Step two: Monitoring your trade secrets
This is the second in a series of articles on the importance of confidential information and trade secrets to every business (large or small). In these articles, we look at what practical steps you should take to protect your most valuable information and how the law can help to maintain your competitive advantage. 9 June 2023 marks the 5th anniversary of the implementation deadline of the Trade Secrets Directive, so now is a good time to reflect on how the landscape has changed since the EU introduced measures to harmonise trade secrets law across Europe.
The Directive provides a harmonized means to recover and seek redress for misuse of trade secrets across Europe. Harmonization is particularly important in a cross-border context, as pre-Directive the laws in different countries varied considerably and, in some places, did not offer much protection. Now we have a better framework for protection and enforcement (which is similar in many respects to the law in the US and Asia), it is more difficult for bad actors to exploit national weaknesses when transferring information across borders.
However, black letter law is not the only answer to protection – every trade secret holder needs to be alert and monitor their trade secrets and how they are stored and used so that they can act quickly if they notice any suspicious behaviour. Should a problem arise, a layered approach to enforcement, relying on the Directive, contract law, labour law, IP law and even criminal law (where appropriate) is likely to result in the best outcome – which will always be fast recovery of the information and an injunction against further misuse coupled with appropriate compensation for any damage suffered. So it’s important to make sure that you are aware of all the different means of protection for particular forms of information in use in your business. Is there an NDA or other form of contract in place? Strong contractual protection is important in any context where you are sharing valuable information – with employees or licensees, for example. What are the confidentiality (and IP and fidelity) terms of your employee contracts? Does the particular jurisdiction (such as Germany) protect trade secrets under the criminal law too (or not, as in the UK)?
But how do you know if your confidential information or trade secrets are being misused in the first place? Without evidence of actual or threatened misuse you will not be able to take legal action to recover it. The first step is proper management of your information so you know what’s normal and can spot anything unusual. Trade secret cases often involve an element of dishonesty (for example, employees taking their employer’s proprietary information in order to set up a competing business). That is something different from other IP cases and presents particular difficulties in securing evidence as dishonest people are likely to hide or destroy evidence. How do you tackle that?
First, limit the opportunities for misuse. Some steps are very simple. Operate a clean desk policy, lock information away (physically and electronically) and don’t circulate sensitive information any more widely than required. For highly confidential information, number and label copies to track disclosure. Where certain business premises intensively feature trade-secrets, such as factories and laboratories, manage these premises separately and ensure there are strict sign-in and sign-out procedures for both employees and visitors. These measures allow for tracing in the event of a suspected breach.
In monitoring efforts, technology is powerful. Fire walls, password-protection and encryption can limit information to only those employees and personnel who need to know it and prevent inappropriate dissemination. Electronic records can show who has accessed certain information and when, which is useful in building a chain of evidence in the event of suspected infringement. Employees and related personnel can be restricted from storing important information on personal clouds or storage devices or copying it onto external platforms where leakage is a risk. Alerts can be set up to flag unusual behaviour on company systems, allowing quick action against potential infringement. Importantly, in all monitoring efforts, data protection and privacy laws should always be observed.
Before sharing information outside the company, do your due diligence. Do you know the other party well and has it had any problems with confidential information leaks in the past? If they are in a foreign jurisdiction, are you certain that your rights can be enforced? If your information must be transferred to their systems, are those systems adequately secure? If not, can they be required to use your systems, where their use can be appropriately monitored (again, bearing in mind data protection and privacy laws)? Be particularly careful when using third party consultants to create confidential information as the law will treat them (and the rights in any content they create) differently from your employees, so make sure you have appropriate contractual protections in place, not least to ensure that the rights in any intellectual property they create are owned by the business.
In the event of a trade secrets dispute, a common difficulty is that essential evidence may be concealed or destroyed by the defendant. To address this, the law provides means by which evidence can be preserved. Many countries allow for search and seizure orders as an interim step in litigation. For example, in the UK, a search order can admit the trade secret holder’s solicitors (and other personnel, such as forensic IT consultants) together with an independent supervising solicitor, to the respondent’s premises to search for and preserve evidence. Search orders are obtained without notice, and surprise the respondent, allowing infringing articles and documents to be seized which might otherwise disappear if the trade secret holder had to rely on normal litigation disclosure or discovery processes. Search orders are powerful in actions against dishonest defendants, and as a result are used more regularly in trade secret litigation than in traditional intellectual property claims. They often result in a claim reaching an early conclusion, such as a settlement before trial.
The best strategy for trade secret protection for your business will depend on the nature of your business and trade secrets, where you work and do business, and of course, who you work and do business with, and so should be tailored to your needs. But in general, as well as robust contracts and doing your due diligence, having physical and technical restrictions and monitoring procedures in place is important. Knowing what’s normal for your business and being alert to any unusual behaviour as soon as it occurs will enable you to take quick action against infringement. Speed is everything in recovery of confidential information.
In our next article, we will look at how courts around the world have dealt with trade secrets disputes in the wake of the Directive, and the guidance they have provided to enable businesses to better manage and protect their trade secrets.
DLA Piper’s Trade Secrets Scorebox is based on EU law and helps businesses assess the maturity of their trade secrets protection. It provides the user with an overview of the best course of action to implement, improve, maintain, and monitor the organization’s trade secrets protection strategy. If you would like more information, please contact Roberto Valenti, Ewa Kurowska-Tober or Alexis Fierens.