Trade secrets regulations: how to take advantage of the statutory protection for trade secrets

For some businesses, trade secrets can be their most valuable assets. A trade secret is a specific form of confidential information which is commercially valuable, is treated as secret, and gives the owner a competitive advantage.

Trade secrets come in a variety of forms such as secret formulae and recipes, R&D information, software algorithms, inventions, designs, devices, sales/distribution methods, marketing plans, and customer lists.

Some of the world’s most famous trade secrets include the recipe for Coca-Cola, the formula for WD-40 and the software algorithm for Google’s proprietary search engine. These trade secrets have immense value for their respective companies.

Unlike other forms of intellectual property rights, trade secrets are not registerable in the UK and have historically been protected via contract (e.g. confidentiality agreements and confidentiality provisions in employment contracts/service agreements) or through the case law that has developed over the years relating to implied obligations of confidentiality.

Although there has been a robust and well-established common law legal framework in the UK offering protection for trade secret holders, in the EU there were differing levels of protection. To address this issue, the EU passed Trade Secrets Directive 2016/943 (Directive) which set a minimum standard to protect trade secrets across the EU.

The UK implemented the Directive through the Trade Secrets (Enforcement, etc.) Regulations 2018 (SI 2018/597) (Regulations) on 9 June 2018, creating a separate, statutory regime that operates in parallel to the regime of the common law of confidentiality, supplementing it and seeking to address areas where gaps occur.

Since June 2018, two cases have been brought before the English courts which show the interplay of these two regimes in practice.

In Trailfinders Ltd v Travel Counsellors Ltd & Ors [2020] EWHC 591 (IPEC) (12 March 2020), the court found that “the best guide to the distinction between information which is confidential and that which is not is now to be found in the definition of ‘trade secret’” in article 2(1) of Directive 2016/943, i.e. information which is (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.

In Celgard, LLC v Shenzhen Senior Technology Material Co Ltd [2020] EWHC 2072 (Ch), the High Court granted the UK’s first injunction under the Regulations to Celgard, LLC in order to restrain misuse of a trade secret in breach of the statutory duty found in Regulation 3 of the Regulations. The interim injunction prevented the importation into and marketing in the UK of products made outside the UK that unlawfully took advantage of trade secrets, one of the “vices” that the Directive (and the Regulations) was designed to remedy.

In each case, the courts found in favour of the companies seeking to protect their trade secrets, both under the Regulations, and pursuant to their common law rights of confidentiality.

The cases firmly establish the Regulations as an additional basis for a claim for misappropriation of trade secrets, giving claimants greater flexibility to defend their trade secrets, depending on the particular facts of their case.

One of the key requirements needed in order to bring a claim under the Regulations is that the owner of the trade secrets has taken “reasonable steps” to protect those trade secrets. In each of the cases mentioned above the courts took note of the various ways in which the claimants had restricted access, and were happy to find that the “reasonable steps” test had been met. Key actions taken by the claimants in that regard included:

• confidential information stored on company systems was only accessible at company premises using an identification unique to each employee
• non-disclosure agreements had been obtained from employees to make sure they understood the sensitivity of the confidential information concerned.

Other steps that businesses who are seeking to protect their trade secrets should consider are:

• the processes by which new trade secrets are recorded and retained
• carrying out regular audits of their sensitive information and how effective their confidentiality processes are
• limiting access to sensitive information to as few persons as reasonably necessary
• regular checks of IT password strength; and
• regular education of employees as to the importance of confidentiality.

For those companies with valuable trade secrets, the ability to retain secrecy is critical to them being able to sustain their competitive advantage. The Regulations look to be a useful tool to enable them to do so in a world of increasing global competition.

This article is from the May 2021 issue of Upload, our newsletter for professionals with an interest in technology. To download the latest issue, please visit the newsletter section of our website. For further information please contact Tania Saigol or another member of Birketts’ Corporate and Commercial Team.