Draft legislation on the protection of trade secrets leaked

06.04.2018

It is particularly ironic that it was specifically the draft legislation on the protection of trade secrets that has been “leaked,” so that the wording of the law is now “generally known and readily accessible” as specified in Art. 2(1)(a) of EU Directive 2016/943 on which Act on the Protection of Trade Secrets is based. According to the definition in Section 1 of the Act , the wording of the Act can therefore no longer be a “trade secret,” so that the question of whether the Federal Ministry of Justice and Consumer Protection has taken “reasonable steps to keep the information secret” is no longer relevant.

In contrast, this question will play a decisive role (in legal disputes) in the future. As the grounds of the Act in this issue are showing, that reasonable steps by the person lawfully in control of the information to keep it secret are one of the mandatory requirements to claim protection under the Act. The trade secret holder must therefore prove in the future that physical access restrictions, as well as other precautions and contractual security mechanisms were established and that he has complied with these measures. The type and extent of the measures to be taken depend on what type of secret information is involved, how important (i.e., how valuable) the information is for the secret holder, in what way his other trade secrets are protected and identified and how secrets are contractually protected otherwise.

As far as current corporate practices are concerned, reconsideration and actions will be required in comparison to the current legal situation, where the holder’s will to secrecy is still presumed, thus calling for a rather manageable effort to prove to the court that the disputed information falls under the (probably soon abolished) Section 17 Act Against Unfair Competition. In the future, the sharp sword of trade secret protection will only be afforded to those who can firmly prove that the technical, organizational and legal measures taken were sufficient in view of the intrinsic value of their secrets.

The Act on the Protection of Trade Secrets leaves no doubt that the future protection of secrets is a sharp sword and will be comparable with (other) IP rights (patents, trademarks, designs, copyrights, etc.). The provisions of the underlying Directive (EU) 2016/943 are consistently implemented by defining permissible and non-permissible forms of handling trade secrets in Sections 2 and 3 (reverse engineering is permitted; obtaining information by copying is prohibited, for example). In Part 2, the draft of the Act reflects the range of claims (injunctive relief, information, damages, recall, destruction) already known from the Enforcement Directive in the field of IP rights. In combination with the definition of the “infringing product,” this means that in the future products can be taken off the market not only where their characteristics, function, or manufacture are based on breach of secrecy, but also where information thieves have plagiarized the product marketing. Will this be a new lever for the creative and advertising sectors?

As the underlying Directive (EU) 2016/943 had already suggested, consistent protection of trade secrets in court proceedings was not created. While Sections 14 - 20 of the Act provide for certain confidentiality measures, both parties always retain full inspection rights in court, although this is not required by the right to be heard as secured by the fundamental rights. The EUR 1,000 maximum fine provided for in Section 16 for breaches of the duty of confidentiality is a blunt sword, as it can be easily “priced in,” especially when obtaining and using particularly valuable information.

The exclusive legal venue at the place of the defendant’s registered office, provided for in Section 14, is unpleasant from the point of view of secret holders. Despite the authorization of German state governments to concentrate judicial powers, in many cases this will cut off the path to the specialized courts via Section 32 Code of Civil Procedure.

Ultimately, the draft is almost a mirror image of the underlying EU Directive with little ambition to exceed it. It remains to be seen what changes the draft text will undergo in the legislative procedure.

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