Can You Keep A Secret? The European Union’s New Directive on Trade Secrets and its Impacts on Whistleblowers

4 minute read | May.27.2016

It is no secret that the European Union’s (“EU”) Directive on Trade Secrets was a long time in the making. The Directive was first proposed in November 2013. After roughly two years of debate and revision, the revised Directive was published in December 2015. On April 14, 2016, the debate ended, and the European Parliament voted to adopt the Directive with no further amendments. The resolution approving the Directive passed by 503 votes to 131 votes with 18 abstentions. This morning, the EU Council unanimously adopted the Directive on Trade Secrets.

The Directive’s aim is to protect EU member states from misappropriation of trade secrets, which, according to the Kroll, Global Fraud Report 2014 study, is increasing: 25% of companies reported theft of their know-how in 2013 compared to 18% in 2012. The Directive also seeks to harmonize the diverging national laws of Member States. Like the U.S. Uniform Trade Secrets Act, the Directive defines a “trade secret” in article 2(1) as information that:

  • 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 this kind of information;
  • Has commercial value because it is secret; and
  • Has been subject to reasonable steps (under the circumstances) to keep it secret by the person lawfully in control of the information.

However, controversy has enveloped the Directive since its initial draft in November 2013, particularly over fears that whistle-blowers would be prosecuted for releasing trade secret information. Critics contend the broad definition of “trade secrets” poses insurmountable barriers to whistleblowers wishing to publicize potentially illegal acts. In other words, there is fear that companies may sue anyone who discloses what the company subjectively deems “confidential.” As one commentator states, “The new [D]irective raises once more the thorny issue of what amounts to a trade secret. Employers and employees can have very different views on this topic. Whether or not certain information qualifies for that description is bound to give potential whistleblowers pause for thought when deciding whether to make disclosures.”

The Directive states it is unlawful to use or disclose trade secrets if they have been obtained by breaching a confidentiality agreement and/or breaching a contractual duty to protect trade secrets. And, any third parties who “at the time of use or disclosure, knew or should, under the circumstances, have known that the trade secret was obtained from another person who was using or disclosing the trade secret unlawfully” are equally liable. In other words, if a whistleblower obtains the information from an employee who, for example, is contractually bound to keep information confidential, any subsequent disclosure may pose substantial problems for the whistleblower.

Proponents staunchly disagree with this assessment of the Directive, claiming there are “whistleblower” exceptions. There are two exceptions to the unlawful disclosure rule:

  • If the information was obtained lawfully, the disclosure of any potential trade secret is not affected by the Directive; and
  • A disclosure will not be prohibited if a whistleblower, acting in the public interest, discloses a trade secret for the purpose of revealing a misconduct, wrongdoing or illegal activity. This safeguard is operative if the trade secret was acquired or passed to the whistleblower through the use of illicit or illegal means.

Critics remain wary, however, because although such exceptions exist, it is the whistleblower’s burden to prove that any disclosure is in the public interest and falls within the stated exceptions.

Member states will have two years to implement the Directive as national law. For some countries this will mean trade secret protection where there was formerly none. For others, it will require more minor adjustments to existing law, and some case law pre-dating the Directive will no longer be good law.

Despite the controversy, the Directive appears to be a move in the right direction for Europe. As a region with 28 countries, the attempt to harmonize trade secret laws should be welcome by any company who strives to uniformly protect its most sensitive and important information. However, individuals—specifically, whistleblowers—should be mindful of the law and truly understand its nuances when considering whether to divulge potentially sensitive information.

Overall, the passage and approval of the Directive signals a global shift toward the protection of trade secrets. With the passage of the Defend Trade Secrets Act in the United States and the EU Directive, two major economies are taking steps to more uniformly protect businesses.