From Directive to Act
Companies consider trade secrets to be as important as patents or other forms of intellectual property rights; this is because they have a significant economic value. Despite this fact, trade secrets have up to now not been specifically protected by any special act. Because of the growth in digital and cross-border cooperation amongst companies and the enormous economic importance of business know-how, the European Union has decided to provide a uniform European protection of trade secrets. By doing so, the plan is to create a Europe-wide minimum standard for the protection of know-how.
Deadline for transposition exceeded
The know-how Directive dated 8 June 2016 was to be transposed into national law by 9 June 2018, according to Article 19 (1) of the Directive. The German legislative bodies have, however, taken their time transposing it into national law.
German Trade Secrets Act finally passed in German Parliament
The German Government submitted the Bill for the Trade Secrets Act (GeschGehG) to the German Parliament (Deutscher Bundestag). On 18 October 2018, the Bill was read for the first time, following which two parliamentary parties filed petitions. The Left Party (Die Linke) feared that the Trade Secrets Act might significantly intimidate works councils, journalists, and whistleblowers. The Greens (Bündnis 90/Die Grünen) thought it was necessary to define the term “trade secret” more precisely. In addition, they demanded more protection for whistleblowers, the media, and employees and the effective protection of secrets in civil proceedings. The final discussion took place on Thursday, 21 March 2019. This is when the Trade Secrets Act was finally passed in German Parliament.
Protection of know-how prior to the German Trade Secrets Act
Prior to the Trade Secrets Act, know-how - in particular, know-how in the form of company or trade secrets - was protected by competition law (Secs. 17 to 19 of the German Act Against Unfair Competition (UWG)). These applicable provisions are, however, provisions relating to criminal law which stipulate sanctions for the unauthorised loss of know-how. Trade secrets are only protected as a matter of civil law through the general provisions of the German Civil Code (BGB) (Sections 823, 826 and in conjunction with Section 1004 of the German Civil Code, applied analogously) Unlike in the case of industrial property rights, such as patent or trademark rights, the provisions regarding the protection of secrets do not provide for any civil law allocation of know-how to a particular company as the owner; instead, such allocation is a prerequisite for protection.
Definition prior to the German Trade Secrets Act
Prior to the Trade Secrets Act and according to German jurisprudence, the owner’s clear, subjective intent to keep a secret fact that has a commercial value secret sufficed in order for a trade secret to exist. Accordingly, under the previous law, the owner’s subjective intent to maintain secrecy was sufficient.
Changes resulting from the Trade Secrets Act
Consequently, no a legal definition of the term “trade secrets” existed up to now under German law. This has now changed through the provisions of Sec. 2 of the Trade Secrets Act, according to which a piece of information is a trade secret if it (1) is secret, (2) has a commercial value because of it being secret, (3) is the subject matter of reasonable measures to protect secrecy, and (4) there is a legitimate interest in keeping it secret. This fourth requirement was subsequently included in the new definition. The wording of the Directive does not contain any such requirement. It remains to be seen how the courts will react to this deviation once they have to interpret the national provisions to conform with European law.
This definition has resulted in an essential tightening of the Trade Secrets Act compared with the old legal situation, as it is no longer a subjective criterion - the will to secrecy - that is decisive, but rather objective criteria - namely appropriate secrecy measures. However, what exactly "appropriate secrecy measures" are is still unclear at present. Legal certainty will probably only then be achieved through the appropriate court decisions. In addition, the prerequisite of "legitimate interest in keeping secrecy" has been included in the definition in order to further tighten the scope. This means that a company cannot decide for itself what information is a trade secret, so that, among other things, the protection of journalists has been strengthened.
Companies are therefore urged to start developing a protection concept as early as possible. Because without the appropriate secrecy measures the protection under the Trade Secrets Act could be denied, so that the heart of the company, i.e. the know-how, could be lost.
Permitted and prohibited acts
The central provision for permitted acts is Sec. 3 Trade Secrets Act. According to paragraph 2, trade secrets may be obtained, used or disclosed by operation of law, statute or transaction. Paragraph 1 lists exemplary cases where the attainment of trade secrets is permitted. These include independent discovery and creation (No. 1), “reverse engineering” (No. 2), as well as information and consultation rights of employees or participation and co-determination rights of employee representatives (No. 3).
A catalogue of the prohibited acts can be found in Sec. 4 Trade Secrets Act. Paragraph 1 sets out the forms of unauthorised attainment of business secrets. These include attainment through unauthorised access, unauthorised appropriation or unauthorised copying (No.1) and other conduct that violates the principle of good faith (No. 2). No. 2 serves as a catch-all circumstance in this respect. Paragraph 2 regulates the prohibited use and disclosure of trade secrets obtained by means of paragraph 1.
Exceptions from the offence of Sec. 4 Trade Secrets Act
The provisions in Sec. 5 Trade Secrets Act are intended to make it clear that the protection of trade secrets cannot be absolute and in individual cases must take a step back over concerns of public interest.
The original "grounds for justification" of Sec. 5 Trade Secrets Act were renamed "exceptions" in order to make it clear that the cases mentioned do not even fall within the scope of an offence under Sec. 4 Trade Secrets Act. In particular, it should be emphasised that Sec. 5 No. 2 Trade Secrets Act has been amended to the effect that it is no longer a question of the intention to protect the general public interest but of the suitability to protect the general public interest. Thus a change from a subjective to an objective condition is also recognizable here.
During the employment relationship
The German Trade Secrets Act does not provide for a restriction beyond the existing secrecy obligations (Sec. 79 German Works Constitution Act (BetrVG)), therefore the current legal situation should remain unchanged. In particular, the guaranteed collective bargaining autonomy (Sec. 1 para. 3 no. 3) and the activities of employees and works or personnel councils within the framework of co-determination are excluded from the scope of application of the law (Sec. 1 para. 3 no. 4, Sec. 5 no. 3 Trade Secrets Act).
After the employment relationship has ended
Up to now, employees were subject to an obligation of confidentiality with regard to business or company secrets after termination of their employment relationship, even without a contractual agreement. However, in order to fall within the scope of the law at all, the information must be subject to the appropriate secrecy measures. Therefore, it will now be necessary to obtain a contractual agreement as an appropriate secrecy measure on the part of the employer in order to secure the classification of the relevant information as a commercial or industrial secret.
Practical considerations for a protection concept
A suitable protection concept must be able to guarantee technical and organisational measures for the comprehensive protection of trade secrets. This means e.g. on the technical side, no unprotected access to confidential or critical data by unauthorized persons to the servers of a company intranet. Similarly, people on an employment contract level who come into contact with the protected trade secrets must be prevented from disclosing trade secrets by means of non-disclosure agreements and non-compete obligations.
Developing a protection concept should take place in various phases.
Phase 1: Assessment phase
In an assessment phase, it should be reviewed which information and which know-how exist in the company. Furthermore, the need to protect the respective secret should be determined on the basis of a qualifying questionnaire. Such a questionnaire then qualifies the respective trade secret for confidentiality and determines the level of protection for the secret.
Phase 2: Planning phase
The planning phase determines the measures to exclude existing and potential risks to the loss of trade secrets identified in the previous assessment phase. In a risk analysis, which would be carried out in the planning phase, measures must then be selected which guarantee on a contractual, technical and organisational level that no risks to the loss of trade secrets will materialise.
Phase 3: Implementation phase
The implementation of the measures previously taken is the essential component for the implementation phase. Here, numerous departments in the company will be involved in the implementation of the respective measures, for example the obligation to protect secrets or the implementation of technical and organizational measures.
Phase 4: Testing phase
The effectiveness of the implemented measures should now be reviewed. In the course of audits and experience, the testing phase will identify the need for improvement in trade secret protection and serves to prepare for the improvement phase. This phase serves in particular to identify weaknesses that have either led to an outflow of information in the past or could possibly lead to an outflow of information in the future.
Phase 5: Improvement phase
During the improvement phase, a cost-benefit analysis and a testing phase can then be used to work continuously on the protection concept.
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