Commission moves to stem theft of trade secrets

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The EU executive is seeking to stem an increase in theft of trade secrets across Europe with a new proposal to harmonise the definition of the practice and block imports of products arising from such theft.

According to a European study published in July this year one-fifth of all companies within the bloc claim to have had trade secrets stolen from them in the last decade, in many cases more than once.

Such data relates to sensitive business ideas at a stage too early to earn protection by ordinary intellectual property rights such as trademarks, copyrights or patents.

“The Commission proposal is an important confirmation of the commercial value of undisclosed information," said Peter Bogaert, partner in the Brussels office of Covington & Burling LLP, a law firm.

"This is of specific relevance for knowledge based industries, such as the life sciences sector, where very costly data packages are needed not only to develop but also to obtain approval of products,” Bogaert told EURACTIV.

EU officials said trade secrets are leaching through supply chains within the EU itself, creating mistrust and hindering cross-border trade within the bloc, but are also pilfered by foreign companies, notably from south-east Asia.

The phenomenon is also on the increase according to recent data, with another recent study recording 25% of companies reporting theft of information in 2013, up from 18% in 2012.

“The proposed Directive also contains specific principles for restricted access to data in case of litigation, which will also be relevant in the context of the current broad discussions on transparency of data submitted to regulatory authorities,” Bogaert said.

Patchwork of different rules

A patchwork of different definitions of trade secrets and remedies across the EU’s 28 jurisdictions complicates the issue and makes enforcement tricky.

“The principle behind this move is right because litigating trade secrets is difficult because it requires an understanding of 28 different legal regimes,” said Jan-Diederik Lindemans, a specialist on trade secrets with law firm Crowell & Moring’s Brussels office.

In some member states companies may not attest to the theft of secrets without disclosing the secrets publicly in court.

EU officials said that the issue is most acute in the digital sector, but also in other high-tech industries such as aerospace where supply chains are often very long.

Theft of trade secrets also extends into the services sector however, where management techniques of international hotel and other services groups are exposed to theft.

"This proposal aims to boost the confidence of businesses, creators, researchers and innovators in collaborative innovation across the internal market,” said Michel Barnier, the EU commissioner for the internal market and services. “They will no longer be dissuaded from investing in new knowledge by the threat of having their trade secrets stolen.”

Proposal to prevent imports of products arising from theft of secrets

The Commission’s draft directive proposes harmonising the definition of trade secrets and their misappropriation across the bloc. It would also create a set of civil remedies that right holders can use across all member states.

These would include the opportunity to ban imports of products from outside the EU which have been produced as a result of misappropriations of trade secrets.

It also includes measures designed to ensure that trade secrets discussed in courts can be kept confidential.

But questions remain and how such a system could work in practice, Lindemans said.

“Especially the issue of showing proof of misappropriation such that goods could be blocked from import – may be difficult in practice,” the lawyer told EURACTIV.

The Commission is under pressure from the US and Japan to clarify its rules on the issue in the context of ongoing trade negotiations.

“This is a huge issue because the US is light years ahead of Europe on the enforcement of trade secrets. There, defending trade secrets is a viable alternative to defending patents,” said Lindemans.

Markus Beyrer, director-general of BusinessEurope, the European employer's organisation, welcomed the Commission's initiative.

“This is good news for European business, especially SMEs. A single legal regime across the EU will protect companies against theft and misuse of their know-how. This will make innovation, technology transfer and investment in R & D more rewarding for companies and will make Europe more attractive as an investment location,” Beyer said.

“Protecting trade secrets and confidential business information is a key driver of economic growth. It’s what gives companies, SMEs and individuals alike the incentive to take risks and invest time and resources in developing new products, technologies and solutions to benefit consumers,” said Susan Danger, the managing director of the American Chamber of Commerce to the European Union (AmCham EU).

“It also is a key element in attracting investment and creating new jobs in Europe. This is exactly what is needed in this current economic climate, and it all starts with trade secrets protection,” Danger concluded.

Trade secrets, also called “confidential business information" or “undisclosed information”, are used by companies of all sizes in all economic sectors to protect a wide range of different information.

These may include the manufacturing process of Michelin tyres, the recipe for “Pasteis de Belém" (a Portuguese custard tart), the technology and know-how used in Airbus aircraft and Google's search algorithm.

Trade secrets are particularly important for smaller businesses that lack the human and financial resources to seek out, manage and enforce a large portfolio of Intellectual Property Rights (IPR).

Unlike patented inventions or novels protected by copyright, the holder of a trade secret, such as a formula, business process, recipe or marketing concept, is not the owner of an exclusive right over its creation. Competitors, and other third parties, may therefore discover, develop and freely use the same formula.

Trade secrets are only legally protected in instances where someone has obtained the confidential information by illegitimate means, for example through theft or bribery.

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