Choice of Law in EU Trade Secrecy Cases
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Description
Trade secrecy law has become a popular way to protect innovative information. In 2016, the United States enacted its first federal civil trade secrets law, thereby supplementing the protection long available under the laws of every US state. At the same time, the EU promulgated the Directive on the protection of undisclosed knowhow and business information (trade secrets), giving member states two years to implement protection into their own laws. The desire for strong trade secrecy protection is not difficult to understand. Patents do not cover all of the inventions of the modern economy. Software, computer-related business methods and genetic information are not always considered patentable, but because many of these advances can easily be exploited nonpublicly, they are amenable to protection as trade secrets. As importantly, modern global business practices increasingly put knowhow and other confidential information at considerable risk. Technical information is often on computers or in the ‘cloud’, from which it can be appropriated remotely. Jobs are no longer held for life. With more employee mobility, the possibility that information will be taken increases. The internet enables firms to enter crossborder collaborations and joint ventures, or to employ workers who live at a distance. New business models, including geographically dispersed value chains, require information sharing among developers, manufacturers, distributors, sellers and service organizations. The risks associated with these new arrangements were paramount in the EU when the Commission proposed the Trade Secrets Directive. The Explanatory Note to the Proposal discussed the importance of this ‘long-standing form of appropriation over valuable information’ in the context of its description of open innovation and new business models. The Commission also emphasized the transnational nature of the problem, mentioning two key difficulties with leaving protection to member states: ‘sub-optimal incentives for cross-border innovation activities’ and ‘fragmented legal protection [that] does not guarantee a . . . scope of protection and level of redress within the Internal Market’. It opined that ‘the convergence of civil law remedies would allow innovative businesses to defend their rightful trade secrets more effectively across the EU’. Similarly, the Preamble to the Directive refers to ‘collaborative research, including cross-border cooperation,’ ‘cross-border network research and development’ and ‘cross-border trade’. Despite the Directive’s attempt to facilitate transnational R&D, it does not include rules on the law applicable in cases that affect multiple jurisdictions. The EU lawmaker assumes that existing generic applicable law instruments provide adequate solutions (see rec. 37 Directive). Yet crossborder business activities can span multiple locations. For example, information about a production process may be developed in one state, utilized in another, and the resulting products distributed worldwide. The result can be extraordinarily complex choice of law questions. At first glance the Directive makes choice of law rules appear unnecessary. It protects information that is secret ‘in the sense that [it] is not . . . generally known or readily accessible’, which ‘has commercial value because it is secret’ and which has been ‘subject to reasonable steps . . . to keep it secret’ from ‘unlawful acquisition use, or disclosure’. However, the Directive is not a Regulation. Moreover, the experience of US states with a similar legal formulation suggests that courts can interpret these terms in radically different ways. This chapter begins with the US experience and explains why, notwithstanding the states’ widespread adoption of the Uniform Trade Secrets Act (UTSA), the outcomes of US cases can be non-uniform, and raise difficult choices in multistate situations. After demonstrating that the same problems are likely to occur under the Directive, the Chapter considers how the EU regulations on applicable law ought to apply. Two regulations address this question. Misappropriation is generally considered a tort, which implies application of the Regulation on the law applicable to non-contractual obligations (‘Rome II’). Various conflict rules of Rome II may come into play in disputes over trade secrets, notably the general rules for torts, the provision on unfair competition, and perhaps the provision on intellectual property. But there is often also a contractual dimension at play in trade secret cases, notably in cases involving employees under secrecy obligations – and other cases involving other forms of collaboration and joint venturing, where confidentiality is imposed by contract. There may be reason to rely on the Regulation on the law applicable to contractual obligations (‘Rome I’).
Source Publication
The Harmonization and Protection of Trade Secrets in the EU: An Appraisal of the EU Directive
Source Editors/Authors
Jens Schovsbo, Timo Minssen, Thomas Riis
Publication Date
2020
Recommended Citation
Dreyfuss, Rochelle C. and van Eechoud, Mireille, "Choice of Law in EU Trade Secrecy Cases" (2020). Faculty Chapters. 1164.
https://gretchen.law.nyu.edu/fac-chapt/1164
