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Harmonized Protection of Trade Secrets – A Further Intellectual Property Right?

Harmonized Protection of Trade Secrets – A Further Intellectual Property Right?

Austria
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The new EU Trade Secrets Directive will have a significant impact on Austrian law. But does it establish a new Intellectual Property right? 

The Importance of Trade Secrets 

Intellectual property rights (IPR) such as trademarks, designs, patents, or copyrights are among an enterprise’s most important assets. However, the European Commission has correctly pointed out that every IPR starts with a secret: “Writers do not disclose the plot they are working on (a future copyright), carmakers do not circulate the first sketches of a new model (a future design), companies do not reveal the preliminary results of their technological experiments (a future patent), companies hold on to the information relating to the launch of a new branded product (a future trademark), etc.” Proposal for a Directive of the European Parliament and of the Council on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure, COM (2013) 0813 final – 2013/0402 (COD), Explanatory Memorandum, para 1.

While certain ideas or concepts may later be protected by registered or unregistered IPRs, other information is kept secret because: 

  •  no adequate IPR is available (e.g., for protection of customer data, delivery conditions, etc.), 
  •  protection (e.g., by patents) is too expensive, or 
  •  protection as a trade secret simply has advantages (e.g. if reverse engineering is not possible, an invention may be kept secret to avoid publication). 

Current Protection in Austria 

Confidential know-how and business information (referred to as “trade secrets” in the relevant directive) is currently protected mainly by criminal law provisions in the Unfair Competition Act, accompanied by a provision stipulating additional civil law claims in case of such criminal offences. However, as these provisions are fragmentary and merely cover specific (intentional) behavior, most civil law cases are decided on the basis of the general clause of Sec. 1 of the Unfair Competition Act. 

Moreover, the current provisions do not create a right of the owner of a trade secret but address unfair behavior of third parties, without even defining what a trade secret is. 

There is yet another major hurdle when enforcing trade secrets, as the Austrian procedural rules do not ensure that confidential know-how and business information is kept secret throughout and after court proceedings. In fact, they hardly address the protection of trade secrets at all. 

New Directive Strengthens Position of Trade Secret Owners

Being aware of the importance of trade secrets, the EU has recognized that the protection in the Member States is inconsistent and often insufficient. Thus, with Directive (EU) 2016/943 (the “Directive”), a modern (and first-ever) EU-wide harmonized regime for the protection of trade secrets was established. Member States are required to transpose the Directive into their national laws by June 8, 2018.

In addition to defining trade secrets, the Directive also determines the scope of protection of the owner, who may prevent any unlawful acquisition, use, or disclosure of a trade secret. Under certain conditions, the production, offering, or placing on the market of infringing goods, including their import, export, or storage, will be considered unlawful and may be prevented as well. The Directive requires Member States to ensure protection throughout and after court proceedings and to provide a wide range of claims in case of infringements, including a claim for injunctive relief that may be secured by an interim injunction. Such claims are already known from the EU Enforcement Directive. 

It must be noted, however, that the Directive grants no exclusive rights in trade secrets. Competitors are therefore free to independently acquire the knowledge protected by the trade secret, and reverse engineering is also permitted. Thus, the Directive does not create a further IPR with absolute effect but mere “access protection” (as it is referred to in current provisions). Exclusive rights may only be obtained via IPRs. 

Obligatory Protection Measures

The harmonized legal definition of protectable “trade secrets” is one of the core elements of the Directive and has a massive impact on Austrian law. According to this definition, the information must not only be secret (meaning that it is not generally known or readily accessible) and of commercial value but must also have been subject to reasonable protection measures.

While the first two requirements are rather obvious and unsurprising, the last requirement is new in Austria, as the owner of a trade secret will actively have to prove that reasonable protection measures have been implemented. Companies are thus well advised to identify their valuable know-how and business information and to implement protection measures now rather than in June 2018, when it may already be too late.

Conclusion

While it does not establish a new IPR, the new Directive will undoubtedly strengthen the position of companies owning trade secrets. On the other hand, the Directive requires companies to guard their trade secrets and to implement sufficient protection measures. 

Although a separate and consolidated Trade Secret Act would be preferable, the Directive will probably be transposed by the insertion of new provisions into the Unfair Competition Act.

By Guido Kucsko, Partner, and Dominik Hofmarcher, Attorney at Law, Schoenherr Austria

This Article was originally published in Issue 4.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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