The (trade) secrets of success

Trade secrets and the risk of trade secrets theft are becoming more important for many companies, as business becomes more global, employees become more mobile and more information is stored digitally or in the cloud. In the EU, a directive harmonising trade secrets protection is expected to be agreed soon; in the US, there is a proposal for a federal law on trade secrets; and in China there are also proposals for a new law.

Working Question 247 addresses some specific unresolved issues concerning the protection and enforcement of trade secrets. It is a topic that AIPPI has debated many times before, dating back at least to 1970. In Q215, agreed in Paris in 2010, AIPPI resolved that Article 39.2 of the TRIPs Agreement should be implemented so as to protect trade secrets, and mandated the availability of injunctive relief for threatened or actual violations.

This year’s question builds on that by looking at four practical issues: (1) what, if any, overlap there is between trade secret protection and laws prohibiting restraint of trade; (2) how to ensure confidentiality is kept during court proceedings; (3) whether and when damages are an appropriate remedy; and (4) alternative methods of evidence collection, when discovery is not available. The first of these is likely to provoke the most discussion.

Ari Laakkonen, a partner of Powell Gilbert in London, is the Assistant Reporter General assigned to this question. He said the first issue – the potential conflict between protecting trade secrets and restraining trade – is one of the “more interesting” dilemmas that has arisen in this field.

“If an employment contract or the underlying law makes everything that an employee learns a trade secret, and people can’t use trade secrets, then they can’t switch jobs,” Laakkonen told the AIPPI Congress News. “This issue is unclear, and certainly needs some clarification.” While public policy interests favour the protection of legitimate trade secrets, they also support the view that employees should not be unduly fettered in pursuing their careers, so AIPPI delegates will be trying to strike a fair balance in today’s resolution.

Part of the problem is that this is one of those areas that spans legal disciplines: IP lawyers, for example, may bring a different perspective to competition lawyers. Out of the 45 reports submitted by AIPPI national and regional groups, about one-third suggested that trade secret protection could be viewed as a restraint of trade in certain circumstances, while just under a quarter indicated that trade secret protection itself is not viewed as a restraint of trade, but laws such as competition law might prevent enforcement actions. But another third firmly believed that trade secret protection is not viewed as a restraint of trade, with a small number of groups saying that in no circumstances should trade secrets be viewed as restraints of trade.

This question also leads to further enquiries about what constitutes trade secrets, compared to say general skills or knowledge acquired, what constitutes a duty of confidence and whether certain employees are subject to a higher obligation of confidentiality.

The other aspects of the question being debated today address various aspects of the procedures arising from the enforcement of trade secrets. One problem that arises is confidentiality during court proceedings: owners of trade secrets might be unwilling to reveal them in open court, but not doing so means that defendants are at a disadvantage from not knowing what they are accused of. In its 2010 Resolution, AIPPI resolved that countries should “provide effective and substantial means” of protecting trade secrets during and after proceedings, but did not regulate this in detail. The group reports indicate that this issue is treated differently in each jurisdiction, giving rise to particular problems in some countries such as Germany.

Another point discussed today concerns valuation of loss, in particular where an injunction prevents misappropriation, and where a second defendant has also benefited from the trade secrets: put simply, should the owner be able to recover damages twice for the same loss? Or, as Laakkonen says: “Obviously the publication of a trade secret destroys much if not all of the value of the trade secret.  However, this does not mean that a defendant who misappropriated a trade secret, when it was still secret, should not pay damages.” In addition there is a question about the recovery of damage to reputation, particularly where the trade secret owner has goodwill in the market linked to the trade secret.

With regard to proving infringement, the vast majority (80%) of groups believe that measures to preserve evidence should be available, and just 50% say that information seized can only be used in the proceedings in which the seizure occurs.

There is overwhelming support among national and regional groups for harmonisation on all these points, and the draft EU Trade Secrets Directive as well as the EU Enforcement Directive may prove helpful in this respect. Today is an opportunity to discuss some detail in this notoriously opaque aspect of IP law, says Laakkonen: “Our mission is to flesh out some concepts more fully than the last time this topic was debated, in Paris in 2010.” He adds that is timely to do so: “Practitioners and industry are seeing more and more of these kinds of cases, often connected with other issues such as patent entitlement, so it is an important topic to address.”

A long-running dispute between Sinovel and American Semiconductor involved allegations of the theft of trade secrets, including computer code. Sinovel and three employees were accused of stealing know-how and causing losses of over. $800 million. Civil and criminal proceedings in China and the US are continuing.

In its most recent ruling in a trade secrets case, in 2013, the Supreme Court affirmed that a former employee was not liable for breach of confidential information in Vestergaard v Bestnet, a case concerning mosquito nets. Lord Neuberger wrote that “the law should not discourage former employees from benefitting society and advancing themselves by imposing unfair potential difficulties on their honest attempts to compete with their former ­employers”.

Jawbone sued Fitbit for trade secrets theft in May this year, in a case that is continuing. It also involves various patent lawsuits and concerns wearable technology.­