Trade Secrets

Author Definition

Definition

A trade secret is information that has commercial value to an organization due to its secrecy, is not known outside of the organization, and the continuing secrecy of which the organization has taken reasonable measures to protect. Trade secrets may include information embodied in documents, electronic records, products and other media, as well as information known to individuals. The EU and some other jurisdictions exclude from the definition of trade secrets trivial information or experience/skills gained by employees during the normal course of their employment and information that is generally known among, or is readily accessible to, persons within the circles that normally deal with the kind of information in question.

Commentary

A Form of Intellectual Property

Though information, per se, has often been considered to be beyond the reach of property law, trade secrets have, at least in the U.S., been recognized as a form of intellectual property (see Kewanee v. Bicron (U.S. 1974), Rockwell v. DEV (7th Cir. 1991), U.S. v. DuPont (D. Del. 1953)).

Codification of Trade Secrecy Laws

Prior to the 1970s, the unauthorized acquisition and use of another’s secret information in the United States and Europe was actionable under a variety of common law and statutory theories including property, contract, bailment, trust, unfair competition, and unjust enrichment (Bone, 1998; Graves, 2013). Article 10bis of the 1967 revision of the Paris Convention for the Protection of Industrial Property requires member states to provide protection against acts of unfair competition, which include “any act of competition contrary to honest practices in industrial or commercial matters”, but the Convention does not mention secret information specifically.

In 1979, after a decade of deliberation, in the U.S. the National Conference of Commissioners on Uniform State Laws adopted the text of the Uniform Trade Secrets Act (UTSA), a model statute proposed for adoption in the individual U.S. states. As of May 2023, the UTSA has been adopted, in some form, by all U.S. states except New York (which continues to recognize trade secrets under its common law). At the U.S. federal level, the 1996 Economic Espionage Act (EEA) created criminal liability for the theft of trade secrets, though relatively few prosecutions have been brought. Given perceived inadequacies of the EEA, in 2016 Congress enacted the Defending Trade Secrets Act (DTSA) (18 U.S.C. § 1836 et seq.), a general civil trade secrecy statute modelled on the UTSA.

In 2016, the European Union also adopted a trade secrecy directive in order to harmonize inconsistent national regimes (Directive No. 2016/943, Directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure). Trade secrets are also addressed, albeit briefly, in Article 39 of the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), on which the EU Directive is largely based (Niebel et al. 2018).

Trade Secrets Distinguished from Other Confidential Information and Know-How

While all trade secrets are confidential, not all confidential information qualifies for trade secret protection (Graves, 2013). For example, trade secrets must generally have commercial value. Accordingly, private information held by organizations concerning, for example, employee health conditions or retirement savings, or much of the personal information contained in corporate email correspondence, would often fail to qualify as trade secrets. In addition, information that may be accessible from sources outside the organization may still be considered confidential by an organization and thus subject to contractual confidentiality obligations without legal trade secret status.

Protection Measures

In most jurisdictions, a condition for trade secrecy protection is that the owner took reasonable measures to ensure the continued secrecy of trade secret information. Yet few statutes offer significant guidance regarding the types of measures that will qualify as reasonable. Among the measures recommended by commentators to preserve the trade secret status of an organization’s information are: establishing a written policy detailing the organization’s means for handling trade secrets, identifying and documenting trade secrets, valuing and classifying trade secrets based on their relative values, appropriately marking documents containing trade secret information, implementing trade secrecy procedures in employee and third party agreements, designating a trade secret protection officer, implementing physical and technical security measures to limit access to secret information, tracking access and use of trade secret information and conducting thorough entry and exit interviews of employees (Nachtrab 2019).

Duration

Unlike other forms of intellectual property that have specified durations (e.g., 20 years for patents, and the life of the author plus 70 years for copyrights), trade secrets have no defined expiration. Rather, they retain their protected status for so long as the necessary conditions for trade secrecy are satisfied. It is for this reason that the famous formula for Coca-Cola has allegedly remained a trade secret for more than 130 years.

Misappropriation

Most trade secrecy laws give the owner of a trade secret a civil remedy for the unauthorized acquisition, use or disclosure of a trade secret (often referred to as “misappropriation”). Under the USTA and DTSA, misappropriation may be found if information is acquired by “improper means”, which includes “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.” Article 39(1) of the TRIPS Agreement and the EU Directive speak, rather, in terms of the acquisition of information in a manner that is “contrary to honest commercial practices,” which includes “breach of contract, breach of confidence and inducement to breach, and includes the acquisition of undisclosed information by third parties who knew, or were grossly negligent in failing to know, that such practices were involved in the acquisition.”

Permitted Acquisitions and Disclosures of Trade Secrets

In general, the following means of acquiring information are not considered to constitute trade secret misappropriation: independent invention; "reverse engineering" (starting with a known product and working backward to find the method by which it was developed); discovery under a license from the owner of the trade secret; observation of an item in public use or on public display; or from published literature. Article 5 of the EU Directive sets out additional exceptions when a trade secret is acquired or disclosed (a) in support of the right to freedom of expression and information, including freedom and pluralism of the media; (b) for revealing misconduct, wrongdoing or illegal activity; (c) by workers to their labor representatives; or (d) for the purpose of protecting a legitimate interest recognised by the EU or national law.

Compulsory Licensing of Trade Secrets

Trade secrets are not covered by the compulsory licensing provisions of Article 31 of the TRIPS Agreement, which relates solely to patents. Beginning in 2020, trade secrets attracted significant global attention in the debate over manufacturing technology for COVID-19 vaccines. Commentators observed that, even without patent barriers, the manufacture of advanced biological products would not be feasible without significant transfers of secret manufacturing knowledge by current producers (Levine and Sarnoff, 2023). These observations led to calls for governmental intervention and potential compulsory disclosures of manufacturing know-how (ibid.).

Case references

Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 478 (1974)

Rockwell Graphic Sys., Inc. v. DEV Indus., 925 F.2d 174, 180 (7th Cir. 1991)

United States v. E.I. du Pont de Nemours & Co., 118 F. Supp. 41 (D. Del. 1953)

Bibliography

Robert G. Bone, ‘A New Look at Trade Secret Law: Doctrine in Search of Justification,’ (1998) 86 California Law Review 241

Charles Tait Graves, ‘Trade Secrecy and Common Law Confidentiality: The Problem of Multiple Regimes’ (2013) in Rochelle C. Dreyfuss & Katherine J. Strandburg, The Law and Theory of Trade Secrecy: A Handbook of Contemporary Research 75 (Edward Elgar)

David S. Levine, Joshua D. Sarnoff, ‘Compelling Trade Secret Sharing’ (2023) 74 Hastings Law Journal 987

Kevin Nachtrab, ‘Protecting Organizational Trade Secrets In View Of The EU Trade Secrets Directive’ (2019) 54(3) Les Nouvelles 232

Rembert Niebel, Lorenzo de Martinis, Birgit Clark, ‘The EU Trade Secrets Directive: all change for trade secret protection in Europe?’ (2018) 13 Journal of Intellectual Property Law & Practice 445

Institution Definition

According to article 2 of the Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure : "‘trade secret’ means information which meets all of the following requirements: (a) it 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) it has commercial value because it is secret; (c) it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret" © European Parliament and Council of the European Union

Case Comments

Alain Ronzano Business secrets: The French Competition Authority publishes a redacted version of Decision N° 19-MC-01 and withdraws the one that disregarded the protection granted to business secrets by the general reporter (Amadeus / Google)

It took more than twelve days for the Competition Authority to comply... On June 29, 2022, taking note of the judgment of the Paris Court of Appeal of June 16, 2022 ordering it to withdraw the version of the decision on interim measures published on January 31, 2019 on its website as well as (...)

Alain Ronzano Business secrets: The Paris Court of Appeal orders the Authority’s College to respect the protection of business secrecy granted by the Reporter General and enjoins it to republish its decision on interim measures against Google in order to conceal its business secrets (Google)

On June 16, 2022, after more than three years of proceedings concerning the sole question of the competent jurisdiction to hear a request made by a respondent company to order the Authority to republish a decision in order to conceal business secrets, the Google companies finally obtained a (...)

Christophe Lemaire, Marie Florent Business secrecy: The Paris Court of Appeal orders the French Competition Authority to publish a new version of a decision in order to hide certain information protected as business secrets by decision of the Reporter General (Google)

On June 16, 2022, the Paris Court of Appeal, a court designated as having jurisdiction by the Tribunal des conflits after three years of proceedings (on the procedure for designating the competent court, see Christophe Lemaire, Adèle Azzi, Secret des affaires: The Conseil d’Etat declines (...)

Alain Ronzano Competence: The French Supreme Court refers to the Court of Conflicts, after the Court of Paris has declined jurisdiction to hear challenges to the Competition Authority’s communication policy on its contentious decisions, the task of deciding on the competent court order (Roche)

When the French Competition Authority practices "name and shame",... the Commercial Chamber of the Court of Cassation, hesitating on the order of jurisdiction to deal with a possible challenge of the communication outside the framework of the Authority, decides to refer to the Court of (...)

Jean-Michel Vertut Investigations and confidentiality: The French Suprem Court considers that the confidentiality of contracts accessed during an investigation and used as a support of the request for an authorization to conduct a dawn raid investigation does not allow to cancel the authorization thus given (Autorité de la concurrence / Swarovski France)

Cet article a fait l’objet d’une première publication dans la Lettre de la distribution publiée par le Centre du Droit de l’Entreprise de l’Université de Montpellier. Faits et procédure. Aux fins d’établir si la société Swarovski France et des sociétés du même groupe se livraient à des (...)

Jean-Louis Fourgoux Transposition : The French Government adopts the ordinance transposing Directive (EU) 2019/633 of 17 April 2019 on unfair commercial practices in business-to-business relations within the agricultural and food supply chain, so that it is applicable to relations between suppliers and purchasers in this chain, without a turnover requirement

The ordinance amends the Commercial Code on the form of agency contracts known as NIPs (Art. L. 441-4, VII and L. 443-2, I. para. 2 C. com.), on payment periods for perishable agricultural and food products which may not exceed 30 days after the date of delivery or, in the case of periodic (...)

Christophe Lemaire, Marie Florent Exchange of documents: The French Government adopts a decree setting up a secure platform for the exchange of electronic documents in proceedings before it

On June 8, 2021, the French Competition Authority (Autorité de la concurrence) announced the implementation of a platform to ensure the secure exchange of electronic documents in the context of proceedings before it. This platform, called Hermès, is intended to be used for both merger control (...)

Muriel Chagny Business secrets: The Paris Court of Appeal rules on the protection of business secrets contained in a writ relating to restrictive practices law (ITM Alimentaire International)

Law No. 2018-670 of July 30, 2018, transposing into French law the Directive of June 8, 2016 (EU Directive 2016/943 of June 8, 2016 on the protection of undisclosed know-how and commercial information against unlawful obtaining, use and disclosure), has undoubtedly marked a decisive step on (...)

Sibylle Chaudouet Franchising: The French Supreme Court puts the rendering of account of the agent to the test of the burden of proof (N2DC, N2DCb / Alain Afflelou franchiseur, L’Opticien Afflelou)

Facts One of the Afflelou group’s companies acts as a central purchasing agent for two franchised companies under franchise and management-agent contracts. The latter companies claim that the central purchasing office has not returned to them all the advantages negotiated on their behalf (...)

Alain Ronzano Rights of defense: The Criminal Chamber of the French Supreme Court recalls that the exemption from seizure of lawyer-client correspondence presupposes that the document is related to the exercise of the rights of defence of the company visited, prohibiting any systematic withdrawal of such correspondence (Au vieux campeur)

By judgment of 25 November 2020 With regard to the carrying out of visits and seizures, the Criminal Chamber of the Court of Cassation confirmed the principle, which was recently reiterated in another ruling of the same formation dated 4 March 2020, according to which, if lawyer-client (...)

Articles

Geneviève Rigolot, Pascal Wilhelm Disclosure and business secrecy (3rd Private Enforcement Conference: The current state of private enforcement in the EU and France - Paris Court of Appeal, March 28th, 2019)

Practices of the Commercial Court of Paris with regard to the search for evidence Geneviève Rigolot President, Chamber of Competition, Paris Commercial Court For a long time, the Paris Commercial Court has endeavored to improve the procedures by which a litigant can search for the (...)

Florian Wagner-von Papp, Frank Kroes, Jochen Bernhard, Laurence Idot, Marcella Negri Disclosure of documents that lie in the control of the parties (Implementation of the EU Damages Directive into Member State law - Würzburg, May 5, 2017)

Article 5 of the Damages Directive requires Member States to enable courts to order disclosure of evidence under certain qualifying conditions, while protecting the rights of parties and third parties, in particular confidential information. This is an area in which common law jurisdictions (...)

Alexander Italianer, Bruno Lasserre, Louis Vogel, Marc Jaeger Exchange of confidential information in private competition law enforcement (10 ans d’application du règlement 1/2003 et de la loi luxembourgeoise relative à la concurrence, Luxembourg-Kirchberg, 6 juin 2014)

This collection of articles broaches the sensitive topic regarding exchange of confidential information in private competition law enforcement. Issues deriving from this subject were tackled at the roundtable moderated by the President of the EU General Court, M. Marc Jaeger, on the occasion (...)

Thomas Sely Internal investigations : Keeping data and risk under control

Internal investigations may include an electronic documents review component to better detect corporate wrongdoings such as anti-competitive behavior. However, in France and other European countries, handling corporate electronic data may raise many issues related to labor law, privacy and (...)

Events

Dominique Gilles, Gildas de Muizon, Nathalie Dostert, Mélanie Thill-Tayara, Anne-Sophie Choné-Grimaldi Private Enforcement #3 Assessment of damages, passing on…

3rd Webinar of the « 5th Private Enforcement Conference » organised by Concurrences, in partnership with Dechert and Deloitte, with Anne-Sophie Choné (Professor, University Paris Nanterre), Dominique Gilles (Counsellor, Paris Court of Appeal), Gildas de Muizon (Partner, Head of the Economic Advisory practice, Deloitte), Nathalie Dostert (Vice President, Paris Commercial Court) and Mélanie Thill-Tayara (Partner, Dechert).

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