Trade Secrets 2021 Comparisons

Last Updated April 28, 2021

Law and Practice

Authors



SZA Schilling, Zutt & Anschütz has been one of the most reputable German corporate law firms for almost a century. With close to 100 attorneys, it advises domestic and international clients on nearly all areas of corporate and commercial law. The IP/IT department of SZA is located in Mannheim and Frankfurt and currently practises with nine attorneys in all areas of IP and IT, as well as data protection law. With the establishment of its China Desk, SZA provides consultation for Chinese companies regarding investments and business activities in Europe in all fields pertaining to commercial law, especially in relation to the protection of intellectual property, including the registration, defence, and judicial and out-of-court enforcement of brands, patents and know-how. Further, in mutual co-operation with leading local law firms, SZA also provides consultation in the field of industrial property rights for European companies regarding their business in China.

Since April 2019, legal protection of trade secrets in Germany has mainly been governed by the German Trade Secret Act (TSA) (Gesetz zum Schutz von Geschäftsgeheimnissen, or GeschGehG). The TSA implements the requirements of the Directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure ((EU) 2016/943) (the European Trade Secret Directive, or ETSD).

Amongst other things, the TSA regulates the requirements that information must meet in order to be protected as a trade secret (Section 2), the scope of such protection (Section 3 et seqq) and the legal consequences of an infringement (Section 6 et seqq). Furthermore, it establishes specific rules to protect trade secrets in (civil law) litigation (Section 15 et seqq) and stipulates certain conduct regarding trade secrets as a criminal offence (Section 23).

Even if the TSA is the main act with regard to trade secrets, it should be noted that there are several provisions throughout different acts of German law that may provide flanking protection. Such provisions are mainly designed as special liability provisions for particularly qualified professional groups (such as members of the works council, board members and managing directors, lawyers, notaries or civil servants) that prohibit the disclosure and exploitation of trade secrets.

In addition, depending on the individual case, provisions that serve mainly other purposes – such as the security of the Federal Republic of Germany (Section 93 et seqq of the German Criminal Code (GCC) (Strafgesetzbuch, or StGB)), the integrity of electronic data (Section 202a et seqq, GCC) or postal and telecommunications secrecy (Section 206, GCC), to give just some examples – may also provide auxiliary protection for trade secrets.

In principle, any information that relates in any way to a business and has any kind of commercial value can be protected as a trade secret under the TSA. Inter alia, this applies to:

  • commercial information (eg, lists of customers);
  • technical know-how (eg, unpatented inventions, recipes);
  • so-called negative information, meaning knowledge about adverse circumstances (such as production problems or an imminent insolvency); and
  • cases where the fact itself (eg, a particular process) is not secret, but the fact that the company in question uses the process and wants to prevent competitors from using it by keeping it secret.

In summary, only information that is purely private and cannot be used in business transactions is excluded from protection under the TSA. With regard to information about illegal activities in a company (eg, tax evasion, violation of labour law or antitrust regulations), it is disputed whether such information can also be protected under the TSA. However, even if such information should be covered by the scope of the TSA’s protection (which is convincing), its disclosure will in some cases be permitted by an overriding public interest.

While neither the TSA nor the underlying ETSD provides for specific examples to illustrate the types of information that are protectable, under German law before the enactment of the TSA, the Federal Court of Justice (FCJ) (Bundesgerichtshof, or BGH) has affirmed all kinds of secret information as trade secrets; eg, customer and supplier lists, cost information, business strategies, company data or market analyses, manufacturing processes, design drawings, prototypes, formulas and recipes, production equipment and tools, templates and computer programs. As outlined in 1.2 What Is Protectable as a Trade Secret, any of these examples could generally be protected under the TSA as well.

Pursuant to Section 2 No 1 of the TSA, any type of information can be protected as a trade secret as long as it meets the following requirements:

  • 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 and has commercial value because it is secret;
  • it has been subject to reasonable measures of protection against disclosure considering the respective circumstances, by the person lawfully in control of the information; and
  • there is a legitimate interest in confidentiality.

Whereas the German legislator took the first two conditions directly from the ETSD, the requirement of a "legitimate interest in secrecy" was inserted autonomously. The practical relevance of this additional requirement, however, is doubtful. Since Article 1 (1) of the ETSD lays down a minimum standard for the protection of trade secrets, which the member states may extend but not restrict, it can be assumed that information, even if it does not fulfil the condition of the third point, is nevertheless to be regarded as a trade secret in accordance with the superior ETSD.

Pursuant to Section 2 No 1 litera b) of the TSA, the trade secret owner is obligated to take reasonable measures of protection considering the specific circumstances to keep the information secret and, in the event of a dispute, has to prove that the measures taken were sufficient. As the requirement of appropriate confidentiality measures was only recently introduced by the TSA, coming into effect in 2019, there is little case law yet regarding this matter, and neither the TSA nor the ETSD stipulates any specific requirements as to what specific types of secrecy measures must be taken.

However, it is common sense that the trade secret owner must "only" ensure appropriate (and not the best possible or maximum effective) safeguards. Apart from that, the measures to be taken cannot be determined in the abstract, but will depend on the specific nature and value of the trade secret as a whole and for the company, the size of the company, the costs and the standard of the measures. In general, five types of measures may be considered (usually in a combination that is not necessarily required to cover all types):

  • first, information should be marked as confidential, either individually or in its entirety, where its secrecy does not become apparent from the circumstances;
  • secondly, confidentiality obligations should be expressly provided for in the contract controlling the share of the information in question, if they are not apparent from the nature of the contract; the conclusion of a separate non-disclosure agreement (NDA) before sharing any confidential information is usually the minimum of adequate protection of secrecy;
  • thirdly, applying the "need to know" principle, employees or third parties should only have access to the confidential information they need to fulfil their contractual obligations or exercise their rights;
  • fourthly, technical and organisational protection measures may be required, which can range from simple password protection to firewalls, encryption and complex security systems; and
  • fifthly, every company will have to consider whether and to what extent each employee should be given the opportunity and the authority to store company information on their own data carriers or to use their own computer in their office at home.

Furthermore, it is safe to assume that large companies or companies with numerous and valuable secrets will be subject to stricter requirements than small and medium-sized enterprises. However, the question of how much effort will be required for qualifying the steps taken as the required level of reasonableness will ultimately have to be decided by the CJEU (for best practices, see 3.1 Best Practices for Safeguarding Trade Secrets).

In general, the disclosure of a trade secret to employees does not affect the availability of legal protection for the trade secret, as long as the employee is under an obligation of secrecy. In most cases, such an obligation to secrecy can be derived from the individual's employment contract.

However, there is a strong opinion in German legal literature that the secrecy measures necessary to classify information as a trade secret are not met if employees are not expressly informed of their duty of confidentiality and sign a confidentiality agreement (ideally with a contractual penalty) – with the consequence that there would be no trade secret to begin with. Since it is not yet foreseeable whether the courts will follow this view, it is strongly recommended that appropriate NDAs be concluded (this also applies vis-à-vis third parties who get in touch with trade secrets; see 1.5 Reasonable Measures).

In principle, neither independent discovery nor reverse engineering has any impact on the existence of trade secret protection. The right in a trade secret under the TSA is not an exclusive right, so parallel ownership by several entities is possible.

While the owner of a trade secret cannot prevent third parties from independent discovery or reverse engineering (and consequently cannot prevent the third party from using or licensing the secret), this does not affect the existence of the secret itself as long as the third party does not disclose it publicly. If, however, the third party makes the secret publicly known, the protection for all other owners also lapses.

There are no protections in German law that are unique to computer software and/or technology with regard to trade secrets. There are some provisions regarding data protection, the integrity of electronic data, copyright protection of computer software or telecommunications secrecy that may also apply in the case of breach of a trade secret. However, it should be noted that these regulations only provide legal protection in their respective areas. This protection may overlap in individual cases, but not necessarily.

Trade secrets do not have a fixed or maximum term of protection: they remain protected under the TSA as long as the respective information meets the relevant requirements (see 1.4 Elements of Trade Secret Protection). As soon as the information is no longer secret, its protection is irrevocably lost, regardless of a controlled or accidental – or even illegal – disclosure. However, it should be noted that “disclosure” in this regard means disclosure to the public or at least to a larger group of people that normally deal with the kind of information in question. A description of the secret in a professional journal, at a trade fair or in a lecture is sufficient to trigger disclosure.

By contrast, disclosure to employees and contractual partners will usually not affect trade secret protection as long as they are obliged to secrecy on the basis of employment contracts or by confidentiality agreements (see 1.6 Disclosure to Employees).

In principle, the trade secret owner can license a trade secret like any other intellectual property right. As long as the licensee is obliged to secrecy during the term of the licensing agreement and afterwards (ideally with an adequate contractual penalty in the case of a culpable infringement), licensing does not affect the existence of the trade secret.

Protection for trade secrets differs from the other types of intellectual property protection available in Germany in many ways.

The differences in the scope of protection are the most notable: while the owner of intellectual property rights is granted absolute protection and may prohibit third parties from using and exploiting the protected intellectual property in any way (notwithstanding statutory exemptions), the trade secret owner is not granted similar rights. While they may prohibit employees and contractors from using or disclosing their secrets, there is no comparable absolute protection for trade secrets outside of such special contractual relationships.

On the contrary, the TSA does not prohibit third parties from using trade secrets per se, but only penalises the breach of factual security measures that its owner must actively ensure (see 1.5 Reasonable Measures). In other words, trade secret protection exists only against the unfair disclosure of the information; if the information becomes known due to negligence in the protection of secrets, its protection is lost. This means, on the one hand, that protection is lost if the information in question becomes public (even if unlawfully) and, on the other hand, that the owner cannot take action against an independent parallel creation by third parties.

Furthermore, there are significant differences regarding costs, the scope and the duration of the protection; in particular, in comparison to patents: while patent protection entails high fixed costs due to application and maintenance fees, secrecy protection entails ongoing costs. Intellectual property rights are limited to the respective legal system, whereas secrecy leads to a de facto worldwide monopoly (even though the scope of protection may differ from jurisdiction to jurisdiction). In contrast, an invention patented in Germany can be used in other countries without legal consequences, unless independently patented there. In addition, protection by secrecy has an immediate and unlimited effect, whereas the patent application procedure can take several years and the term of protection is limited to 20 years.

Generally, parallel protection of the same information as a trade secret and as any other IP right (with the exception of copyright, which does not require publication) will factually not be possible in most cases. In particular, the protection under the TSA and as a registered intellectual property right are mutually exclusive. This is because protection as a trade secret requires the information in question to be secret, whereas protection as a registered right (eg, as a patent) requires an application – and thus its disclosure.

Therefore, parallel protection for technical secrets can only apply in (extremely rare) circumstances, where the information in question is registered as a so-called secret patent pursuant to Section 50 of the German Patent Act.

The TSA is not exhaustive. Therefore, in principle, it is possible to bring a claim for breach of fiduciary duty against an employee who steals a trade secret or to bring a claim for tortious interference with contract against a defendant where it has induced an employee to breach a contractual confidentiality obligation to the owner/employer. However, there is an interdependence between contractual liability and liability under the TSA.

On the one hand, the design of the respective contract forms the framework of the legal protection of trade secrets and restricts such protection. For example, Section 3 (2) of the TSA gives general precedence to contractual agreements over the provisions of the TSA and Section 4 (2) Nos 2 and 3 forbids the use or disclosure of trade secrets only as long as it is in violation of a contract. On the other hand, the considerations of the TSA must be taken into account when interpreting contractual agreements and when determining the scope of non-explicitly agreed confidentiality obligations and rights of use. As a result, the scope of secrecy protection under the TSA does not generally differ from the scope of contractual claims.

German law imposes criminal penalties for trade secret misappropriation if the offender deliberately infringes a trade secret:

  • to promote competition, whether internal or external;
  • out of self-interest;
  • for the benefit of a third party; or
  • with the intention of causing damage to the owner of a business.

The penalty is imprisonment for up to three years or a fine. However, if the offender acts on a commercial basis, knows that the trade secret is to be used in foreign countries, or uses the trade secret in foreign countries themselves, the penalty is imprisonment for up to five years or a fine. A trade secret owner can pursue both civil and criminal claims. In fact, the initiation of criminal proceedings (and the investigative powers of the public prosecutor's office) is often the only way in which the trade secret owner can obtain the necessary evidence for his civil action (see 9.1 Prosecution Process, Penalties and Defences).

The question of whether and under which conditions it is possible to bring a claim under the German TSA based on misappropriation of trade secrets that take place in another country is highly controversial. When it comes to cross-border disputes, the rules of private international law – in particular, the Rome I Regulation and the Rome II Regulation – determine which law applies. This means that contracts on trade secrets (eg, licence agreements or NDAs) are governed by the Rome I Regulation with the consequence that (unless the parties explicitly made a different choice of law) the contract will be regularly governed by the law of the country where the trade secret owner has their habitual residence.

In contrast, trade secret misappropriations constitute tortious acts and thus are governed by the Rome II Regulation. While the Rome II Regulation contains special provisions for unfair competition and for infringements of intellectual property rights, there are no separate provisions for the infringement of trade secrets. This is problematic, because under German law, trade secret protection is seen as hybrid law that cannot be clearly assigned to either intellectual property or unfair competition law. For this reason, in German literature, different opinions are held on the applicable law, which depend on the area of law to which the respective author allocates the protection of trade secrets.

  • The first opinion understands trade secret protection neither as intellectual property law nor as competition law and applies the general conflict rule of Article 4 of the Rome II Regulation. Therefore, the law of the country in which the damage occurs is applicable. This, in turn, is where the owner of the secret has its registered office or its (branch) office, or where the business or part of the business concerned is located. Therefore, in most cases, trade secret misappropriation could be prosecuted under the German TSA. However, if there is a pre-existing relationship between the violator and the trade secret owner (such as a contract that is closely connected with the trade secret misappropriation) and if that connection is subject to the law of a different country, that law may apply to the trade secret misappropriation as well.
  • The second opinion views the misappropriation of trade secrets as an act of unfair competition and therefore as subject to Article 6 of the Rome II Regulation. This provision differentiates between market-related (Article 6 (1), Rome II Regulation) and bilateral (Article 6 (2), Rome II Regulation) infringements. Market-related infringements are acts that are not only directed against the infringed party (the trade secret owner), but also affect third parties. With regard to trade secrets, this would primarily be the case with the distribution of infringing goods, the disclosure of trade secrets to the general public or the use of trade secrets for marketing. Such acts of misappropriation would then be subject to the law of the state in which the products are distributed or the trade secrets are disclosed – and thus not subject to the German TSA, if the misappropriation takes place in another country. In contrast, for purely bilateral breaches of competition that only affect the interests of the owner of the trade secret (in particular, unauthorised access to the trade secret), the law of the country in which the damage occurs would be applicable. Therefore, if no third parties are affected, trade secret misappropriation could be prosecuted under the German TSA. Additionally, with regard to bilateral breaches, the information provided in bullet point 1 applies accordingly.
  • The third opinion understands trade secret law as an intellectual property right and applies Article 8 of the Rome II Regulation. Therefore, the trade secret misappropriation would be governed by the law of the country in which the infringement takes place. However, it is unclear whether prior offences (eg, the acquisition of the trade secret) would have to be assessed separately according to their place of action or whether they would also be subject to the law of the country where the subsequent act (the use or disclosure) occurs.

It is not yet foreseeable which of these three opinions will ultimately prevail. Before the TSA came into force, most scholars followed the first opinion, differentiating between market-related and bilateral infringements; however, with the introduction of the TSA, the protection of trade secrets has shifted significantly in the direction of intellectual property law. Therefore, a conflict rule designed specifically for the protection of trade secrets would be preferable.

German trade secret law recognises four types of conduct that can be used to support a claim for trade secret misappropriation.

The first is the unlawful acquisition of the secret: a trade secret shall not be obtained by (i) unauthorised access to, appropriation of, or copying of any documents, objects, materials, substances or electronic files, lawfully under the control of the trade secret holder, containing the trade secret or from which the trade secret can be deduced, or (ii) any other conduct that, under the circumstances, is considered contrary to honest commercial practices. This alternative covers most activities commonly known as “industrial espionage” and can be conducted by anyone.

Secondly, a trade secret shall not be used or disclosed by anyone who:

  • has acquired the trade secret unlawfully (see above);
  • is in breach of a confidentiality agreement or any other duty not to disclose the trade secret; or
  • is in breach of a contractual or any other duty to limit the use of the trade secret.

While the first alternative seeks to prevent further misappropriation of an already illegally acquired trade secret, the second and third variants are primary acts of infringement, which can only be fulfilled by offenders who gained access to the trade secret lawfully but breach their contractual duties by disclosing or using it (ie, employees and other contractual partners).

Thirdly, the acquisition, use or disclosure of a trade secret shall also be considered unlawful whenever a person, at the time of the acquisition, use or disclosure, knew or ought, under the circumstances, to have known that the trade secret had been obtained directly or indirectly from another person who was using or disclosing the trade secret unlawfully, as previously described. This provision seeks to prevent the “receiving of stolen secrets”. While an infringement of the alternatives above is independent of fault, this variant requires the offender to act with negligence.

Lastly, the production, offering or placing on the market of infringing goods (which means goods whose design, characteristics, functioning, production process or marketing significantly benefits from trade secrets unlawfully acquired, used or disclosed) or the importation, exportation 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.

The prohibition of the distribution of infringing products is very extensive and aims to prevent third parties from using foreign work without the consent of the trade secret owner and to ensure that the trade secret owner receives their pioneering return; ie, their competitive advantage.

If the owner’s claim of misappropriation is based on an unlawful acquisition, it is sufficient to show that the defendant gained access to the trade secret without permission; there is no need to show that the trade secret was actually used. If, however, they refer to an unlawful use or disclosure, they have to prove the act of usage or disclosure and either the unlawful acquisition or a contractual breach.

If the owner does not base their claim on a contractual breach, they have to show and bear the burden of proof that the defendant (or the person from whom the defendant got the secret) gained access to the trade secret through unlawful means. This is a major problem for the owner in many cases, even if presumptions and indications may work in their favour in certain circumstances.

In principle, it makes no difference in a lawsuit whether or not the defendant is an employee of the owner. With regard to trade secrets that the employee has (legally) obtained through their work, however, the claim may only be based on unlawful use or disclosure of the trade secret.

In principle, an employee is obliged to keep all trade secrets of their employer in confidence – even without an explicit obligation of secrecy. However, if the need for confidentiality of a piece of information cannot be clearly deduced from its nature, the employer must prove that it has instructed the employee about the need for confidentiality. It should also be noted that the enforcement of claims against employees is subject to the jurisdiction of the labour courts in Germany.

In principle, there are no special legal obligations between joint venture companies with regard to trade secrets. This means that the conclusion of confidentiality agreements between joint venturers is essential for companies under the new legal situation. According to the previous legal situation, the disclosure of trade secrets to third parties without concluding a confidentiality agreement did not lead to the loss of the characterisation as a trade secret, at least not to the extent that the recipient was obliged to maintain secrecy based on the interpretation of the contract. It is questionable whether this still applies with the introduction of the TSA.

Although the conditions for qualifying confidentiality measures as appropriate are still unclear due to the lack of case law (see 1.5 Reasonable Measures), there are reasonable grounds to believe that a court could consider, for example, the release of particularly important trade secrets without concluding an NDA as an act of irresponsible negligence that could lead to the loss of the legal protection.

In order both to avoid this risk and to ensure that appropriate confidentiality measures are in place, any disclosure of trade secrets to a business partner, including joint ventures, should therefore only be made after an NDA has been concluded. It should also be noted that contractual partners are entitled, without deviating from contractual provisions, to reverse-engineer products or prototypes provided by the other partner.

Section 4 (1) of the TSA provides protection against acquisition methods that cover most of the activities typically considered industrial espionage; ie, acquisition of a trade secret by unauthorised access to, appropriation of, or copying of any documents, objects, materials, substances or electronic files, lawfully under the control of the trade secret holder, containing the trade secret or from which the trade secret can be deduced. Trade secrets obtained in such ways may not be used or disclosed in any way. If the offender acts deliberately and with certain elements of malicious intent, obtaining trade secrets is also punishable by a fine or imprisonment (see 9.1 Prosecution Process, Penalties and Defences).

In addition, there is a sophisticated regime of legal consequences consisting of injunctions and claims for damages as well as the destruction, surrender, recall, removal and withdrawal of infringing products from the market. These consequences correspond to those of patent infringement.

Until 2019, appropriate confidentiality measures were not required for a legal protection of trade secrets under German law. Rather, the subjective intention of the owner of the secret to keep it secret was taken into account. Therefore, for "best practices" it is necessary to refer to literature and guides on know-how protection. In this respect, it is always emphasised that a comprehensive protection system is required that interlinks personnel, technical and organisational measures (also see 1.5 Reasonable Measures).

  • Organisational measures – the basis of a know-how protection concept is always an analysis of requirements for protection, in which it is defined which information needs to be kept secret. It is recommended to classify the information as "secret", "confidential" and "openly accessible" and to establish clear rules for handling classified information. A security officer should also be appointed. Finally, suspicious features should be systematically observed (eg, strangers on the premises, anomalies in the infrastructure, dismissals, copying of large amounts of data, presence of employees at unusual times, untraceable documents, unexplained loss of orders or customers, and appearance of copies on the market). Furthermore, property protection measures can include the control of access to company premises, securing the server area and video surveillance of sensitive areas.
  • Personnel measures – the standard in this regard includes confidentiality agreements with employees and business partners, a clean-desk policy and the implementation of a need-to-know policy. Furthermore, employees should be sensitised and trained for the risks of espionage. Finally, measures to increase employee commitment to the company can help prevent employees from disclosing secrets.
  • Technical measures – including, in particular, IT security measures; eg, firewalls, password protection, virus scanners, encryption of data carriers, network connections and email traffic, monitoring of log files, penetration tests, intrusion detection and systems.

Ultimately, however, "best practices" are difficult to define in the abstract, but must always be oriented to the requirements of the respective company and the trade secret to be protected. It remains to be seen how German case law will develop with regard to such “best practice”.

In Germany, employers usually do not conduct exit interviews for departing employees. While such interviews are not prohibited, the employee is not obligated to answer questions regarding their new employer.

In theory, German trade secret law distinguishes between an employee’s general knowledge and skills, which they are free to use after they leave the employer, and protectable trade secrets, which remain in the control of the employer. In practice, however, this distinction is extremely difficult and has become known as a major problem of German trade secret law.

The general rule is that the employee is not permitted to use records of any kind containing trade secrets of their employer, but may use everything they know by experience and/or by heart. Furthermore, according to case law of the FCJ, the employee is also forbidden from systematic memorisation of the trade secret.

However, there is no assignment in the sense that the employee may use his general knowledge and acquired skills, whereas factual knowledge (eg, the composition of a specific product or customer lists) is solely assigned to the company. As long as the relevant secret is sufficiently complex and the employee cannot reproduce it without recourse to documents, this is not a problem. There are, however, countless secrets that can only be explored with great effort (eg, a recipe or the ideal temperature for a burning process), but are very easy to remember. Since German law does not recognise the doctrine of “inevitable disclosure”, the employer's only option is to agree a non-competition clause with the employee. However, this is only possible subject to a consideration and for a limited time.

As far as is apparent, the potential risk of liability for trade secret infringements due to the recruitment of employees from competitors is, strangely enough, often ignored by companies in Germany. The standard compliance manuals contain no reference to this problem. This is presumably related to the fact that the consequences of a trade secret misappropriation have not been particularly serious for the infringer so far. This has now changed with the TSA coming into force due to the stricter liability (in particular, the introduction of claims by the trade secret owner for recall and destruction of infringing goods).

However, since German law does not assign the content of trade secrets to a company, but allows the former employee to use all knowledge they have memorised, the new employer fulfils its obligations if it informs the employee of the prohibition on using old documents.

There are no specific prerequisites to be obeyed before initiating litigation (eg, a mediation procedure) in main proceedings. However, an immediate filing of a lawsuit without sending a warning letter might have implications for the owner's obligation to bear the costs if the defendant immediately acknowledges the claims raised as justified. Furthermore, due to a recent change in case law, in preliminary injunction proceedings the applicant is usually required to send a warning letter and to await the reaction of the defendant before filing a motion for preliminary injunction.

Under the TSA, trade secret claims are subject to German law’s standard limitation period of three years. This period commences at the end of the year in which the claim arose and the trade secret owner obtains knowledge of the circumstances giving rise to the claim and of the identity of the obligor, or would have obtained such knowledge if they had not shown gross negligence.

Furthermore, in so far as the infringer has acted intentionally or negligently, they are obliged, even after expiry of the limitation period, to return to the trade secret owner whatever they have obtained through the unlawful use at the expense of the owner. However, this applies only to the extent that the enrichment is still in the infringer’s possession. This claim expires six years after the expiry of the limitation period of the original claim.

To initiate a trade secret lawsuit, the owner must identify the competent court (see 5.4 Jurisdiction of the Courts), pay an advance on court costs (see 7.4 Attorneys' Fees) and file the application. In addition, the owner may request the court to classify all or part of the information in dispute as confidential (see 5.8 Maintaining Secrecy While Litigating).

With regard to trade secret claims, the regional courts (Landgerichte, or LG) have exclusive jurisdiction. Furthermore, in each German state there is a limited number of specialised regional courts that deal exclusively with trade secret cases. Thus, a trade secret owner would have to review which regional court is competent for the alleged trade secret infringement in the respective case. The standard local jurisdiction is that of the court in whose district the defendant has their general place of jurisdiction.

There is no stricter particularity standard applicable to trade secret claims. This means that, in principle, the allegation of a misappropriation of a trade secret based on “information and belief” is sufficient for the submission of a pleading. However, if the defendant denies the infringement, the claimant must prove their claim.

The trade secret owner can sue for recall, removal and withdrawal of infringing products from the market. In order to prevent further distribution of infringing products, they can have infringing products seized even before a final judgement. To obtain such a seizure order, the claimant must plausibly demonstrate that their right to recall exists and that the matter is urgent, meaning that an immediate seizure of the infringing products is necessary to prevent further infringement. The seizure is carried out by the bailiff.

The German Code of Civil Procedure recognises five types of evidence:

  • evidence taken by visual inspection;
  • evidence provided by hearing witnesses;
  • evidence provided by experts;
  • evidence provided by records and documents; and
  • evidence provided by examination of a party.

Since German law in general does not provide for disclosure or discovery, in many cases, obtaining the necessary evidence to support a trade secret claim constitutes a big problem for the trade secret owner. This is due to the fact that – in contrast to patent lawsuits, for example – the mere use of information is not sufficient for a claim under the TSA, but the owner must prove that it was acquired unlawfully.

If the infringement is obvious, or the owner has already filed an infringement action against the infringer, the owner of a trade secret has a special claim for disclosure of certain information against third parties who, in a commercial capacity, possessed infringing goods, used infringing services, rendered services that were used for the infringement or took part in any such action. In addition, during infringement proceedings, the defendant may be ordered to disclose specific information to the claimant as part of the infringement claims; eg, with regard to the revenue generated by the infringing goods or services. However, these claims generally do not enable the owner to prove that the trade secret was acquired unlawfully. This often requires the initiation of criminal proceedings in order to benefit from the more extensive powers of the public prosecutor's office (search and seizure).

The court may, at the application of one of the parties, classify information relevant to the case as confidential, in whole or in part, if such information may be a trade secret. As a result, all participants in the proceedings are prohibited from using or disclosing the information outside the court proceedings. A breach of this confidentiality obligation may result in a fine of up to EUR100,000 or imprisonment for up to six months; in addition, the owner of a trade secret may initiate further proceedings for breach of a trade secret in the event of a breach of these obligations.

However, the described prohibition to use the secret does not solve the problem that the opposing party still gains knowledge of the secret and may be able to use this knowledge without exploiting the secret in the literal sense. This primarily concerns secrets such as market analyses, advertising strategies and price calculations that are not characterised by technical usability. But even if the secret could be protected by a prohibition of exploitation, the owner of the secret may have an interest in ensuring that the secret information does not become known to the competitor in the first place; for example, because they do not trust the other party to comply with the prohibition and are afraid of future proceedings. In all these circumstances, only the exclusion of the other party from the process of taking evidence – ie, a genuine secret trial – would be of any help. However, such a procedure is not possible under German law.

In the preliminary stage, namely when enforcing claims to inspection, there is also a method known as the "Düsseldorf Model", which was developed by the courts of Düsseldorf and in which the taking of evidence is carried out by an expert, excluding the applicant as far as possible. This procedure was developed for patent infringement litigation, but is also intended to be applied in trade secret litigation. However, this procedure is only applied in favour of the debtor and only in circumstances where the secret in question is merely evidence and does not constitute the subject matter of the dispute itself.

The available defences regarding trade secret litigation differ from case to case. Therefore, it is hard to identify the “best practices” a trade secret defendant should obey. However, there are some standard arguments the defendant may try to use.

  • The defendant may challenge the fact that the information in question constitutes a trade secret at all. This is particularly recommended if it is doubtful whether the protective measures were sufficient, since the burden of proof lies with the owner.
  • The defendant may deny that the acquisition, use or disclosure of the secret is an offence against the TSA. This can be particularly advisable in contractual relationships where no separate confidentiality agreements were concluded. As an employee, the defence might be that the relevant information was memorised.
  • The defendant may claim that they have obtained the trade secret through their own independent development or via reverse engineering.
  • If the lawsuit is brought against a third party who was not involved in the actual infringement, but only acquired the trade secret or infringing goods at a later date, the third party can defend itself by arguing that it did not know and did not have to know, under the circumstances, that the trade secret had been obtained unlawfully.

Furthermore, if the trade secret owner asserts claims for inspection against the defendant in order to obtain evidence, the defendant may be able to defend itself against this inspection by invoking its own confidentiality interests.

German law does not provide for a dispositive motion. If the claim is inconclusive, it is dismissed. If the claim is conclusive and the defendant does not submit a motion, a judgment by default is issued. However, both kinds of decisions are rendered in the course of the court proceedings themselves.

Attorney fees and court fees are subject to the value of the amount in dispute (Streitwert), which is determined primarily by the value of the trade secret. Every activity of the attorney will be remunerated according to the provisions of the German Act on Reimbursement of Lawyers (Rechtsanwaltsvergütungsgesetz), which determines the relevant business fee unit for every legal task and, in an annexed schedule, the applicable fee for the specific amount in dispute. Since trade secrets often have a very high value – which results in correspondingly high litigation costs – the amount in dispute may be adjusted appropriately by the court upon request.

However, in many cases the opposite will be the case. Even if, by law, the statutory legal fees may not be undercut, clients and attorneys are free to agree on a (significantly) higher fee rate by contract, which is quite common in IP cases (and in general), at least at well-known law firms. Hourly rates between EUR200 and EUR600, depending on the seniority of the counsel involved, are common practice. Thus, attorney fees usually exceed the amount of the statutory fees by a great deal.

Since the statutory legal fees may not be undercut, German attorneys generally are not permitted to work on a contingency fee basis. A contingency fee may be agreed only for an individual case and only if the client, upon reasonable consideration, would be deterred from taking legal proceedings without such agreement on account of his economic situation. These requirements are applied very restrictively. In contrast, litigation financing is available in Germany and is a market that has grown strongly in recent years.

The law stipulates that civil proceedings usually shall be heard by a single judge in the regional court. However, in cases of particular difficulty, fundamental importance or at the application of both parties, the proceedings take place before a Chamber (Kammer) of the court that consists of three judges. In trade secret cases, such will usually be subject to jurisdiction of the regional courts and it may often be the case that, due to the complexity of such cases, the Chamber will hear the case.

Civil proceedings in Germany are primarily conducted through written submissions. However, live witnesses may also be heard for the purpose of discovery of the relevant facts if the party that bears the burden of proof applies for such a hearing. While the parties present legal arguments at trial, the court is not bound by them. However, the court may not award more than the plaintiff has requested. It typically takes about 12 to 24 months to complete a trade secret trial in Germany, depending on the complexity of the case.

German law allows for the presentation at trial of expert witness testimony. Since the TSA does not contain special provisions regarding this matter, the process for hearing expert witness testimony is governed by the German Code of Civil Procedure. The expert is usually nominated by the court, which takes into account suggestions by the parties. Such expert is neutral and their expertise may only cover factual questions (with the sole exception of questions of foreign law, which are treated as a matter of fact under German law).

Usually the expert provides a written expert testimony that the parties may challenge and that usually is also discussed in an oral hearing with the expert before the court. The parties are also free to provide expert testimony by experts that they engage. However, such testimony does not have formal value as evidence as the opinion of an expert nominated by the court is only part of the respective party's arguments, which the court may (or may not) give weight to. Costs for experts vary and can be significant, depending on the complexity of the case.

The owner of a trade secret can – and in most cases will – seek for preliminary injunctive relief before a final judgment in the case. In principle, neither a permanent nor an interim injunction is subject to time limitations. However, the debtor of a preliminary injunctive relief may request the court to set the claimant a time limit for filing an action. If this deadline expires without the claimant taking legal action, the court will revoke the preliminary injunction upon request.

Pursuant to Section 10 of the TSA, a successful claimant in a trade secret case may calculate its damages in three ways.

  • They can demand compensation for the damage effectively incurred as a result of the misappropriation of the trade secret. However, this requires a concrete presentation of the damage caused, which can prove difficult in the case of trade secret claims.
  • They can demand that the infringer surrender the profit made with the trade secret. While in the case of infringement of any other intellectual property right, the injured party may claim only that part of the infringer's profit that is based on the infringing act, the owner of a trade secret may claim the entire profit for which the infringement of the secret was at least partly responsible; ie, not only that part that is caused by the infringement.
  • They can demand an appropriate remuneration that would have had to be paid if the consent for use had been obtained (licence analogy).

The claimant is free to choose which of such methods they want to use to calculate their damages. While they cannot combine the methods above with regard to the same damage, they can use different methods regarding different damage claims (eg, demand compensation for litigation costs as damage effectively incurred and use a licence analogy to recoup their losses regarding the trade secret itself). Punitive damages do not exist in German law, unless the parties made any prior contractual arrangements in this matter.

A successful trade secret claimant can obtain permanent injunctive relief against the defendant as well as an order requiring the defendant to recall any incriminating products. However, the plaintiff cannot restrict the subsequent employment of an employee in order to protect their trade secrets. A permanent injunction issued remains in force until the trade secret is disclosed.

Firstly, the plaintiff is responsible for paying accrued court fees in order to start the proceedings. During the dispute, expenses incurred for procedural actions are borne by the party that requests them. But ultimately the losing party is required to reimburse the prevailing party for all costs of litigation fees inclusive of court fees, expenses and attorney fees of both parties in the statutory amount. The judgment rendered by a court always encompasses a decision on the reimbursement of cost. In the case of a partial win, the statutory amount of the total cost will be split pro rata.

In addition to lawyer's fees (see above), a successful claimant can recover disbursed court costs as well as costs for witnesses and experts. For the process for seeking an award of costs, see 7.4 Attorneys' Fees.

In general, the general civil law rules apply in appellate procedures, with some minor modifications.

Appeals against first-instance decisions (Berufung) will be conducted before the Higher Regional Courts (Oberlandesgerichte). Within one month of service of the full version of the judgment, the appellant must submit a statement of appeal. Within one more month, the appellant must submit a statement on the grounds of appeal describing the reasons why they consider the judgment to be erroneous and the significance of these errors for the judgment; such further filing period may usually be extended once for one month or even more, depending on the complexity of the case. Further extensions require the consent of the other party. The Higher Courts of Appeal review the case for points of law and with regard to the facts. With regard to the latter, they enjoy a considerable degree of discretion with regard to which facts they review again.

The second appellate level (revision) before the FCJ is subject to explicit permission to appeal being granted. This permission may be granted by the Higher Regional Court or by the FCJ itself upon the filing of a so-called non-admission complaint (Nichtzulassungsbeschwerde) against the denial to grant a second appeal. For the filing of a non-admission complaint and the non-admission complaint respectively, the same deadlines apply as in the first-level appeal (see the preceding paragraph). The content requirements are also similar, and it must be submitted by an attorney admitted to practice before the FCJ. The FCJ only reviews the decisions of the lower courts for points of law.

At the first appellate level, as a general rule, the duration of the proceedings will usually take at least 6 to 12 months. The second-level appeal very often lasts for a further 18 to 24 months, until a decision is rendered.

The appeal mechanism as described above is available to both claimants and respondents in the main proceedings. In proceedings for interim relief, only first-instance decisions can be appealed, while the second appellate level is not available.

On the first appellate level, as a general rule, a full review of the facts of the case and on points of law will take place. However, a statement of completely new facts compared to the first-instance proceedings is only permitted subject to certain restrictions (eg, the facts only occurred after the judgment in review was made).

In contrast, the FCJ is bound by the facts found by the first-instance and the first appellate-level court. Thus, the second-level appeal is on points of law only.

Trade secret theft is prosecuted only upon request of the victim, unless the prosecuting authority deems there to be a special public interest in prosecution that calls for ex officio intervention.

The available defences to a criminal charge for theft of trade secrets vary greatly depending on each individual case. It should be noted that, unlike in civil proceedings, there are no presumptions or rules on reversal of the burden of proof, which means that the prosecuting authority must prove all the relevant facts. However, the prosecuting authority may search the premises of the suspected offender and order seizures. This will often enable the prosecutor to prove that the offender is in possession of a foreign trade secret. However, if the perpetrator defends themselves by saying that he did not obtain the secret in an improper manner, or at least had no knowledge of an improper acquisition, it will often be difficult to refute.

The victim has a relatively weak position in German criminal proceedings. During the preliminary proceedings, the investigation of the case is the sole responsibility of the competent law enforcement authorities, so that the injured party's possibilities for co-operation are mainly restricted to providing testimony. In addition, the victim has (at least in principle) the right to inspect the investigation file. However, if there is a suspicion of a violation of secrecy and the file contains trade secrets of the accused, an inspection will often fail due to the confidentiality interests of the accused. The victim has no right to be present during searches by the public prosecutor's office.

If the main hearing takes place, the victim can join the criminal proceedings as a joint plaintiff. This enables themselves – at least to a certain extent – to influence the outcome of the proceedings in the form of statements, questions and motions.

In spite of the growing significance of ADR in Germany, at present it is not very common in IP matters, and even less so in trade secret cases. However, it has to be taken into account that due to the difficulties in proving the facts and the (at least up to now) insufficient means for keeping secrets confidential, only very rarely are proceedings concerning infringements of secrets brought before the regular courts.

However, with the TSA coming into force and the excellent work of German courts in litigating IP cases, it is to be expected that proceedings regarding trade secrets will rise. Compared to other countries, the courts work relatively quickly and at reasonable cost (see 5.11 Cost of Litigation) and usually provide a substantial level of expertise. Hence, it is not necessary for the parties to rely on ADR in order to arrive at a proper solution for their dispute. Furthermore, a fruitless attempt at ADR is not a prerequisite for any court action. Nevertheless, ADR may still be appropriate in cases of long-term and multinational agreements between the parties, rather than in infringement cases.

The most common ADR method in IP matters is arbitration. Provided that the parties conclude a valid arbitration agreement in an arbitrable matter, an action before a state court is not admissible. For all arbitral proceedings conducted in Germany, the tenth Book of the German Code on Civil Process (Sections 1025 to 1066) applies. The law is based on the UNCITRAL Model Law and Germany is party to various international arbitration treaties, such as the New York Convention.

Parties are then free to agree on the language used in the arbitral proceedings, the place of arbitration and the person and the number of arbitrators. Pertaining to the procedural rules, the parties may agree to pre-drafted arbitration rules (eg, by the ICC) or leave it to the arbitral tribunal to decide how to approach fact-finding and taking of evidence. In Germany, facts and evidence must usually be provided by the parties. "Discovery" rules are not applicable and witnesses are questioned by the judge (no cross-examination). The tribunal’s final ruling has the same status as a final court judgment and can be declared enforceable. It includes a decision on the costs, taking into consideration all circumstances of the case; in particular, the outcome.

German courts do not normally intervene in a pending arbitration. However, exceptions are made, for instance, for the appointment or challenge of arbitrators if there is no agreement between the parties, interim measures or assistance in taking evidence or enforcement of orders. Moreover, the court can set aside an arbitral tribunal’s jurisdiction under specific circumstances if certain essential prerequisites of German law are not met.

SZA Schilling, Zutt & Anschütz

Otto-Beck-Strasse 11
D-68165 Mannheim

+49 621 4257 247

+49 621 4257 286

thomas.naegele@sza.de www.sza.de
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Law and Practice in Germany

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SZA Schilling, Zutt & Anschütz has been one of the most reputable German corporate law firms for almost a century. With close to 100 attorneys, it advises domestic and international clients on nearly all areas of corporate and commercial law. The IP/IT department of SZA is located in Mannheim and Frankfurt and currently practises with nine attorneys in all areas of IP and IT, as well as data protection law. With the establishment of its China Desk, SZA provides consultation for Chinese companies regarding investments and business activities in Europe in all fields pertaining to commercial law, especially in relation to the protection of intellectual property, including the registration, defence, and judicial and out-of-court enforcement of brands, patents and know-how. Further, in mutual co-operation with leading local law firms, SZA also provides consultation in the field of industrial property rights for European companies regarding their business in China.