Brexit and… trade secrets

Following publication of the 'agreed' text of the draft Withdrawal Agreement (the "Draft Text") between the United Kingdom ("UK") and the remainder of the European Union ("EU") on 19 March 2018, our intellectual property ("IP") team has produced a suite of briefings on key aspects of the likely implications of Brexit for IP rights and systems across the EU, to inform our clients what changes they will need to consider making to their existing IP strategies and protocols to continue dealing in post-Brexit UK and Europe. The topic of this note is how Brexit will impact confidential information and trade secrets. 

This note has also been updated following publication by the UK Government on 24 September 2018 of its guidance to businesses, organisations and individuals on protection of intellectual property in the event of a ‘No Deal’ Brexit (“No Deal Guidance”). 

Protecting confidential information

A business' confidential information is sometimes its most valuable asset. From an IP perspective, certain products and inventions are better protected by keeping them a secret as opposed to disclosing them as part of a patent or design application in exchange for a monopoly which is limited in time. Indeed for some technical advances, confidentiality may be the only protection available as they may not qualify for other forms of registered protection, e.g. pricing schedules, genetic material, recipes or manufacturing instructions.

The World Trade Organization's ("WTO") TRIPS¹ Agreement (to which the UK is a signatory) requires WTO members to provide protection for trade secrets. Under English law, prior to the implementation of the Trade Secrets Directive²  (the "Directive"), this protection has not arisen primarily from legislation but has been developed by the courts. However, despite not being defined by statute, the regime that was provided by the UK was considered much more comprehensive than the majority of the other EU Member States. Under the UK's regime, information can be protected as confidential providing that it:

1. Possesses the quality of confidence.
2. Is disclosed in circumstances that impose an obligation of confidence.

In order to satisfy the second limb of the test, it is advisable to enter into a confidentiality (or non-disclosure) agreement, or to ensure that there are express confidentiality provisions contained in terms of employment or engagement. Such documents can formally stipulate the receiving party's permissions for use of, and obligations of confidentiality in relation to, the disclosed information. It also provides the disclosing party with an additional potential cause of action under breach of contract in the event of unauthorised use. The courts also require that the unauthorised use has caused, or has the potential to cause, detriment to the disclosing party. 

The Trade Secrets Directive

In the UK, trade secrets were previously protected provided that they met the criteria set out above, as a sub-set of confidential information. However, the Directive – an EU directive introduced to harmonise the level of protection afforded to trade secrets across the EU – implemented a new regime specifically for trade secrets. EU Member States had to implement the Directive's provisions into national law by 9 June 2018.

Many considered that the protection afforded by the UK already covered (or could be interpreted to cover) the majority, if not all, of the obligations imposed by the Directive. However, following publication of the results of a public consultation on the proposed regulations to bring the Directive into force, the UK introduced into law the regulations (the "Regulations")³ on 9 June 2018. The Regulations sit alongside the existing regime for confidential information.

Trade Secrets and the Draft Text

The Draft Text makes no express reference to the Directive or to trade secrets. However, the European Union Withdrawal Act 2018 contains provisions to convert all EU law in force on the date of the UK's withdrawal into UK law, meaning that all EU law will continue to have effect in the UK unless amended or repealed.

The Directive required the UK to enact the Regulations to give effect to the Directive as EU Directives do not have direct effect in the member states of the EU⁴. As the Regulations have now been implemented in the UK they will have effect in the UK after Brexit.

The UK Government has not, to date, addressed trade secrets in its  No Deal Guidance but, as it has been implemented by UK domestic law, it will remain in force after Brexit, in the absence of an amendment or repeal.

Practical tip: Businesses currently (or considering) operating in the UK and/or EU should continue to take the usual precautions when dealing with confidential information to ensure they have protection pursuant to the Directive and/or the continuing law of confidence.

The Regulations

Given that the UK's existing law was already compliant with much of the Directive, the Regulations have not transposed all of the Directive, and they only introduce changes to make the UK fully compliant with the Directive. In particular, the Regulations use a definition of a "trade secret" (in line with the definition of a trade secret under the TRIPS Agreement) as being confidential information which:

• is secret and, as a result, has commercial value
• has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

Practical tip: To demonstrate "reasonable steps"⁵, businesses could consider introducing procedures including: 

• policies and contractual protections for the handling and use of confidential information
• employee training on the handling and use of confidential information
• restrictions on user access to confidential documents/information.

The Regulations also set out the limitation periods in which claims for the misuse of trade secrets can be brought. In England this is six years from the later of:

•    the day on which the breach of confidence that is the subject of the action ceases; and
•    the day of knowledge of the trade secret holder.

In England, the courts have a wide discretion to determine who should be granted access to another party's confidential information during a trial and the courts can direct that access to certain information and documentation should be limited to the parties' representation. The Regulations could be interpreted as diminishing the court's discretionary powers as it directs that information to which access is restricted by the court, shall be disclosed to at least one person of each of the parties.

[1] Trade-Related Aspects of Intellectual Property

[2] Trade Secrets Directive (2016/244/EU)

[3] The Trade Secrets (Enforcement, etc.) Regulations 2018

[4] EU law comprises regulations (which have direct effect and are automatically incorporated into each Member State's law) and directives (which contain minimum standards/provisions which must be implemented (if not already existing) by a Member State within a prescribed time frame (i.e. through introducing national laws)).

[5] These are merely suggestions at this stage. Until implemented, we do not know how "reasonable steps" will be interpreted by the courts and what trade secrets' holders will be obliged to do to protect their trade secrets in order to meet this threshold.