How does the law protect trade secrets?
Like many countries, there is no legislative definition of what constitutes a trade secret under German law. The courts define a trade secret as any fact relating to a company which is not obvious but is only known to a limited number of persons and which is to be kept secret by the company owner’s expressed will, based on a sufficient economic interest. However, the current situation favours trade secrets holders as courts assume that the trade secret holder regularly possesses a legitimate economic interest in secrecy and that this interest manifests itself externally. Therefore, protection is granted broadly and particular measures for protection are not required.
Ironically though, this often leads to the situation where companies struggle with identifying and assessing the value of their trade secrets as well as protecting them properly. And since the Trade Secrets Directive will force any trade secret holder to take reasonable steps to protect its confidential information, companies should ensure that they take appropriate technical, organisational and legal measures to secure the confidentiality in order to benefit from legal protection.
Getting your contracts right
Confidentiality clauses and NDAs represent an integral part of protective measures, especially in R&D projects. To be compatible with the Directive, the following steps are advisable:
First, prior to entering into any negotiations, the partners should identify their respective confidential information and sign an NDA before talks regarding the planned project take place. The final R&D agreement should also include confidentiality obligations, particularly a definition of “confidential information”, that are in line with the NDA and broad enough to encompass all confidential information identified beforehand. It is important that any definition of confidential information refers to a specific purpose, i.e. the planned project. During the whole R&D project, the partners should bear in mind that the implementation of the Directive will extend the liability of the partners to the degree that if one partner ought to have known that the other partner uses a third party’s trade secret unlawfully, they could be liable as well.
Second, employees or third parties should only be able to access the information they need to carry out their work (a “need-to-know basis”). If the partners are granted access to confidential information, the agreement should include provisions on what they and their employees are allowed to do with the know-how and which measures for protection have to be taken. Particular caution is required if university professors (or other academics) are involved in the project since under German law, academics generally have the right to use their findings in further research and to publish their findings. The agreement should also, if necessary, cover the possibility of disclosing confidential information to subsidiaries.
Finally, the partners should agree on the term of the agreement. In particular, the partners should be careful with any retroactive term as there is a high likelihood that such a clause is unlawful under German law. Precise post-contractual confidentiality obligations should also be included.
As these contracts form basis for successful R&D projects, it is highly advisable to re-evaluate and update existing model NDAs and R&D agreements regularly, especially since every R&D project is unique and requires an individual definition for the know-how involved. Trade secrets holders should also follow the case law in Germany and how German courts construe the requirements set forth in the Trade Secrets Directive.