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

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

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

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

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

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

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

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

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

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

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

• As in England, explained David Por, bringing a claim against an importer to prevent importation of goods manufactured through misappropriation of trade secrets would not be possible under French law, if the importer was operating at an arm’s length basis. A claim might be possible against the manufacturer himself (even if a separate importer was involved), but the effective enforcement of the ruling could be difficult.
• A claim to prevent importation of ‘infringing goods’ would also be difficult in the Netherlands under its current regime, Frits Gerritzen explained. Trade secrets in the Netherlands are protected through the general law of tort, but it remains to be seen whether an importer, operating on an arm’s length basis from the manufacturer, could be found to commit a tort. That would seem like a hard thing to prove.
• The German position is similar to the French and Dutch. Whilst actions for breach of confidence in Germany are by and large efficient and not overly onerous, Jens Matthes considers that an action against a downstream customer would be much more difficult. Such a claim would be possible in theory, but in practice it would be challenging to present sufficient evidence to bite upon the importer (‎unless there was already a court decision against the manufacturer). As such, the proposed Directive would improve the position in Germany by lowering the threshold for judges to accept such a claim.

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

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