A few weeks ago, Geldards hosted a round table discussion “IP Strategy for Life Sciences”, in collaboration with Abel & Imray.
One of the key areas of interest amongst our guests was protection of confidential information and trade secrets in the Life Sciences sector. Based on our discussions, we have prepared a short guide on the recent changes in the trade secrets law and how those changes may be useful to the businesses operating within the Life Sciences sector.
At Geldards, we are working closely with our clients, advising them on a day-to-day basis in relation to the legal issues involved in developing and managing their businesses. Through this experience, we recognise that the need to protect confidential information and trade secrets is one of the key priorities at every stage of the life cycle of the business, particularly if one with a strong focus on innovation.
Protecting Intellectual Property within the Life Sciences sector is often associated with obtaining patent registrations. Whilst patent protection is one of the possible routes which can be taken, particularly when it comes to inventions, it is not always available, or indeed a desirable route when it comes to protecting confidential information, which may include trade secrets, know-how, and various solutions used as part of the successful modus operandi of the business.
In this article, we will take a closer look at how confidential information and trade secrets can be successfully protected.
The short answer to the question “What is confidential information?” is that there is no strict legal definition of it. Any commercial information may be considered confidential and protected as such, as long as it is has the “necessary quality of confidence” and, if it has been disclosed to the recipient, that disclosure took place in circumstances importing an obligation of confidence.
Confidential information often cannot be protected by other intellectual property rights, such as patents, because it does not meet the necessary criteria required to obtain such protection. It is instead protected by the law of confidential information which is based on two general conscience-based principles:
The recipient who was provided with the information in confidence cannot:
- take unfair advantage of it; and/or
- make use of it to the prejudice of the discloser without his/her consent.
The law of confidential information can be enforced against the recipient of such information and also any subsequent third party, even if that third party was not aware of the confidential nature of the information at the time of acquisition and only became aware of it later on. A breach of confidence claim can be brought if the information in question had been used or disclosed (either by way of a threatened or actual use or disclosure). A successful claimant is entitled to either:
- an account of profits; or
- an inquiry into damages; and possibly
- injunctive relief, prohibiting further use and/or disclosure of the information.
Trade secrets and recent changes in the law
A trade secret is a valuable piece of information that could provide the business with certain advantage over its competitors. Traditionally, protection of trade secrets in England and Wales was twofold – through the above mentioned common law action for breach of confidence, and/or by way of a breach of contract claim.
This position has changed recently – in May 2016, the Council of the European Union (“the Council”) adopted the new Trade Secrets Directive (2016/244/EU; “the Directive”), implemented in the UK by The Trade Secrets (Enforcement, etc.) Regulations 2018 (“the Regulations”) which came into force in the UK on 9 June 2018. The purpose of the new Directive was to harmonise the varied national trade secret laws across the European Union.
Initially, there were questions as to what impact the new statutory regime would have on the English and Welsh law of confidence. We take the view that the legal position in the UK under the new law remains unchanged, since the definition of trade secret included in the Directive has been binding on the United Kingdom already via the TRIPS agreement and the common law action for breach of confidence already offers the level of protection provided for under the Directive. However, the following provisions have been introduced by the Directive and their adoption is likely to extend the scope of protection for trade secrets in a number of other EU Member States:
- A new common definition of trade secrets and rules in relation to their unlawful acquisition, disclosure and use:
“Trade secret” means information which:
- 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,
- has commercial value because it is secret, and
- has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.
- A common framework for minimum standards that all Member States across the EU are obliged to ensure for the protection of trade secrets and the relevant harmonisation measures;
- Clarity as to what constitutes “unlawful use” and “unlawful disclosure” of a trade secret: the use or disclosure of a trade secret is considered unlawful when it is effected without the consent of the trade secret holder by a person who meets any of the following criteria:
- acquired the trade secret unlawfully (e.g. through unauthorised access to it or any other conduct which is considered contrary to honest commercial practices);
- is acting in breach of a confidentiality agreement or any other duty of non-disclosure;
- is acting in breach of a contractually or otherwise imposed duty to limit the use of the trade secret.
“Trade secret holder” means any person lawfully controlling a trade secret.
- According to the Directive, potential defences include, amongst other: reverse engineering and acquisition of the trade secrets lawfully through: independent discovery or creation, observation, study, disassembly or testing of a product or object that has been made available to the public or lawfully in the possession of the acquirer; the right of worker or workers' representatives to information; any other practice which is in conformity with honest commercial practices.
The above changes will bring more certainty, confidence and reassurance particularly to the businesses operating across the EU and/or collaborating with other EU-based businesses and individuals, which is a common practice in the Life Sciences sector.
Interestingly, when the discussions in relation to the Directive originally started, 1 in 4 European companies reported at least one instance of information theft. The EU has recognised the issues related to varied laws and protections offered to confidential information under the previously existing national laws and the fact that the resulting uncertainty has become a barrier to innovation. Therefore, the rationale behind harmonising the laws through the Directive was to support business initiatives, collaboration and innovation that involves sharing confidential information and trade secrets outside the national borders.
Under the Directive, the relevant limitation period for bringing a claim for the unlawful acquisition, use or disclosure of a trade secret is 6 years from the later of: either the day on which the unlawful activity ceases or the day when the trade secret holder first becomes aware of the unlawful activity.
It is also possible for a trade secret holder to apply to court for an injunction prohibiting the alleged infringer/potential infringer from using or disclosing trade secret or requiring them to cease any such activities on a provisional basis. Moreover, a trade secret holder may also apply for an order for seizure or delivery up of the suspected infringing goods to prevent them from entering into or circulating on the market.
The introduction of the Directive raised questions as to how its implementation in the UK would fit in with the law of confidence and contractual confidentiality regime in England and Wales. The new right to bring action for the unlawful acquisition, use or disclosure of a trade secret will co-exist with the current action for breach of confidence, and is not thought to extend the scope of protection provided by it. Therefore, confidentiality, non-disclosure agreements and contractual clauses will continue to play an important role in protecting confidential information and trade secrets and their breach will provide a separate cause of action for breach of contract. They will also assist in determining whether the acquisition or use of a trade secret is unlawful, since any such activity which amounts to a breach of a confidentiality agreement or similar duty will be considered unlawful under the Regulations. The main benefit of the Directive to those controlling trade secrets will be broader protection in those EU Member States where it was originally weaker.
The addition of the new cause of action to protect trade secrets is very welcome. However, the most effective way to protect your business from breaches of confidentiality and misuse of trade secrets still is to prevent them. We have prepared a short guide on how you can try and ensure that confidential information and trade secrets are protected within your organisation:
- Restrict access to confidential information and trade secrets to those individuals who genuinely need it;
- Mark confidential information as “confidential” (although be aware that marking information as such will not make the information confidential if it does not meet the required criteria to be considered as such);
- Store confidential information safely, securely and ensure that access to it is restricted appropriately;
- Ensure your electronic information is also stored safely and securely and ensure that access to it is restricted appropriately;
- Ensure that the confidentiality provisions and restrictive covenants (as appropriate) are included in your employees’ contracts of employment;
- Ensure your employees are trained in preserving confidentiality of information and trade secrets and that the relevant policies are in place and available to all employees;
- Give practical guidance to your employees, e.g. by way of presenting short case studies;
- Keep written records of all employees and third parties who had access to the information in question;
- Use confidentiality/non-disclosure agreements when collaborating with third parties;
- Audit your security procedures on a regular basis and update them as necessary.
Further information and advice
If you require any further information or legal advice, please contact a member of our Life Sciences Team.
COMMERCIAL DISPUTE RESOLUTION
INTELLECTUAL PROPERTY LITIGATION