usa

Trade secrets: convergence between Europe and the United States in light of recent legislative reforms

1. Introduction

Until 2018 the correct terminology to be used in Italy for identifying information which, by virtue of its inherent economic value, is kept secret by the company that owns it would have been “confidential information”. Subsequently, Legislative Decree of 11 May 2018, no. 63, modified – among other things – article 98 of the Industrial Property Code (henceforth “IPC”) by substituting the aforementioned expression with “trade secrets”, which is now the currently applicable legal terminology.

The reform of the ICP was made necessary as a result of the implementation in Italy of 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.

The topic of trade secrets is highly relevant for many businesses that in some cases base their entire commercial success on such intellectual assets. Take for example Coca Cola, a product that has had enormous success also as a result of the strategy pursued by the owner of the recipe – the US corporation The Coca Cola Company – who chose to keep secret the formula created by the pharmacist John Pemberton all the way back in 1886 (subject to the innumerable attempts at reverse engineering that have been made in the past 134 years). The Coca Cola recipe may be qualified as a “trade secret” and is often cited by industry experts as a virtuous example of corporate know how.

In this regard the European directive is crucially important within the general context of European industrial property rights inasmuch as it attempts to harmonize the differing trade secrets laws enacted in the various Member States of the European Union.

Within the same time frame the United States of America enacted its Defend Trade Secrets Act, signed into law on 11 May 2016 by the President at the time, Mr. Barack Obama. The American legislation in particular purports to strengthen the protection of trade secrets at a federal level, given that the vast majority of US states had already individually implemented the 1979 Uniform Trade Secrets Act (i.e. a model legislation that essentially codified the principles of American common law on trade secrets).

There are a series of parallels – briefly described here below – that exist between the European directive and the US system which justifiably may be described as a substantial alignment between Europe and the United States on the topic of trade secrets.

2. Similarities and analogies between the two legal systems

Firstly, let us consider the definition of “trade secret” found in both the EU directive and the US Defend Trade Secrets Act:

As may be seen, both of the above definitions specify the same constituent elements of a trade secret. In particular, both the European and American definitions provide that a trade secret is information (which also includes data, documents, etc.) which is:

• secret, inasmuch as the information in question is not ordinarily within the availability of those operating in the relevant industry;
• economically valuable, given that such information must be economically quantifiable (namely, the company that owns the information has invested significant economic resources in the information);
• subject to protection measures, given that without such measures the information itself would not be secret.

However, we should also not ignore certain differences existing between the above mentioned definitions.

For example, in relation to the requirement of secrecy (point 1 above), the EU Directive states that the information cannot be “generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question”, whereas the US provision requires that information should not be known or ascertainable “by, another person who can obtain economic value from the disclosure or use of the information”.

On this matter the Transatlantic Business Council[1] (in a report that may be found by clicking here) has argued that such differences have no meaningful practical consequences given that the two definitions reach the same conclusion in that: “A person who can obtain economic value from the information’s disclosure or use (US-DTSA) generally also will be a person within the circles that normally deal with the kind of information in question (EU-TSD), and vice versa” (see page 5).

In our view, similar considerations may be made with respect to the other minor differences[2] that may be found in these definitions which, despite their use of apparently different wording, ascribe the same meaning to the notion of “trade secret”.

Moreover, the European and American legal systems converge in other ways, in addition to the similarities found above in relation to the definition of “trade secrets”, as also evidenced by the International Chamber of Commerce in one of its reports (which may be found by clicking here), and in particular by way of non-exhaustive example:

1. “unlawful acquisition, use and disclosure” of trade secrets in EU law (article 4 of the directive) are legal notions also present in US law (18 U.S.C. § 1839 (5));
2. both legal systems provide for exceptions in relation to reverse engineering and independent discovery (see art. 3 of the EU directive, and 18 U.S.C. § 1839 (5));
3. in relation to so-called “whistleblowing” (i.e. anonymous reporting of unlawful conducts) both the EU directive (art. 5, let. b)) and US law (18 U.S.C. § 1833 (2)) do not consider it an unlawful act for a person to reveal a trade secret if this is necessary for reporting to the authorities an unlawful conduct of the person or entity who holds the trade secret;
4. both legal systems give judges the power to issue injunctions in order to prevent the unlawful divulgation of trade secrets (see in particular arts. 10, para. 1 and 12, para. 1 of the EU directive, and for the United States see 18 U.S.C. §1836 (b)(3)(A)(ii)) as well as to seize goods that infringe trade secrets (see art. 10, para. 1 of the EU directive, and 18 U.S.C. § 1836 (b)(2)).

Nevertheless, it should be reiterated that some differences do exist between the European and US systems; for example, a trade secret is considered a fully-fledged industrial property right under US law but not so in Europe (as also confirmed by the European Commission when it states that “trade secrets are not a form of exclusive intellectual property right”)[3].

However, as noted above, these differences are not so significant as to determine an irreconcilable separation between the European and US legal provisions on trade secrets.

3. Conclusions and relevance (opportunity?) for Italy

On the basis of the considerations made above, we believe it is reasonable to speak of a substantial alignment on the topic of trade secrets between the legal system of the European Union, as codified in Directive (EU) 2016/943, and that of the United States of America as resulting from the relevant legislation (in particular the 2016 Defend Trade Secrets Act).

This alignment – which is a part of a greater harmonization project of intellectual property rights – is evidently aimed at encouraging foreign investors (in this case, American investors) to collaborate with European companies, in so far as those same investors may operate under the reasonable certainty that they will get from the European legal system a type of protection similar to that offered under the US system. The same applies for the European investor who is looking at the market of the USA for opportunities.

All of this certainly represents an opportunity for Italy which is a great European manufacturing power, as well as a country that more than others is culturally inclined towards creativity and experimentation both in the arts and sciences (which is after all the core of research and development, and therefore a place where trade secrets have great relevance).

If over time Italy will prove that it can put to best use its intangible assets and know how, we believe it will be among those European countries that will most benefit from the alignment between European and US laws on trade secrets and will allow it to further strengthen its relationships with overseas partners.

If not, then we’ll simply witness yet another missed opportunity.

__________

[1] The Transatlantic Business Council is an association involved in the promotion of greater integration and strengthening of political ties between Europe and the United States.

[2] Other differences that according to the Transatlantic Business Council may be found in these definitions: a) the US Act states that information is secret in so far as it is not accessible “through proper means”, whereas the EU directive does not include such wording in its definition and instead defines separately (under art. 3) the lawful acquisition of a trade secret; b) the EU directive protects a trade secret also “in the precise configuration and assembly of its components”, so that the combination of information as a whole would enjoy protection even though its individual components are not secret; this wording is not present in the definition of the Defend Trade Secrets Act, however, the protection of combinations of information is settled in US common law.

[3] For further references see the website of the Commission by clicking here.

by Insight