What is needed for trade secret litigation?

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Trade secret litigation has always been tricky, considering that the rights in sensitive and confidential information shall be enforced without disclosing (too much of) such information in proceedings. While preserving the confidentiality of trade secrets in the course of proceedings without restricting the rights of the opponent means squaring a circle, the EU Trade Secrets Directive ((EU) 2016/943) at least addresses the issue and provides certain (obligatory) basic protection. However, Member States should consider enhancing this protection.

The problem

A trade secret may itself be the subject of the proceedings (in which case it has to be assessed whether the relevant information is protected as a trade secret and whether it was unlawfully acquired, used and/or disclosed) or it may be the subject of evidence in any other proceedings.

In both scenarios, the owner of the trade secret must evaluate whether to put the trade secret at risk by disclosing it in court. Considering the lack of (sufficient) protection, this might in some cases come down to a decision about whether to lose the case or the trade secret. This is far from ideal.

There are two main ways in which to protect a trade secret in court:

  1. "Legal" protection: Similar to the protection conferred by an NDA, the disclosed information may be declared confidential, meaning that the opponent and anyone else participating in the proceedings or having access to documents are not permitted to use or disclose this information.
  2. "Factual" protection: Procedural law may foresee an option not to disclose the trade secret via certain persons, which may even include the opposing party ("in camera proceedings").

While the second option is conceivable if the trade secret is "merely" a subject of evidence, not disclosing it via the other party is much more difficult if the trade secret is the subject of the proceedings.

On the other hand, when the trade secret is the subject of the proceedings, the opposing party may be aware of it anyway, so the only remaining question is whether it was acquired, used or disclosed unlawfully. However, even in such a scenario, the defendant might require protection if it needs to disclose confidential information in order to defend itself (e.g. by demonstrating that an alternative manufacturing method was used).

 

What does the Directive provide?

Under Art 9 of the EU Trade Secrets Directive, Member States "shall ensure that the parties, (…) and any other person participating in legal proceedings relating to the unlawful acquisition, use or disclosure of a trade secret, or who has access to documents which form part of those legal proceedings, are not permitted to use or disclose any trade secret or alleged trade secret which the competent judicial authorities have, (…) identified as confidential and of which they have become aware as a result of such participation or access." According to Art 1 (1), this is even a mandatory provision.

Furthermore, under Art 9 (2) of the Directive, courts must be enabled to restrict access to documents and hearings and to produce a non-confidential version of any judicial decision. While according to the last sentence of this provision at least one natural person from each party and the respective lawyers shall have access to documents and hearings, Art 1 (1) allows Member States to provide for more far-reaching protection than that required by the Directive.

 

What else is needed?

The legal NDA-like protection foreseen by the Directive is a good place to start and already more than we had, for example, in Austria. But in certain cases, such protection is simply insufficient. If the trade secret concerns certain market information, a disclosure of such information via the other party is irreversible, since the other party cannot be forced to suppress or disregard its knowledge.

What is needed for trade secret litigation is a comprehensible and flexible toolbox containing preservation measures that can be requested on a case-by-case basis. Such a toolbox should also comprise certain forms of "factual protection" (at least within staged proceedings), and may include:

  • a lower threshold for substantiation of the complaint; mere conclusive argumentation (as part of staged proceedings); 
  • a preparatory hearing to discuss the course of the proceedings and which preservation measures will be requested or are necessary; decision by the court (subject to appeal);
  • staged proceedings: If possible, the first stage of the proceedings should focus on the question of whether the defendant's behaviour was unlawful. If yes, it may be discussed in the second stage whether the information is in fact a trade secret;
  • reversal of the burden of proof, if reasonable;
  • disclosure of the trade secret only via the court and an expert witness (if necessary) in the first stage ("in cam- era proceedings"); the court may order disclosure via the opponent if deemed necessary in the second stage;
  • "closed court files" – no access for third parties and, in certain cases, no access for the opponent either;
  • a decision by the court that the opponent and others involved in the proceedings or having access to confidential information must not use and/ or disclose such information as long as it has not been finally decided that it is not a trade secret and it has not become publicly available; fines for any violation of the prohibition;
  • a decision by the court to restrict access to files;
  • a decision by the court to restrict access to hearings;
  • a non-confidential version of the decision;
  • clarification that disclosure of information in court does not affect its status as "secret".

While it is impossible to perfectly preserve the confidentiality of trade secrets in the course of proceedings without restricting the rights of the opponent, a comprehensive and flexible toolbox of possible measures may enable a fair balancing of interests.

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This article was up to date as at the date of going to publishing on 10 December 2018.

Dominik Hofmarcher

Dominik Hofmarcher

Attorney at Law

T: +43 1 534 37 50279
d.hofmarcher@schoenherr.eu

country:

austria

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