Contributed By Kirkland & Ellis LLP
In the UK, trade secrets are protected by:
These sources are interlinked. For example, contractual arrangements can support or be raised in addition to claims under the Regulation or under common law/equity.
The Directive/Regulation does not displace the protection afforded by common law/equity.
Trade secrets protect information with a high degree of confidentiality which is of commercial value by virtue of it being secret in the sense of not being generally known to the public. There is no limit on the type of information that can be classified as a trade secret.
Under the Directive as implemented by the Regulation, a trade secret is defined as information which:
Under common law, the court has given examples such as "secret processes of manufacture such as chemical formulae, designs or special methods of construction" and "other information which is of a sufficiently high degree of confidentiality as to amount to a trade secret". This is contrasted with confidential information which is not a trade secret, to which there is a lower degree of obligation and which an employee is free to use and disclose once out of the employ of their employer.
Under common law, the relevant factors to be considered in determining whether information held by employees falls into the former or latter class of confidential information (or is not confidential at all) include:
(See, eg, Faccenda Chicken Ltd v Fowler (1987) Ch 117).
There are no UK cases under the Directive/Regulation.
Some examples of types of information found to constitute a trade secret under common law are:
However, there is no limit on the type of information that can qualify for protection.
Under the Directive/Regulation
The following questions apply:
Is the information a "trade secret"?
Article 2(1): "trade secret" means information which meets all of the following requirements:
Was there unlawful acquisition, use or disclosure?
The claimant must prove one or more of the following, in circumstances constituting a breach of confidence in confidential information:
Under Common Law/Equity
The seminal test for an action in breach of confidence is set out in Coco v AN Clark (Engineers) Ltd  FSR 215.
The following apply:
Under the new statutory regime imposed by the Directive/Regulation, for information to qualify as a trade secret, it must have been subject to “reasonable steps under the circumstances” to keep it secret (Regulation 2(1)). As yet, there have been no cases under the statutory regime in the UK to provide clarity on the interpretation or practical consequences of this new requirement.
It is expected that what constitutes “reasonable steps” in any given case will depend on, among other things, the type of information, its value, how that information is required to be used in the day-to-day operation of an undertaking’s business, and the ordinary practices in the industry sector in which the undertaking operates.
Under the common law/equitable regime for breach of confidence, “reasonable steps” is not a requirement for protection of information as a trade secret. However, the information in question must have "the necessary quality of confidence" (which means it needs to be "sufficiently secret") as well as have been "imparted in circumstances importing an obligation of confidence". In practice, and subject to how the case law in the statutory regime develops, it seems likely that establishing that certain "reasonable steps" have been taken will assist in demonstrating the “necessary quality of confidence” test has been satisfied.
Some good practice options include:
Disclosure to employees does not impact the availability of protection for a trade secret per se. However, the manner (eg, breadth) with or without accompanying confidentiality controls and the extent of the disclosure are relevant insofar as these factors will relate to the assessment of whether reasonable steps were taken to keep the information secret.
For example, if trade secrets are stored on the company’s shared drive with no restrictions on which employees can access the information, this may undermine statutory protection as it could be perceived as a failure to take reasonable steps and make it appear for common law purposes as if the information didn’t have the necessary quality of confidence.
Trade secret protection does not protect against another party’s independent discovery of the substance of the secret information or genuine reverse engineering. An element of misappropriation is required – ie, unlawful acquisition, use or disclosure that constitutes a breach of confidence in confidential information.
There are no computer/software-specific protections for trade secrets in the UK.
There is no limit on the duration of protection of a trade secret. It will retain its protection as long as it is kept sufficiently secret and, for statutory protection, reasonable steps to protect its secrecy have been and continue to be taken.
However, information can lose its trade secret status by becoming out of date and/or ceasing to have commercial value.
The controlled disclosure of trade secret information in a confidential setting (eg, in accordance with an NDA, or appropriate confidentiality terms in an employee agreement) will not affect the existence or duration of the trade secret per se, but in general the more people to whom a secret is disclosed, the higher the risk that the information becomes generally known, with an accompanying risk of loss of trade secret protection. As noted above, limiting disclosure of trade secrets to a need-to-know basis is a potential reasonable step that can be taken to protect the secrecy of information.
In general, owners of trade secrets should ensure all disclosure is accompanied by well-defined trade secrets policies, appropriate NDAs or other confidentiality terms, and clear parameters and protections surrounding use and onward disclosure.
The owner of a trade secret has a right to commercialise the trade secret, including via licence.
The trade secret owner needs to take reasonable steps to maintain the secrecy of the information. For example, licences should include carefully crafted confidentiality provisions specific to the relevant trade secret. Furthermore, practical measures should be set up to ensure protection of the trade secret within both the licensor and licensee companies, including who has electronic and physical access to the information.
If there are a large number of non-exclusive licences it is possible that even with the protection of confidentiality clauses, the information will no longer be sufficiently secret to qualify as a trade secret.
Trade secrets are more flexible and potentially broader in scope/subject matter than other IP rights. They can cover very commercially valuable information which it is not possible to protect (either at all, or effectively) by patents (eg, algorithms) or copyright (eg, the recipe for Coca-Cola). They are also not time limited, unlike patents, designs or copyright. The most significant difference is that there is no public disclosure at all, unlike for patents or trade marks of designs.
Trade secrets can also be enforced through equity and contractual bases.
It is possible for trade secrets to co-exist with other rights, eg, trade secrets in pre-clinical data which accompanies an unpublished patent application for a new chemical entity.
Alternatively, it is possible to have a trade secret in relation to an algorithm which co-exists with copyright rights.
However, a trade secret requires maintaining information as confidential which is antithetical to most (but not all) other IP rights which require disclosure as a condition of the right.
Trade secrets misappropriation can also potentially be litigated through the tort of inducing or procuring a breach of contract, the tort of unlawful interference, breaches of fiduciary duty (eg, where the misappropriation is by an employee) or breach of contract (where there is an NDA in place).
Tortious claims may be useful should a party wish to bring an action against an ex-employee’s new employer who is a competitor. The tort requires actual knowledge and intention to cause economic loss.
Under Regulation 3(1) the claimant must prove one or more of unlawful acquisition, use or disclosure, in circumstances constituting a breach of confidence in confidential information. As the claimant only needs to prove one ofunlawful acquisition, unlawful use or unlawful disclosure, it is possible in a claim for misappropriation that the information was gained lawfully but then used or disclosed unlawfully. For example, the trade secret may have been shared during a joint venture and then misappropriated by the joint venture partner by use of the trade secret outside the scope of the joint venture.
Under common law/equity the element of "misappropriation" is captured by the third limb of the common law test, ie, unauthorised use (or threatened use) outside the scope of consent will be a breach.
Trade secrets misappropriation under the Regulation/Directive does not differ for an employee. The same requirements of secrecy, commercial value and reasonable steps apply.
Under common law/equity, employees are under a general fiduciary duty to keep their employer’s information confidential. This duty is qualified in the case of ex-employees. For an ex-employee, only trade secrets rather than "mere" confidential information can be protected.
The relevant factors to be considered in determining whether information held by employees falls into the "mere confidential information" class or the "trade secrets class" are set out in 1.2 What Is Protectable as a Trade Secret.
This distinction is particularly critical where there is an absence of express restrictions.
However, employees also usually have express terms in their employment agreements restricting use and disclosure of confidential information and trade secrets, including post-employment.
Any joint venture is likely to have express confidentiality provisions included in the agreement forming the joint venture.
Furthermore, it is possible that a fiduciary relationship will in fact be found with respect to (eg, the directors of) the joint venture, such that the parties will owe each other fiduciary obligations including the duty of confidence.
In Ross River Limited v Waveley Commercial Limited (2012) EWHC 81 (Ch), the High Court set out two propositions for identifying the existence of a fiduciary relationship:
Therefore, it is likely to depend on the nature of the joint venture and the way in which rights and duties are divided and information disclosed as to whether the relationship between the parties engaged in a joint venture will be considered a fiduciary one.
Industrial espionage is a lay rather than legal term in the UK. The type of additional claims available will depend on the type of industrial espionage and the type of actor (ie, state/foreign private individual/domestic citizen) For example, criminal claims may be possible in relation to "fraud by abuse of provision" under Section 4 of the Fraud Act 2006 or offences under the Computer Misuse Act 1990. Civil Trade Secrets claims under commonlaw/equity and the Directive/Regulation are also likely to be available.
There are no specifically sanctioned "best practice" guidelines in the UK regarding safeguarding trade secrets. The following are merely some suggestions.
Implementation of best practices may include:
Exit interviews are quite common in the UK. Depending on the circumstances of the person's position and departure a confirmatory confidentiality agreement may be signed. Employers will usually ask where the employee is going, but the employee is under no obligation to provide that information.
The UK recognises the distinction between the general knowledge and skills of an employee and protectable trade secrets.
In general, types of employee "knowledge" can be classified into the following categories:
The Directive expressly provides that it will not restrict employees' use of "information that does not constitute a trade secret as defined", or of "experience and skills honestly acquired in the normal course of their employment".
UK law recognises a distinction between making use of information and skills acquired from years of working in a job or industry and particular information which is specifically committed to memory (see Printers and Finishers Ltd v Holloway (1965) 1 WLR 1 and Faccenda Chicken Ltd v Fowler (1987) Ch 117).
There is no specific doctrine of "inevitable disclosure" in the UK. However, a similar concept is incorporated into breach of fiduciary duties. For example, in Prince Jefri Bolkiah v KPMG (1998) UKHL 52, the court held that once it was shown that the firm (KPMG) was in possession of confidential information due to employee knowledge, the evidential burden shifted to the firm to show that there was no risk that the information would come into the possession of those acting against the original holder of the confidential information.
When hiring an employee from a competitor, best practices include:
There are no trade secrets-specific pre-action procedural steps that must be satisfied before a trade secrets action can be commenced in the UK.
Under Civil Procedure Rule (CPR) 7, proceedings commence when the court issues (ie, seals and dates) a claim form at the request of the claimant. A claim form is a brief document, setting out key information about the claim and the relief sought.
Once issued by the court, the claim form must be served within four months (or six months where it is to be served outside the jurisdiction).
A more detailed account of the factual elements of the claim as alleged is set out in the particulars of the claim, which must be contained in, or served together with, the claim form, or served on the defendant within 14 days of service of the claim form (but no later than the latest day for serving the claim form).
Under the Directive/Regulations, the limitation period is six years (Regulation 5). The limitation period begins from the later of:
A breach of confidence/trade secrets under equity does not have a limitation period – see Limitation Act, Section 36(1).
In most cases, action will be taken immediately on discovery of the breach so the relevance of the limitation period is minimal.
See 5.1 Prerequisites to Filing a Lawsuit.
There is no specialised trade secrets jurisdiction. Claims under GBP100,000 are likely to be brought in the County Court and claims over GBP100,000 or claims which the claimant views as complex or of particular importance, are likely to be brought in the High Court. In the High Court they are likely to be heard in the Business and Property Courts. Which specific list (eg commercial, IP, Chancery) will depend on the broader context of the trade secrets dispute, ie, whether it will take place in the context of a contractual dispute.
The pleadings must contain all material facts to make out the claim. The claimant is not required to present its evidence of those facts at the pleading stage. However, the claimant/its solicitors are required to sign a statement of truth in relation to their honest belief in the truth of the matters pleaded. Cases based on inference are also permitted, but are more liable to be struck out depending on the strength of the inference.
Although there are no special requirements for trade secrets, an area of difficulty for claimants can be pleading what constitutes the trade secret itself with the necessary specificity (see Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203) to avoid the claim being struck out.
Parties can seek assistance from the court to obtain evidence through the process of disclosure (either pre-action or after proceedings have started). The level of disclosure available is a matter of juridical discretion.
The UK business and property courts are currently involved in a two-year disclosure pilot running until the end of 2020. It is expected to continue in a similar form afterwards. The guidelines are contained in Practice Direction 51U.
Parties may follow one of disclosure models A to E, depending on the level of disclosure required for the case. At one end of the spectrum, model A only requires disclosure of any known adverse documents; and at the other, model E requires “wide search-based disclosure”, and is ordered only in exceptional circumstances.
Disclosure of documents may also be ordered under CPR 31.16 before proceedings are commenced, where such documents are desirable in order to dispose fairly of anticipated proceedings; assist resolution of the dispute without proceedings; or to save costs. For instance, in The Big Bus Company Ltd v Ticketogo Limited (2015) EWHC 1094 (Pat), the court granted pre-action disclosure of Ticketogo’s licences with third parties (for lawyers' eyes only) on the basis that it might dispose of the action.
In extreme circumstances, a party may be awarded a search order upon application to the court, allowing their representatives to enter the defendant’s premises and search for, remove and detain any documents, information or material pertinent to the case. This is discussed in 7.4 Seizure.
In its inherent jurisdiction, the court is able to close hearings and declare certain evidence confidential and the parties and court can limit information to "confidentiality clubs".
Furthermore, the Directive/Regulation specifically requires that trade secrets remain confidential during and after legal proceedings. Regulation 10(1) prevents those who take part in trade secret proceedings (including parties, lawyers, experts and court officials) from using or disclosing the trade secret or information alleged to be a trade secret. This subsists until the court finds that the information was not a trade secret or where it enters the public domain (Regulation 10(3)). The court may also restrict access to a document or hearing, or redact its judgment under Regulation 10(5). These steps can be taken on the application of a party or its own initiative (Regulation 10(4)). Parts of the judgment can be redacted in accordance with Regulation 18.
Best practices for a defendant in a trade secret litigation is to show that the alleged trade secret does not meet the required standards of a trade secret. For example, to attack each of the elements to show that the alleged trade secret was not secret, not commercially valuable or that reasonable steps were not implemented to keep it confidential or that the information was generally known within the industry in question. If applicable, the defendant can also attempt to show that the use or disclosure was within the scope of permitted use – for example, the alleged use may be within the scope of the interpretation of the joint venture contract.
There are limited defences available on public interest and whistle-blower protection grounds, but these are unlikely to be available to most defendants in trade secrets litigation.
The UK courts have case management powers over their cases. While there are no specific dispositive motions in relation to trade secrets proceedings, UK courts routinely split the question of liability (first) and relief/quantum (second) into separate hearings.
Furthermore, parties can apply for a separate question where the answer may dispose of the action in its entirety. For example, the defendant can apply for a strike out of the claimant’s pleading and the claimant can apply for a summary judgment.
Ultimately, this is within the judge’s discretion.
The costs of a proceeding are widely variable depending on the technology involved and the experts and/or experiments required. Litigation funding is available in the UK.
Trade secret proceedings are heard and decided by a single judge in the first instance.
The claimant files its claim form and particulars of the claim which pleads the cause of action and states the requested relief. The defendant is then required to file an acknowledgement of service and a defence (and the claimant may reply). Usually, one to two months after the close of pleadings, there will be a case management conference (CMC),at which the court will direct how the matter will progress to trial, including in relation to disclosure, factual and expert evidence, the exchange of skeleton arguments and a trial date.
Fact witnesses give their evidence in chief by way of witness statement and are cross-examined during the hearing if required. Expert evidence is given by way of written report and expert witnesses may also be cross-examined if required during the hearing. The parties provide written skeleton arguments ahead of the hearing, and further opening and closing submissions are made orally during the hearing (closing submissions are also exchanged in writing). The judge almost always reserves judgment and then provides a written judgment, usually within three months.
The UK allows for expert evidence. There are strict requirements to ensure the independence of the expert testimony which are set out in CPR part 35. The expert’s ultimate duty is to assist the court. Experts must prepare their own reports and cannot be actively prepared for cross-examination by the lawyers.
Experts must agree to be bound by the CPR 35 requirements.
The cost of experts varies depending on the field, type of expert, time commitment required and general complexity of the case.
Interim injunctions are available by application to the court and are a discretionary equitable remedy. Injunction applications are usually heard on an inter partes basis (notice is given to the defendant) and can be heard urgently if required. In order for an interim injunction to be granted, under Section 37 Senior Courts Act 1981, the court must be satisfied that it is “just and convenient”. This is generally established by following the test developed in American Cyanamid Co (No 1) v Ethicon Ltd (1975) UKHL 1.
Requirements for Preliminary Injunctive Relief
Firstly, there must be a serious question to be tried on the merits. This is generally regarded as a low threshold to satisfy. What needs to be shown is that the patentee’s cause of action has substance (ie, some prospect of success).
Secondly, the court considers the “balance of convenience”. Some key considerations relevant to whether the balance of convenience favours the granting of an interim injunction are:
Delay in applying for an interim injunction will reduce the likelihood of obtaining one.
If an interim injunction is granted, the court may require that the injunction applicant gives an undertaking in damages, ie, agrees to pay damages to the respondent for losses caused by granting of the injunction if later it is held that the injunction was wrongly granted (eg, if the court finds that the information in question was not a trade secret).
Ex Parte Injunctions
Ex parte injunctions (ie, without notice to the other side) are available in very exceptional cases, such as where the matter is so urgent that there may not be time to notify the defendant, or where there is real concern that the defendant may seek to dispose of evidence.
In an ex parte hearing, the applicant must provide full and frank disclosure to the court and disclose all matters that are material to the court (including legal principles that are not in its favour). If an ex parte injunction is granted, the court will usually make provision for a return date hearing, at which the respondent may contest the injunction.
Available Interim Measures
Regulation 11 of the Regulation outlines available interim measures which include:
These provisions have not been tested in the UK courts but would probably be interpreted in a way that is consistent with the requirements of those remedies at common law.
Under common law, the claimant may elect between damages and an account of profits.
If the claimant elects an award of damages, it will need to show on the balance of probability the harm suffered by it. This may be by way of lost sales, lost contracts, lost royalties or any other compensatory measure. Punitive or exemplary damages are extremely rare.
If the claimant elects an account of profits, the substantial body of the evidence is likely to be derived from the defendant’s disclosure.
Regulation 3 of the Regulation provides that common law remedies remain available to claimants. The Claimant can apply for relief both under common law remedies and the remedies under the Regulation.
Regulation 17(1) of the Regulation sets out the mechanism for assessing damages. The damages should be "appropriate to the actual prejudice suffered as a result of the unlawful acquisition, use or disclosure of the trade secret, ie, compensatory damages.
The court may take into account "appropriate factors" including:
The court may also award damages on the basis of a hypothetical licence (Regulation 17(4)). This is similar to under Article 13 of the IP Enforcement Directive (Directive 2004/48/EC).
Permanent injunctions are available as a common law and statutory remedy for trade secrets misappropriation.
Regulation 3 of the Regulation provides that common law remedies remain available to claimants. The claimant can apply for relief both under common law remedies and the remedies under the Regulation.
Regulation 14 provides for the following non-financial corrective measures, which include permanent injunctions and delivering up of "infringing" goods:
In making a Regulation 14 order, the court must take into account the specific circumstances of the case including, where appropriate (Regulation 15):
If the court places a time limit on its Regulation 14 order, that limit must be sufficient to eliminate the commercial or economic advantage obtained by the misappropriation (Regulation 15(2)). There are no limits on the length of a permanent injunction, however, the defendant can apply to the court for the revocation of a Regulation 14 measure on the basis that the information no longer constitutes a trade secret (Regulation 15(3)).
In relation to former employees, an employer may also be able to enforce a restraint of trade against an employee moving to a competitor. This will depend on the contractual background as well as the reasonableness of those restrictions, and the ability of the employee to continue to earn a living if so restrained.
In extreme circumstances, a party may be awarded a search order upon application to the court, allowing their representatives to enter the defendant’s premises and search for, remove and detain any documents, information or material pertinent to the case.
In the English courts, search orders are considered an extremely invasive measure, and will only be awarded (under their power derived from Section 7(1) of the Civil Procedure Act 1997) for the purpose of preserving evidence in the most extreme cases. The claimant must show both that it has a strong case and that there are good reasons for believing that the defendant is likely to destroy evidence.
Seizures are also available as an interim measure under Regulation 11(3). This provision is yet to be tested in the UK courts.
See 7.6 Costs.
The general rule is that the unsuccessful party pays the successful party's costs. The court has the power to make whatever costs orders it finds most appropriate (CPR 44). Costs awards can be reduced or limited due to poor conduct, failing to comply with pre-action protocols or other factors.
In making an order as to costs, the court must consider the overriding objective that cases be dealt with "justly and at proportionate cost". When considering whether costs incurred are proportionate, the court will consider:
The general rule is that costs will be assessed on the standard basis, which allows for the recovery of proportionate costs. This may mean that some costs are not recoverable and others are reduced. Parties should expect that if costs are calculated on the standard basis, the successful party will recover 60 – 75% of its costs. In assessing the proportion of its costs that a successful party may be able to recover, the court will typically consider the number of issues on which that party succeeded, as well as the time spent at trial on the issues raised by each of the parties.
Applications for appeals need to be made within 21 days of the decision of the lower court. Appeals for trade secret cases require the permission of the court.
The application can be made to the lower court (High Court or County Court), or if they have already refused leave to appeal, the prospective appellant (claimant or defendant) may appeal to the Court of Appeal (CPR 52.3(2)).
Permission will only be given where the court believes that the appeal would have a real prospect of success, or there is some other compelling reason to allow the appeal to go ahead (CPR 52.6(1)). It usually takes 12 – 18 months for the Court of Appeal hearing to be heard.
A further appeal from the Court of Appeal to the Supreme Court is possible for matters of “general public importance”. Permission is not usually granted. If it is, it usually takes a further one to two years for the Supreme Court hearing to be heard.
It is possible, although extremely difficult, to successfully appeal an interim decision (see Wright v Pyke and another (2012) EWCA Civ 931, Hadmor Productions v Hamilton (1983) 1 AC 191, stressing the limited function of the appellate court).
Appeals are limited to a review of the first instance decision on points of law and do not usually involve reconsidering the evidence heard and findings of fact made at first instance. Parties have to apply to adduce fresh evidence and it is rarely allowed.
If an issue has not been raised at first instance, it is difficult to rely on it on appeal. Parties file written outlines both at the initial grounds of appeal stage and in submissions prior to the hearing. The parties' advocates will then have an opportunity for oral submissions.
There are no criminal offences specific to trade secrets misappropriation.
However, there may be criminal laws which can cover misappropriation. For example, "fraud by abuse of provision" under Section 4 of the Fraud Act 2006 or offences under the Computer Misuse Act 1990.
There is no formal ADR mechanism, it is party led. The pre-action conduct can be taken into account by the court. The court’s guidance is generally that litigation should be a last resort and that parties should consider whether negotiation or some other form of ADR might enable them to settle their dispute without commencing proceedings. Parties are expected to exchange sufficient information to understand the other’s position and to attempt to settle the issues between themselves without recourse to litigation.
Parties are encouraged to consider ADR at the outset, however, they are also encouraged to consider ADR and settlement generally throughout the litigation timetable.
The Practice Direction on Pre-Action Conduct and Protocols explicitly refers to mediation, arbitration, early neutral evaluation and Ombudsmen schemes as ADR options available for resolution of disputes.