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Secrecy or Disclosure—that is the Question

JURIST Guest Columnist Virginia Brown Keyder, the State University of New York at Binghamton, discusses IP laws in the US and EU...

If any legal concepts may be said to characterize our age, intellectual property (IP) and secrecy would be likely candidates. In theory, these are polar opposites—representing disclosure (for the benefit of the public) and non-disclosure (primarily for the benefit of private interests, but often labeled 'national security'), respectively. Secrecy peppers the legal and political universe with state secrets, secret jurisdictions (see Panama papers or consider Guantanamo), secret laws and secret interpretations, secret ultimatums, secret surveillance, secret trade agreements, secret negotiating strategies and even a significant upswing in secret patents. IP has always been predicated on full disclosure of inventions and creations in exchange for limited-time legally enforceable monopolies, with the view that once the monopolies expire, the content will fall into the public domain to enrich society.

In 2016 IP and secrecy in both the US and the EU moved considerably closer through new trade secret legislation. From its pre-life, which in the public mind centered around the formula for Coca Cola, trade secrets have burgeoned into a less costly and potentially longer term form of protection of inventions than patents, to include employee non-compete clauses, scientific data (both valuable and damaging to its owners), and the stuff that whistleblowers everywhere thrive on.

As discussed elsewhere in this volume, the new US legislation in the form of the Defend Trade Secrets Act (DTSA) amends the 1996 Industrial Espionage Act, which made theft of trade secrets a felony, by creating a Federal civil cause of action reflecting what has heretofore been state law embodied in the Uniform Trade Secrets Act (UTSA)adopted by 48 states. Although in effect for only a few months, the DTSA has unsurprisingly already given rise to litigation. Although trade secrets have constituted the poor relative of the US IP legal family until now, the DTSA brings welcome relief to US corporate players reeling under the weight of patent thickets, the threat of patent trolls and the rising costs of prosecuting and protecting a wide array of inventions, information and other miscellany yet to be determined.

The EU Directive on the other hand sets out basic harmonizing legislative goals and gives EU Member States until June 9, 2018 to implement those goals in domestic legislation. For readers unfamiliar with the structure of EU law, this basically means that the core provisions of the Directive will be inserted into national law in keeping with the Member States' existing legal structures. Once enacted these provisions will then become subject to general principles of EU law, including fundamental rights as set out in the EU Charter on Fundamental Rights, proportionality, protection against abuse of process, free movement of goods, services, capital and people and legal certainty. Provisions of national law enacted pursuant to the Directive are also subject to the interpretation of the European Court of Justice.

At present, laws of the EU member states vary widely on the subject of trade secrets, with only Sweden having a specific Act on the Protection of Trade Secrets. Other Member States situate and define trade secrets in a variety of categories from Common Law confidentiality in the UK, to unfair competition and provisions of Civil and Commercial Codes in other Member States [PDF].

While this Directive harmonizes trade secret law across the Member States (one is at a loss to figure out why this didn't come up before, ostensibly such a barrier to e.g. free movement people as various and sundry non-compete clauses are), it also responds to significant lobbying efforts by US entities looking to give globalization a last push, and to prepare the ground for the TransAtlantic Trade and Investment Partnership (TTIP), dead in the water as it might be.

First and foremost, the Directive creates for the first time a common definition of 'trade secret'. As exceptions to its application, it expressly provides: freedom of expression and information as well as respect for the freedom and pluralism of the media; rules regarding the public interest in disclosure for administrative or judicial authorities in the performance of their duties; disclosure of information submitted by businesses where necessary; and collective agreements. Article 1(3) provides that the Directive may not be use to hinder the mobility of workers (death to non-compete clauses? We'll soon find out.).

Article 3 sets a broad scope for the legal acquisition of trade secrets to include independent discovery, reverse engineering of products made available to the public lawfully in the possession of the party acquiring the product or object, information acquired pursuant to the exercise workers' rights and other means of acquisition in conformity with honest commercial practice. Article 4(2)(a) and (b) sets out unlawful means of acquisition of trade secrets to include "unauthorized access to, appropriation of, or copying of any documents, objects, materials, substances or electronic files, lawfully under the control of the trade secret holder, containing the trade secret or from which the trade secret can be deduced", in other words, hacking; or other conduct considered contrary to honest commercial practices, a category left open to future interpretation, ultimately by the European Court of Justice.

Use of a trade secret is deemed unlawful if carried out by anyone who acquired the trade secret unlawfully, is in breach of a confidentiality agreement (or other duty not to disclose) or is in breach of a contractual duty to limit its use (Art. 4[3]). Any action for disclosure of a trade secret will, however, be dismissed where the disclosure involves the exercise of freedom of expression, as mentioned above, revealing of misconduct or illegal activity (all whistleblowers?), disclosure by workers to their representatives, or protecting a legitimate interest recognized by EU or national law (Art. 5).

The Directive provides extensive measures for protection of trade secrets during legal proceedings and for protection of personal data (Art. 9). Provisional and precautionary measures mandated by the Directive include cessation or prohibition of the use of the trade secret; prohibition of the production, marketing etc. or importation, export or storage of infringing goods and seizure of suspected infringing goods, including imported goods (Art. 10). Factors to be considered by the judicial authority and the nature of specific circumstances to be evaluated are also set out in detail (Art. 11).

Remedies set out in Article 12 include injunctions and corrective measures which include the "destruction of all or part of any document, object, material, substance or electronic file containing or embodying the trade secret or, where appropriate, the delivery up to the applicant of all or part of those documents, objects, materials, substances or electronic files." This falls far short of the execution provision in the new US law, which by one account constitutes a full 42% of the word count of the Act and provides for ex parte seizure of "property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action."

Pecuniary compensation may also be awarded in place of injunctions and corrective measures where certain conditions are met. Damages may be awarded where the infringer "knew or ought to have known that he, she or it was engaging in unlawful acquisition, use or disclosure of a trade secret", but Member States may "limit the liability for damages of employees towards their employers for the unlawful acquisition, use or disclosure of a trade secret of the employer where they act without intent.

The Directive is marked not only by what it includes but what it omits in the eyes of US lobbyists. It provides no criminal sanctions (in sharp contrast to the 1996 US law that DTSA amends) and expressly refrains from creating a new form of intellectual property, which leaves it outside the scope of application of the EU Enforcement Directive.

Arguably, the full extent of what may come to be regarded as a 'trade secret' has not yet been realized. One author hinted at what is to come, saying "A large proportion of that dark matter is an amorphous "know-how": the culture, incentives and tacit knowledge that make a modern company tick. Successful companies, be they Goldman Sachs or BuzzFeed, evolve a way of gathering, processing and acting on information that is critical to their success and which cannot easily be replicated. The value generated by a firm's culture, just like the value generated by networks of people within cities, or by a country's economic institutions, is social rather than individual."

A narrow view of the new Directive is that it harmonizes a diverse collection of national legal provisions for the sake of free movement upon which the EU is based. In a broader perspective, it sharply raises the question of whether as a society we are shareholders, in which case privatization and secrecy are acceptable if they contribute by way of stronger more competitive corporations to our collective material wealth or citizens, in which case our public domain stands to be diminished considerably by any replacement of patents (faulty as they may be) with trade secrets for the sake of corporate economy.

Legislation strengthening secrecy, be it state or corporate, by definition limits the transparency basic to democracy and, many would argue, progress and prosperity, particularly in an era where corporate power is being supplemented by new 'trade agreements'. While it is interesting that the EU has not seen fit to harmonize trade secret law over its sixty years of existence, regardless of the fact that, e.g. variation in areas like the validity and operation of non-compete clauses must have caused considerable disruption in the plans of employers wishing to take advantage of the single market labor pool.

It is far from conspiratorial to think that it is no coincidence that the EU has chosen to harmonize this far-reaching body of law in the same year as the US, where corporations and start-ups alike are drowning in innovation-killing patent thickets, plagued by patent trolls and facing rising costs of prosecution and protection of patents. This Directive may be a good thing in that it creates no new IP and brings to bear general principles of EU law, including those in the Charter of Fundamental Rights, proportionality and free movement of people, on what was more often than not straight national contract law. But here's the thing: in their characteristic short-sightedness, both the US and the EU (i.e. the IP-worshipping 'West') are undermining their deeply entrenched justification for the existence of intellectual property law in the first place: first, that the disclosure demanded in return for monopoly fosters healthy, stable and prosperous societies; and secondly, that individuals, regardless of the fact that most are employees of some corporate entity, should be the beneficiaries of their own creative and inventive ideas which they alone are free to exploit for a limited time. 2016 is making goose that laid the golden egg very uncomfortable.

Virginia Brown Keyder is a Lecturer in EU law, IP and international law at the State University of New York at Binghamton. She has previously served as the Foreign Law Specialist at Mark Levy & Associates, and has served as a consultant on EU IP law. From 2000-2002, Keyder served as the Turkey Correspondent for JURIST. She has also written extensively on olive oil and the law.

Suggested citation: Virginia Brown Keyder, Secrecy or Disclosure—that is the Question, JURIST - Forum, Dec. 3, 2016, http://jurist.org/forum/2016/12Virginia-Brown-Keyder-/Secrec-or Disclosure-that-is-the-Question.php

This article was prepared for publication by Yuxin Jiang, a Senior Editor for JURIST Commentary service. Please direct any questions or comments to her at commentary@jurist.org

Opinions expressed in JURIST Commentary are the sole responsibility of the author and do not necessarily reflect the views of JURIST's editors, staff, donors or the University of Pittsburgh.

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