Trade Secrecy Law changes Tomorrow - check your NDA, Standard Terms and other Agreements

Jane Lambert

Tomorrow is a big day for inventors. It is significant because it is the day on which Directive 2016/943 ("the Trade Secrets Directive") is due to be implemented. Every country in the EU, including the UK, has to bring its laws on trade secrets into line with the Directive by 9 June 2018.  It concerns inventors because every patented invention is supposed to start out as a trade secret and for many other inventions that's the way they remain.

Why was the Directive adopted?
At paragraph (9) of a set of paragraphs known as "the recitals", the European Council and Parliament explained that they adopted the Directive because there are big differences in the way that different countries protect trade secrets giving rise to uncertainty, causing unnecessary expense and impeding new product development in Europe.

What does the Directive do?
The most important provision is art 6 (1) which requires EU member states to "provide for the measures, procedures and remedies necessary to ensure the availability of civil redress against the unlawful acquisition, use and disclosure of trade secrets."

What is a "Trade Secret"?
For the purpose of the Trade Secrets Directive a ‘trade secret’ means

"information which meets all of the following requirements:
(a) it 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) it has commercial value because it is secret;
(c) it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret."

Basically that has always been the position in the UK but that was not the case in every country.

What is meant by Civil Redress?
Basically injunctions (orders by a judge) not to acquire, use or disclose trade secrets in future or the payment of compensation or other monetary relief for unlawful acquisition, use or disclosure of trade secrets in the past.  In some circumstances, injunctions and other relief such as orders for the preservation of evidence or assets can be granted before the issue of proceedings.

Do we have to comply with the Directive as we have voted to leave the EU? 
Yes as the UK remains a member of the EU until 29 March 2019 at the very earliest and we should have to abide by EU law until 31 Dec 2020 under the draft withdrawal agreement or even longer under the proposed backstop agreement. More importantly this Directive works in favour of British business because entrepreneurs and inventors know that for the first time the trade secrecy laws of the other countries of the EU are more or less in line with those of the UK.

What has HMG done to comply with the Directive?
HM government believes that our law of confidence and contract law plus our Civil Procedure Rules already comply with most of the provisions of the Trade Secrets Directive but it has identified a few issues where they do not.  One concerns definitions and the other the time limits within which an action for unlawful trade secret acquisition, use or disclosure must be launched. Also there is some doubt as to whether the Scottish courts have the powers to make the orders required by the Directives. To address those issues, Mr Sam Gyimah MP, Minister of State at the Department for Business, Energy and Industrial Strategy, has signed The Trade Secrets (Enforcement, etc.) Regulations SI 2018 No 597 which will come into force tomorrow.

So what do Inventors need to know?
Even though reg 3 (1) of the regulations makes clear that the existing law of confidence still applies in relation to trade secrets the Directive may give trade secret holders (that is to say, persons lawfully controlling trade secrets) greater rights and powers. Also, we are used to talking about "confiders", "confidantes" and "breaches of contract" while the Trade Secrets Directive introduces new terms time like "trade secret holders", "infringers" and "infringing goods".  It would probably be a good idea for trade secret holders to ask their lawyers to review their terms and conditions, standard contracts and, in particular, non-disclosure and confidentiality agreements to make sure that they are still effective.

Where to get more information?
I have written more about this topic in Transposing the Trade Secrets Directive into English Law: The Trade Secrets (Enforcement etc) Regulations 6 June 2018 NIPC Law. That article links to some of my other articles on that topic. I am also giving a talk on the topic at Barclays Eagle Labs in The Landing on 26 June 2018.  If you want to discuss this article or trade secrets generally, contact me on 020 7404 5252 during office hours or send me a message through my contact form.

If you think someone has infringed your patent talk to a lawyer first

Royal Courts of Justice

Litigation is supposed to be the last resort for any kind of dispute including those over patents or other types of intellectual property. For most cases the first step towards settlement it a complaint to the person who has harmed you with a request to stop and maybe a request for compensation. However if you do that in certain types of intellectual property disputes that could land you in a whole heap of trouble.

That is because s.70 (1) of the Patents Act 1977 provides:

"Where a person (whether or not the proprietor of, or entitled to any right in, a patent) by circulars, advertisements or otherwise threatens another person with proceedings for any infringement of a patent, a person aggrieved by the threats (whether or not he is the person to whom the threats are made) may, subject to subsection (4) below, bring proceedings in the court against the person making the threats, claiming any relief mentioned in subsection (3) below."

There are similar provisions in other enactments relation to design rights, registered designs, Community designs and trade marks including Community trade marks.

The relief to which s,70 (3) and the corresponding provisions of the other statutes and statutory instruments refer is:

"(a) a declaration or declarator to the effect that the threats are unjustifiable;
(b) an injunction or interdict against the continuance of the threats; and
(c) damages in respect of any loss which the claimant or pursuer has sustained by the threats."

Those damages can be heavy. In SDL Hair Ltd v Next Row Ltd. and Others [2014] EWHC 2084 (IPEC) Judge Hacon awarded damages of £40,500 against those who had threatened patent infringement proceedings against the distributor of a competing product and a well kn own shopping channel.

The threat need not be formal, explicit or even uncivil but it must be such as to leave a reasonable persob in no doubt as to the consequences of non-compliance.  In Luna Advertising Co Ltd v Burnham & Co. (1928) RPC 258 one of the defendant's reps visited a customer of the claimant and complained that a sign exhibited outside the customer's premises infringed his boss's patent and asked for it be removed. Granting an injunction against the defendant Mr Justice Clauson said

“I think that an interview of this kind … between business men, although nobody speaks of solicitors and writs, has no real meaning except to convey … that the threatener has legal rights and means to enforce them … in the way in which they are naturally enforced, i.e. by legal proceedings.”

Lawyers and patent and trade mark attorneys have to be particularly careful because they have no special protection merely because they are carrying out their clients' instructions.

There are however a number of exceptions and defences in the Act.

First, and most obviously "the person aggrieved" who may be the person to whom the threat is made or his or her supplier will not prevail against the person making the threat if that person can show that the conduct of which he or she complained would infringe a patent. However, a new subsection (2A) inserted by s.12 of the Patents Act 2004 now provides that the person aggrieved will still win if he or she can show that the patent was invalid in a relevant respect unless the person making the threat can show that at the time he she made the threat that person did not know and had no reason to suspect that the patent was invalid. As you might expect a lot of complex and expensive litigation begins with an action  for groundless threats, a counterclaim by the defendant for patent infringement and a counterclaim to the counterclaim for revocation of the patent.

Another exception is provided by s.70 (4):

"Proceedings may not be brought under this section for -
(a) a threat to bring proceedings for an infringement alleged to consist of making or importing a product for disposal or of using a process, or
(b) a threat, made to a person who has made or imported a product for disposal or used a process, to bring proceedings for an infringement alleged to consist of doing anything else in relation to that product or process."

This subsection was also amended by the 2004 Act. Until the subsection was changed threats to bring proceedings in respect of making or importing an allegedly infringing product were excepted but not threats in respect of other acts. Consequently patentees and their lawyers had to be very careful when corresponding with businesses that made or imported and distributed the allegedly infringing product. Needless to say they still have to be careful when dealing with distributors or other intermediaries of an allegedly infringing product.

Yet another amendment brought about by the 2004 Act was made to s.70 (5).  The subsection now reads:

"For the purposes of this section a person does not threaten another person with proceedings for infringement of a patent if he merely -
(a) provides factual information about the patent,
(b) makes enquiries of the other person for the sole purpose of discovering whether, or by whom, the patent has been infringed as mentioned in subsection (4)(a) above, or
(c) makes an assertion about the patent for the purpose of any enquiries so made."

Thus, merely sending a specification to an alleged infringer is not a threat but patentees have to be careful how they respond to any reply. If the recipient of the specification asks "Why have you sent me this?" it is important not to reply "Because you have infringed the patent" or words to similar effect.  In settlement negotiations or mediation parties often mention the possibility of litigation when trying to persuade the other side to make concessions. If uttered in any other context such statements would be actionable threats but the Court of Appeal has held in Unilever plc v. The Procter & Gamble Company [2000] F.S.R. 344 that threats made in bona fide settlement negotiations cannot be referred to in subsequent proceedings. However, the negotiations must be genuine. Merely heading a threatening letter "without prejudice" will not do (see Kooltrade Ltd v XTS Ltd [2001] FSR 344, [2001] ADR LR 7/11).

Supplementing the amended s.70 (5) the 2004 Act inserted a new subsection (6) into s.70 of the 1977 Act which provides yet another defence:

"In proceedings under this section for threats made by one person (A) to another (B) in respect of an alleged infringement of a patent for an invention, it shall be a defence for A to prove that he used his best endeavours, without success, to discover -

(a) where the invention is a product, the identity of the person (if any) who made or (in the case of an imported product) imported it for disposal;
(b) where the invention is a process and the alleged infringement consists of offering it for use, the identity of a person who used the process;
(c) where the invention is a process and the alleged infringement is an act falling within section 60(1)(c) above, the identity of the person who used the process to produce the product in question;

and that he notified B accordingly, before or at the time of making the threats, identifying the endeavours used."

S.70 does not apply to threats to sue abroad unless the person making the threat threatens proceedings in this country too.  Other Commonwealth and a few former Commonwealth countries such as the Republic of Ireland have similar provisions in their patent laws but the United States does not. A few countries actually go further than the UK in that they provide an action for groundless threats for copyright infringement.

There have been calls from time to time by various interest groups to abolish this cause of action and this legislation has been considered recently by the Law Commission. In their report Patents Trade Marks and Designs: Groundless Threats the Law Commission recommended that the cause of action be retained but that the law should be reformed to permit some communication with distributors and lawyers and patent and trade mark attorneys should be exempted from liability.

Threats actions in respect of threats of patent, registered design and registered Community design infringement proceedings should be brought in the Patents Court or the Intellectual Property Enterprise Court ("IPEC"). Proceedings in respect of trade marks, unregistered designs or unregistered Community designs can also be brought in IPEC or the Intellectual Property list of the Chancery Division or any country court that is attached to a chancery district registry such as Manchester, Leeds, Liverpool or Newcastle.

Having cut my teeth in intellectual property litigation in the North of England I have probably seen more threats actions than most members of the intellectual property bar. I was counsel in one of the leading cases on this cause of action. This is a complex area of law in which you can easily get into trouble. If anybody wants to discuss this article or any instance where a threat has been made he or she should not hesitate to call me on 020 7404 5252 during normal office hours or complete my contact form. I am also on twitter, Facebook, Linkedin, G+ and Xing.