EU Trade Secrets Directive: Misappropriation and Legal Framework Overview
The European Union Trade Secrets Directive sets out rules and harmonization for misappropriation of trade secrets across member states, allowing room for more extensive protection by individual countries. This directive addresses unlawful acquisition, use, and disclosure of trade secrets, along with provisions for enforcement and remedies. Understanding the primary actors involved and the concept of infringing goods is crucial in navigating the legal landscape defined by the EU legislation.
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Cross border misappropriation of trade secret Nari Lee Hanken School of Economics, Finland
Starting point : Is TS an (I)P ? Lee N (2021 forthcoming) Hedging (into) Property? - Invisible Trade Secrets and International Trade in Goods Global Intellectual Property Protection and New Constitutionalism. Mylly, T. & Griffiths, J. (eds.). Oxford University Press (forthcoming 2021) Lee, N. (2021). Open Yet Secret Trading of Tangible Goods and Trade Secrets. In N. Bruun, G. Dinwoodie, M. Levin, & A. Ohly (Eds.), Transition and Coherence in Intellectual Property Law: Essays in Honour of Annette Kur (Cambridge Intellectual Property and Information Law, pp. 242-253). Cambridge: Cambridge University Press. doi:10.1017/9781108688529.028
Background - EU Law on Trade Secrets EU Primary Leg Charter (ECHR A1P1) EU Secondary Leg National law transposing Trade Secret Directive (Lex Specialis) Definition, Misappropriation, Remedies, Enforcement Also, IPR Enforcement Directive (if MS has transposed it including trade secret) EU law on disputes Brussels Regulation : Jurisdiction Rome II Regulation: Applicable law Other related EU regulations (i.e. GDPR, Transparency Regulation, )
EU TSD: Misappropriation Minimum harmonization MS may provide more extensive class of wrongs as part of the misappropriation Misappropriation (acquistion + use+ disclosure) (Art 4) Four types tied to underlying unlawfulness (principle) Art 4: each independent cause of action Unlawful acquisition (4.2.) Use or disclosure after unlawful acquisition or in breach of contract or other duty not to disclose or use the trade secret) (4.3) Unlawful acquisition, use or disclosure by a third party (4.4) Knowing Trading of Infringing goods (4.5)
Art 4 Misappropriation Primary Actor Third Party Acquire ( 4.4) Acquisition Unauthorised or Commercially Dishonest 4.2 Third party Trade Secret Holder Acquire Infringing goods ( .4.4) Primary Actor Duty/ contract Knowledge Third Party Use/ Disclose Unlawful acquisition ( 4.2) or Against Duty of confidence or Other duty 4.3 Use / Disclose TS ( 4.4) Trading Infringing goods ( 4.5 2.4 Definition)
Art 4 (5) Infringing goods 5. The production, offering or placing on the market of infringing goods, or the importation, export or storage of infringing goods for those purposes, shall also be considered an unlawful use of a trade secret where the person carrying out such activities knew, or ought, under the circumstances, to have known that the trade secret was used unlawfully within the meaning of paragraph 3. Infringing goods : Art 2 (4) infringing goods means goods, the design, characteristics, functioning, production process or marketing of which significantly benefits from trade secrets unlawfully acquired, used or disclosed. Broad & Open /MS law? Knowledge of whose unlawfulness ? Primary actor When? Knowledge when - at the time of action or before? Where? Country of import or export? Extra territorial application?
Legislative Purpose of 4(5) TSD Recitals? Recital 4 globalization... Without effective and comparable legal means for protecting trade secrets across the Union, incentives to engage in innovation-related cross-border activity within the internal market are undermined, and trade secrets are unable to fulfil their potential as drivers of economic growth and jobs. Thus, innovation and creativity are discouraged and investment diminishes, thereby affecting the smooth functioning of the internal market and undermining its growth-enhancing potential. Recital 28 .Considering the global nature of trade, it is also necessary that such measures include the prohibition of the importation of those goods into the Union or their storage for the purposes of offering or placing them on the market .
Research Question : how to conceptualize TS cross border misappropriation Is it Domestic Trade Secret Foreign misappropriation Domestic Dispute Or Foreign Trade Secret Domestic misappropriation Domestc Dispute Or Foregin Trade Secret Foreign misappropiration Domestic Dispute Can TS be localized (like IPRs?), or Does cross border misappropriation of TS actually crosses border?
Any international law on this? No International TS Harmonization - Paris Convention Article 10bis - TRIPs Article 39.2 - CPTPP 18.78 (criminal liability) Minimum harmonization - EU Trade Secret Directive
Are there European Law on this? TS directive Nothing specific : leaving it open for the MS to define underlying cause of actions of unlawfulness (Art 4) which makes it possible to characterize it as a confidence breach, contractual breach, tort/delict (+ employment) different forums and different applicable rules Confusion? characterization of underlying right (property, tort, or IP violation) becomes a practical question of which court may be used to enforce the right using which applicable law Jurisdiction/ Forum : Brussels Regulation : Regulation No 1215/2012 (44/2001 recast) Applicable Law: (Rome I or) Rome II : Regulation No 864/2007 Types of Remedies: TS Directive + Enforcement Directive (if MS applies IP rules to TS)
TSD Recital 37 The Directive does not aim to establish harmonised rules for judicial cooperation, jurisdiction, the recognition and enforcement of judgments in civil and commercial matters, or deal with applicable law. Other Union instruments which govern such matters in general terms should, in principle, remain equally applicable to the field covered by this Directive. Brussels Regulation : Forum Rome I& II Regulations : Applicable law
So, Crossborder : Territorial or Extraterritorial? National law application to cross border conduct with extraterritorial implication (i.e export/import) Conflict of law /private international law determines jurisdiction and applicable law Crucial: characterization of dispute - Public (govt disclosure) or Private ? - Criminal or Civil? If Civil, Contract or non contractual ? IP(Property) or unfair competition (Tort)? Labour Law (Employment) ? Privacy?
TSD : No IP - Recital 16 ? In the interest of innovation and to foster competition, the provisions of this Directive should not create any exclusive right to know-how or information protected as trade secrets. Thus, the independent discovery of the same know-how or information should remain possible. Reverse engineering of a lawfully acquired product should be considered as a lawful means of acquiring information, except when otherwise contractually agreed. The freedom to enter into such contractual arrangements can, however, be limited by law. in reverse engineering dispute, does it become a contractual dispute ? No separate exclusive right Does it means it is not IP? Or Does it only mean member states do not have to create separate exclusive right ? Member states decides
Maybe not unfair competition either? Recital 17 In some industry sectors, where creators and innovators cannot benefit from exclusive rights and where innovation has traditionally relied upon trade secrets, products can nowadays be easily reverse-engineered once in the market. In such cases, those creators and innovators can be victims of practices such as parasitic copying or slavish imitations that free-ride on their reputation and innovation efforts. Some national laws dealing with unfair competition address those practices. While this Directive does not aim to reform or harmonise the law on unfair competition in general, it would be appropriate that the Commission carefully examine the need for Union action in that area. Most trade secret protection is now found in unfair competition law of the MS but Not unfair competition law based tort? Or does it mean that no need to harmonize slavish imitation regulations under the unfair competition law ?
Brussels Regulation to TS: divided ? GENERAL: Civil and commercial matter: place of domicile (general: Art. 4) Art 7 special jurisdiction (1)(a) matters relating to a contract: as a general rule, these will be dealt with by the courts for the place of performance of the obligation in question; ND obligation in the contract: provision of services : 1(b) location of service ND obligation in the employment contract? 1(b): location of service ? Or Art 21-22:employment contract rule (2) matters relating to liability for tort, delict or quasi-delict: the place where the harmful event occurred or may occur most TS misappropriation (3) civil claim based on act giving rise to criminal proceedings: the court seised of criminal proceedings MS law TS under criminal proceeding Art 8 Close connection (multiple defendants) Art 22 Employee Domicile Art 24. Exclusive Jurisdiction: IP Trade Secret May be any one of these!
Applicable Law - First source question? Rome Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) or Rome II (non contractual) Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II) ROME II : Travaux: Explanatory Memorandum in support of the Commission's 2003 proposal for the Rome II Regulation. But CJEU Brogsitter Case C-548/12
Rome II but still uncertain? Art 4 General 1. the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred 2. However, where the person claimed to be liable and the person sustaining damage both have their habitual residence in the same country at the time when the damage occurs, the law of that country shall apply. 3. Where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply .such as a contract 1.Damage (Rule) 2. Habitual Connection (exception) 3. Close connection (escape clause) Art 6 Unfair competition Market Art 6& 8 Parties may not choose Art 8 Intellectual Property Lex Loci protectionis
Rome II: Unfair Competition still divided Article 6 Unfair competition and acts restricting free competition Law of the Market 1. The law applicable to a non-contractual obligation arising out of an act of unfair competition shall be the law of the country where competitive relations or the collective interests of consumers are, or are likely to be, affected. Or A specific competitor: Law of place of damage / competitor s domicile (4.1.) 2. Where an act of unfair competition affects exclusively the interests of a specific competitor, Article 4 shall apply. seat of TS holder (DE prevailing view) Extra territorial applicaation
Rome II: Market 3. a. the law applicable to a non-contractual obligation arising out of a restriction of competition shall be the law of the country where the market is, or is likely to be, affected Market 3.b . When the market is, or is likely to be, affected in more than one country, the person seeking compensation for damage who sues in the court of the domicile of the defendant, may instead choose to base his or her claim on the law of the court seised, provided that the market in that Member State is amongst those directly and substantially affected by the restriction of competition out of which the non-contractual obligation on which the claim is based arises; where the claimant sues, in accordance with the applicable rules on jurisdiction, more than one defendant in that court, he or she can only choose to base his or her claim on the law of that court if the restriction of competition on which the claim against each of these defendants relies directly and substantially affects also the market in the Member State of that court. Is 4(5) always this case as infringing goods would compete with TS holder s product? 4. The law applicable under this Article may not be derogated from by an agreement pursuant to Article 14. Parties may not choose
Cases 1. Senior v Celgard (UK) [2020] EWCA Civ 1293 2. USITC Investigation No 337-TA 1159 (Lithium ion batteries etcs.) (2021, US) 3. USITC Investigation No 337-TA 1145 (Botulinum toxin product) (2021, US) 4. Sino Legend (Zhangjiagang) Chem. Co. v. Int'l Trade Comm'n (Jan. 9, 2017) Cert. denied sub nom. 623 F. App'x 1016 (Fed Cir 2015), (USITC 337-TA-849, 2011 Rubber Resins ) 5. Tian Rui Group Co v. ITC, 661 F.3d 1322, 1337 (Fed Cir 2011) Appealed from (Cast Steel Railway Wheels) 337 TA 655
Cross border misappropriation Defendant TianRui Sinolegend Evolus/Daewoong SK Innovation Senior Exporter, Distributor, Importer Plaintiffs/complainant Amstead SI Group Medytox/Allergan LG Electronics Celgard Former employees (acquire, disclose) duty TS holder Acquire Knowledge of unlawfulness Acquire Infringing goods Acquisition Use / Disclose TS Lawful control of TS Disclosure/ Use Trading Infringing goods Secondary actor 4.4 direct/indirect 4.5 use + 2 (marketing, benefits) Primary actor 4.2, 4.3 unlawful Is it a trade secret? 2 Definitions CN, KR US, UK, EU
Complainant/ Celgard LG Eletronics Medytox/ Allergan (licensee) SI Group Amsted Primary Actor Former employee Dr Zhang Xiamonin Several former employees Former Employee Dr Byung Kook Lee Former Employees (Mr Zack Zu, Mr CYLai) Former employess of Licensee of Amstead (Datong, CN) Respondent /defendant Senior SK Innovation Daewoong /Evolus Sino Legend Tian Rui and others Contract? Employment/NDA Employment Employment: Employement: Confidentiality and non compete Employement: Confidentiality Parallel proceedings? Yes in CN/US Yes in KR (Pending) Yes in KR (Pending) Yes in CN: No misappropriation Excluded ITC review No Jurisdiction UK Court ITC ITC (importation) ITC (importation) Fed Cir (review) ITC(importation) Fed Cir (review) Remedy Interim injunction LEO (10 years) LEO (21 months) LEO(10 yrs) LEO Applicable law Importation UK /EU Law (TS Directive 4.5) US Tariff Act (19 U.S.C. 1337 ) US Tariff Act (19 U.S.C. 1337 ) US Tariff Act (19 U.S.C. 1337 US Tariff Act Applicable law Misappropriation (Not treated but maybe CN para 68) US law (UTSA) US law (UTSA) US law (UTSA and Federal common law) US law (UTSA) Location of acquisition/ Primary Actor US KR KR CN US Import UK US US US US Manufacturing (use/disclose) CN US KR CN CN
Problem of knoweledge- Directive Art 4.5 5. The production, offering or placing on the market of infringing goods, or the importation, export or storage of infringing goods for those purposes, shall also be considered an unlawful use of a trade secret where the person carrying out such activities knew, or ought, under the circumstances, to have known that the trade secret was used unlawfully within the meaning of paragraph 3. Can importation of infringing goods alone be the cause of action even without determining the unlawfulness of the underlying conduct? DECEPAGE or Mosaic Approach? If divided: To apply the law of the country of importation, a presumption of (un)lawfulness of the conduct of primary actor - in the country of origin (acquisition) has to be made : Should we need a statutory expression to that effect? If NOT: Extraterritorial application
Claim by Celgard 17. The Direct Claim is a claim that Senior is liable for importing into, and marketing (or threatening to market) in, the UK battery separators whose design, characteristics, functioning and/or production process benefit significantly from Celgard's trade secrets on the grounds that such acts amount to a breach of an equitable obligation of confidence and/or a breach of regulation 3 of the Trade Secrets (Enforcement, etc) Regulations 2018 (SI 2018/597) ("the Regulations") which (partially) implement European Parliament and Council Directive Import to UK 18. The Vicarious Claim is a claim that Senior is vicariously liable for the wrongdoing of Dr Zhang in disclosing Celgard's trade secrets to Senior in breach of an equitable obligation of confidence and/or regulation 3 of the Regulations. Although Celgard pleads that Dr Zhang was subject to an express contractual obligation of confidence pursuant to the NDA in support of its case that its trade secrets are confidential information, it does not allege breach of the NDA by Dr Zhang. Disclosure/use In CHINA
Celgard v Senior Applicable Law UK TS Regulation wider protection Art 4.5 Importation (main) : Art 4.1-4.3 : Use/disclosure not main claim Applicable law? UK because 1) Importation ? TSD Art 4.5 Unfair competition and NOT IP Not Art 8 Lex loci protectionis as TS is not IPR ROME II Article 6(2) Unfair competition 4(1) Place of damage UK law Also governs liability for the acts of another person (ROME II Art 15(g)) 2) Knowledge of unlawfulnes ? Applicable law? EU law or UK(MS) law? Or even Chinese law? Applying Rome II : UK law Fortunately, it is not necessary at this stage of the proceedings to reach a conclusion as to the correct answer. (para 67) 3) Disclosure, Use? (Art 4.3) Chinese law? US law or UK law?
Conclusion : how to conceptualize TS cross border misappropriation Is it Domestic Trade Secret Foreign misappropriation Domestic Dispute Or Foreign Trade Secret Domestic misappropriation Domestc Dispute Or Foregin Trade Secret Foreign misappropiration Domestic Dispute Can TS be localized (like IPRs?) NO Does cross border misappropriation of TS actually crosses border? Maybe not. If so, it leads to another question: The answer to this may be, however, that it is simply a consequence of the way in which different claims involving different primary actors are framed, and that there is nothing wrong in Senior being held liable for its own actions even if it is not liable for the actions of Dr Zhang (Arnold LJ, para 68) Art 4.5. Liability is a primary actor liability otherwise this would require a presumption on the unlawfulness of the primary actor?: If so an extraterritorial application of EU law to all exporters to EU?
Ps. Shame on BREXIT. LJ Arnold para 67. In my view, this is a very difficult question. It is one which may well have to be answered (for the Member States of the EU) by the Court of Justice of the European Union in due course, .
