Trade secrets matter more than ever. The UK Government reports dramatic figures: theft of trade secrets costs up to 3% of GDP in developed economies and trade secrets litigation increased 14% annually in the US between 2001 and 2012. In the US, trade secrets cases have produced prison sentences and damages awards north of half a billion dollars. Meanwhile, trade secrets are emerging as a top priority for intellectual property strategy as a vital but underused tool to protect data and data insights, including artificial intelligence. The UK’s Trade Secrets Regulations are now four years old. This blog considers how the UK law of confidence has changed since 2018, including what “reasonable steps” are necessary to protect a trade secret.
The UK Trade Secrets Regulations
When “Directive (EU) 2016/943 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” (the Trade Secrets Directive) came into force in 2016, addressing the patchwork of trade secrets protection that had at the time existed across the Member States, it was thought that the UK would refrain from introducing implementing legislation. The UK’s common law protection of confidence, including the Court’s effective procedures and remedies for breach of confidence, was assumed to be sufficient to comply with the Trade Secrets Directive. The Government view was that that the UK had “a robust and well established legal framework that allows for the effective enforcement of trade secrets“.
Nevertheless, less than six month before the deadline of implementation (9 June 2018), the UK Government issued a consultation on “Draft Regulations concerning Trade Secrets”, setting out a draft set of Regulations and seeking comments from stakeholders. The consultation was brief and resulted in The Trade Secrets (Enforcement, etc) Regulations 2018 (the Regulations).
The Explanatory Memorandum to the Regulations highlights that:
Although UK case law has developed a definition of a trade secret that is consistent with the standards and aligns with that of the Directive, transposing the definition in this instrument provides legal certainty and clarity for UK businesses. The instrument also clarifies the relationship between the regulations and the measures, procedures and remedies available to a trade secret holder in an action for breach of confidence.
Access to both UK common law and statutory rights
The Regulations address the interplay between the UK common law and the UK statute. Article 3 makes both available to a potential claimant. So the old law has not changed and a claimant now has statutory recourse under the Regulations as well. The UK Court has stated:
It is therefore to be assumed that the substantive principles governing the protection of confidential information under English law, including that afforded by terms implied into contracts of employment and by equitable obligations of confidence, are unaffected by the Directive. However, the Directive shines an occasional light on those principles.
Trailfinders Limited v Travel Counsellors Limited and others [2020] EWHC 591 (IPEC), Hacon J
A statutory definition of trade secrets
Under the UK common law of confidence, a claimant in a breach of confidence action needs to show the following in respect of the information sought to be protected:
1. The information itself must have the necessary quality of confidence;
2. The information was imparted in circumstances importing an obligation of confidence;
3. An unauthorised use of that information to the detriment of the rights holder.
Coco v AN Clark (Engineers) Ltd [1968] F.S.R. 415 (01 July 1968)
To this has been added an additional statutory right: the “trade secret”. This is defined in Article 2 of the Regulations:
“trade secret” means information which—
(a) is 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 the kind of information in question,
(b) has commercial value because it is secret, and
(c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.”
The requirement for the information to be secret is self-explanatory and any recourse is lost if the trade secret holder publishes the information. The information also has to have commercial value. There is no guidance as to what this means and this is likely to be very fact dependent. Of particular interest is the requirement that the information has been subject to reasonable steps to keep it secret.
What are reasonable steps?
There has been no judicial guidance to date in the UK as to what the court would consider to be “reasonable steps”. In the US the definition of a “trade secret” similarly requires that the information “is the subject of efforts that are reasonable under the circumstances to maintain its secrecy” and there has been legislative guidance and judicial findings that can help to guide best practice in the UK.
The drafters of the Uniform Trade Secrets Act have commented that “reasonable efforts to maintain secrecy have been held to include advising employees of the existence of a trade secret, limiting access to a trade secret on ‘need to know basis'”. For example, in Turret Labs USA, Inc. v. CargoSprint, LLC, No. 19-CV-6793, Turret Labs was found not to have taken reasonable measures to keep its information secret. The Court held that, in evaluating reasonable secrecy measures, it would generally look to “whether confidentiality or nondisclosure agreements are in place and whether the information is guarded by physical or cyber-security protections“. However what amounts to being reasonable depends on the nature of the trade secret. In this particular case, the trade secret resided in the functionality of the product, therefore physical security, such as locking servers in monitored cages and use of secure datacentres, was less relevant than who was given access under what contractual arrangements. In this case, Turret was unable to show that it had suitably protected its trade secrets.
Protecting your confidential information and trade secrets
In light of the new rights under the Regulations and evolving international case law, it is prudent for businesses to review their existing confidential information/trade secrets policies, ensuring adequate procedures are in place and raising awareness within the business of the importance of confidential information and trade secrets. Trade secrets have always been important for secret manufacturing processes but are now a key IP protection for companies leveraging data and data insights (including artificial intelligence). You can find information on the key documents and procedures for protecting trade secrets here.
