14 December 2017

Dutch proposal implementing European Trade Secrets Directive published

The Dutch legislature recently published its proposal for a new act on the protection of trade secrets which implements the European Trade Secrets Directive. The implementation deadline of this directive is 9 June 2018.

Proposal highlights include allowing IP-style remedies to be used for trade secret protection, also against “infringing goods” and companies that should have known trade secrets were being misappropriated. An omission from the proposal, however, is a provision for an IP-style seizure of evidence (although case law allows for this in the Netherlands).

We recommend that companies have a trade secret strategy in place, implement measures to prevent trade secret issues from arising, and become aware of how they can enforce trade secrets in court. The need for companies to implement effective methods for dealing with trade secrets has become even more pressing in light of new EU and US legislation.

The European Trade Secrets Directive

Trade secrets are an important asset for all businesses as they are at the core of their competiveness. Trade secrets can be technical, such as a certain process, or commercial, such as client lists and business strategies.

The European Trade Secrets Directive (EUTSD) provides for minimum harmonisation, which means member states have the discretion to apply stricter rules than those imposed by the EUTSD. The deadline for implementation is 9 June 2018. We reported on this in previous In context editions (here and here). As far as we are aware, member states busily drafting and amending their national laws at the moment include Denmark, Sweden, Finland and the Netherlands.

Trade secret protection is not an absolute right. Under the EUTSD, the requirements for enforcement are: (i) the information is “secret”, (ii) the information brings a competitive advantage, and iii) the information has been subject to reasonable measures, under the circumstances, to keep it secret. Moreover, trade secrets can only be enforced against third parties that have misappropriated the trade secrets: for example, an employee walking away with trade secrets and becoming the employee of a competitor, which then uses the trade secrets in a product. As long as the third party has acquired the knowledge lawfully (for example, by independent discovery), there can be no issue of trade secret infringement.

While trade secret protection has for years been part of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) as an intellectual property right, several countries have failed to properly protect trade secrets. Now, with the EUTSD, an important step has been taken. The provisions on trade secret protection are harmonised (albeit minimum harmonisation) in TRIPs and provide:

  • a standard of eligibility for trade secret enforcement
  • IP-style remedies (except evidentiary seizures and awards for full legal costs)
  • confidentiality in trade secret litigation

Dutch Trade Secrets Protection Act

The Dutch legislature published its proposal for a new act on trade secret protection in the Netherlands in November 2017. Currently, the proposal is under debate and subject to amendments. The Dutch legislature has substantially copied several provisions of the EUTSD and placed them directly into the Dutch proposal. The explanatory memorandum of the Dutch proposal explains which EUTSD provisions have been included in the act itself – these will become the new articles 1019ia-d (specific enforcement provisions) BW or 3:310 BW – and which EUTSD provisions have not been implemented specifically, as these provisions are deemed to already exist.

The proposal confirms that certain IP-style remedies are already available for trade secret protection, including injunctions, recalls and damages. What is new, however, is that actions can now also be taken against third parties for misappropriation where that party did not know, but should have known, about the misappropriation, or was made aware of the misappropriation. Furthermore, action can be taken against infringing goods that “significantly benefit” from the misappropriation. According to the explanatory memorandum, action could also be taken against an importer who knew about the misappropriation in another country,

The Dutch proposal does not include any provisions on an IP-style seizure of evidence. Instead, the explanatory memorandum refers to a Dutch Supreme Court decision, which states that an evidentiary seizure is also possible in disputes other than IP disputes. Arguably, the framework for an evidentiary seizure outside the scope of an IP dispute is not the same as it is for an IP dispute, so this may give rise to some uncertainty about which possibilities are, in fact, available. This is unfortunate, as in trade secret cases, evidence is often even more important than it is in IP cases; this relates to the fact that trade secret protection is not an absolute right. Independent discovery and reverse engineering (unless contractually limited) are lawful means of acquiring a trade secret. The proprietor should be able to show that its trade secrets were in fact misappropriated.

Considering this background, a deficiency in the EUTSD is its lack of provisions on evidentiary seizure. Such provisions are included in the EU Enforcement Directive. However, in most countries – such as the Netherlands – the provisions of this Directive are not held to apply to trade secrets. Whether such evidentiary seizure measures are possible in a certain jurisdiction will thus depend on existing provisions in member states, and on how they implement the EUTSD. Denmark is reported to be implementing the EUTSD in such a way that evidentiary seizures will be specifically possible in trade secret cases. Even so, the availability of evidentiary seizure in trade secret cases will likely play a role in forum-shopping.

What should your company do?

Following the EUTSD and US legislation on trade secrets, many companies have already reconsidered their trade secret strategy. This includes determining “ownership” within the company and creating awareness. Moreover, specific policy considerations include:

  • addressing issues which require the interaction of several stakeholders within the company (for example, HR, IT, Legal and IP in the case of mobility of workers)
  • the relationship between trade secrets and patent policy
  • deciding whether to prepare an inventory (and if so how), or not
  • determining who has access to trade secrets on a need-to-know basis (considering both employees and third parties)
  • exercising caution for any contamination (employees, third parties)
  • keeping trade secrets in mind when deciding to publish certain documents
  • ensuring that appropriate legal arrangements are made for all persons and parties that information is or might be shared with; this may range from staff, contractors, freelancers and affiliates to suppliers, business partners and licensees.

Companies should now reconsider with whom they share their trade secrets. Questions that can provide guidance include: where are your core ingredients produced? To whom do you license? Do any of your agreements include a limitation to reverse engineer? Furthermore, give extra consideration to the suppliers you do business with, and on what terms. This is important as your end product could turn into “infringing goods” under the EUTSD, if your supplier misappropriates trade secrets.

If they have not already done so, companies are advised to devise a trade secret protection strategy and incorporate this into their IP strategy. Please do not hesitate to contact us if you need any further help or guidance on the issue.