460 This issue is discussed in greater detail in chapter 6 § 1 A) and has recently been the object of a comprehensive study by Magdalena Kolasa, Trade Secrets and Employee Mobility (CUP 2018). § 3 The concept of trade secret in the Directive 309 Commercial value The second limb of the definition provides that information must have commercial value “because it is secret”. In this regard, it is worth noting that before the implementation of the Directive, such a requirement was not foreseen either under the English breach of confidence action, or under German law. However, as indicated above, English cases dealing with trade secrets have viewed commercial value as a strong indicator that the information is worth protecting.1461 In the same vein, the German “Geheimhaltungsinteresse” requirement has been interpreted as meaning that the trade secret holder has a commercial interest in keeping the information secret. Yet, in the latter jurisdiction such a requirement has also been invoked to protect secret information that does not confer commercial value, but the disclosure of which would be detrimental to a company (for instance, information that would harm the reputation of the company, or information about collusive practices that would result in antitrust sanctions).1462 In addition, in Germany, a causality link between the concealed nature of the information and its value is not required.1463 Another question that was intensely discussed during the negotiation of the Directive was whether potential value suffices or actual value is required. The UTSA expressly mentions both, while TRIPs is silent on this point. Recital 14 TSD sheds light on this issue by stating that the value can be either actual or potential. As discussed previously,1464 this is particularly relevant in the context of ensuring that R&D companies will have a Laboratory Zone in which to develop their ideas and innovations. The same recital provides further guidance on how to interpret the commercial value benchmark: Furthermore, such know-how or information should have a commercial value, whether actual or potential. Such know-how or information should be considered to have a commercial value, for example, where its unlawful acquisition, use or disclosure is likely to harm the interests of the person lawfully controlling it, in that it undermines that person’s scientific and technical potential, business or financial interests, strategic positions or ability to compete. (…)1465 C) 1461 Chapter 4 § 2 B) II. 1. 1462 Björn H. Kalbfus 2016 (n 1122)1011. 1463 Thomas Hören and Reiner Münker 2018(b) (n 1119) 151 1464 Chapter 1 § 2 B) IV. 1465 Recital 14 TSD. Chapter 4. Mapping the notion of secrecy 310 As is apparent from the above, and in line with the principles that inform the Directive, commercial value is to be interpreted in a broad and flexible manner. It refers not only to the loss of competitive advantage, but also more generally to any harm to the scientific and technical capacity and the economic interest of the trade secret holder and his position in the market that may result from the disclosure of information. Consequently, it is submitted that protection shall also be afforded to organisations that act with no profit motive, such as universities and research institutions. This was particularly not the case under German law, where information had to be ascribed to a particular business (“Geschäftsbezogenheit”). Similarly, illicit activities, such as collusive practices or information that may hamper the reputation of a company, which were protected in Germany under the Geheimhaltungsinteresse prong, seem to be excluded from the scope of protection of the Directive by virtue of the whistle-blower exception laid down in Article 5(b) TSD, provided that the trade secret holder intended to protect “the public interest”. Accordingly, it is submitted that national legislatures and judicial authorities should interpret that the notion of “trade secret” does not include information that the trade secret holder wishes to keep secret, but that does not affect his competitive position. As a final note, Recital 14 also expressly excludes trivial information from the subject matter that can be protected as a trade secret. The adjective trivial is deemed to refer to things “of little value or importance”1466 and resembles the exclusion of “trivial tittle-tattle” information under the breach of confidence action. However, drawing from the English experience, its application seems of limited relevance, as courts have struggled to draw a line between valuable and trivial information, and this will become increasingly difficult in the Digital Economy, where individual data may become valuable as a result of its inclusion in Big Data sets.1467 In sum, an analysis of the relevant provisions of the TSD that frame the commercial value requirement reveals that: (i) There must be a causal link between the value of the information and its concealed nature; (ii) The relevant factor is that the disclosure of the information hampers the ability to compete of the trade secret holder, which should be interpreted in a wide sense; 1466 ‘trivial, adj’ (OED Online, OUP June 2013) accessed 15 September 2018. 1467 As discussed in the Excursus in chapter 4 § 4 F) II. § 3 The concept of trade secret in the Directive 311 (iii) Consequently, information developed by entities that do not have a profit making intention (such as universities or basic research centres) may also fall under the scope of protection of the Directive; (iv) Illicit activities and information that may hamper the reputation of a company are not included within the scope of protection of the TSD, because they do not affect the competitive position of the trade secret holder. Private and personal information As regards the subject matter of protection, the Directive does not clarify whether secret private information that at the same time has commercial value is part of the subject matter that falls under the notion of a trade secret. This would typically be the case for celebrities who commercialise certain aspects of their private lives, such as in the Douglas v Hello! decision examined above.1468 This factual scenario is covered by the breach of confidence action, but would not be protected in Germany as a trade secret because information would not meet the Geschäftsbezogenheit (information ascribed to a business) requirement. More generally, while it is true that in such cases the holders of secret information may have a business interest in commercialising unknown aspects of their lives,1469 it is doubtful whether the EU has the competence to harmonise privacy law in such a broad manner.1470 More problematic is the relationship between the TSD and the GDPR. Recital 2 TSD expressly mentions “information on customers and suppliers” as one of the types of business information protected under the law of trade secrets. In turn, such information may fall under the category of personal data defined in Article 4(1) GDPR, which includes “information relating to an identified or identifiable natural person”. In this regard, Recital 35 TSD clarifies that the TSD should not affect the rights and obligations laid down in the Data Protection Directive (which has been replaced by the GDPR). Hence, while it is doubtful that commercialising unknown information about someone’s private life may qualify as a trade secret, it is clear that personal information may be protected as one according to Recital 35. For instance, the names and contact details included in a D) 1468 Douglas v Hello! Ltd and others [2007] UKHL 21. 1469 Tanya Aplin 2014 (n 384) 263. 1470 Ansgar Ohly 2013 (n 13) 40. Chapter 4. Mapping the notion of secrecy 312 customer list, may be protected as a trade secret provided that they (i) are not generally known or readily accessible, (ii) present commercial value and (iii) are subject to reasonable measures under the circumstances to maintain them secret. In such a case, the trade secret holder shall nevertheless comply with the obligations set out in the GDPR. However, as outlined above, a systematic review of the relevant provisions of the GDPR and the TSD reveals that tension may arise between the interests of the trade secret holder in keeping information under his control undisclosed and the right of the data subject in accessing his personal data.1471 Likewise, the distinction between private information which a priori seems excluded from the scope of the TSD and personal information which may be eligible for trade secret protection is not always a straightforward one, as for instance, the CJEU has regarded that information about professional activities or income falls within the scope of private information.1472 In the light of the above, it is submitted that further clarification in the TSD regarding its interplay with privacy law and personal data law would have been welcome.1473 In this respect, it is concluded that the commercialisation of private information should not fall under the scope of trade secrets protection as harmonised by the Directive, because it does not affect the possibility of competition of any sort between the parties. As regards potential conflicts between the data subject and the trade secret holder, it is argued that as a matter of principle the access rights of data holders should prevail and, only where a clear, identifiable and substantial prejudice to the trade secret holder exists, a limitation on access rights is justified. However, in practice such a scenario seems unlikely, as personal data mostly become valuable trade secrets after their inclusion in larger data sets. Consequently, the disclosure of individual data to the data subject would theoretically not affect the value of the data because this does not imply a disclosure to competitors and, in any event, the relative value of individual data is rather low. 1471 Chapter 3 § 5 C) II. 1. 1472 As analysed by Juliane Kokott and Christoph Sobotta, ‘The distinction between privacy and data protection in the jurisprudence of the CJEU and the ECtHR’ [2013] 3 IDPL 222-228; CJEU, Joined Cases C–92/09 and C–93/09 Volker und Markus Schecke and Eifert [2010] ECR I-11063, para 59. 1473 Tanya Aplin 2014 (n 384) 263. § 3 The concept of trade secret in the Directive 313 Adoption of reasonable steps The TSD sets out that in order to qualify for protection, the trade secret holder must adopt “reasonable steps under the circumstances (…) to keep it secret”, in line with the UTSA, the DTSA and the TRIPs Agreement. Consequently, the adoption of measures has become a necessary requirement for protection.1474 Yet, the comparative analysis conducted above1475 reveals that such a condition has not been demanded by courts either in England or in Germany. Notwithstanding this, in the former jurisdiction it has been positively assessed as a strong indicator that the information is of a confidential nature. Similarly, in Germany, case law notes that the trade secret holder must have the will to keep it secret (“Geheimhaltungwillen”). The threshold of this subjective requirement has been interpreted as rather low, as courts mostly understand that an explicit manifestation is not necessary, and it suffices that the will to keep the information secret can be inferred from “the nature of the secret information”.1476 Under the harmonised legal framework, by virtue of Article 2(1)(c) of the TSD, the adoption of measures (or steps) by the trade secret holder has become a necessary condition to enforce valuable secret information against any act of misappropriation. However, this has not been without criticism. As outlined in the context of the U.S. jurisdiction, a number of commentators have warned of the consequences of including the third prong within the definition of trade secrets and the difficulties in assessing the “reasonableness” of the steps adopted”.1477 In this respect, it has been noted that if national courts apply such a requirement in a very strict manner, an overinvestment in physical measures spurring an arms race among competitors may take place.1478 After all, trade secrets protection is afforded to information because of its undisclosed nature and, therefore, it is assumed that the holders of information adopt ex ante appropriate steps to preserve it. The MPI Comments echoed these concerns and highlighted that the term “step” should be interpreted as covering both physical and legal measures, such as express legal agreements. However, this cannot be construed as demanding that explicit confidentiality agreements are concluded individually with each per- E) 1474 Thomas Hören and Reiner Münker 2018(b) (n1119) 151-152. 1475 Chapter 4 § 2 A) and B). 1476 Björn H. Kalbfus 2016 (n 1122)1011 with further references. 1477 Chapter 2 § 2 B) II. 3. b). 1478 Chapter 2 § 2 B) II. 3. Chapter 4. Mapping the notion of secrecy 314 son that comes under an obligation of confidence.1479 In particular, courts should consider whether an implicit obligation exists by virtue of the relationship between the parties (for instance, employer-employee). One aspect that is often overlooked is that including such a requirement as a normative condition for protection demands not only that the original trade secret holder, but also any potential third parties to whom the information is conveyed under an obligation of confidence (such as R&D partners or licensees), take proactive steps to safeguard the secrecy of the information in a continuous manner. Crucially, the adoption of such measures in the digital world usually involves contracting very costly IT surveillance services, which have to be updated on a regular basis to keep track of the more recent state of the art developments.1480 In the light of the above, it is submitted that to avoid wasteful overinvestment in protective measures: (i) It cannot be expected that the holder of information and the third parties to whom it is conveyed (such as licensors or R&D partners) adopt all possible measures. Indeed, in the enforcement, courts should be mindful that the obligation concerns the means, not the outcome; (ii) The reasonableness of the steps adopted to protect secrecy will depend on the specific circumstances of each individual case, but courts will have to take into consideration the nature of the threat of disclosure, the value of the trade secret and the cost of the potential security mechanisms. Consequently, the more valuable the information for which protection is sought is, the more sophisticated and costly the measures adopted should be; (iii) The adoption of measures includes both physical and legal measures. In the absence of an express agreement, courts should take into consideration whether an implied duty of confidence existed by virtue of the relationship between the parties (for instance, between the employee and the employer). A requirement of identification of the information concerned? As a final note, it should be stressed that the EU legislature has not included within the definition or elsewhere in the TSD the requirement that in order to be protected information must be distinguishable from other F) 1479 Annette Kur, Reto Hilty and Roland Knaak 2014 (n 383) paras 19-20. 1480 Thomas Hören and Reiner Münker 2018(b) (n1119) para 15. § 3 The concept of trade secret in the Directive 315 available information.1481 Indeed, such a condition is expressly mentioned in the definition of know-how provided in Article 1(i)(iii) TTBER, where it is indicated that know-how for the purposes of licensing agreements must be “(iii) identified, that is to say, described in a sufficiently comprehensive manner so as to make it possible to verify that it fulfils the criteria of secrecy and substantiality”. At first glance, such a condition may seem obvious, but in practice it has given rise to substantial litigation in England and the U.S.1482 Upon closer examination, the identification of the information for which protection is sought is relevant to determine the substantive cause of action and the scope of the claim, and also in the context of licensing agreements. More importantly, it is essential to avoid abusive litigation.1483 Consequently, it is submitted that in the enforcement of trade secrets, national courts should always demand that the plaintiff identify in a clear and precise manner the information concerned, even if it is not positively codified into law. Deconstructing secrecy Evaluating the degree of secrecy required The comparative law analysis conducted in the previous sections,1484 together with the examination of the main principles that govern the protection of trade secrets under the U.S. and TRIPs legal framework (chapter 2) reveal that the standard of secrecy in all of the jurisdictions studied is a relative one. In effect, absolute (or perfect) secrecy would only occur if the holder of information did not share it with any third party. Such an approach goes against the interests of the holder in exploiting his commercial and technical secrets. The law of trade secrets developed in parallel with industrial expansion, and as such, responds to the modern needs of manufacturing processes, among which collaborative work and partnerships play a central role.1485 Consequently, it is generally accepted that the revelation of confidential secrets to employees and other parties bound by § 4 A) 1481 Tanya Aplin and others 2012 (n 22) para 5.73. 1482 Charles Tait Graves and Brian D. Range, ‘Identification of Trade Secret Claims in Litigation: Solutions for a Ubiquitous Dispute’ [2006] 5 New JTechnology IP 68, 72. 1483 Tanya Aplin and others 2012 (n 22) para 5.75. 1484 Chapter 4 § 2. 1485 James Pooley 2002 (n 66) § 4.04[2] 25-26. Chapter 4. Mapping the notion of secrecy 316 confidentiality agreements will not deprive them of their secret nature.1486 To name some, this includes licensees, contractors, members of a joint venture and R&D partners.1487 Otherwise, the holder’s ability to profit economically from his secret would be substantially hindered. Thus, it appears that the rule of thumb is that secret information can be disclosed to those for whom knowing the information is essential and who are aware of its confidential nature.1488 At this point, it should be recalled1489 that the relative secrecy yardstick has also been incorporated into patent law. Pursuant to Article 55(1) (a)EPC, information disclosed in confidence is not regarded as available on the relevant date for the purposes of assessing novelty.1490 Furthermore, if the secrecy obligation is breached, a six-month limitation period to file for a patent is granted, after which the disclosure will be novelty destroying.1491 The upshot of the relative secrecy approach is that several competitors can develop the same information independently, without it theoretically becoming generally known. Yet, with time, the number of market participants within a given industry that are able to come up with that information may increase, thus eroding the trade secret and the commercial advantage that it provides, which may eventually become generally known and enter the public domain.1492 1486 James Pooley 2002 (n 66) § 4.04[2] 4-26; see further In re Matter of Innovative Construction Systems, Inc., 793 F.2d 875, 883 (7th Cir. 1986) where it is argued that the proprietor of the information should not necessarily be the only one who knows the secret. Its knowledge by employees who were informed or should have known from the circumstances that the information in question was confidential does not render it publicly known; see also A.L. Labs., Inc. v. Philips Roxane, Inc., 803 F.2d 378, 381 (8th Cir. 1986) noting that “the fact that information or data is developed in cooperation with other companies or joint ventures, or through a consultant or other party assisting in its development, does not mean that such information or data is not a trade secret. It may still be a confidential trade secret, provided that, in fact, it is known only to the ventures or consultants and is not generally known in the industry”; see also Kewanee Oil Co.v. Bicron Corp., 416 U.S. 470, 475 (1974). 1487 Björn H. Kalbfus 2011 (n 1300) 70. 1488 James Pooley 2002 (n 66)§ 4.04[2] 26; Köhler/Bornkamm/Feddersen (n 835) § 17 Rdn 7a; Ingo Westerman, Handbuch Know-how-Schutz (C.H. Beck 2007) Kapitel 1, para 33. 1489 See chapter 1 § 3 A) I. 1. 1490 Lionel Bently 2012 (n 114) para 3.64. 1491 See G 3/98 [2001] OJ EPO 62. 1492 Roger M. Milgrim 2014 (n 160) § 1.07[2]. § 4 Deconstructing secrecy 317 The doctrine of ready ascertainability and the principle of inaccessibility Absence of a normative standard One of the consequences of adopting a relative standard for secrecy is that information loses its secret nature somewhere between absolute secrecy and general knowledge, in line with Article 2(1)(a) TSD and 39(2)(a) TRIPs, which distinguishes between information “generally known or readily accessible”. In turn, such a standard draws from the definition enshrined in the UTSA, where secret information is defined as “not being generally known (…) and not being readily ascertainable through proper means”. The TSD and TRIPs refer to the term “accessibility”, instead of “ascertainability”, which underscores the factual nature that governs the appraisal of the secret nature of information.1493 In addition, neither the Directive nor the TRIPs Agreement mention that the possibility of accessing information has to be carried out “by proper means”. However, this is implied by the definition of unlawful acquisition provided for in Article 4(2)(b) TSD, which outlaws any unauthorised acquisition that is contrary to “honest commercial practices”. The secrecy-public domain scale is a broad one. At one end, “impenetrable secrets”, namely those that cannot be devised even after a process of reverse engineering, remain concealed and confer great competitive advantage on their holders. At the other, information that is generally known draws the boundaries of the public domain. However, in between, information that can only be obtained after a process of reverse engineering may signal the existence of an interest worthy of protection.1494 The difficulty lies in defining when such information is accessible (or ascertainable)1495 with so little or no effort so that it no B) I. 1493 The term ‘accesible, adj’ is defined in the Oxford English Dictionary as “able to be easily obtained or used” and “easily understood or appreciated”, (OED Online, OUP June 2013) accessed 15 September 2018; while ‘ascertainble, adj’ is defined by reference to ascertain as “find (something) out for certain; make sure of” (OED Online, OUP June 2013) accessed 15 September 2018 . 1494 James Pooley 2002 (n 66) § 4.04 4-41. 1495 Ascertainibility is the concept used in the UTSA, whereas Article 39(2)(a) TRIPs refers to accessibility; Nuno Pires de Carvalho 2008 (n 529) para 39.109 considers both terms to be synonyms. Chapter 4. Mapping the notion of secrecy 318 longer merits protection. This is known as the “ready accessibility area” and refers to the obtention of information as such, not just the physical support in which it is embodied.1496 However, establishing whether information is readily accessible is a complex matter and neither TRIPs nor the TSD provide guidance regarding such an assessment.1497 Pooley attempts to shed further light on this question through a graph that depicts the accessibility (ascertainability) spectrum:1498 1496 Daniel Gervais 2012 (n 505) para 2.486. 1497 Gintare Surblyte, ‘Enhancing TRIPS: Trade Secrets and Reverse Engineering’ 725, 738 in Hanns Ullrich and others (eds), TRIPS plus 20 – From Trade Rules to Market Principles (Springer 2016) noting that according to the UTSA “information is readily ascertainable if it is available in trade journals, reference books, or published materials. Often, the nature of a product lends itself to being readily copied as soon as it is available on the market”; see further chapter 2 § 2 B) II. 1. 1498 Reproduced from James Pooley 2002 (n 66)§ 4.04[4] 4-42. § 4 Deconstructing secrecy 319 From the above, it can be appreciated that information that is publicly known or readily accessible does not merit protection.1499 Thus, as the difficulty, time, labour and investment in accessing information increases, it becomes eligible for trade secrets protection. These factors signal that reverse engineering is a precondition to access information. From such a turning point onwards, the increasing difficulty further reveals that the information’s economic value derived from its secrecy is higher and, in turn, the lead time advantage it confers on its holder is also longer.1500 Such an appraisal is not merely of a theoretical nature; it is crucial to establish the duration of the injunctions in the event of misappropriation and the amount of damages. Yet again, defining the boundaries of when information is readily accessible and when it needs to undergo a process of reverse engineering is not a simple one. Nevertheless, in practice such a distinction is central. On the one hand, information that can only be obtained through reverse engineering will be protectable as a trade secret prior to undertaking such a process, whereas readily ascertainable information is part of the pool of information that any individual or company is free to use.1501 With the above structure in mind, it seems that the assessment of when information is readily accessible takes into account the investment (cost, time, effort, skill and labour) devoted to that end. In effect, in Germany, the prevailing standard is that of the time and effort invested in accessing the information (“großen Zeit- oder Kostenaufwand”).1502 In England, some cases state that information should only be regarded as confidential if it can only be acquired through the reproduction of the mental process that 1499 Attorney General v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109 (HL), 282 stressing “the first limiting principle (which is rather an expression of the scope of the duty) is… that the principle of confidentiality only applies to information to the extent that it is confidential. In particular, once it has entered what is usually called the public domain (which means no more than that the information in question is so generally accessible that, in all circumstances, it cannot be regarded as confidential) hen, as a general rule, the principle of confidentiality can have no application to it”. 1500 James Pooley 2002 (n 66)§ 4.04[4]4-42. 1501 James Pooley 2002 (n 66)§ 4.04[4]4-42. 1502 BGH GRUR, 2012, 1048 Rdn 21– Movicol (Zulassungsantrag); Ohly/Sosnitza (n 813) § 17 Rdn 9; Henning Harte-Bavendamm, ‘Wettbewerbsrechtliche Aspekte des Reverse Engineering von Computerprogrammen’ [1990] GRUR 657, 660: “Nicht geheim ist, was von jedem Interessenten ohne größere Schwierigkeiten und Opfer in Erfahrung gebracht werden kann”. Chapter 4. Mapping the notion of secrecy 320 led to the creation of the resulting information,1503 that is, if the information is the “product of the skill of the human brain”.1504 Thus, when information can be acquired by third parties with an interest without incurring great labour, skill or cost, it is regarded as readily accessible and is automatically part of the public domain. Conversely, secrecy is preserved if interested third parties cannot acquire the information without such an investment.1505 The test suggested by English authorities appears particularly pertinent: if information can only be obtained through the investment of intellectual skill it should be regarded as secret. Such a benchmark would in turn indicate that the obtention of information is subject to a process of reverse engineering through trial and error and consequently it merits protection. However, ultimately, such an appraisal is a matter of fact and degree, as it is not possible to find a normative standard that is applicable in all cases and allows to quantify secrecy.1506 Indeed, this reasoning has been questioned for its rather circular nature: information is deprived of its concealed nature when it is so generally accessible that it cannot be deemed secret neither in its parts nor in its entirety. However, its significance lies in the flexible nature of the assessment. In each individual case, courts have to consider whether the level of accessibility is such that in all conceivable circumstances a party bound by an alleged duty of confidentiality could not be required to fulfil such an obligation.1507 Criticism The inclusion of the “ready ascertainability” benchmark within the definition of secrecy has been questioned by several commentators. In particular Risch suggests that such a factor should have been included as a defence available in the event that the competitor had actually “readily ascertained II. 1503 Saltman Engineering v Campell Engineering [1948] 65 RPC 203 (CA), 215. 1504 Ocular Sciences Ltd v Aspect Vision Care Ltd [1997] RPC 289 (Ch), 375. 1505 BGH GRUR 1963, 367, 370 – Industrieböden; Rudolf Kraßer 1977 (n 1327) 179; see also conclusion of the Law Commission 1981 (n 327) 137 “Information should not be treated as being in the public domain where it is only accessible to the public after a significant contribution of labour, skill or money has been made”. 1506 Lionel Bently and Brad Sherman 2014 (n 125) 530. 1507 Roger M. Toulson and Charles M. Phipps 2012 (n 326) para 3-109-3-111. § 4 Deconstructing secrecy 321 the information through independent means”.1508 He argues that the alleged misappropriator should always provide evidence that he in fact obtained the information from a different source, in line with the California Trade Secrets Law, where the “ready ascertainability” of the information is not included within the definition of a trade secret.1509 Risch illustrates this by giving the example of a former employee who misappropriates a customer list and discloses it to his new employer (a competing firm).1510 In this context, one could argue that the information is readily accessible on the Internet or telephone books and consequently it should not merit protection. According to Californian law, to avoid liability, the competing firm would always have to provide evidence that it conducted the search independently and gathered the relevant data without using the list compiled by the former employee. Risch understands that such an approach reduces the incentives of the owner to overprotect information and also redirects the incentives to research where it is cheaper to do so. At the same time, he suggests that it diminishes litigation costs and the associated uncertainty.1511 Similar arguments are raised by Unikel, who understands that the “not readily ascertainable by proper means” benchmark allows companies to deploy “improper short cuts” to obtain valuable information and avoid paying the cost of such labour, based on the mere fact that it was theoretically possible to obtain such knowledge through proper means.1512 Even though at first glance such propositions may seem sound, upon closer examination it seems unreasonable to demand that the defendant provide evidence that he in fact obtained the information independently. Such a reversal of the burden of proof seems unjustified and would allow for privatising information that is in fact already part of the public domain. Most importantly, it would spur abusive litigation. In addition, this is not supported by the TSD, which according to Article 11(1) TSD requires the applicant to prove in any case that: (i) the trade secret exists (i.e. the information complies with the requirements of protection); (ii) the applicant is the trade secret holder; and (iii) the trade secret has been ac- 1508 Michael Risch 2007 (n 15) 54. 1509 California Civil Code § 3426.1(d). 1510 This is largely based on the facts in Abba Rubber Co. v. Seaquist, 286 Cal.Rptr. 2d 518 (Cal. Ct. App. 1991). 1511 Michael Risch 2007 (n 15) 55. 1512 Robert Unikel, ‘Bridging the “Trade Secret” Gap: Protecting “Confidential Information” Not Rising to the Level of Trade Secrets’ [1998] 29 Loyola University Chicago LJ 841, 876. Chapter 4. Mapping the notion of secrecy 322 quired unlawfully, is being unlawfully used or disclosed, or its unlawful acquisition, use or disclosure is imminent.1513 On a more general scale, the approach supported by Risch and Unikel assumes that the distinction between information generally known and easily accessible (or readily ascertainable) is a straightforward one. However, in practice it often appears to be a grey area. Indeed, even within the example proposed by Risch, it is possible to distinguish between different scenarios. On the one hand, if the disputed list concerns only the identification of all potential customers who appear in industry publications or catalogues, the content of the list should fall under the category of “readily accessible” information. In this case, it appears too burdensome to require the defendant to prove the independent generation of the information. By contrast, if the list includes references to the profitability or revenue generation gathered by the former employer over the course of his business with the investment of substantial labour and intellectual skill, the content of the list should be considered as not generally accessible (i.e. secret).1514 Against this background, Rowe1515 draws a parallel with patent law and highlights that the “readily ascertainable” requirement includes “knowable but not yet generally known information” and therefore resembles the “in a printed publication” standard of patent law. According to the U.S. Supreme Court in In re Leo M. Hall, prior art includes “information that is sufficiently accessible, at least to the public interested in the art, so that such a one by examining the reference could make the claimed invention without further research or experimentation”.1516 The above goes to show that it is not possible to extract a normative standard that allows for delineating with precision in all circumstances when information is readily accessible and when it maintains its secret nature. Such an assessment is to be conducted on a case-by-case basis. However, it is submitted that the deciding factor should be whether the investment of intellectual skill to gather or access the information concerned is necessary to gain actual knowledge of the “knowable information”, that is, if the misappropriator has to use his rationality to gain knowledge of the information concerned, through a process of trial and error. Yet, such in- 1513 This is established as a maximum standard of protection, according to Article 1(1) TSD. 1514 James Pooley, ‘The Uniform Trade Secrets Act: California Civil Code 3426’ [1985] 1 Santa Clara High Technology LJ 193, 198 footnote 20. 1515 Elizabeth A. Rowe, ‘Saving Trade Secret Disclosures on the Internet Through Sequential Preservation’ [2007] 42 Wake Forest LR 1. 1516 In re Leo M. Hall 781 F.2d 897, 899 (Fed. Cir. 1986). § 4 Deconstructing secrecy 323 formation need not be novel, inventive or original.1517 This should be viewed as an indicator that the information is secret and needs to be reverse engineered. For instance, in the case of perfumes, only a skilled chemist would be able to reconstruct the formula drawing from the analysis carried out by a gas-chromatograph spectrum after a process of trial and error to achieve the most similar results. In practice, courts frequently rely on circumstantial evidence to assess whether information is readily apparent. This includes: (i) the steps adopted by the trade secret holder to protect the information, (ii) the difficulty for competitors to generate the same information, and (iii) the willingness of third parties to enter into licensing agreements to use the information.1518 In sum, the underlying reason behind the relative secrecy prong is that undisclosed information may confer upon its holder a competitive advantage and if a competitor wants to acquire it he must invest substantial time, effort and skill to do so.1519 This is consistent with the incentives to innovate rationale: ultimately, the law of trade secrets protects investment in the creation of valuable information.1520 Fencing secrecy by its negative dimension Drawing on the previous analysis, it can be concluded that not every disclosure renders a trade secret generally known or readily accessible and thus unprotectable. In fact, the level of publication required to destroy secrecy depends on a number of factors. The most important of these are the kind of information concerned, the relevant part of the public who is interested in learning the information, the place, form and extent of publication and the amount of time during which the information is accessible.1521 Indeed, due to the absence of a normative standard, it appears that secrecy is better conceptualised by reference to its negative dimension in order to establish its boundaries with the public domain. With this in C) 1517 This is developed further in Chapter 4 § 4 E), where the secrecy standard is compared to other IRPs normative standards 1518 Rockwell Graphic Systems, Inc. v. DEV Industries, Inc., 925 F.2d 174, 179 (7th Cir. 1991). 1519 Rudolf Kraßer 1977 (n 1327) 179. 1520 As argued in chapter 1 § 2 B) I. 1521 Paul Lavery, ‘Secrecy, springboards and the public domain’ [1998] 20 EIPR 93, 95; Lionel Bently and Brad Sherman 2014 (n 125) 1148. Chapter 4. Mapping the notion of secrecy 324 mind, the following section looks first into the “Third Party Doctrine” of trade secrets law in an attempt to conceptualise the different types of disclosures, drawing from Sandeen’s proposal,1522 while section II examines the effect of specific disclosures with the purpose of identifying the guiding principles that should govern the assessment of whether information still retains its secret nature.1523 In particular, section II intends to address the challenges raised by digital disclosures. The “Third Party Doctrine” of trade secrets law and its limitations: conceptualising the different types disclosures As outlined above,1524 the relative secrecy requirement implies that it is possible that several persons can have access to the same information without it losing its secret nature. However, the trade secret holder must be careful when sharing such information, particularly outside the sphere of his business. According to the so-called “third-party doctrine”, as conceptualised in the U.S., the mere imparting of a trade secret by its holder does not give rise to a duty of confidentiality. “It must be found in some other source of law”.1525 Indeed, pursuant to the prevailing case law in the U.S., a duty of confidentiality usually arises as a result of one of the following four situations: “(1) an express agreement; (2) an agreement implied-infact; (3) an agreement implied-at-law (a “quasi-contract”); or (4) a duty imposed by law either as specified in a statute (attorney-client privilege) or based upon commercial law principles”.1526 Similar considerations apply in England under the breach of confidence action, which requires that the information is “imparted in circumstances giving rise to an obligation of confidence”.1527 Likewise, in Germany, the UWG only affords protection against the unlawful acquisition, use and disclosure of information that is I. 1522 Sharon K. Sandeen, ‘Lost in the Cloud: Information Flows and the Implications of Cloud Computing for Trade Secrets Protection’ [2014] 19 Virginia JL & Technology 2. 1523 This section follows the structure implemented by James Pooley 2002 (n 66) § 4.04[2] 26 with some minor variations regarding Internet disclosures, cloud computing and the use of known information for an unkown use. 1524 See chapter 4 § 4 A). 1525 Sharon K. Sandeen 2014 (1522) 50. 1526 Sharon K. Sandeen 2014 (1522) 50. 1527 For a detailed overview of the circumstances under which an obligation of confidence arises, see chapter 3 § 3 C) II. 2. § 4 Deconstructing secrecy 325 kept secret as a result of the will of the owner.1528 Consequently, Sandeen suggests that the salient issue in conceptualising secrecy is to identify whether sharing information with third parties that are under no confidentiality obligation automatically deprives it of its secret nature.1529 This is particularly relevant in the digital age, as information is becoming increasingly vulnerable. Against this background the author notes that the term “disclosure” is used in the law of trade secrets with a two-fold meaning: (i) as one of the conducts under which liability arises, together with acquisition and use,1530 and (ii) as one of the acts that precludes trade secrets protection (secrecy-destroying acts), which can be carried out by the holder of the information, a misappropriator or any third party.1531 In this context, she notes that the disclosure test is not just a de facto test; it has legal implications and therefore it is possible to conceptualise six types of secrecy-destroying disclosures, which are defined in narrow or broader terms based on the actors and circumstances involved. – Type I disclosure encompasses the dissemination of information by a misappropriator. In such a context, Sandeen holds that courts should apply a narrow definition of disclosure in order to allow the trade secret owner to seek redress and prevent further dissemination of the information. The author further notes that courts in the U.S. are reluctant to consider the dissemination of information to a limited number of third parties that results from a misappropriation act as forfeiting trade secrets protection, so long as the information does not become generally known.1532 – Type II disclosures relate to accidental disclosures. According to the author, a narrow application of the term disclosure is supported by U.S. courts and the UTSA, by virtue of which the liability of third parties is established provided that they had knowledge of the accidental nature of the disclosure.1533 – Type III disclosures examine whether the information was “generally known” at the time that the misappropriation took place. This category 1528 Chapter 4 § 2 A) II. 4. 1529 Sharon K. Sandeen 2014 (1522) 50. 1530 See Article 4(3) TSD. 1531 Sharon K. Sandeen 2014 (1522) 65. 1532 Sharon K. Sandeen 2014 (1522) 65. 1533 Sharon K. Sandeen 2014 (1522) 66. Chapter 4. Mapping the notion of secrecy 326 is conceptually broader than Type I and Type II, because there is no legal basis to restrict the use of what is “generally known”.1534 – Type IV disclosures refer to “readily ascertainable” information that is excluded from the scope of protection of trade secrets and, just like Type III disclosures, these are conceptually broader than Type I and Type II. – Type V disclosures encompasses information acquired by third parties through lawful means, such as reverse engineering and independent creations. In order to prevent overlaps with the patent system, Sandeen suggests that these types of disclosures are conceptually broader than the types of disclosures under sections I and II above.1535 – Type VI disclosures encompass “owner initiated disclosures” and accordingly should be conceptualised in the broadest sense, because in such a case the trade secret holder did not take the necessary steps to protect the information.1536 The analytical framework proposed by Sandeen provides an insightful scrutiny of the different categories of disclosures. However, it does not attach any legal consequences to the conceptualisation of disclosures as “broad”, “broader”, and “broadest”, and, as a result, it does not create a normative standard that allows for delineating in a precise manner the contours of secrecy and the public domain. Indeed, the author expressly acknowledges that such an analytical model provides no insight into how to define disclosures with respect to trade secrets stored in the cloud.1537 After all, as has already been argued, such an analysis is largely factually driven. In the light of the shortcomings of the methodology proposed by Sandeen, this dissertation takes a case-oriented approach and examines specific types of disclosures and how case law in different jurisdictions has assessed their effects. Such an analysis ultimately intends to extract the guiding principles that may assist courts in determining whether a specific piece of information is part of the public domain in view of the harmonisation goals pursued by the TSD. 1534 Sharon K. Sandeen 2014 (1522) 67. 1535 Sharon K. Sandeen 2014 (1522) 67. Sharon K. Sandeen 2014 (1522) 69-70. 1536 Sharon K. Sandeen 2014 (1522) 70. 1537 Sharon K. Sandeen 2014 (1522) 78-79. § 4 Deconstructing secrecy 327 Effects of the disclosure Disclosure in a patent application or specification England as an example case Pursuant to Article 93 EPC, European Patent applications should be published at the latest eighteen months after the date of filing or before that day at the request of the applicant. Upon publication, the trade secrets described therein lose their confidential nature. This has been confirmed by both the Federal Supreme Court in Germany1538 and the House of Lords in England,1539 and it is also a well-established principle under U.S. Law.1540 Notwithstanding this, it is also a general principle that secrets related to an invention that are not disclosed in the application shall remain secret. The controversies that may arise in this context are best illustrated in the English case Mustad&Son v Dosen and another.1541 There, the plaintiffs sought to restrain the defendant, one of their former employees, from communicating confidential information regarding the process of manufacturing a machine for the production of fishhooks. Shortly after the initiation of the proceedings, the plaintiffs filed for a patent application, which in essence covered the confidential information. Upon appeal, the House of Lords ruled that regardless of the validity of the patent, “the secret, as a secret had ceased to exist”1542 as the patent specification had been published and therefore the plaintiffs were not entitled to obtain any injunction restraining the defendants from using what was “common knowledge”. Remarkably, the court also accepted that in abstract it could be possible to protect ancillary secrets that had not been disclosed in the specification, even though in the present case the plaintiff had failed to provide evidence of the existence of such information.1543 Another highly contested issue is whether the publication of a foreign patent application or specification may affect the secret nature of information that was independently developed by the trade secret holder. In II. 1. a) 1538 BGH GRUR 1975, 206, 208 – Kunststoffschaum-Bahnen. 1539 Mustad v Son v Dosen and another [1964] 1 WRL 109 (HL), 111. 1540 Conmar Products Corp. v. Universal Slide Fastener Co., 172 F.2d 150, 155–156 (2d Cir.1949). 1541 Mustad v Son v Dosen and another [1964] 1 WRL 109 (HL), 111. 1542 Mustad v Son v Dosen and another [1964] 1 WRL 109 (HL), 111. 1543 Mustad v Son v Dosen and another [1964] 1 WRL 109 (HL), 111. Chapter 4. Mapping the notion of secrecy 328 Franchi v Franchi,1544 the High Court of Justice of England and Wales concluded that the publication of a patent specification in Belgium also rendered the information in the public domain in England, as patent attorneys regularly reviewed foreign publications.1545 Conversely, in Germany the Federal Supreme Court reached a different conclusion in 1962 in the Kieselsäure decision, in which the validity of a licensing agreement was confirmed, despite the fact that the licensed secret process was the object of a U.S. patent published sometime after the agreement was concluded.1546 Guiding principles In the light of the above, it is submitted that: (i) The secrets enshrined in a patent specification are disclosed upon publication, but ancillary secrets that can only be devised with substantial intellectual skill retain their secret nature. (ii) The withdrawal of an application prior to the eighteen months that precede the publication prevents the invention from entering the public domain. In such a case, secrecy is preserved.1547 (iii) Unlike the novelty prong in patent law, secrecy is not an absolute standard. However, published foreign patent applications and specifications will most likely be deemed secrecy destroying.1548 Indeed, nowadays most patent offices have public databases available online, which allow any third party to access the published applications and specifications at no cost. In addition, these can be easily translated by automatic translation tools, allowing the recipient to get a very accurate insight into their content. During the last decade, the accessibility of obscure sources through the Internet has been widely discussed. Due to its practical importance, this topic is examined in greater detail in section 4 below. b) 1544 Franchi v Franchi [1967] RPC 149 (Ch). 1545 Franchi v Franchi [1967] RPC 149 (Ch). 1546 BGH GRUR 1962, 207, 211 – Kieselsäure. 1547 Pursuant to article 87(4) EPC; see furthermore Guidelines for Examination in the EPO. Part E. Chapter VIII. Section 8.1. 1548 Ohly/Sosnitza (n 813) § 17 Rdn 9. § 4 Deconstructing secrecy 329 Disclosure to the state and its authorities In the XXI century, the smooth functioning of democratic states requires private companies and individuals to disclose vast amounts of data in the interests of transparency, safety and environmental protection. Both in the acquis communautaire and the national legal regimes a myriad of statutes have been enacted compelling undertakings to reveal a substantial amount of information (including trade secrets) to public authorities. This is regarded as an essential part of the democratic process.1549 However, in the context of trade secrets, this leads to the question of whether such information is legally protected against subsequent unauthorised use or disclosure. Indeed, representatives of the perfume industry identified the disclosure of secret information to the state and its agencies as one of the main factors underlying the increasing leakage of trade secrets. This was also one of the main concerns raised by stakeholders during the negotiation of the TSD.1550 To illustrate the legal issues that arise as a result of such disclosures, the English jurisdiction is taken as an example case of the conflicting interests that public authorities need to balance (section a). Next, the relevant provisions within the acquis communautaire (section b) and their intersection with the TSD are studied (section c). Finally, a number of guiding principles are formulated (section d). From the outset, it should be noted that this is a particularly complex topic that touches upon numerous fields of law, such as public law and data protection law. Consequently, this study is confined to the study of the effects of public bodies’ disclosures from the angle of trade secrets protection. England as an example case In England, commentators and case law seem to agree on the fact that an obligation of confidence may arise with regard to information disclosed by individuals or companies to state agencies when it is conveyed on a voluntary basis (for example in connection to public procurement);1551 or a compulsory basis (such as in the course of a competition or a police investiga- 2. a) 1549 Tanya Aplin and others 2012 (n 22) para 13.164. 1550 See chapter 5 § 4 B) II. 1551 John Hull 1998 (1016) paras 4.105-4.109 Chapter 4. Mapping the notion of secrecy 330 tion),1552 and also in order to meet certain statutory conditions.1553 The latter case usually involves the disclosure of sensitive information to a state authority to support the application to obtain permission to carry something out, such as the marketing of a cosmetic product or a new drug.1554 The scope of the obligation of confidence in the latter scenario was discussed in Re Smith Kline French Laboratories Ltd1555 where the plaintiff, a pharmaceutical company, disclosed secret information to the Department of Health in order to obtain marketing authorisation for one of its drugs in the UK. After some time, it came to the attention of the plaintiff that the Department of Health intended to use the data submitted in order to assess the applications of its competitors. Consequently, the plaintiff brought legal action based on a breach of confidence. After a number of appeals, the House of Lords ruled that the Department of Health could make use of the information in the public interest to perform its tasks.1556 However, the court added that disclosures to third parties would result in a breach of confidence.1557 The above goes to show that if no express obligation of confidence between the disclosing party and the recipient authority exists, its scope should be inferred from the circumstances of the case. In particular, in Re Smith Kline French Laboratories Ltd1558 the House of Lords argued that special attention should be paid to the role and purposes of the recipient authority.1559 Hence, it was concluded that the Department of Health was entitled to use the data to perform any of “its functions” as per the relevant legislation.1560 In addition, confidentiality obligations have also often been tempered by the public interest defence, mostly with regard to safety and health, which may override any inter partes obligations of confidence.1561 More 1552 This was the case in Marcel v Commission of Police of the Metropolis [1992] Ch 225 (CA). 1553 Tanya Aplin and others 2012 (n 22) para 13.164. 1554 John Hull 1998 (1016) paras 4.105- 4.109. 1555 Re Smith Kline & French Laboratories Ltd [1990] 1 AC 64 (HL). 1556 Re Smith Kline & French Laboratories Ltd [1990] 1 AC 64 (HL), 98E. 1557 Re Smith Kline & French Laboratories Ltd [1990] 1 AC 64 (HL), 98E. 1558 Re Smith Kline & French Laboratories Ltd [1990] 1 AC 64 (HL). 1559 Tanya Aplin and others 2012 (n 22) para 13.30. 1560 Re Smith Kline & French Laboratories Ltd [1990] 1 AC 64 (HL), 82. 1561 Tanya Aplin and others 2012 (n 22) para 13.37. § 4 Deconstructing secrecy 331 generally, no breach of confidence exists if the disclosure of information is mandated (or envisaged) in a statute or by a court order.1562 As a corollary of the public interest defence and in order to ensure transparency within democratic societies, states and their agencies are frequently under an obligation to disclose information under their control to third parties. This often conflicts with the confidentiality obligations imposed by law or agreed upon contractually between the receiving authority and the party that submits the information.1563 Such a tension arises mostly with regard to the access rights of the data subject with respect to his personal data (according to the applicable data protection legislation) and the right of citizens to access information under the control of the state. Providing an analysis of the former case exceeds the scope of the present research. Consequently, the remainder of this section looks into the effects on trade secrets protection in the latter case, and particularly under the legal framework created by the Freedom of Information Act.1564 The Freedom of Information Act came into force on 1 January 2005 and, in essence, it introduced for the first time a statutory right to access information held by public authorities.1565 The right covers all information, irrespective of its format and when it was submitted or created.1566 As a result, public authorities are compelled to publish the information that they hold if requested to do by any third party (individuals or legal entities). Failure to comply with such a request within twenty days from the day of receipt1567 may be appealed in the first instance before the Information Commissioner1568 and in the second instance before the Information Tribunal.1569 However, the Act provides for a number of exemptions to the disclosure of information in order to ensure the protection of other potential conflicting interests. These exemptions are regulated in Part II of the Act and can be grouped into four main areas: (i) information that is already available to the third party; (ii) information on matters of public importance 1562 John Hull 1998 (1016) paras 4.109 - 4.101. 1563 Tanya Aplin and others 2012 (n 22) para 13.103. 1564 Freedom of Information Act 2000 (FOIA). 1565 Karen McCullagh, ‘A tangled web of access to information: reflections on R (on the application of Evans) and another v Her Majesty’s Attorney General’ [2015] 21 European J of Current Legal Issues. 1566 Ibid. 1567 FOIA 2000, s 10. 1568 FOIA 2000, s 18. 1569 FOIA 2000, s 57. Chapter 4. Mapping the notion of secrecy 332 (such a state defence or economic welfare); (iii) information that may prejudice private interests (as would be the case of trade secrets); and (iv) information prohibited by statute.1570 The third category is of particular relevance for the purposes of the present research as it includes breach of confidence (s 41) and trade secrets and commercial prejudice (s 43). The exemption set out in s 41 FOIA provides that public authorities shall not publish the information requested if this would result in a breach of confidence. More specifically, the literal wording of the provision precludes the disclosure of information if: (a) it was obtained by the public authority from any other person (including another public authority), and (b) the disclosure of the information to the public (otherwise than under this Act) by the public authority holding it would constitute a breach of confidence actionable by that or any other person.1571 The breach of confidence exemption is absolute in nature, which means that if it is applicable, the competent authorities shall not take into account other public interests.1572 Notwithstanding this, courts have interpreted the requirement of “obtention” as not including information disclosed in the context of contractual relationships, such as in the case of public procurement.1573 Consequently, the disclosure of sensitive data in contracts that involve public authorities shall be subsumed under the exemption set out in s 43 FOIA (commercial interest).1574 The commercial interest exemption provides a qualified exception regarding the publication of two categories of information: (i) trade secrets and (ii) information, the disclosure of which would “prejudice the commercial interests of any person (including the public authority holding it)”.1575 Pursuant to the Information Tribunal the term treade secret includes “something technical, unique and achieved with a degree of diffi- 1570 Tanya Aplin and others 2012 (n 22) para 13.115. 1571 FOIA 2000, s 41. 1572 Tanya Aplin and others 2012 (n 22) para 13.130. 1573 John Macdonald and Ross Crail, John Macdonald on the Law of Freedom of Information (3rd edn, OUP 2016) para 5.94. 1574 Notwithstanding this, John Macdonald and Ross Crail, John Macdonald on the Law of Freedom of Information (3rd edn, OUP 2016) para 5.408 note that presumably the majority of the information that would hinder commercial interests will also be regarded as confidential information and therefore, be subject to the exemption established in s 41 FOIA 2000, which is absolute in nature. 1575 FOIA 2010, s 43; John Macdonald and Ross Crail, John Macdonald on the Law of Freedom of Information (3rd edn, OUP 2016) para 5.398 § 4 Deconstructing secrecy 333 culty and investment”.1576 It refers to the “highest level of secrecy”.1577 By contrast, the second category refers to disclosures that would create a commercial prejudice of any sort, including an increase in the price of a service provided to a public authority or the commercial reputation of a company.1578 In cases where the nature of the specific piece of information is not clear, the Information Tribunal has subsumed it under the commercial interest category as “commercially sensitive” information.1579 However, due to the qualified nature of the exemption under s 43 FOIA, even if the requested information falls into one of the two categories referred to in the provision, the public authorities have to consider whether “the public interest in maintaining the exemption outweighs the public interest in disclosing the information”, as per section 2(2)(b) FOIA. In particular, the value of the secret and the likelihood that the publication of the information will cause commercial prejudice are weighed against the public interest in transparency.1580 In DWP v IC,1581 a case concerning the disclosure of a financial model of a Government IT service provider, the Information Tribunal held that such information constituted a trade secret and that “if the information is a trade secret there is a strong public interest in protecting such a secret” because disclosure will not only negatively affect the holder’s business, but will also provide competitors with an unfair commercial advantage.1582 In the light of the foregoing, it appears that according to the FOIA, in the case of trade secrets and other commercial information, public authorities are always requested to balance the conflicting interests before publishing the information requested.1583 In particular, in the case of trade secrets, courts seem to recognise a strong public interest in their protection. However, such a principle is not uniformly acknowledged or applied across the 1576 Department of Health v Information Commissioner (EA/2008/0018, 18 November 2018) [52]. 1577 Department of Health v Information Commissioner (EA/2008/0018, 18 November 2018) [53]. 1578 Tanya Aplin and others 2012 (n 22) para 13.132. 1579 Department of Health v Information Commissioner, (EA/2008/0018, 18 November 2018) [54]. 1580 Tanya Aplin and others 2012 (n 22) para 13.137. 1581 DWP v IC (EA/2010/0073, 20 September 2010). 1582 DWP v IC (EA/2010/0073, 20 September 2010) [84]. 1583 John Macdonald and Ross Crail, John Macdonald on the Law of Freedom of Information (3rd edn, OUP 2016) para 16.13. Chapter 4. Mapping the notion of secrecy 334 myriad of statutes that regulate the disclosure of information held by public authorities to third parties.1584 Confidentiality in the acquis communautaire and the right of access to documents The principle of confidentiality has been incorporated into the acquis communautaire by virtue of Article 339 TFEU, which provides that: The members of the institutions of the Union, the members of committees, and the officials and other servants of the Union shall be required, even after their duties have ceased, not to disclose information of the kind covered by the obligation of professional secrecy, in particular information about undertakings, their business relations or their cost components (emphasis added). It is also embedded in the ChFREU, which enshrines the principles of respect for private life (Article 7 ChFREU) and protection of personal data (Article 8 ChFREU). In turn, such a principle has been included in a number of legal provisions of secondary EU law. For instance, in the context of competition investigations, Article 28(2) of Regulation 1/20031585 notes that the national and EU Competition authorities and their employees shall not disclose information “covered by the obligation of professional secrecy”. However, the observance of confidentiality is not absolute, but is subject to numerous statutory limitations that mostly follow an unsystematic approach.1586 Just as in the UK, in the EU the general principle of confidentiality has been tempered by the right of access to documents that it is also part of the acquis communautaire, pursuant to Article 42 ChFREU and Article 15(3) TFEU. A particularly notable manifestation of this principle is Regulation 1049/2001 regarding public access to European Parliament, Council and Commission documents,1587 which was adopted in order to b) 1584 Tanya Aplin and others 2012 (n 22) para 13.137. 1585 Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty [2003] OJ L1/1. 1586 Tanya Aplin and others 2012 (n 22) para 13.1150. 1587 Regulation of the European Parliament and of the Council (EC) 1049/2001 of 30 May 2001 regarding public access to European Parliament, Council and Commission documents [2001] OJ L145/43 (Regulation 1049/2001). § 4 Deconstructing secrecy 335 lay down the legal framework that governs the right to access documents disclosed to the Commission, the European Parliament and the Council of the EU and to safeguard transparency during the decision-making processes of these institutions, in line with the objectives pursued by the FOIA in England.1588 In particular, Article 4 of Regulation 1049/2001 provides that the exercise of the right of access is subject to a number of exceptions. Specifically, pursuant to paragraph 1 of Article 4(2) of Regulation 1049/2001, access can be rejected if it would weaken the protection of “commercial interests of a natural or legal person, including intellectual property”. The extent to which the reference to intellectual property encompasses trade secrets is uncertain, as examined above.1589 However, it is undisputed that trade secrets fall under the scope of protected “commercial interests”.1590 This was the approach adopted by the CJEU in the European Commission v Agrofert Holding a.s case,1591 where the court upheld a decision by the Commission in which access to a number of documents disclosed by the notifying parties during the course of a merger control process was denied to a third party (“Agrofert”) that had requested it. In its legal reasoning, the Commission invoked paragraph 1 of Article 4(2) of Regulation 1049/2001 to deny access because the information requested was “commercially sensitive information relating to the commercial strategies of the notifying parties, their sales volumes, their market shares or customer relations”, but no reference to trade secrets was made.1592 Upon appeal, the CJEU held that the interpretation of paragraphs 1 and 3 of Article 4(2) established a general presumption “that the disclosure of the documents concerned undermines, in principle, the protection of the commercial interests of the undertakings involved in the merger and also the protection of the purpose of investigations relating to the control proceedings”.1593 1588 Case C–404-10 P Lagardère SCA v Éditions Odile Jacob SAS (CJEU, 29 June 2012) para 109; John Macdonald and Ross Crail, Macdonald on the Law of Freedom of Information (3rd edn, OUP 2016) para 11.14. 1589 See chapter 1 § 3 B) I. 4. 1590 Tanya Aplin and others 2012 (n 22) para 13.171. 1591 Case C–477/10 P European Commission v Agrofert Holding a.s. (CJEU, 28 June 2012). 1592 Case C–477/10 P European Commission v Agrofert Holding a.s. (CJEU, 28 June 2012) para 10. 1593 Case C–477/10 P European Commission v Agrofert Holding a.s. (CJEU, 28 June 2012) para 64. Chapter 4. Mapping the notion of secrecy 336 However, in a more recent decision concerning the disclosure of the clinical study report in the Marketing Authorisation application dossier for a medicinal product (Translanta) by the European Medicines Agency, the GCEU noted that clinical study reports do not enjoy a general presumption of confidentiality based on the implicit ground that they are “as a matter of principle and in their entirety, clearly covered by the exception relating to the protection of commercial interests of (market authorisation applicants)”.1594 The GCEU therefore held that in the assessment of whether the exception set out in the first indent of Article 4(2) of Regulation 1049/2001 may prevent the disclosure of information, the European Medicines Agency must conduct “a concrete, individual examination of each document in the application file for (Marketing Authorisation)”.1595 Indeed, the existence of such a general presumption was also denied by the GCEU with regard to a report on chemical safety submitted to the European Chemical Agency, which was requested by a competitor, also on the basis of Regulation 1049/2001.1596 Protection of competing interests in the TSD The competing interest between the protection of valuable commercial information held by a company and the general interest in transparency and access to documents outlined in the previous sections is also apparent in a number of provisions of the TSD. On the one hand, Article 1(2)(b) stipulates that the TSD should not affect those provisions of national and EU Law that mandate the disclosure of information (including trade secrets) to the general public or to public, administrative or judicial authorities. In this regard, Recital 11 specifically indicates that the provisions of the TSD should not affect the application of EU and national rules that demand the c) 1594 Case T–718/15 PTC Therapeutics International Ltd v EMEA (GCEU, 5 February 2018) para 53. 1595 Case T–718/15 PTC Therapeutics International Ltd v EMEA (GCEU, 5 February 2018) para 53. 1596 Case T–189/14 Deza v ECHA (GCEU, 13 January 2017) para 40: “No general presumption can therefore be inferred from the provisions of Regulation No 1907/2006. It cannot therefore be accepted that, in the context of an authorisation procedure provided for by Regulation No 1907/2006, the documents communicated to the ECHA are to be regarded as being, in their entirety, clearly covered by the exception relating to the protection of the commercial interests of applicants for authorisation”. § 4 Deconstructing secrecy 337 disclosure of trade secrets to public authorities and that allow or require any subsequent disclosure and, in particular, the access to document rights set out in Regulation 1049/2001. Similarly, Article 1(2)(c) sets forth that the rules laid down in the TSD should not interfere with other national or Union law provisions that mandate or allow the disclosure of any information about businesses to public institutions, bodies and authorities in accordance with national or EU law.1597 More generally, Article 3(2) stipulates that when the acquisition, use or disclosure of a trade secret is laid down either in national or union law provisions, it should be deemed lawful. In contrast, Recital 18 indicates that this should not be to the detriment of the obligation of confidentiality imposed on the acquirer or recipient of the information, either by national or by EU law. Most notably, this recital specifies that the Directive does not exonerate public authorities from obligations of confidence with regard to information submitted by the trade secret holder and mentions, as an example, the information acquired by contracting authorities in the course of public procurement procedures.1598 Guiding principles In the light of the foregoing analysis, identifying the effect of disclosures compelled by public authorities is not straightforward, as an array of interests and legal provisions of constitutional, public and private law come into play. Notwithstanding this, the following interpretive principles are submitted: (i) The “commercial interests (…) including intellectual property” exemption established in Article 4(2) of Regulation 1049/2001 should be deemed to include trade secrets, pursuant to the definition stipulated in Article 2(1) TSD, which is now part of the acquis communautaire. (ii) In line with the principles that inform the practice of the CJEU with regard to the first indent of Article 4(2) of Regulation 1049/2001, the disclosure of trade secrets submitted to public authorities that is mandated or allowed by national or EU legislation and that may be subject to limitations on the basis of a commercial interest or an intellectual property right of the holder, as set out in the relevant statute, should be assessed on a case-by-case basis, in accordance with the specific cird) 1597 See Recital 11 TSD. 1598 See Recital 18 TSD. Chapter 4. Mapping the notion of secrecy 338 cumstances of the case. In particular, if the disclosure of the information could cause irreparable harm to the holder, public authorities should consider whether providing partial disclosures or redacted versions could also serve public transparency purposes and protect the business interest of the parties. In such a context, it is submitted that the trade secrets holders should always be notified of the request for information by the third party or its publication and be given an opportunity to present the pertinent arguments. (iii) If the relevant statutes set out an obligation of confidence on a national or EU authority or public body that is not observed, the said authority or public body shall be deemed liable for unauthorised use or disclosure of a trade secret. If no such obligation is stipulated, the acquisition, use and disclosure of the trade secret mandated or allowed by EU law should be considered lawful, in accordance with Article 3(2) TSD. In sum, due to the overlap of provisions and legal interests that come into play, it is likely that further guidance from the CJEU will be sought, in line with the series of decisions rendered by the CJEU with respect to the first indent of Article 4(2) of Regulation 1049/2001. Marketing of a product in which the trade secret is embodied In the course of misappropriation proceedings, defendants frequently counter-claim that no such misappropriation existed, because the information lacked the necessary quality of confidence. Most frequently, they argue that by placing a product on the open market in which the trade secret was embodied, the plaintiff made it generally available, thereby preventing trade secrets protection. This section intends to map out the general principles that govern such an appraisal following the methodology of comparative law. The general proposition in the U.S. and Germany1599 is that marketing a product, as such, does not necessarily reveal all of the trade secrets associated with it. In England, commentators and case law have not provided a uniform solution, but the prevailing view is that a certain amount of disclosure is permitted.1600 Each of these jurisdictions is analysed in turn. 3. 1599 Rudolf Kraßer 1970 (n 831) 590; RGZ 1935 149, 329, 330 – Stiefeleisenpresse. 1600 The English case law is stricter than the German and U.S. jurisprudence on this topic; as examined in chapter 6 § 2 B) below dealing with reverse engineering; for an analysis of the English approach see Tanya Aplin, ‘Reverse Engi- § 4 Deconstructing secrecy 339 U.S. In the U.S., two of the main legislative sources for trade secrets protection, namely the UTSA and the Restatement (Third) of Unfair Competition, note that the marketing of a product in which a trade secret is embodied does not automatically deprive the information of its concealed nature, as long as substantial investment, time and effort are necessary to obtain it1601 and the recipient is under no obligation of confidence.1602 This signals that the information is subject to a process of reverse engineering and therefore it is not generally known or readily ascertainable. Such a proposition has been restated in numerous decisions. For instance, as early as 1951, the Supreme Court of Texas held that the idea of a “metallic fishing rod that would collapse into once piece and thus serve as a walking stick”1603 was based on “obvious” mechanical principles and could be easily imitated by “any reasonably experienced machinist that might see one for the first time or purchase it on the open market”. Consequently, the Supreme Court of Texas ruled that the exhibition of the device to the public by “advertisement or sale” prevented trade secrets protection.1604 Similarly, in 1964, the Court of Civil Appeals of Texas in El Paso held that an advertisement plan consisting of bonus cards with money amounts printed around the periphery of the card, which had been prepared by an advertising agency for the sole purpose of promoting sales in the grocery store, could not be considered a trade secret. In this respect, the court noted that the idea of punch cards was not new, as in fact similar cards were being used at the time of the alleged misappropriation in other a) neering and Commercial Secrets’ [2013] 66 Current Legal Problems 341, 347-348; Franchi v Franchi [1967] RPC 149 (Ch), 152. 1601 See UTSA Comment § 1: “Often, the nature of a product lends itself to being readily copied as soon as it is available on the market. On the other hand, if reverse engineering is lengthy and expensive, a person who discovers the trade secret through reverse engineering can have a trade secret in the information obtained from reverse engineering”; Restatement (Third) of Unfair Competition §39 (Am. Law Inst. 1995) comment f, Reporter’s Note: “Public sale of a product does not preclude continued protection against the improper acquisition or use of information that it is difficult, costly, or time-consuming to extract through reverse engineering”; James Pooley 2002 (n 66) § 4.04 [3]4-34, 4-35. 1602 Gale R. Peterson, ‘Trade Secrets in an Information Age’ [1995] 32 Houston LR 385, 450. 1603 Wissman v. Boucher, 240 S.W.2d 278, 278 (Tex. 1951). 1604 Wissman v. Boucher, 240 S.W.2d 278, 278 (Tex. 1951). Chapter 4. Mapping the notion of secrecy 340 cities or states. Hence, the court concluded that the cards themselves were “self-explanatory on the face”.1605 By contrast, U.S. courts held that the formula of a jet ink acquired by an employee during the course of his employment relationship was secret, despite the fact that the jet ink had been marketed for some time before the alleged misappropriation took place. According to the deciding court, the specific composition of the jet ink was not known to others in the industry and steps had been taken to preserve its confidential nature (through employment agreements). In addition, the value and the time and effort spent in developing the jet ink formula was undisputed and, consequently, it was noted that “duplication was not so simple as to deprive (the jet ink) of trade secret status”.1606 Nevertheless, it was further suggested that “a few sophisticated competitors may have had the resources to analyse and reproduce the series 400 inks by fair means” but this did not protect the defendant, who was found liable for trade secret misappropriation.1607 Similar principles were restated in another case decided by the Appellate Court of Illinois, where loss of secrecy was linked to the possibility of duplicating the marketed products without “time consuming and expensive analysis of products in the public domain”.1608 In Q-CO Industries, INC. v. Hoffman, the New York Southern District Court ruled that computer programs were eligible for trade secrets protection.1609 In particular, the court noted that the source code of the alleged misappropriated software was not accessible to the public, because the version commercially sold was copy protected, thereby preventing users from accessing it.1610 In this regard, the court noted that, “secrecy will not be destroyed by the wide distribution of computer programs if they are distributed in object form only”.1611 Similarly, in Epic Syst. Corp. v. Tata Consultancy Servs, a jury regarded that the plaintiff’s medical record software and related documents constituted a trade secret, 1605 Furr’s Inc. v. United Speciality Advertising Co., 338 S.W.2d 762, 764 (Tex. App. 1960). 1606 American Can Co. v. Mansukhami, 728 F.2d 818, 819-820 (7th Cir. 1982). 1607 American Can Co. v. Mansukhami, 728 F.2d 818, 820 (7th Cir. 1982). 1608 Colony Corp.of America v. Crown Glass Corp, 430 N.E.2d 225, 227 (Ill. App. Ct.1981). 1609 Q-CO Industries, INC. v. Hoffman, 625 F.Supp. 608 (S.D.N.Y. 1985). 1610 Q-CO Industries, INC. v. Hoffman, 625 F.Supp. 608, 617-618 (S.D.N.Y. 1985). 1611 Q-CO Industries, INC. v. Hoffman, 625 F.Supp. 608, 618 (S.D.N.Y. 1985). § 4 Deconstructing secrecy 341 even though they were accessible to more than three hundred thousand users upon introducing the user credentials.1612 Importantly, a number of decisions in the U.S. have explored the concealed nature of trade secrets embedded in mass-distributed software, where concluding individual licensing agreements with users is not viable.1613 For instance, In Data Gene Corp. v. Digital Computer Controls Inc. the plaintiff manufactured a new personal computer (Nova 1200), which was sold along with the engineer’s drawings to allow the purchaser to do his own maintenance and repairs. The defendant, a hardware company, purchased a computer from the plaintiff (Data) and duplicated it with the aid of the diagrams provided along with the Nova 1200 minicomputer. While the parties agreed that the defendant was free to reverse engineer the lawfully purchased Nova 1200 computer, controversy arose with respect to the use of the drawings, as Data’s standard contract form contained a confidentiality clause regarding the use of drawings, which was limited to maintenance, as opposed to manufacture. Such a possibility was expressly forbidden without the plaintiff's consent in writing.1614 In view of the measures implemented by the plaintiff and the fact that the drawings had been distributed under an obligation of confidence, the Court of Chancery of Delaware ruled that the drawings retained their secret nature and the plaintiff prevailed in his claim. In this context, it was deemed that confidentiality had subsisted, although the defendant noted that at the time of the misappropriation, the drawings were available to almost six thousand users.1615 In another case, Data General Corp. v. Grumman Systems the court concluded that the alleged misappropriated software remained secret because the licensing agreement included confidentiality and return upon non-use clauses.1616 Yet, this has not been without criticism, particularly due to the potential pre-emptive effect that the Copyright Act may 1612 Epic Systems Corporation v. Tata Consultancy Services Limited et al, No. 3:2014cv00748 - Document 243 (W.D. Wis. 2015). 1613 Gale R. Peterson 1995 (n 1602) 449; see Michael Risch, ‘Hidden in Plain Sight’ [2016] 31 Berkeley Technology LJ 1635, 1649-1651 noting that in numerous decisions courts in the U.S. have ruled that software delivered to vendors or shown publicly had not been legally disclosed for the purposes of assessing secrecy. 1614 Data Gene Corp. v. Digital Computer Controls Inc., 297 A.2d 437, 439 (Del. 1972). 1615 Miles R. Gilburne and Ronald L. Johnston, ‘Trade Secret Protection for Software Generally and in the Mass Market’ [1981] 3 Computer LJ 211, 230. 1616 Data General Corp. v. Grumman Systems Support Corp., 36 F.3d 1147, 1167-1170 (1st Cir. 1994). Chapter 4. Mapping the notion of secrecy 342 have over contractual obligations of confidentiality regarding computer programs, and especially with respect to shrink-wrap licenses.1617 These are presented in many forms, but usually include a prohibition on reverse engineering the licensed software and become effective when the user breaks the seal or packaging in which the physical program is sold.1618 In sum, it appears that courts in the U.S. mostly understand that placing a product on the open market does not necessary render all of the trade secrets generally known or readily apparent, unless they can be devised upon inspecting the product with little effort. England In England, a review of the decisions that deal with the issue of whether the mere marketing of a product deprives the trade secrets embodied therein of their confidential nature also seems to indicate that a certain amount of circulation is permitted.1619 Such a principle appears in Ackroyds (London) Ltd. v Islington Plastics Ltd.1620 In this case the defendants, plastic moulds manufacturers, entered into a contract with the plaintiff for the manufacturing of plastic swizzle sticks in the form of a Neptune's trident, based on a pattern designed by the plaintiff. Subsequently, they went on to manufacture the same tool for one of the plaintiff’s main competitors. When the plaintiff found out, he decided to bring legal action against the defendant for an alleged breach of contract, as well as a breach of confidence. In the legal reasoning, with respect to the issue of confidentiality, Harver J noted that: (…) the mere publication of an article by manufacturing it and placing it upon the market, whether by means of work done on it or calculation or measurement which would enable information to be gained, is not necessarily sufficient to make such information available to the public. The question in each case is: Is such information available to b) 1617 Gale R. Peterson 1995 (n 1602) 449-450; the validity of shrink-wrap licenses has been highly contested. In this regard, see Mark A. Lemley, ‘Intellectual Property and the Shrinkwrap Licenses’ [1995] 68 Southern California LR 1239. 1618 Mark A. Lemley 1995 (n 1617) 1241. 1619 John Hull 1998 (n 1016) para 3.36; Tanya Aplin 2013 (n 1600) 347-348. 1620 Ackroyds (London) Ltd v Islington Plastics Ltd [1962] RPC 97 (Ch). § 4 Deconstructing secrecy 343 the public? It is not, in my view if work would have to be done upon it to make it available (emphasis added).1621 As is apparent from the above, the critical factor was whether intellectual work was necessary to devise the secret information embodied in the marketed product, which ultimately led to the affirmation of the confidential nature of the pattern designed by the plaintiff. Similar principles were restated in Alfa Laval v Wincanton, which concerned the confidential nature of design drawings for a cheese block former machine.1622 In the 1970s the defendant invented a cheese block former machine and some years later he assigned all of the intellectual property rights over the said machine to the plaintiff, including patents, copyright and trade secrets. However, by virtue of an agreement entered into by the plaintiff and the defendant in 1987, the defendant ceased to be involved in the design of the machines and became a mere manufacturer. At the same time, he undertook strict confidentiality obligations. A year later, the agreement was terminated and, subsequently, the defendant announced his intention to design and manufacture his own machine. Consequently, the plaintiff applied for a preliminary injunction on the basis of an alleged copyright infringement, misuse of confidential information and breach of contract. As regards the misuse of confidential information claim, Morrit J noted that confidentiality only persisted regarding the inner lining of the machine, which needed to be dismantled. However, he concluded that the external pipes could not be considered confidential, as they were “plain for everyone to see” upon marketing the product.1623 More recently, Arnold J had to decide whether the design of a half-size wind tunnel model of a Formula 1 racing car designed for one of the teams (Force India) was of a confidential nature, despite the fact that photographs of the vehicles had been published and certain parts had been sold by a Formula 1 memorabilia company. In deciding on the confidential status of information, he noted that: In cases concerning design drawings (…) much will depend on the level of generality of the information asserted to be confidential. If the claimant contends that information relating to the shape and configu- 1621 Ackroyds (London) Ltd v Islington Plastics Ltd [1962] RPC 97 (Ch), 104. 1622 Alfa Laval Cheese Systems Ltd and Another v Wincanton Engineering Ltd [1990] FSR 583 (Ch). 1623 Alfa Laval Cheese Systems Ltd and Another v Wincanton Engineering Ltd [1990] FSR 583 (Ch), 591. Chapter 4. Mapping the notion of secrecy 344 ration of the article depicted in the drawings is confidential, but the shape and configuration of the article can readily be ascertained from inspection of examples of the article which have been sold or are otherwise publicly accessible, then the claim will fail. If, on the other hand, the claimant contends that detailed dimensions, tolerances and manufacturing information recorded in the drawings are confidential, that information cannot readily be ascertained from inspection, but only by a process of reverse engineering and the defendant has used the drawings as a short cut rather than taking the time and effort to reverse engineer, then the claim will succeed (emphasis added).1624 In this context, the deciding judge held that the basic shapes of some of the parts of the Formula One cars were part of the public domain because they were ascertainable from pictures, but specified that the precise dimensions of specific parts remained concealed. Consequently, he concluded that the defendant’s employees had indeed copied confidential material belonging to Force India, which the latter had supplied to the defendant for the provision of the agreed services.1625 This finding was subsequently upheld by the Court of Appeal of England and Wales.1626 In the light of the above, it seems that English courts understand that the information embodied in a market product loses its secret nature if it can be obtained without the need to undergo a process of reverse engineering, that is, if no intellectual skill is necessary to devise the secret information.1627 We will return to reverse engineering in chapter 6 as one of the main limitations of the rights conferred to the trade secret holder.1628 Germany In Germany, the prevailing view is that the marketing of a product does not necessarily reveal all of the trade secrets embedded therein. This was stated, for instance, by the Bavarian Higher Regional Court, in a dispute c) 1624 Force India Formula One Team Ltd v 1 Malaysia Racing Team SDN BHD [2012] EWHC 616 (Pat) [221]. 1625 Force India Formula One Team Ltd v 1 Malaysia Racing Team SDN BHD [2012] EWHC 616 (Pat) [280],[282],[290]. 1626 Force India Formula One Team Ltd v 1 Malaysia Racing Team SDN BHD [2013] EWCA civ 780 (CA). 1627 Tanya Aplin 2013 (n 1600) 349. 1628 Chapter 6 § 2 B) III. 3. § 4 Deconstructing secrecy 345 concerning the unlawful acquisition of a computer program incorporated into a slot machine used for gambling purposes.1629 According to the factpattern of the decision, the defendant, one of the users of the slot machines, managed to decompile the computer program after using the machine several times.1630 In this context, the court ruled that even though the slot machines had been placed on the market1631 and that the information could be obtained after investing 70 hours of work and 5.000 German Franks (2.500€), the information remained concealed.1632 The High Court in Bavaria concluded that it was only accessible with great difficulty and cost, which was identified as the benchmark that signals the existence of a secret worth protecting. Then, the court went on to examine whether the act of reverse engineering should be considered lawful. Consequently, under German law, information remains secret if it can only be obtained with the investment of substantial skill and labour. In particular, secrecy has been construed in a very broad sense vis-à-vis reverse engineering, as examined in chapter 6.1633 Guiding principles The comparative analysis conducted above reveals that in the three jurisdictions studied a certain level of circulation is permitted; secrecy is not necessarily lost by placing a product on the market. However, it is crucial to differentiate between two types of information: (i) information about the development and production of the product concerned, and (ii) information about its actual configuration.1634 The first category refers, for example, to the secret drawings containing the precise dimensions of specific moulds used to manufacture specific d) 1629 BayObLG GRUR 1991, 694 – Geldspielautomat. 1630 BayObLG GRUR 1991, 694, 697 – Geldspielautomat. 1631 BayObLG GRUR 1991, 694, 695 – Geldspielautomat noting that “Der Geheimnischarakter der Bauart einer Maschine, oder, wie hier, der Gestaltung des Computerprogramms eines Spielautomaten, wird auch nicht dadurch aufgehoben, daß die Geräte vom Hersteller veräußert werden” and that “Kenntnis, die sich der Täter nur durch Einsatz von 70 Beobachtungsstunden und 5 000, - DM Spielgeld verschaffen kann, wird nicht ‘ohne größere Schwierigkeiten und Opfer’ erlangt”. 1632 BayObLG GRUR 1991, 694, 697 – Geldspielautomat. 1633 See Chapter 6 § 2 B) III. 3). 1634 James Pooley 2002 (n 66) § 4.04 34-35. Chapter 4. Mapping the notion of secrecy 346 parts of a marketed product.1635 In this case, the information remains secret so long as the analysis of the marketed product does not disclose the dimensions of the moulds. In the second category, the information about the internal configuration of the good (internal secrets) and its functionality may not be apparent upon examination, which confers its holder a lead time advantage when compared to the rest of competitors. It remains secret and therefore protectable until it is reverse engineered.1636 Prime examples of the latter would be a chemical formula to produce rubber goods or encrypted information embedded within a vending machine. A similar approach has also crystallised in consistent case law from the Boards of Appeal of the EPO with regard to the assessment of novelty. As outlined in chapter 1, while examining the interplay between trade secrets and patent rights, placing a product on the open market for which patent protection is later sought is only novelty destroying if it is possible for members of the public to acquire knowledge of that subject matter on the relevant priority day. This includes the external examination of the product, as well as the obtention of the invention after further analysis of the intrinsic features (those that do not need to interact with external conditions to become apparent).1637 The availability of an invention embodied in a marketed product was discussed by the Enlarged Board of Appeal of the EPO in the landmark decision G-1/92. In this case, it was considered whether the chemical composition of a product is part of the state of the art when the product in which it is embodied is marketed and can be analysed and reproduced by a skilled person.1638 In delivering its decision, the Board started by noting that one of the main goals of any technical teaching is to allow any person with ordinary skills in the art to “use” or “produce” the product concerned. To that end, he would have to use “the general technical knowledge to gather all information enabling him to prepare the said product”. In such a case, if the skilled person could find out the composition or the internal structure of the product and was able to reproduce it, it should be deemed that both the product and its composition or internal structure are 1635 Ackroyds (London) Ltd. v Islington Plastics Ltd RPC 97. 1636 James Pooley 2002 (n 66) § 4.04 34-35. 1637 See Guidelines of Examination in the EPO. Part G. Chapter IV. Section 7.2.; on the interpretation of the availability to the public of an invention by use followed by the Enlarged Board of Appeal of the EPO, G 1/92 [1993] OJ EPO 278. 1638 G 1/92 [1993] OJ EPO 278. § 4 Deconstructing secrecy 347 part of the state of the art.1639 Based on the above premise, the Enlarged Board of Appeal concluded that the relevant yardstick is whether the information is accessible in a “direct” and “unambiguous” manner, not whether there is a reason to “look for it”.1640 Thus, under patent law marketing, a product in which an invention is embodied does not implicitly reveal anything beyond its composition or internal structure. Indeed, extrinsic characteristics, which are solely disclosed when the product is “exposed to interaction with specifically chosen outside conditions” are not automatically revealed.1641 From an economic standpoint, in fast moving industries, with short product life cycles, holders of information do not usually seek patent protection, as the patent term outweighs the expected obsolescence of the secret innovation. In such a context, the lead time conferred by secrecy prior to the reverse engineering of a product is the preferred option to appropriate returns from innovation.1642 In sum, it can be concluded that marketing a product does not, as such, disclose any of the inventions and the trade secrets that it embodies, unless they become apparent upon its inspection and analysis. However, at this point a crucial distinction must be made. Under patent law, the mere possibility of accessing the information renders it available for the purposes of assessing its novel character, even if the information is subject to a process of reverse engineering. By contrast, in the case of trade secrets, such an assessment depends on whether third parties (i.e. the relevant circles) have in fact examined the marketed product and devised the secret or if the information is accessible (or apparent) with so little labour and intellectual skill that it does not appear reasonable to enforce an obligation of confidence on the acquirer of the product. Consequently, information that is acquired after a process of reverse engineering by a competitor remains eligible for trade secrets protection for as long as it does not become generally known within the industry. As a final note, it is noteworthy that under both legal regimes, the extrinsic characteristics of the product are not immediately disclosed and consequently they are eligible for both patent and trade secrets protection. 1639 G 1/92 [1993] OJ EPO 278. 1640 G 1/92 [1993] OJ EPO 278, 279; Guidelines for Examination in the EPO Part G. Chapter IV. Section 7.2.1. 1641 G 1/92 [1993] OJ EPO 278, 280. 1642 James Pooley 2002 (n 66) § 4.04 34-35. Chapter 4. Mapping the notion of secrecy 348 Disclosures on the Internet To be sure, the Internet has increased the pace with which, and the audience to which, specific information can be disclosed. The publication of trade secrets on the Internet constitutes a prime example of the increasing challenges that stakeholders face in keeping their secrets undisclosed. In such a context, the main issue is whether posting a piece of information on the Internet renders it automatically generally known or readily accessible. This topic has garnered substantial attention in recent years, particularly with the advent of new technologies. The following sections examine the most relevant decisions on this subject in the U.S. (section a), England (section b) and Germany (section c). Finally, some guiding principles that should aid national courts in assessing whether information has entered the public domain are formulated (section d). U.S. In the U.S., there is no consistent case law on the effects of internet disclosures.1643 So far, the most relevant cases dealing with trade secret disclosure on the Internet are (i) Religious Technology Center v. Lerma;1644 (ii) DVD Copy Control Ass’n v. Bunner1645 and (iii) United States v. Genovese.1646 The first case, Religious Technology Center v. Lerma concerned a case of misappropriation of trade secrets from the Church of Scientology. The defendant (Mr Lerma), a former member of the Church, posted online information about the Church that he had acquired from a court record. Such information was regarded as a trade secret by the Church, who obtained a temporary restraining order against the defendant.1647 Notwithstanding 4. a) 1643 This issue has been explored by several academic articles, the most notable being: Elizabeth A. Rowe 2007 (n 1515) explaining that usually when a trade secret is posted on the internet, the trade secret holder loses its rights on the information and cannot prevent third parties from using it; see further Elizabeth A. Rowe, ‘Introducing a Takedown for Trade Secrets on the Internet’ [2007] Wisconsin LR 1041arguing that Congress should enact specific takedown legislation vis-à-vis trade secrets; also Victoria A. Cundiff 2009 (n 739) 359 reviewing the measures that the owners of secret information should adopt in order to protect them in the digital environment. 1644 Religious Technology Center v. Lerma 908 F.Supp. 1362 (E.D. Va. 1995). 1645 DVD Copy Control Association Inc. v. Andrew Bunner 75 P.3d 1 (Cal. 2003). 1646 United States v. Genovese 409 F.Supp.2d 253 (S.D.N.Y. 2005). 1647 Religious Technology Center v. Lerma 908 F.Supp. 1362, 1364 (E.D. Va. 1995). § 4 Deconstructing secrecy 349 this, prior to the issuance of the restraining order, Mr. Lerma had also sent a copy of the posted documents to an investigative reporter working for the Washington Post, Richard Leibi. The reporter ended up publishing an article in the Washington Post based on those materials. As a result, the Church of Scientology brought legal action seeking injunctive relief and damages on the grounds of copyright infringement and trade secret misappropriation against The Washington Post. The first claim on copyright was dismissed by the District Court of Virginia. As regards the trade secret claim, the court noted that the publication of a trade secret online renders it part of the public domain and thus it can no longer be afforded protection.1648 Similar arguments were raised by the District Court of California in a subsequent case that also concerned an alleged trade secrets misappropriation brought again by the Curch of Scientology against a former member that posted the Church’s writings on an Internet USENET group.1649 Against this fact pattern the court held that the disputed information was generally known and consequently, it did not merit protection.1650 Notwithstanding this finding, after several months the Church filed another motion but this time providing consumer surveys.1651 In its legal reasoning, the District Court changed its previous position and noted that the assessment of secrecy “requires a review of the circumstances surrounding the posting and consideration of the interests of the trade secret owner, the policies favoring competition and the interests, including first amendment rights, (…) of innocent third parties who acquire information of the Internet”.1652 Consequently, the preliminary injunction was issued because under such a test, it was questionable whether the information was public 1648 Religious Technology Center v. Lerma 908 F.Supp. 1362, 1368 (E.D. Va. 1995). 1649 Religious Technology Center v. Netcom On-Line Commc’n Servs., Inc., 923 F.Supp. 1231 (N.D. Cal. 1995) (Netcom I); according to footnote 5 of this decision “Usenet news, which is one of the most popular features of the Internet, allows users of systems “subscribing” to the groups to participate by reading and “posting” messages on a particular topic, such as intellectual property rights (“misc. int-property”) or table tennis (“rec.sport.table-tennis”)”. 1650 Religious Technology Center v. Netcom On-Line Commc'n Servs., Inc., 923 F.Supp. 1231, 1256-1257 (N.D. Cal. 1995) (Netcom I). 1651 Religious Tech. Ctr. v. Netcom On-Line Commc'n Servs., Inc., 1997 WL 34605244 (N.D. Cal Jan. 6, 1997) (Netcom II). 1652 Religious Tech. Ctr. v. Netcom On-Line Commc'n Servs., Inc., 1997 WL 34605244 page 12. (N.D. Cal. Jan. 6, 1997) (Netcom II). Chapter 4. Mapping the notion of secrecy 350 knowledge considering the difficulty in identifying potential competitors.1653 The second case, DVD Copy Control Ass’n v. Bunner,1654 concerned the publication of a program on the Internet allowing for the decryption of information stored on DVDs (the so-called “DeSCC” program). The content scrambling system (“CSS”) prevented the copying of the content of DVDs and was licensed by the DVD Copy Control Association (a trade association of businesses in the movie industry) to DVD player manufacturers under the condition that they did not reverse engineer the program. Pursuant to the plaintiff, the defendant (Mr Bunner) found the DeSCC program, which allowed for decrypting the CSS secret information, on the Internet, knowing that it had been obtained through reverse engineering in breach of the terms of the licensing agreement, and posted a link to it on his website, invoking the freedom of speech principle enshrined in the first amendment of the U.S. Constitution. On appeal, the Supreme Court of California ruled firstly that if a trade secret existed, the grant of an injunction would not contravene the first amendment and secondly, it added that the plaintiff had failed to provide evidence that the information was still secret at the time that the defendant republished it on his website. It nevertheless noted, that in theory it was possible that the secret nature of the information was not lost, as it had been posted on an “obscure site on the Internet” and detected quickly.1655 Notwithstanding this, on remand the California Court of Appeal for the Sixth District concluded that the CSS technology was no longer secret and, consequently, held that the grant of a preliminary injunction would negatively affect the freedom of speech principle more than necessary. As a result, the decision to grant the preliminary injunction was reversed.1656 1653 Ibid. 1654 DVD Copy Control Association Inc. v. Andrew Bunner 75 P.3d 1 (Cal. 2003). 1655 DVD Copy Control Association Inc. v. Andrew Bunner 4 Cal. Rptr. 3d 69, 101 (Cal. 2003) noting that that “information posted on an obscure Internet site and detected quickly should not lose trade secret status. This position is consistent with case law holding that minor disclosures of a trade secret followed by a brief delay in withdrawing it from the public domain do not cause the trade secret to be lost”. 1656 DVD Copy Control Association Inc. v. Andrew Bunner, 10 Cal. Rptr. 3d 185 (Cal. Ct. App. 2004); for a critical overview of first amendment defences in trade secret disclosure cases on the Internet see Pamela Samuelson, ‘Principles for Resolving Conflicts Between Trade Secrets and the First Amendment’ [2007] 58 Hastings LJ 777, 800-805. § 4 Deconstructing secrecy 351 The third case, United States v. Genovese, dealt with the publication of parts of Microsoft’s source code for two of its operating systems (Windows NT 4.0 and Windows 2000) on the Internet. Following an investigation, the FBI determined that Mr Genovese was offering the source code for sale on his website for 20 USD and, therefore, he was charged for the unlawful downloading and selling of trade secrets in violation of the EEA.1657 Mr Genovese challenged the indictment, among other reasons, on the basis that firstly, it contravened the first amendment of the U.S. Constitution, which enshrines the freedom of expression principle, and secondly, Microsoft had not adopted reasonable measures to protect it; as the defendant had obtained it from a third party.1658 In the legal reasoning, the court indicated that the first amendment was indeed applicable to “source code and other types of trade secrets”. However, the court concluded that this provision does not afford protection to third parties that intend to economically benefit from another’s trade secret by “their unauthorised copying, duplicating, downloading and uploading”.1659 With respect to the reasonable measures claims, it was indicated that Mr Genovese knew that the source code had been unlawfully acquired through the circumvention of technical protection measures and therefore he “could understand” that offering to sell the source code was prohibited by law. In the light of the foregoing analysis, it is suggested that despite the fact that ultimately secrecy is a question of fact and has to be assessed based on the circumstances of each case,1660 courts in the U.S. have not adopted a uniform approach to the challenges posed by the Internet in connection with the secrecy requirement1661 and the potential negative impact of injunctions on freedom of speech.1662 England The effects of the disclosure on the Internet of secret information were the object of a decision in 2009 by the High Court of England and Wales in b) 1657 United States v Genovese 409 F.Supp.2d 253, 255 (S.D.N.Y. 2005). 1658 United States v Genovese 409 F.Supp.2d 253, 254 (S.D.N.Y. 2005). 1659 United States v Genovese 409 F.Supp.2d 253, 256 (S.D.N.Y. 2005). 1660 Roger M. Milgrim 2014 (n 160) § 1.03-1.268. 1661 Melvin F. Jager, Trade Secrets Law (Thompsons Reuters 2015) § 3:39. 1662 A number of principles to resolve these types of conflicts are proposed by Pamela Samuelson, ‘Principles for Resolving Conflicts Between Trade Secrets and the First Amendment’ [2007] 58 Hastings LJ 777, 833-845. Chapter 4. Mapping the notion of secrecy 352 Barclays Bank Plc v Guardian News and Media Ltd.1663 The case concerned the leakage of nine confidential documents containing information about several transactions carried out by Barclays Bank and their tax treatment. Importantly, the court noted that it was not a case of whistle-blowing because there was no tax evasion involved, only tax avoidance, which is lawful from a legal perspective and essentially consists of optimising tax payments. According to the facts reported in the decision, one of Barclay’s employees had shared the secret documents with several members of Parliament and the Guardian News. Subsequently, the newspaper published them on its website in the context of a series of articles on the topic of banking practices and financial institutions. The documents were posted only for four hours before a preliminary injunction was issued compelling Guardian News to take them down. In deciding whether they still retained the necessary confidential nature for a continuation of injunctive relief, Blake J held that in principle information that is generally available on the Internet loses its confidential nature. Notwithstanding this, under this specific fact-pattern he concluded that “very limited dissemination and only partial dissemination perhaps in some remote or expert site that is not generally available to the public without a great deal of effort, may not result in such a loss of confidentiality”.1664 The deciding factor was thus that the documents were available online for a very limited period of time, and as a result retained their confidential nature. Germany At first glance, German case law and academia seem to indicate that the disclosure of information on the Internet deprives it of its secret nature.1665 Indeed, in a case concerning the misappropriation of the Clinical Expert Report of a pharmaceutical product (Movicol) by a former employee who went on to work for a competitor, the Federal Supreme Court ruled that information in the Clinical Expert Report may be deprived of its secret nature if at the time of the disclosure the information was available on the Internet in German or in international specialised publications.1666 c) 1663 Barclays Bank Plc v Guardian News and Media Ltd [2009] EWHC 591 (QB). 1664 Barclays Bank Plc v Guardian News and Media Ltd [2009] EWHC 591 (QB) 22. 1665 Ohly/Sosnitza (n 813) § 17 Rdn 9. 1666 BGH GRUR 2012, 1048 Rdn 24 ‒Movicol (Zuassungsantrag). § 4 Deconstructing secrecy 353 By contrast, in 2016 the Higher Regional Court of Kalsruhe ruled that the code to unlock SIM cards constituted a protectable trade secret under German law, even though the codes were available on the Internet through special unlocking software, which was made available without authorisation by the defendant upon payment of a fee. In such a context, the court concluded that the technical protection measures implemented by the plaintiff, as well as the difficulty and cost involved in obtaining the codes preserved the undisclosed nature of the information and hence it was protectable as a trade secret.1667 Guiding principles As is apparent from the comparative analysis conducted in the previous sections, the general principle is that once information is posted on the Internet, it becomes generally known. However, in certain cases, courts in the three jurisdictions studied have ruled that the secret nature of information subsisted, despite the fact that it had been made available online. In this context, Rowe suggests a “sequential preservation model”, whereby in exceptional circumstances the publication of a trade secret on the Internet should not be deemed secrecy-destroying. According to the author, the three parameters to be weighed in are: (i) the time that the secret was available on the Internet, together with the time it took the holder to take legal action; (ii) the extent of the disclosure; and (iii) the recipient’s reason to know that the information was a trade secret.1668 The starting point of the analytical framework proposed by Rowe should be whether at the time of the unauthorised online disclosure, the information complied with the statutory requirements of protection, i.e., whether (i) it was secret, (ii) had commercial value as a result of its secret nature, and (iii) was subject to reasonable steps under the circumstances to maintain its secret status.1669 Clearly, if the information did not meet ex ante any of these requirements, the disclosure should not be deemed unlawful, as the object of protection had ceased to exist. Next, the first factor proposed by Rowe takes into consideration the amount of time that the information was available online and the measures that the trade secret holder adopted upon finding out about the disd) 1667 OLG Karlsruhe MMR 2016, 562. 1668 Elizabeth A. Rowe 2007 (n 1515) 30-38. 1669 Elizabeth A. Rowe 2007 (n 1515) 33-34. Chapter 4. Mapping the notion of secrecy 354 closure.1670 According to the author, the risks associated with the dissemination of information on the Internet impose a duty of monitoring on trade secrets holders and, in correlation, a duty to take action as soon as a disclosure is identified.1671 Such measures include launching legal actions, applying for a preliminary injunction, sending a cease and desist letter or requesting the owner of the website to take down the secret information.1672 Reacting promptly is crucial to ensure that the object of protection is not lost. This is also in line with Recital 26 TSD, where it is noted that it “is essential to provide for fast, effective and accessible provisional measures for the immediate termination of the unlawful acquisition, use or disclosure of a trade secret”, in view of the devastating effects that such conduct may have on the trade secret holder as a result of the loss of secrecy. In this context, Rowe convincingly concludes that it is unlikely that information that has been available online for more than forty-eight hours can be considered to retain its secret nature, even though this will ultimately depend on the specific circumstances of the case.1673 Indeed, in Barclays Bank Plc v Guardian News and Media Ltd injunctive relief was granted on the basis that the information had only been available for four hours.1674 The second factor evaluates the extent of the disclosure in order to assess whether the information has become “generally known or knowable”.1675 It primarily looks into the specific characteristics of the website and the extent of the actual dissemination. In effect, disclosures on obscure websites are more likely to be non-secrecy destroying than disclosures on high-traffic websites. In addition, courts should also take into consideration whether the access was limited, for instance, restricted to members with an account. This is crucial to assess whether the relevant circles may have had access to the information concerned and as a result, may have acquired active knowledge of said information. Furthermore, due account should be paid to the amount of information published. Partial disclosures only affect the nature of the specific information disclosed.1676 1670 Elizabeth A. Rowe 2007 (n 1515) 32. 1671 Elizabeth A. Rowe 2007 (n 1515) 32-33; similar views are expressed by the EU legislator in Recital 23 TSD with respect to the limitation period. 1672 Elizabeth A. Rowe 2007 (n 1515) 33 1673 Elizabeth A. Rowe 2007 (n 1515) 33. 1674 Barclays Bank Plc v Guardian News and Media Ltd [2009] EWHC 591 (QB) [32]. 1675 Elizabeth A. Rowe 2007 (n 1515) 33. 1676 Lionel Bently and Brad Sherman 2014 (n 125) 1148. § 4 Deconstructing secrecy 355 The third factor is the most controversial one, as it enquires into the defendant’s “state of mind”.1677 According to Rowe, if the information is posted on the Internet by a misappropriator or a third party that had reason to know that the information had been misappropriated, liability should arise.1678 A similar approach has been adopted by the EU legislator in the TSD. According to Article 4(3) TSD, the disclosure of a trade secret acquired unlawfully or in breach of a secrecy obligation or any other duty not to disclose the information triggers liability. Consequently, if the information is posted on a website, for instance, by a party in breach of an obligation of confidence, the said party will be deemed liable for the unauthorised disclosure of a trade secret. Furthermore, pursuant to Article 4(4) TSD, if the party that disseminates the information online knew or should have known under the circumstances that the information was obtained from an illicit source, such disclosure should be considered illicit and consequently trigger liability. Notwithstanding this, it seems unsound to enjoin bona fide third parties that acquire information by merely checking a website from using or disclosing the said information without knowledge or reason to know the unauthorised origin of the information. In such a context, if as a result of its wide dissemination the trade secret holder loses control over the subsequent use and disclosure of the information and it enters the public domain, the secret as such ceases to exist.1679 Likewise, in her analytical framework, Rowe purports that infringers should not be able to counterclaim that upon publication the obligation ceases to exists. Infringers should be liable because at the time of the disclosure the information complied with the statutory requirements for protection.1680 This view is in line with Article 13(1) paragraph 2 TSD, which provides that when an injunction is ordered with a time limit, its “duration shall be sufficient to eliminate any commercial or economic advantage that the infringer could have derived from the unlawful acquisition, use or disclosure of the trade secret”. Similarly, the TSD provides that preliminary and precautionary measures, as well as injunctions and corrective measures shall be revoked if the information no longer meets the requirements of protection “for reasons that cannot be attributed to the respon- 1677 Elizabeth A. Rowe 2007 (n 1515) 34. 1678 Elizabeth A. Rowe 2007 (n 1515) 36-37. 1679 Elizabeth A. Rowe 2007 (n 1515) 36. 1680 Elizabeth A. Rowe 2007 (n 1515) 35-37; Roger M. Milgrim 2014 (n 160) § 17.03 15 Chapter 4. Mapping the notion of secrecy 356 dent”.1681 Consequently, the fact that the information has become generally known does not exonerate of liability the infringer who publishes the information on the Internet with knowledge (or being gross negligent) of the illicit source of the information. Yet, trade secrets are not enforceable against third parties that have acquired them lawfully. In this context, Rowe suggests that failure to act promptly upon being notified of the infringing nature of the online publication (step 1 of the sequential model) should also trigger liability.1682 This also seems to be the prevailing legal view under the harmonised EU legal framework, where liability for bona fide third parties arises upon notification of the confidential nature of the information.1683 This in turn raises questions regarding the potential liability of intermediaries, such as online platforms, that are used as the means to disclose the information and that do not take it down upon being notified by the trade secret holder of its infringing nature. Ultimately, the intersection between the hosting safe harbour established in Article 14(1) of the Directive on electronic commerce and the TSD will have to be subject to judicial interpretation by the CJEU.1684 In the light of the above, the better view, it is submitted, is that the assessment of whether information that is published on an Internet webpage loses its secret nature should be conducted on a case-by-case basis, taking into consideration the likelihood that members of the relevant public have in fact accessed the information. Crucial factors include the length of time during which the information was posted online and the measures adopted upon discovery of the publication.1685 Courts should also take into consideration the website traffic and the extent of the disclosure (whether it is partial or total) in order to assess whether it has become generally known among the relevant circles.1686 However, these factors should be viewed as mere guidelines with no normative value. Indeed, affording normative val- 1681 Recital 27 TSD. 1682 Elizabeth A. Rowe 2007 (n 1515) 36. 1683 See Article 4(4) TSD and 13(3) TSD and Recital 29. 1684 As analysed in chapter 3 § 5 C) III. 2. c). 1685 Similar views are expressed by Roger M. Milgrim 2014 (n 160) § 17.03 15 who notes that “publication on the Internet does not necessarily terminate trade secrets status; inasmuch as trade secret statues is an intense question of fact (…) the factual question must be answered as to whether as a matter of fact the matter is readily available or ascertainable”. 1686 Pamela Samuelson, ‘Reverse Engineering Under Siege’ [2002] 45 Commmunications of the Association Computing Machinery 15, text acomanying footnote 7. § 4 Deconstructing secrecy 357 ue to such a test would disregard the essentially factual nature of secrecy. On the contrary, considering every single publication on the Internet as secrecy destroying would amount to an absolute test of secrecy, ignoring the principle of inaccessibility that is supported in all of the jurisdictions studied and disregarding whether the trade secret holder has control over the subsequent use and disclosure of the information concerned. As regards the third factor propounded by Rowe, it should be noted that the liability of third parties is in fact regulated under Article 4(4) TSD following a gross negligence standard, in line with footnote 10 of Article 39 TRIPs. Therefore, it seems unreasonable to enforce generally known information against third parties that consult a webpage without knowledge or reason to know the illicit source of the information. To hold otherwise would upset the balance between formal IPRs and non-formal information. Limited content: combination secrets Frequently, trade secrets consist of a number of elements, some of which (if not all) are part of the public domain. However, this does not necessarily preclude the application of trade secrets liability rules in the case of misappropriation. Courts in the US,1687 England1688 and Germany1689 have acknowledged the existence of so-called “combination secrets”, which have been defined as “a multi-element claim that, when valid, ties non-secret items of information together in a unique manner to form a trade secret”.1690 This concept presents clear parallelisms with the definition of a database provided in Article 1(2) of the Database Directive, which refers to them as the “collection of independent works, data or other materials arranged in a systematic or methodical way and individually accessible by electronic or other means”. Hence, combination secrets can constitute the object of a database protected both under copyright and the sui generis right, provided that the requirements of protection under both regimes are met. However, the database sui generis legal regime also foresees that the lawful user shall be entitled to extract “insubstantial parts” of its contents, 5. 1687 Merck v. Smithkline Beecham Pharm Co., No. C.A. 15443-NC (Del. Ch 1999). 1688 Under Water Welders & Repairers Ltd v Street and Longthorne [1968] RPC 498 (QB), 506-507. 1689 BGH GRUR 1966, 576 ‒ Zimcofot. 1690 Charles Tait Graves and Brian D. Range, ‘Identification of Trade Secret Claims in Litigation: Solutions for a Ubiquitous Dispute’ [2006] 5 New J of Technology IP 68, 77. Chapter 4. Mapping the notion of secrecy 358 which may compromise the secret nature of the information and consequently, its elegibility for protection as a trade secret.1691 The protection of combination secrets is in line with Article 39(2)(a) TRIPs, which stipulates that information is secret if it “is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible”. Thus, following the wording of TRIPs, which has also been incorporated into Article 2(1)(a) TSD, the assembly of individually known components can also constitute the object of a trade secret.1692 In the following sections, several cases concerning combination secrets in the U.S. (section a), England (section b) and Germany (section c) are examined. Next, drawing from such an analysis, a number of interpretative principles regarding the protectability of combination secrets are formulated, with the purpose of finding an equilibrium with the public domain boundaries in the interests of competition, innovation and employee mobility (section d). 1691 Chapter 1 § 3 A) IV. 1. 1692 Gerald Reger 1999 (n 553) 362; surprisingly, the definition set out in § 2(1) of the proposed German Trade Secrets Act (“Entwurf eines Gesetzes zur Umsetzung der Richtlinie (EU) 2016/680 im Strafverfahren sowie zur Anpassung datenschutzrechtlicher Bestimmungen an die Verordnung (EU) 2016/679)”) is more restrictive than the one followed by Article 2(1)(a) TSD. The German legislator has stipulated that information is secret when it is “neither as a body nor 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”. According to the German definition, to merit protection, information must not be generally known as a body and in its individual components simultaneously. Consequently, both requirements are cumulative under German law, and not alternative, as laid down in the TSD and TRIPs. As a result of such a narrow definition, the possibility of protecting combination secrets in Germany may be excluded in the future, because to be secret information needs to be unknown as a whole and in its individual elements, irrespective of whether the aggregation of individual components, such as data, results in a new and unknown entity; see further Luc Desaunettes, Reto M. Hilty, Roland Knaak, Annette Kur, ‘Stellungnahme zum Referentenentwurf eines Gesetzes zur Umsetzung der Richtlinie (EU) 2016/943 zum Schutz von Geschäftsgeheimnissen vor rechtswidrigem Erwerb sowie rechtswidriger Nutzung und Offenlegung vom 17. April 2018’ (2018), para 7 and 8 accessed 15 September 2018. § 4 Deconstructing secrecy 359 U.S. The origin of the protection of combination secrets in the U.S. can be traced back to the end of the XIX century. It emerged as a result of the intersection between labour law and trade secrets protection, after several courts refused to grant injunctions against former employees on the basis that the information for which protection was sought was in fact part of the public domain.1693 In turn, plaintiffs usually counter-claimed that the combination of known elements deserved protection because of the new results and utility produced by the specific combination of such elements.1694 Since the end of the XIX century, the concept of combination secrets has been incorporated into the four main sources of trade secrets law in the U.S and has given rise to a rich body of case law: the Restatement (First) of Torts;1695 the Uniform Trade Secrets Act;1696 the Restatement (Third) of Unfair Competition1697 and more recently the DTSA of 2016.1698 Most frequently, when deciding on the protection of combination secrets, courts have been confronted with the issue of deciding whether the alleged combination is common among industry members and consequently should be deemed “generally known” or instead deviates sufficiently from such practices to merit protection as a discrete entity.1699 a) 1693 See Charles Tait Graves and Alexander Macgillivray 2004 (n 699) 267 with further references. 1694 Eastman Co. v. Reichenbach, 20 N.Y.S. 110 (1892). 1695 See Restatement (First) of Torts § 757 (Am. Law Inst. 1939) comment g, where it is noted that trade secrets may consist of a “compilation”. Notably, the comment does not provide further guidance regarding the circumstances under which said “compilations” may be protected. 1696 UTSA § 1(4) defining trade secret as a “formula, pattern, compilation, program, device, method, technique or process” (emphasis added). 1697 Restatement (Third) of Unfair Competition §39 (Am. Law Inst. 1995) comment f: “It is the secrecy of the claimed trade secret as a whole that is determinative. The fact that some or all of the components of the trade secret are wellknown does not preclude protection for a secret combination, compilation, or integration of the individual elements”(emphasis added). 1698 18 U.S.C. § 1839 (3) defining the term trade secrets as: “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing (…)” 1(emphasis added). 1699 Charles Tait Graves and Alexander Macgillivray 2004 (n 699) 271-272. Chapter 4. Mapping the notion of secrecy 360 For instance, in 2002 the Supreme Court of Arkansas ruled in favour of Wal-Mart Inc. in a case that involved the alleged misappropriation of a trade secret by the U.S. multinational retail corporation.1700 In 1992 the legal representative of the plaintiff (“The P.O. Market Inc.”) approached a manager of a Wal-Mart store regarding an idea to execute bulk credit transactions, which essentially consisted of transferring the risk of non-payment of wholesale orders to the plaintiff, an intermediate company that would place the orders to Wal-Mart Inc. on behalf of the customers.1701 In 1992, a number of meetings between the representatives of The P.O. Market Inc. and Wal-Mart Inc. took place under strict confidentiality but eventually the negotiations broke off.1702 In 1993 the Wall Street Journal published an article in which it described a new purch