Keep your trade secrets safe

20 February 2018 – Micheline Don

From 9 June 2018, the European Trade Secrets Directive has to be part of Dutch law. The bill is at present being debated. The new law should give holders of trade secrets more possibilities to act against unlawful use of their trade secrets.

What is a trade secret?

Trade secrets or secret know-how are information:

  1. not generally known or accessible;
  2. the commercial value of which lies in its confidentiality (think of e.g. the Coca-Cola recipe), and
  3. for which reasonable measures have been taken to insure their confidentiality, for example by guarding the information well physically/digitally.

Under the present legislation, trade secrets can be protected mainly by making contractual agreements. This can be done in an employment agreement, to prevent employees from taking off with secret know-how. When the trade secrets are to be shared with third parties, contractual protection should be arranged (in a so-called non-disclosure agreement). It is advisable to agree on a penalty, should the agreement be violated.

Protection under the new legislation

The new bill aims at giving more protection possibilities to the holder of trade secrets. Thus, under the new legislation, the holder of trade secrets can go to court and demand the following:

  • an order to cease the use of trade secrets, enforced by a penalty;
  • a prohibition to the manufacture of goods using the trade secret;
  • a seizure of the goods;
  • handing over of the goods;
  • a recall of the goods from the market;
  • the destruction of documentation containing the trade secret;
  • financial compensation.

It is important for the holder to take reasonable measures to protect his trade secrets. This can be done in different ways, such as: implementing an adequate security policy, training employees, classifying confidential materials as such, sharing information on a need-to-know basis, making sure confidentiality clauses in employment and external business contracts are up to date (and include a penalty).

To minimize the risk of confidential information leaking through departing employees, make sure there is a strategy on how they should be trained, briefed and monitored. Also, be aware of any confidential information being brought into the company by new employees. When using such information, the company might be liable under the new legislation.

It is to be expected that the draft legislation will not be substantially altered. That means trade secrets can be better protected but, alas, the legislator has also missed out on a few opportunities by failing to align with the existing regulations for the protection of intellectual property rights, which trade secrets frequently come close to (think for example of secret know-how for which a patent right is being applied). For this reason, the rules about seizure of evidence (seizure of information in order to demonstrate the abuse) and an order to pay the costs of the litigation proceedings (compensation of the actual costs in legal proceedings) do not apply to trade secret cases.

Micheline Don