Protecting the currency of the knowledge economy:

Posted by Simon Stokes on

Reverse engineering and why businesses need to prepare now for the new EU Trade Secrets Directive

Background

Just before Christmas political agreement was reached on the text of the new EU Trade Secrets Directive.  It is expected that the agreed text will be adopted shortly.  Member states will then have two years to implement it.  Most likely the UK will do so by Regulations under the European Communities Act 1972 but this has yet to be decided. 

What is a trade secret?

The Directive is a harmonising measure to ensure trade secrets – described in the Directive as the "currency of the knowledge economy" – are uniformly protected and enforceable across the EU.  It will introduce a new definition of a "trade secret" into English law which we can expect the courts including the European Court of Justice to opine on in due course.  The definition is not dramatically different from how English law would define what is protected by the common law of confidence – under the new definition a trade secret is 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; and
  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.

This is a broad definition and includes commercial information – business plans, customer lists, etc as well as technical information and know how.

The Directive shies away from defining trade secrets as intellectual "property" – they aren't (at least as far as the Directive is concerned).  But as long as the information in question satisfies the above three conditions then trade secret "holders" (the person or company controlling the trade secret) has the right to prevent or obtain redress for the unlawful acquisition, use or disclosure of their trade secret.  The Directive goes into some detail as to the "measures, procedures and remedies" a trade secret holder has – the right to an injunction, damages and so on.

So far so good.

Reverse engineering permitted

However one aspect of the Directive raises eyebrows.  Reverse engineering is permitted as long as the product or object in question has been made available to the public or is lawfully in the possession of the acquirer of the information, who is free from any legally valid duty to limit the acquisition of the trade secret.  In other words it is OK to reverse engineer a product unless you are prohibited by contract from so doing or unless to do so would infringe another intellectual property right (a patent, a copyright, a design right for example).

Practical steps for business

The message of the Directive is clear:

1. Preventing reverse engineering and copycat products: If you want to protect your products from reverse engineering and infringing copies you can't rely on trade secret law.  Instead you will need to explore other options – encryption of code for example, binding users to contractual prohibitions on reverse engineering where you can (remembering that such restrictions may not be lawful e.g. in respect of certain acts in relation to software),  and exploring other forms of IP protection – patents, copyrights, designs, for example.

2. Contract is crucial: The Directive makes clear that restrictive covenants, non-compete obligations and other contractual restrictions are not affected by the Directive.  Nor does the Directive prevent businesses applying a higher standard of protection in NDAs, and in employment contracts for example.  So whatever the ambiguities and loopholes in the Directive businesses should be drafting appropriate restrictions in their contracts of employment, NDAs and IP/know how licences, taking legal advice to ensure they are enforceable.

3. Don't forget intellectual property rights:  The Directive makes clear it does not affect IP rights.  So patents, trade secrets, designs and trade marks to the extent applicable are all additional protections business will want to consider as they ensure the "currency of the knowledge economy" is not debased or counterfeited.

For further information on how to protect and exploit trade secrets and prevent copycat products contact Simon Stokes or another member of the Blake Morgan IP team.

About the Author

Leading the firm's technology practice in London, Simon specialises in information technology law, including outsourcing, cloud services, protecting software IP and licensing of market leading data analytics software.

Simon Stokes
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