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Protecting trade secrets through adequate measures

The Act to implement the EU directive (EU) 2016/943 on the protection of trade secrets against their unlawful acquisition, use and disclosure (Geschäftsgeheimnisgesetz, GeschGehG) came into force on 26.4.2019 and, for the first time, created a stand-alone set of regulations. The GeschGehG however only protects holders of secrets who themselves have taken adequate protective measures.

Definition of a trade secret

According to the legal text, a trade secret exists if all of the following preconditions are satisfied:

  • the information is not generally known, or
  • is not readily accessible and
  • has commercial value.
  • Furthermore, this information has to be protected by measures for maintaining confidentiality.

Ultimately, there has to be a legitimate interest for maintaining confidentiality.

Measures for maintaining confidentiality

The GeschGehG can only have a protective effect if adequate measures for maintaining confidentiality have been adopted and sufficiently documented by the holder of the trade secret (also the licence holder). According to the preamble to the statute, the type of measures for maintaining confidentiality that are specifically required will depend on the nature of the trade secret and the precise circumstances of its use. Physical access restrictions and precautions as well as contractual safeguard mechanisms should be considered. There is no requirement for separately labelling each piece of information that has to be kept secret. Instead, measures can basically be adopted for specific categories of information (e.g. technical access barriers), or through general internal guidelines and instructions, or even specified in employment contracts.

Please note: Possible qualifying features for the adequacy of protective measures could include:

  • the value of the trade secret and its development costs,
  • the nature of the information,
  • its significance for the company,
  • the size of the company,
  • the usual measures for maintaining confidentiality at the company,
  • the type of labelling of the information, as well as
  • the contractual agreements with employees and business partners.

Other regulatory content

The GeschGehG has standardised the authorisations and prohibitions related to the acquisition, use and disclosure of a trade secret. For example, one thing that is expressly allowed is so-called reverse engineering, thus acquiring knowledge through the study, or even the disassembly of a product insofar as it is not protected by other property rights (e.g. patent, design).

Please note: The regulations also ensure that so-called whistleblowers are protected against prosecution. This is on condition that the individual who has uncovered a trade secret acted with the intention of protecting the general public interest.

Extending the scope for making claims

On the basis of the new GeschGehG, holders of trade secrets which have been infringed are able to make a significantly greater range of claims. Besides the existing rights to make a claim for ceasing and desisting, provision of information and payment of damages, holders of trade secrets are now also able to make a claim for destruction, surrender, recall, removal and withdrawal from the market. Moreover, the new regulations also include the right to claim for damages in the event of a refusal to provide information. However, the GeschGehG prohibits abusive use on the basis of claims arising out of trade secret infringements.

Scope of new regulations extends to court proceedings and criminal offences

The interests of the holders of trade secrets in keeping these confidential will be protected all the way through to court proceedings. In exceptional cases, the extent of this protection could mean that not only would the public be excluded but also even the counterparty would only be given restricted personal access. Furthermore, in disputes related to trade secrets, the successful party, upon application, would have the option to publish the judgement.

The criminal provisions related to secrecy violations that were hitherto defined in Sections 17 to 19 of the German Act Against Unfair Competition (old version) have basically been carried over into the GeschGehG, although in the corresponding provision the relationship between civil and criminal protection has been reversed. Formulation changes made in this connection were largely due to adjustments for the terminology and system of the GeschGehG.

Recommendation: While the GeschGehG strengthens the protection of trade secrets, nevertheless, it also requires companies to adopt adequate protective measures, although the need not maintain ‘perfect’ confidentiality. Therefore, every company should evaluate its current secrecy protection practices to determine whether or not they are fit for purpose.

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