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The Trade Secrets Regulations 2018

20 August 2018

On 9 June 2018 The Trade Secrets (Enforcement etc) Regulations 2018 came into force in the United Kingdom.

Implementing the European Union’s Directive (EU) 2016/973 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure (somewhat more succinctly known as the Trade Secrets Directive) the Regulations represent the first time the UK Parliament has legislated in this sphere.

Domestic law

The pre-existing body of law for the protection of trade secrets had developed organically through case law in the past two centuries.

In the 1969 case of Coco, Megarry J identified the elements of the court’s equitable jurisdiction to protect confidential information, upon which the domestic regime for the protection of trade secrets had been based.

These elements were that the claimant must prove:

  1. The information was confidential;

  2. The circumstances imposed an obligation of confidence; and

  3. There was unauthorised use of that information.

The Trade Secrets Directive

Member states’ respective regimes for the protection of trade secrets have historically varied widely across the EU.

The objective of the Trade Secrets Directive is “to achieve a smooth-functioning internal market by means of the establishment of a sufficient and comparable level of redress across the internal market in the event of the unlawful acquisition, use or disclosure of a trade secret”.

In other words, it seeks to clarify the legal situation by establishing a minimum level of protection across the EU.

The Regulations

The definition of "trade secret" for the purpose of the Regulations mirrors identically that of the Directive, and means information which:

  1. “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,

  2. has commercial value because it is secret, and

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

In simple terms, this means that to enjoy the protection of the legislation, the information must be secret, have commercial value because it is secret and have been subject to reasonable steps to keep it secret.

Whilst this may be a narrower definition than that of confidential information as identified in Coco, it is arguably a broader definition of a trade secret than was established in cases such as Faccenda Chicken v Fowler [1984], which held that a confidential information required a “sufficiently high degree of confidentiality” to amount to a trade secret.

Relationship of Regulations to existing law

The new Regulations are intended to sit alongside existing law, rather than to replace it. This is expressly addressed in regulation 3, which provides that:

  1. The acquisition, use or disclosure of a trade secret is unlawful where the acquisition, use or disclosure constitutes a breach of confidence in confidential information.

  2. A trade secret holder may apply for and a court may grant measures, procedures and remedies available in an action for breach of confidence where the measures, procedures and remedies -

    1. Provide wider protection to the trade secret holder than that provided under these regulations…

    2. Comply with the safeguards referred to in Article 1 of [the Directive].
  3. A trade secret holder may apply for and a court may grant measures, procedures and remedies available in an action for breach of confidence where the measures, procedures and remedies -

Regulation 3 means that claims under existing breach of confidence law are likely to be brought alongside the new statutory cause of action.

Of particular relevance in the context of employment law, the safeguards referred to in Article 1 include that the Directive shall offer no ground for:

  1. limiting employees’ use of information that does not constitute a trade secret…

  2. limiting employees’ use of experience and skills honestly acquired in the normal course of their employment

Whilst neither the Directive nor the Regulations offer ground for limiting employees’ use of information falling short of the definition of a trade secret, nor does it preclude employers from protecting lesser confidential information using the existing regime of post-termination restrictive covenants.

The latter safeguard, that the Directive offers no grounds for limiting employees’ use of experience and skills honestly acquired in the normal course of their employment, mirrors the pre-existing position in English law. Cases including FSS Travel & Leisure Systems v Johnson [1997] have established that courts will not prevent an employee from using know-how acquired during the course of employment, even though it may be useful to a competitor.

Remedies

With regard to remedies, the Regulations provide for the court to make various interim and final measures, including injunctions prohibiting the unlawful activity and seizure or delivery up of the infringing goods.

Damages can also be claimed and are to be assessed by reference to the actual prejudice suffered as a result of the unlawful acquisition, use or disclosure of the trade secret. To this end the courts must take a multi-factorial approach, considering in particular:

  • lost profits suffered by the trade secret holder
  • unfair profits made by the infringer, and
  • moral prejudice caused to the trade secret holder

The court may, where appropriate, award damages on the basis of fees that would have been due had the infringer obtained a licence to use the trade secret in question – otherwise known as Wrotham Park damages or “negotiating damages”.

Limitation

The limitation period for a claim under the Regulations is six years from the later of the date of the cessation of the unlawful use of the trade secret or the day the trade secret holder becomes aware of the unlawful use.

Comment

The Regulations may have a less significant impact on English law than it will have in other member states which had less sophisticated pre-existing domestic regimes for the protection of confidential information.

However, there is likely to be a great deal of case law at both domestic and European level around whether particular information meets the definition of a “trade secret” for the purpose of the Regulations.

In the employment sphere, the Regulations offer another potential cause of action to businesses whose employees unlawfully acquire, use or disclose information meeting the definition of a “trade secret”.

By Will De Fazio-Saunders

For further advice on the above topics, please call us on 01483 543210 or alternatively email enquiries@barlowrobbins.com

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