The latest draft version of the Trade Secrets Directive currently being discussed in the European Parliament poses some serious enforcement issues, writes Jan-Diederik Lindemans. Little to no attention has been given to the costs of litigation, he warns.
Jan-Diederik Lindemans is an Attorney at law at the Brussels office of Crowell & Moring LLP. His practice focuses on intellectual property, trade secrets, and entertainment law.
The Committee on Legal Affairs of the European Parliament (JURI) recently held a hearing to discuss the draft Trade Secrets Directive following the Council’s position on the file, outlined in 2014.
Although the text proposed by the Council is a considerable step forward compared to the Commission’s original proposal, there remains plenty of room for improvement before the plenary session of the European Parliament votes on the draft text on 28 April.
Until recently, the vast majority of the discussions concerning this proposal related to the socio-economic relevance of trade secrets and their protection; the definition of “trade secrets”, as well as the need to stop trade secrets being used to prevent access to publicly relevant information.
However, there is one aspect of trade secret protection that has hardly been discussed: enforcement. Only at last month’s hearing of the JURI Committee was there finally some debate on the challenges that legal practitioners will face when they have to enforce the rules laid down in the current proposal.
The aim of this article is to keep this debate alive, reminding stakeholders that the current text poses some serious enforcement issues.
The Council’s extension of the two year limitation period for bringing a trade secrets claim to six years is to be applauded. However, even if the holder of a trade secret now has three times as long to initiate litigation, this counts for little if there are no means to obtain evidence concerning the misappropriation (its nature and extent, etc.).
The Commission apparently wanted to avoid a situation where measures meant to preserve evidence of intellectual property infringement (counterfeit seizure, etc.) would be abused in the trade secrets context in order to intimidate competitors, or even to commit industrial espionage. However, this concern is outdated and mostly unjustified. The European judiciary now has plenty of experience with evidence gathering proceedings of this type, and offers sufficient safeguards to protect the lawful interests of the parties that have to undergo such measures. The European Parliament and/or national lawmakers should therefore ensure, as far as is possible, that the holder of a potentially misappropriated trade secret has access to pre-trial discovery proceedings such as counterfeit search and seizure. The alternative is that, even if misappropriation of a trade secret is discovered – itself no mean feat, proving that misappropriation will be in most cases impossible.
Much has also been said and written about the need for secrecy during and after court proceedings concerning trade secrets. Regardless of the final form of the Directive, what seems to have been overlooked is that all these secrecy measures will create an even heavier workload for courts and their staff; courts that are already struggling with a significant backlog and budget cuts. Know-how driven companies, labor unions, professors and lawyers have all had their say about the Directive, but to my knowledge not a single magistrate has been heard. Wouldn’t it be wise somehow to involve the European judiciary in the discussion, at least to verify what they deem feasible?
With respect to feasibility, it is also striking that little to no attention has been given to the costs of trade secrets litigation. One of the aims of the Directive is to provide legal protection for the many SMEs who simply cannot afford patent protection and, in particular, enforcement. Trade secret litigation, however, will often be closely linked to or even combined with patent litigation, and therefore just as costly. In this context, the lack of a provision stating that the victor in the dispute may claim legal costs from the losing party is surprising, all the more so given today’s ongoing discussion with respect to the recovery of these costs in intellectual property proceedings The IP Enforcement Directive at least provides for a basis for such recovery. The proposed Trade Secrets Directive, however, limits itself to stating that the proceedings should not be unnecessarily costly; it doesn’t contain a single word about the actual recovery of legal costs.
Another interesting option to help control legal costs, at least initially, would be to reverse the burden of proof where a defendant has already been convicted of trade secrets misappropriation in another jurisdiction, rather than forcing the trade secret owner once again to prove that he holds a valid trade secret and that it has been infringed. A step further would be to authorize the customs authorities of the EU member states to block goods that a foreign court has determined to be the result of trade secret misappropriation. This would be a particularly useful measure where a trade secret owner has its assets located in countries where it would be difficult to execute the court order.
Although in its current form there are some oversights, the proposed Directive, and the priority with which it is being debated at European level, should be welcomed. However, this “need for speed” should remain secondary to the need for good quality rulemaking. In that respect, the Trade Secrets Directive should not only be clear and consistent with other texts dealing with trade secrets, but it should also be enforceable in all possible circumstances.