The importance of trade secrets for start-ups
Intellectual property such as brands, technologies, creative works, marketing concepts or know-how are among an enterprise's most important assets. This is especially true for start-ups, as they are typically based on a valuable idea or business concept which the founders intend to commercialise.
While such an idea or concept is of course intellectual property, a mere idea is not protected by intellectual property rights ("IPRs"). The start-up will thus have to at first rely on the protection of the idea or concept as a trade secret, which only later may be protected by an IPR. In this context the European Commission pointed out that "every IPR starts with a secret" and that "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."
While certain ideas or concepts may later be protected by registered or unregistered IPRs, other information is kept secret because:
- there is no adequate IPR available (eg for protection of customer data, delivery conditions, etc);
- protection (eg by patents) is too expensive; or
- protection as a trade secret simply has advantages (eg if reverse engineering is not possible, the inventor of a new technology or a certain formula may decide to keep it secret rather than seeking patent protection, which requires (unwanted) publication, and to enjoy unlimited protection).
New Directive strengthens protection
Being aware of the importance of confidential know-how and business information (commonly referred to as "trade secrets"), the EU has recognised that the protection in the Member States is inconsistent and often insufficient. Thus, with Directive (EU) 2016/943, a modern and for the first-time 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 8 June 2018.
In addition to defining trade secrets (which is new in Austria – see below), 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 import, export or storage, will be considered unlawful and may thus be prevented as well. The Directive requires Member States to provide a wide range of claims in case of infringements, including a claim for injunctive relief, which may be secured by an interim injunction.
However, it is important to note that under the Directive no exclusive rights in trade secrets are granted. Competitors are therefore free to independently acquire the knowledge protected by the trade secret, whereby reverse engineering is also permitted. 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. "Trade secret" is defined as information that meets all of the following three requirements:
- Secrecy: The information must be secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among, or readily accessible to persons within the circles that normally deal with this kind of information.
- Commercial value: The information must have commercial value because it is secret.
- Protection measures: The information must have been subject to reasonable steps taken by the person lawfully in control of the information to keep it secret under the circumstances.
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 he took reasonable steps to keep the information secret. Against this background, start-ups and other companies are well advised to identify their valuable know-how and business information and to implement protection measures. It may take some time until sufficient guidance from the courts is available, including clarification on whether there are any absolute prerequisites in this respect. In the meantime, an initial toolbox of such technical, organisational and contractual measures may include:
- Installing a secrecy policy;
- Appointing a person responsible for the secrecy regime;
- Monitoring compliance with the secrecy policy;
- Limiting the information to what is absolutely necessary and the number of people who receive such information to those who really need to know it (in-house staff as well as external contractors),
o knowing their identity,
o informing them about the secrecy requirement, and
o binding them by a contractual non-disclosure obligation (NDA);
- Storing documentation separately and securely (both paper and digital data by using locks/password/encryption).
Advantages and requirements
The new Directive will undoubtedly strengthen the position of start-ups owning trade secrets by increasing legal certainty, in particular with respect to cross-border cooperation or trade, and facilitating the enforcement of rights throughout Europe. The monetary value and the marketability of trade secrets will be increased. On the other hand, the Directive requires companies to look after their trade secrets and to implement sufficient protection measures. They should start now rather than in June 2018, when it may already be too late.