Checking your Confidentiality Clauses and Agreements for Compliance with the Trade Secrets Directive

Jane Lambert

On 9 June 2018 the Trade Secrets Directive was implemented into English and Welsh, Scottish and Northern Irish law by The Trade Secrets (Enforcement etc) Regulations 2018. I discussed the directive's provisions in The Trade Secrets Directive 7 July 2016 NIPC Law and its implementation in Transposing the Trade Secrets Directive into English Law: The Trade Secrets (Enforcement etc) Regulations 6 June 2018. I also advised that Trade Secrecy Law changes Tomorrow - check your NDA, Standard Terms and other Agreements 8 June 2018 NIPC Inventors Club. In this article I consider the checks that business owners and professional advisers should make to ensure that their contract terms comply with the new law.

References to Confidentiality Agreements in the Directive
The Trade Secrets Directive makes only two references to confidentiality agreements.   Art 4 (3) (b) lists "being in breach of a confidentiality agreement" as one of the circumstances in which the  disclosure of a trade secret without the trade secret holder's consent is to be regarded as unlawful. The other circumstances is being in breach of a contractual duty limiting the use of the trade secret contrary to art 4 (3) (c). It is clear from the context that an obligation neither to use nor disclose a trade secret can arise independently of any contract but such a confidentiality agreement is a good way of putting a confidante on notice and evidencing that he or she is under a duty neither to use or disclose the information.  That is substantially the same as the position before the implementation of the directive.

Is your Trade Secret really a "Trade Secret"?
One of the big changes brought about by the directive and its implementing regulations is that we now have a standard definition of a trade secret.

Reg 2 of  The Trade Secrets (Enforcement etc) Regulations 2018 defines a trade secret as "information which-
(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."

Previously, it was up to the parties to a confidentiality agreement or clause say what they meant by a "trade secret".  In many definitions clauses the meaning of "trade secret" or "confidential information" was extravagantly wide.  It will be up to trade secret holders to show that the information that he or she claims to be a trade secret meets the requirements of reg. 2.  Many of the definitions that I have seen over the years would struggle to do so.

Be aware of the Limits to Trade Secrecy Protection
Before the directive was implemented, an obligation neither to use nor disclose a trade secret was one that was owed by the confidante to his confider.   It could be trumped in certain circumstances.

The same continues to be true under the directive.  Art 2 (b) provides that the directive shall not affect "the application of Union or national rules requiring trade secret holders to disclose, for reasons of public interest, information, including trade secrets, to the public or to administrative or judicial authorities for the performance of the duties of those authorities." That could include a country's tax laws, the enforcement of EU or national competition policy or an application for public funding for research and developments. Conversely, nothing in the directive can prevent "the application of Union or national rules requiring or allowing Union institutions and bodies or national public authorities to disclose information submitted by businesses which those institutions, bodies or authorities hold pursuant to, and in compliance with, the obligations and prerogatives set out in Union or national law." That could cover complying with a request under national freedom of information legislation.

Exceptions
Art 5 of the Trade Secrets Directive requires that an application for relief to be dismissed

where the alleged acquisition, use or disclosure of a trade secret was carried out in any of the following circumstances:
"(a) for exercising the right to freedom of expression and information as set out in the Charter, including respect for the freedom and pluralism of the media;
(b) for revealing misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest;
(c) disclosure by workers to their representatives as part of the legitimate exercise by those representatives of their functions in accordance with Union or national law, provided that such disclosure was necessary for that;
(d) for the purpose of protecting a legitimate interest recognised by Union or national law.

Take Reasonable Steps to keep the Information Secret
By definition a trade secret is such only if reasonable steps have been taken to keep it secret. The measures taken to protect a trade secret are one of the factors to be taken into account when deciding whether to entertain the action pursuant to art 11 (2) (b) or the appropriate relief under art 13 (1) (b).

Reviewing or Drafting NDA or other Agreements
Should anyone wish me to review or draft a confidentiality agreement or provision that would comply with the Trade Secrets Directive, he or she should call me on +44 (0)20 7404 5252 or send me a message through my contact form.