Germany’s New Trade Secret Laws

Written by: Friedrich Scheele

1.  Introduction
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” provides for the harmonization of national trade secret regulations within the European Union. The German legislator has to implement the Directive as national law by June 2018.

2.  Current Status
Protection of trade secrets in Germany is currently based on criminal provisions of the Unfair Competition Act (Gesetz gegen den unlauteren Wettbewerb; UWG) and concern criminal acts of persons who know business secrets of a company, especially as employee. Civil law claims can only be asserted indirectly based on unlawful acts (Unerlaubte Handlung, §823 Civil Law Code).

Business and trade secrets arise under this previous law “by themselves”; by means of the existence of secret knowledge. Similar to copyright law and unlike most industrial property rights, there is no need for any special application, documentation or the like. Accordingly, the UWG sanctions misconduct, but does not create an enforceable intellectual property right as e.g. a patent does. Notably, secrecy is a rebuttable presumption in case law and, as a general rule, does not have to be proven in a lawsuit.

3.  A New Era of Trade Secret Protection in Germany
According to recital 14 of the preamble to the Directive “It is important to establish a homogenous definition of a trade secret without restricting the subject matter to be protected against misappropriation. Such definition should therefore be constructed so as to cover know-how, business information and technological information where there is both a legitimate interest in keeping them confidential and a legitimate expectation that such confidentiality will be preserved.”

The future law, which parallels aspects of U.S. trade secret laws, creates the potential for business secrets to become intellectual property rights. Like the U.S. system, however, certain requirements are a necessary predicate to acquire trade secret status.

Accordingly, Article 2 provides a definition of ‘trade secret’, which parallels many U.S. state law definitions. Under Article 2, the alleged trade secret must:

  • be secret, e.g. not generally known or readily accessible;
  • have commercial value because it is secret;
  • have been subject to reasonable steps to keep it secret.

The secrecy requirement, as well as the need for commercial value should not be surprising in an Act dealing with business. However, “reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret” as mentioned in Art. 2 1 (c) of the Directive requires the secret keeper to take reasonable and comprehensible measures against any possible infringement. Thus, a clear contrast between Article 2 and the UWG is the absence of the presumption of secrecy.

4.  Illegal acts
In addition to unauthorized copying, the directive also mentions other prohibited behaviour and the breaking of confidentiality agreements or “conduct which, under the circumstances, is considered contrary to honest commercial practices”. Knowledge which an employee takes from one employer to another is not privileged, although documenting such knowledge may be difficult in practice.

The case law will have to find criteria for interpreting ambiguous legal concepts such as reasonable steps to keep information secret or an action which significantly benefits from trade secrets unlawfully acquired. Since these concepts are somewhat more developed in US-American jurisprudence, their adaptation to continental European legal culture should be an exciting work.

5.  Remedies
The trade secret holder will have access to preliminary, preventive and final measures, such as the prohibition on the manufacture and distribution of infringing products or their seizure.

In order to safeguard business secrets, preliminary injunctions followed by a decision on the merits will be available.

The compensation scheme mentions that a pecuniary compensation to the injured party has to appear reasonably satisfactory. Pecuniary compensation shall not exceed the amount of royalties or fees which would have been due having requested authorisation to use the trade secret. Alternatively, damages may be set as a lump sum at a minimum of the amount of royalties when having requested authorisation to use the trade secret. It remains to be seen whether US-style punitive damages will become available to the trade secret enforcer.

6.  Required actions
Considering the Directive (assumed to become 1:1 German law) together with the recently adopted Data Protection Regulation (Datenschutzgrundverordnung; DSGVO), both may be regarded as two sides of the same coin. Nowadays, know- how will likely being stored as electronic data. Similar to patents publicly documenting the state of the art, measures for protecting data and secrets may offer similar effects internally.

Future handling of trade secrets as intangible assets is of special interest. A patented manufacturing process gives the owner a temporary monopoly, whereas a trade secret theoretically offers an infinite one (i.e., the formula for Coca-Cola®). Like Coca-Cola®, German-based companies may now opt to hold certain processes in secrecy, documenting technical and commercial issues only internally as a trade secret instead of filing patent applications.