Background
International harmonization of intellectual property rights, and in particular trade secret protection, began in 1984 with the World Trade Organization, through the enactment of the Trade-Related Intellectual Property Agreement (TRIPS). Recent developments such as the enactment of the Defend Trade Secrets Act (DTSA) in the USA on May 11, 2016, and the European Union (EU) Directive 2016/943, on the Protection of Trade Secrets (EU 943), issued by the EU on June 8, 2016, evince more commonalities than differences. These aforementioned enactments arguably trace their roots to Section 7, Article 39 of TRIPS on the Protection of “Undisclosed Information,” which was the first international effort to uniformly define and evoke protection for trade secrets.[1] In 2014, the International Chamber of Commerce (ICC) published a white paper titled “Trade Secrets: Tools for Innovation and Collaboration,” which delineated a majority of the considerations and protections ultimately enacted in the DTSA and the EU 943.[2] Recommendations and support from the ICC white paper have been heavily cited in both US and EU legislative materials in support of passage of the DTSA and EU 943, including but not limited to the U.S. Congressional Research Service and the EU Directive 2016/943 Preamble annotations.[3] This article explores the apparent collaboration and consequently increasing harmonization of the trade secret protection regimes across the world.
The change in the pace and nature of international trade, driven by technological progress, has led to a shift in focus from goods-centred and country-specific physical imports/exports, to cloud-based systems, virtual imports/exports, globalized business structures, e-commerce and online international trade.[4] The urgent need for evolving harmonized legal frameworks to deal with the increasingly trans-border nature of such global business has been felt in contemporary trade secret agreement negotiations. For instance, in the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP) agreement negotiations, the lack of a US-wide federal trade secrets law was highlighted by other countries, which conceivably helped advance bipartisan support for the rapid passage of the DTSA.[5]
By amending the Economic Espionage Act (EEA), 1996, to create the first private federal trade secret civil action in US history, the DTSA provides a nationwide service and enforcement for trade secret violations, with extraterritorial ramifications. Similar to the DTSA, EU 943 creates the first private common trade secret action applicable in all EU member states. In doing so, it provides common EU-wide trade secret protections and enforcement rights with clear extraterritorial implications. Both laws have significant implications to technology, contracting and employment practices. Furthermore, such commonalities also demonstrate that multinational companies and global business conglomerates need to carefully consider issues of multiple enforcement of the trade secret protection regimes across multiple jurisdictions; and must work towards harmonizing policies, compliance codes, procedures, and practices, particularly with regard to international product development, cross-border staffing and training, delivery and payment, and the choice of law and forum.
Trade secret protection regimes: Aims and remedies
Under both the EU Trade Secrets Directive and the DTSA, to qualify as a trade secret the information at issue must be kept confidential and must derive economic value from being kept confidential.
Article 2 of the Trade Secrets Directive defines a trade secret as information which meets all of the following requirements:
is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
has commercial value because it is secret;
has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.
This definition tracks the definition for “undisclosed information” provided in article 39(2) of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), which requires all signatories to afford some level of protection for confidential information.
The DTSA definition of “trade secret”, meanwhile, consists of “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if-
the owner thereof has taken reasonable measures to keep such information secret; and
the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the another person who can obtain economic value from the disclosure or use of the information.”
As seen, whether in Europe or in the U.S., to be considered a trade secret the information must be kept confidential and derive an economic value from the fact that it is confidential. Both the EU Directive and the DTSA are aimed at protecting commercial confidential information.[6] What is not required is that the information be entirely novel, a distinction from other forms of intellectual property. Further, the EU Directive makes explicit that combinations of otherwise publicly available information can be protected provided they are not readily accessible or generally known.
III. Commonalities of DTSA and EU 943
As noted above, the DTSA and the EU 943 possess more similarities than differences.[7] The commonalities include the definition of a trade secret,[8] prohibited uses, ex parte seizures,[9] injunctive relief,[10] confidential proceedings,[11] award of actual losses,[12] unjust enrichment[13] or a reasonable royalty, damages for willful or malicious misappropriation, and attorney fees and costs for bad faith.[14] Both the DTSA and EU 943 also include similar limitations, including exclusions for reverse engineering or independent creation, exclusions for regulatory and whistleblower disclosures, limitations on employment injunctions, and absence of pre-emption of other laws or remedies.
Further, with respect to extraterritorial enforcement, the DTSA and EU 943 are easily comparable. In response to the globalization of business and resulting IP threats, the US congress couched the extraterritorial enforcement of US trade secret rights in markedly specific terms- for instance, in Section 5 of Sense of Congress, which references to… “theft within the U.S. and around the world, and harm wherever it occurs…”. Section 2(b)(1) includes references “…for use in, interstate or foreign commerce”, Section 4 adds “…occurring outside of the United States…”, “… sponsored by foreign governments or instrumentalities, or foreign agents…” These provisions appear to be intended to assure the ability of extraterritorial enforcement in the International Trade Commission via 337 proceedings.[15] Similarly, the EU has also asserted the protection of Member States’ innovations from external threats. The EU Directive 943 includes multiple references to extraterritorial protections. Preamble, Section (3) provides “…cross-border cooperation is particularly important in increasing levels of business research and development…” Preamble, Section (4) notes “…Recent developments, such as globalization …. contribute to increasing risk….”. Preamble, Section (28) explains “Considering the global nature of trade, it is also necessary that such measures include the prohibition of the importation of those goods …”. Chapter II, Article 4, 5 of the Directive references “… or the importation, export or storage of infringing goods…” Chapter III, Article 10, 1.(b) again notes the “… “… or the importation, export or storage of infringing goods…” and Chapter III, Article 12, 1.(b) similarly makes reference to “… or the importation, export or storage of infringing goods…”.
Conclusion
Some of the most unique common provisions in the DTSA and the EU 943 are requirements for confidential proceedings, ex parte relief, remedies available for extraterritorial threats, limitations on publicity, exemptions for whistleblowers, as well as limits on injunctions otherwise in conflict with state/member law regarding restraint of profession, trade or business. Given these increasing prospects for collaboration and harmonization, it is essential that multinational companies and global businesses should engage in continuous reviews and revisions of their compliance codes with respect to cross-border sales or operations, for instance, employee confidentiality and proprietary rights agreements, non-disclosure and confidentiality agreements, whistleblower exceptions, policies on marking and/or tracking of confidential materials, physical and cyber security of confidential materials and evaluation of overall IP strategy regarding trade secrets, patents, copyrights and trademarks. Further, the increasingly global nature of cross-border anti-competitive threats and global volatility requires comprehensive assessments of critical trade secrets, key employees, competitors and activities, available legal resources, probable damages and desirable recourse, and possible jurisdictions. Considerations of forum selection, enforceability, location for protection and/or recovery, cost & time relative to durable value/loss, location of illegal acts, location of resulting injury and location of recoverable damages, are also crucial. A well-planned, continually evolving strategy to deal with these threats will facilitate smooth business and legal harmonization in international trade.
[1] Paul Torremans, The Road Towards Harmonisation of Trade Secrets Law in the European Union, REVISTA LA PROPIEDAD INMATERIAL, No. 20, JULIO-DICIEMBRE DE 2015 (January 10, 2016), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2719015
[2] Id.
[3] Id.
[4] Tim Taylor, Global Supply Chains and the Changing Nature of International Trade, Economist’s View (September 5, 2013), http://economistsview.typepad.com/economistsview/2013/09/global-supply-chains-and-the-changing-nature-of-international-trade.html.
[5] James Dowd, et al, Federalizing Trade Secret Protection: A Close Look at the Ex Parte Seizure Provision, Corporate Counsel (May 23, 2016), http://www.wilmerhale.com/uploadedFiles/Shared_Content/Editorial/Publications/Documents/2016-05-31-Federalizing-Trade-Secret-Protection-A-Close-Look-at-the-Ex-Parte-Seizure-Provision.pdf.
[6] Holger Kastler, Sue McLean, et al., Harmonization of Trade Secrets in Europe and New US Trade Secrets Law Gets the Green Light—What Do These Changes Mean for Companies in Germany, the UK and the US?, Morrison-Foerster Client Alert (May 27, 2016), https://media2.mofo.com/documents/160527harmonizationtradesecrets.pdf.
[7] The one primary current difference relates to a limitation in EU 943 protecting EU labour/ employment practices including protection of collective bargaining agreements, employment contracts and the mobility of employees. Interestingly, on October 25, 2016, the White House issued a directive for the reform of US non-compete and employment laws to better protect against generic employment contracts and restrictions on the mobility of employees.
[8] See Economic Espionage Act 18 U.S.C. § 1839(3) (1996); Council Directive, 2016/943, art. 2(1), 2016 (EC).
[9] See, for e.g, 18 U.S.C. § 1836(b)(2)(A)(i)
[10] See Economic Espionage Act 18 U.S.C. § 1836(b)(3) (1996); Council Directive, 2016/943, art. 12, 2016 (EC).
[11] See Economic Espionage Act 18 U.S.C. § 1836(b)(2)(D) (1996); Council Directive, 2016/943, art. 15, 2016 (EC).
[12] See Economic Espionage Act 18 U.S.C. § 1836(b)(3)(B) (1996); Council Directive, 2016/943, art. 14, 2016 (EC).
[13] See Economic Espionage Act18 U.S.C. § 1836(b)(3)(B)(1996); Council Directive, 2016/943, Preamble point 7, 2016 (EC).
[14] See Economic Espionage Act 18 U.S.C. § 1836(b)(3)(B) (1996); Council Directive, 2016/943, art. 7(2), 2016 (EC).
[15] Tianrui Group v. ITC, 661 F. 3d 1322 (Fed. Cir. 2011).
This post has been authored by Aratrika Choudhari who is a third year student at the West Bengal National University of Juridical Sciences.
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