The past 12 months have been heavily focussed on the UK leaving Brexit, resulting in some legislation falling ‘below the radar’. Ironically, legislation that implements EU law into UK law is an example of such an occurrence. Below, we discuss the implementation of the new UK Trades Secret legislation and the implications it may have on your business.

The Trade Secrets (Enforcement, etc.) Regulations 2018 (the ‘Regulations’) were brought into force in the UK on 9 June 2018.  The Regulations introduce the EU Trade Secrets Directive (2016/244/EU) (the ‘Directive’) into UK law. Both the Regulations and the Directive aim to create greater harmonisation in respect of the law relating to trade secrets.

Prior to the introduction of the Regulations, the law on trade secrets in the UK was predominantly based on case law. Compared to many EU member states, the UK’s position on trade secrets law has been seen as positive because it has an established law of confidence which provides a moderately high degree of protection and therefore the Regulations and the Directive largely reflect the existing UK position. However, there are some differences.

One of the most important changes made by the Regulations is the introduction of a definition of ‘trade secrets’.  Prior to June 2018, organisations had to rely upon the existing case based law of confidential information. The new Regulations are not intended to replace this case law, it is intended for the new Regulations and the case law to inter-link within one another. This is evidenced within Regulation 3, which appears to maintain that all elements of a breach of confidence continue to apply to trade secrets. Regulation 3 specifies that an “acquisition, use or disclosure of a trade secret is unlawful where the acquisition, use or disclosure constitutes a breach of confidence in confidential information”.  

Regulation 2, which introduces the definition of ‘trade secret’, states that a trade secret means information which:

a) 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 usually deal with the type of information in question;

b) has commercial value because it is secret; and

c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

However, the definition also requires that the information must be subject to ‘reasonable steps’ to ensure that the information is kept secret. This extra requirement places pressure on businesses to ensure that confidentiality processes are implemented and enforced.

Prior to the 2018 Regulations, the leading case under common law in relation to trade secrets was Faccenda Chicken Ltd v Fowler [1986] (‘Faccenda’). In Faccenda the court considered whether, in the absence of an express contract, an employee owed the same implied duties of good faith and fidelity both during and following termination of his employment, and what information was protected. The court held that the implied duties were different for an employee than for an ex-employee. In the case of an ex-employee, it was held confidential information would only be protected provided it is secret enough to constitute a trade secret: “mere” confidential information would not be protected in the absence of an express contract.

In considering when information may amount to a trade secret, it was held the court must consider:

a) the nature of employment and status of employee;

b) the nature of the information;

c) whether the employer had stressed to the employee the confidentiality of the information; and

d) whether the relevant information can be easily isolated from other information which the employee is free to use or disclose.

This test has continued to be the leading authority on determining what amounts to a ‘trade secret’ until the new Regulations introduced a definition of ‘trade secret’. However, the Regulations do not appear to alter the test significantly. For instance, part a) of the Regulations requires the context in which the information is processed and different individuals’ knowledge and accessibility of the information to be assessed. This is very similar to part a) of the Faccenda test, which requires the nature of the employment, and status of the employee, to be considered to evaluate what individuals will normally have access to the information.

Likewise, part c) of the Regulations requires the employer to carry out ‘reasonable steps’ to keep the information secret, which links to part c) of the Facenda test which requires the employer to have stressed the confidentiality of the information to the employee.

Both tests require the employer to have actively sought to protect the information themselves, although the Regulations take the employer’s obligations further: ‘reasonable steps’ will not just require the employee to be notified of the confidential nature of the information - the requirement is broader and may include actions such as updating IT systems to protect trade secrets, clearing labelling documents as confidential, and inserting confidentiality provisions into non-disclosure agreements and employment contracts. The onus is heavily placed on the employer to ensure they have actively protected the trade secrets.

What remedies are available?

In addition to a new definition, the Regulations also set out the remedies available for an unlawful acquisition, disclosure or use of a trade secret. These supplement, rather than replace the existing common law remedies. In light of this, under Regulation 14 or the common law, the remedies available for an unlawful acquisition, use of disclosure of a trade secret, can include an injunction or damages, such as:

• prohibiting the use or disclosure of the trade secret;
• prohibiting the production, selling or use of ‘infringing goods’;
• prohibiting the ability to import, export or store ‘infringing goods’ for the purposes of selling or using them;
• recalling ‘infringing goods’ from the market;
• modifying goods so that they no longer contain the ‘infringing quality’;
• destroying the ‘infringing goods’;
• destroying any “document, object, material, substance or electronic file containing or embodying the trade secret”, or delivery up of said document, object, material, substance or electronic file”; and
• compensation for the loss.

What steps should businesses take?

In light of the additional requirement for reasonable steps to have been taken to ensure the secrecy of information, the following steps may assist businesses to protect confidential information:

• identify your trade secrets and keep a log – carry out an audit of the business and identify what your trade secrets are. Also make a note of any non-disclosure agreements in force and who they relate to.
• Identify how you currently protect your trade secrets – are you taking reasonable steps?
• Identify what additional steps you can take to protect your trade secrets – this may include training your workforce, installing security systems such as IT encryption, updating security policies, ensuring hard copy documents are stored securely and ensuring trade secrets are marked as confidential.
• Ensure that employee contracts protect trade secrets and that suitable non-disclosure agreements are enforced when confidential information is being disclosed.

The ‘reasonable steps’ requirement is new and it will take some time for us to see what steps the courts will consider to be reasonable for a business to have undertaken to protect its trade secrets. It is therefore important for businesses to act pro-actively.

The key focus in the trade secrets definition is that the courts will be concentrating on whether attempts have been made to keep the information secret, rather than focussing on the nature of the information being fundamentally secret. In addition, the scope of remedies available under the Regulations and for breach of confidence are yet to be explored and is therefore likely for a Claimant to bring actions under both the Regulations and existing breach of confidence laws.

Will Brexit affect the law on trade secrets?

No. The Regulations are the UK’s implementation of the Directive. This therefore means that the Regulations are now enforced within UK law and will not be affected when the UK leaves the EU, unless Parliament seeks to repeal them.