Clifford Chance

The EU Intellectual Property Office has recently published the report outlining trade secrets litigation trends in the European Union following the implementation of the Trade Secrets Directive (Directive 2016/943).

The report was a requirement of the Trade Secrets Directive, and reviewed 695 judicial decisions issued in the Member States between 1 January 2017 and 31 October 2022 (the deadline for the implementation of the Trade Secrets Directive was 9 June 2018).
Unlike in the US, where there is comprehensive access to court dockets and judgments, the public availability of information about proceedings varies significantly between countries. The EU IPO's report devotes a significant amount of space to the limitations of its data. For example, in 45% of cases, it was unable to ascertain the identity of the parties, and not even able to determine whether the parties were individuals or large corporates. Despite the limitations, the report contains a treasure trove of information about European trade secrets litigation, and provides useful insights into early litigation trends.

Key findings of the report include:

• Trade secrets protection is not enforced consistently across Member States. In certain countries, such as Italy and several Baltic states, there is a comparatively high rate of cases, while in others, such as France and Germany, trade secrets claims are relatively rare. Furthermore, the cases are mainly domestic in nature, with few cross-border disputes.
  • Our comment: The disparity between enforcement as well as the scarcity of cross-border disputes may be the result of the fact that trade secret has been harmonized only to a limited extent under the Directive, with local transposition allowing for a wide range of different approaches at national level. This may explain for instance the greater prevalence of this kind of dispute in Italy, which has traditionally had a strong culture of trade secret protection and with a local regulation that, at the time of the Directive, was already consistent with (or even more advanced than) the Directive.
• There was a low success rate for infringement cases overall; only 27% of cases resulted in a finding of infringement. There was significant variation between countries, however. For example, Italian claimants were successful 41% of the time. The most common defence was that the asserted information was generally known (and therefore not secret), with failure to take 'reasonable steps' to maintain the secrecy of information being the next most common defence.
  • Our comment: Although it may be coincidental, the greater prospects of success in the Italian courts may explain why claimants are more willing to bring cases, and why trade secret case volumes are higher in Italy. The methodology used in the report, which looked only at cases decided at trial on the merits, may give a misleading impression of the prospects of success. In our experience, trade secrets claims are much more likely to settle before trial than other types of IP claims, such as patent litigation. Evidence obtained through preliminary procedures can be determinative, and often leads to early settlement.
• The most common type of trade secrets dispute was between employers and former employee(s). Further, approximately 45% of the defendant in the reviewed litigations was a natural person. Trade secrets claims are also commonly brought together with other types of claim, with unfair competition claims being the most frequent.
  • Our comment: One of the most significant innovations of the Trade Secrets Directive is to give direct liability to any person, including natural persons, responsible for trade secret misappropriation and unauthorized disclosure. Not surprisingly, this leads to cases frequently involving directly (and sometimes) exclusively the employee that made the alleged misappropriation or disclosure, even if the have committed the infringing acts in the interests of a competitor of the employer. As such, trade secrets can be used as additional - and perhaps more effective - claims to unfair competition actions, which require that the defendant is a competitor (generally an enterprise).
• In terms of the subject matter of trade secrets cases, there was a higher proportion of cases about commercial information (62%) than technical data (33%) and protypes/unreleased product designs (3%). Among the commercial information, the applicable trade secrets were related mainly to downstream information (distribution methods, advertising strategies, marketing data and customer lists) and financial data (pricing models and accounting data). Technical data includes manufacturing processes and know-how as well as formulas or recipes.
  • Our comment: One possible interpretation of the data relating to the subject matter of trade secrets cases may be that commercial information is generally easier to identify and define, and more frequently incorporated in documents that, by their nature, are more suitable for circulation. By contrast, technical information instead is often more closely connected to personal competences and harder to separate from the expertise of the employee. The low rate of prototypes unauthorized disclosures may suggest that, in such context, the contractual protection of non-disclosure agreements and similar arrangements is effective; where effective breach of contract claims were available, they may not have resulted in 'trade secrets' claims of the type counted by the EU IPO.
• Although the manufacturing sector accounting for the largest proportion of reviewed litigations (32%), the cases also involved a diverse range of other sectors - 20 in total. These ranged from energy to wholesale/retail to health/social work and financial/insurance, just to make few examples. This confirms the cross-sector importance of trade secrets in the European economy.
  • Our comment: Unlike patent litigation, where a small number of sectors, such a electronics and pharmaceuticals, tend to dominate, a wider spread of industries appear to be engaged in trade secrets enforcement. This may be a reflection of the broader, and more flexible range of subject matter that can be protected via trade secrets. For example, financial and commercial information typically does not attract patent protection, and there is a low level of awareness of other suitable IP rights, such as database right protection.
• Although the substantive requirements for protection have been interpreted with quite different approaches - both between different jurisdictions and within individual member states - the Report flags three common trends across Member States: (i) the notion of "reasonable steps" to ensure secrecy is often understood as flexible and context-specific, depending on the value of the trade secret as well as the size and the business sector of the trade secret holder; (ii) the specific and clear identification of items constituting trade secrets is crucial to obtain protection. If the allegedly secret information cannot defined with precision, a claimant is likely to struggle in court; and (iii) there are still uncertainties in the application of the procedural measures to ensure secrecy during a trade secret disputes which are negatively affecting the confidence of the holder in making full disclosure of it, even if this is of detriment for the success of the claim in court.
  • Our comment: Trade secrets and know-how commonly account for a very significant proportion of business value. However, companies remain reluctant to enforce their rights in court. The lack of consistency between countries, and the legal uncertainty within many jurisdictions, may partly explain that reluctance. Some countries already have a solid track record in trade secrets litigation. Italy in particular had a head start, as it had implemented national laws similar to the Directive many years before the Directive was enacted, resulting in a sophisticated body of jurisprudence. The lower degree of certainty in other member states may explain the lighter caseload in the courts. Greater certainty should come in time; as yet, no cases on the core requirements of the Directive have reached the CJEU. Referrals from national courts are inevitable, leading to greater harmonisation across the EU.