The new German Act for the Protection of Trade Secrets (Gesetz zum Schutz vor Geschäftsgeheimnissen – GeschGehG, or the Trade Secrets Protection Act) which implements EU Directive 2016/943 on the Protection of Trade Secrets against Unlawful Acquisition, Use and Disclosure (the Trade Secrets Directive) into German law, came into force on 26 April. The new law provides for an expanded regulatory framework for the protection of trade secrets and places increased demands on trade secrets owners to ensure and document appropriate confidentiality measures both within their organization and vis-à-vis third parties. It seems likely, therefore, that many companies will have to review their internal organization in light of the new requirements. Since the Trade Secrets Protection Act is already effective, time is of the essence.
So far, the protection of trade secrets was regulated in Germany only by the penal provisions of the German Unfair Competition Act (Gesetz gegen den unlauteren Wettbewerb - UWG) and the laws of tort in the German Civil Code (Bürgerliches Gesetzbuch - BGB), which were considered insufficient to implement the provisions of the Trade Secrets Directive. Since the term “trade secret” was not precisely defined by law, there was no uniform approach to the protection of trade secrets by German courts.
The Trade Secrets Protection Act now provides three elements for a definition of a “trade secret”:
Pursuant to the new definition of trade secret in the Trade Secrets Protection Act, the legal protection of a company's confidential business knowhow now depends, in particular, on the existence of “appropriate confidentiality measures” (e.g., contractual confidentiality obligations, nondisclosure agreements (NDAs), or technical access controls such as encryption). The burden of proving that appropriate confidentiality measures have been taken and that a trade secret therefore exists lies with the respective company.
This may lead to a situation where certain company information may (subjectively) be regarded as confidential business information by such company but is no longer considered as a trade secret under the Trade Secrets Protection Act if there is a lack of such appropriate confidentiality measures. Companies are therefore required to develop and implement adequate protection concepts for their trade secrets as the lack of such measures may result in a complete loss of legal protection.
The Trade Secrets Protection Act aims to prevent trade secrets from being obtained, used, or disclosed by unauthorised persons. In this respect, it defines certain prohibited actions which may constitute an unlawful acquisition or unlawful use or disclosure of a trade secret. In particular, pursuant to the Trade Secrets Protection Act, a trade secret may not be obtained through:
On the other hand, the Trade Secrets Protection Act also defines certain circumstances under which it is explicitly permitted by law to obtain a trade secret, in particular by:
Furthermore, a trade secret may be obtained, used, or disclosed as permitted by law or legal transaction.
Finally, as a general exception, the acquisition, use, or disclosure of a trade secret shall not constitute a prohibited action under the Trade Secrets Protection Act if such action is taken for the protection of a “legitimate interest”, in particular:
The Trade Secrets Protection Act thus strengthens the protection for journalists by introducing far-reaching exceptions for whistleblowers if the disclosure is in the public interest.
If a trade secret is unlawfully obtained, used or disclosed, the owner of the trade secret now has explicit claims to removal, omission, destruction, surrender, recall, information, and damages in the event of intentional or negligent violation against the violator.
If a violation is committed by an employee of a company, the owner of the trade secret may have the claims to removal, omission, destruction, surrender, recall, and information also against the owner of the respective company.
Furthermore, the Trade Secrets Protection Act contains various special provisions for court procedures regarding claims in relation to trade secrets.
In light of the Trade Secrets Protection Act and, in particular, the rather narrow new definition of “trade secrets”, companies should check whether their “confidential business information” is adequately protected by contractual arrangements with business partners and employees and by respective technical and organizational measures. In this respect, a structured process may be necessary in order to identify which information and knowhow exists in the company and which concrete protective measures (NDAs, encryption, special labelling, etc.) the respective information requires.
In addition, training employees regarding the appropriate handling of trade secrets may be necessary. Further, companies should review if they are sufficiently protected against so-called “reverse engineering”, which should be explicitly prohibited under contractual agreements with the employees as well as business partners. Without a corresponding contractual regulation, “reverse engineering” (i.e., observing, investigating, dismantling, or testing a product or object) is now expressly permitted (within the limits of the German Unfair Competition Act and in compliance with any protected intellectual property).
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Seth M. Gerber