New Rules on Trade Secrets

The German government recently presented a bill on the protection of trade secrets for approval by the German parliament, which is expected in the coming months.

The bill largely reflects the Directive (EU) 2016/943 regarding trade secrets, with some changes to the terminology. It will trigger some amendments in the German Criminal Code (Strafgesetzbuch or StGB) and the German Act against Unfair Competition (Gesetz gegen den unlauteren Wettbewerb or UWG). It extends protection of trade secrets in some respects, but it also introduces new requirements that must be met for protection to apply.

The most drastic change companies should be aware of is a narrowing of the definition of trade secrets. As has been the case for some time, a “trade secret” will continue to mean information that meets the following requirements:

• It 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.
• It has commercial value because it is secret. This is the case, for example, where its unlawful acquisition, use, or disclosure is likely to harm the interests of the person lawfully controlling it, in that it undermines that person’s scientific and technical potential, business or financial interests, strategic positions, or ability to compete.

The definition excludes trivial information and the experience and skills gained by employees in the normal course of their employment, and it also excludes information that is generally known among, or is readily accessible to, persons within the circles that normally deal with the kind of information in question.

Typical trade secrets are those relating to manufacturing procedures, customer or supplier lists, cost information, business strategies, market analyses, prototypes, and formulas.  

What is new, however, is that confidential information will be considered a trade secret—and therefore legally protected—only if an employer can show it has taken appropriate steps to keep that information secret. Which measures an employer takes that would be considered sufficient to safeguard relevant information depends on the type of trade secret and its use. Measures may include physical restrictions on access and contractual safeguards. According to the explanatory memorandum of the bill, it is not necessary to label each piece of information as confidential. Instead, general measures for certain categories of information can be taken, such as technical access control. In addition, employers can implement internal policies, guidelines, and clauses in employment contracts.  

Furthermore, the bill introduces an exception that will expressly permit the disclosure of trade secrets under certain conditions without losing the protections of the law—a first under German law. This exception is mainly to enable whistleblowers and journalists to disclose secrets when they have a legitimate interest to do so. Legitimate interests that might justify such a disclosure include the exposure of an unlawful act and professional misconduct. The bill also explicitly allows the disclosure of trade secrets to employee representatives (e.g., a works council) to the extent necessary for the exercise of their rights.

The bill maintains the current remedies and sanctions for infringement of compensation claims, injunctive relief, removal claims, and criminal sanctions. Additionally, it expressly allows courts to order a party that has infringed another’s rights to disclose the infringing products, manufacturers, suppliers, and commercial customers. The bill also imposes liability on companies for the actions of their employees and agents who infringe upon the trade secrets of third parties.

Finally, the new law will improve the confidentiality of court proceedings by allowing courts to classify information that is used in proceedings as confidential. The bill requires all persons who are involved in confidential court proceedings or have access to the documents of the proceedings to keep the information confidential. A fine of up to EUR 100,000 and imprisonment of up to six months may apply to those who breach these court orders.

Comment

Overall, the draft, if approved by the German parliament, will improve the protection of trade secrets in Germany. To maximize these new legal protections, organizations may want to take the following steps:

• check their options regarding how to limit access to and protect confidential information;
• implement measures, such as technical and physical access restrictions, policies, and guidelines in order to secure secrecy;
• review current confidentiality agreements, clauses in employment contracts, internal policies, and guidelines with employees and third parties;
• if necessary, alter or eliminate such agreements.

Written by Dr. Ulrike Conradi and Ashkan Saljoughi of Ogletree Deakins