Trade Secrets in 8 Questions (and Answers)

1. What is a trade secret, and what conditions are required for its protection?

A trade secret, also referred to as a commercial secret or manufacturing secret, is defined as any information that is not, either in itself or in the precise configuration and assembly of its components, generally known or readily accessible to persons familiar with this type of information because of their business sector. To be protected, a trade secret must meet three cumulative criteria:

It is important to note that experience and skills acquired by employees in the normal course of their employment are explicitly excluded from the definition of trade secrets so as not to restrict employee mobility.

2. What types of acts are considered violations of a trade secret, and what defenses may be invoked?

The European Trade Secrets Directive, Directive (EU) No. 943/2016, establishes a “cascade of infringing acts,” linking various discrete sequential actions and creating separate causes of action at each stage. Unlawful acts include the unauthorized acquisition, use, or disclosure of a trade secret.

The unlawful acquisition of a trade secret without the holder’s consent is considered illegal if carried out through unauthorized access, appropriation, or copying of documents, objects, materials, substances, or electronic files lawfully under the holder’s control.

Unlawful use or disclosure occurs without the holder’s consent by a person who acquired the trade secret unlawfully, who is in breach of a confidentiality agreement or any other obligation not to disclose the secret, or who is in breach of a contractual or other obligation to limit the use of the secret. This also includes the production, offering, placing on the market, or import/export of “infringing goods” that significantly benefit from a trade secret acquired, used, or disclosed unlawfully.

The defenses most commonly invoked by defendants in trade secret litigation are:

• Absence of a trade secret: the information is generally known, has no commercial value, or reasonable measures were not taken to protect it.
• Lawful acquisition: the information was discovered independently, acquired through reverse engineering, or obtained through the exercise of workers’ rights, namely skills and experience honestly acquired.
• Lack of knowledge of unlawful acquisition from a third-party source.
• Invalidity of non-disclosure agreements, NDAs, or contractual restrictions.
• Disclosure in the public interest, for example, to report illegal activity in good faith, as in the “Luxleaks” whistleblower case.

3. What are the main measures and remedies available in the event of a trade secret violation?

In the event of a proven trade secret violation, the competent judicial authorities may order various measures and remedies, generally proportionate to the circumstances of the infringement. These measures include:

• Provisional and precautionary measures: These aim to prevent imminent harm or provisionally stop unlawful harm. They may include prohibiting the use or disclosure of the secret, prohibiting the production or marketing of infringing goods, or seizing or delivering up goods suspected of being infringing.
• Injunctions and corrective measures: Once the infringement has been established on the merits, the court may order the cessation or prohibition of the use or disclosure of the secret, the prohibition of production or marketing of infringing goods, the recall, removal of the infringing quality, destruction of the goods, or their withdrawal from the market. The destruction of documents or files containing the secret, or their delivery to the claimant, may also be ordered.
• Damages: The infringer, if they knew or should have known that they were engaging in unlawful acquisition, use, or disclosure, may be ordered to pay damages appropriate to the actual harm suffered by the holder of the secret. Calculation methods may include compensation for lost profits, disgorgement of profits made by the infringer, or payment of royalties that would have been due.
• Publication measures: The court may order publication of the judicial decision, in whole or in part, to inform the public of the infringement.
• Criminal penalties: In some Member States, criminal measures such as fines or imprisonment may apply to offenses relating to trade secrets, although these proceedings fall outside the direct scope of the European Directive and may differ between States.

4. How is the confidentiality of trade secrets protected during judicial proceedings?

Protecting the confidentiality of trade secrets during judicial proceedings is crucial, as the risk of information leakage may deter trade secret holders from bringing claims. The European Directive and national laws provide mechanisms for this:

• Restricted access to documents: The judge may limit access to documents containing trade secrets to only those persons necessary for resolving the dispute, such as the parties, their lawyers, court-appointed experts, and court officials. These persons are subject to a confidentiality obligation. Redacted copies may be provided.
• Restricted access to hearings: Hearings may be held in chambers, meaning behind closed doors, or access to hearings may be restricted.
• Publication of redacted decisions: Judicial decisions may be published in edited or redacted form, omitting confidential information.
• Confidentiality clubs: Some judicial systems establish “confidentiality clubs,” where only a limited number of authorized persons, often experts or external lawyers, have access to the most sensitive information.
• Ex ante and ex post measures: Measures may be taken before and after the incident to assess the adequacy of the protection steps and the conduct of the infringer.

Despite these measures, fear of information leakage remains a deterrent to litigation, particularly for companies in the pharmaceutical, automotive, IT, and chemical sectors.

5. What are the typical profiles of parties involved in trade secret litigation and their contractual relationships?

Trade secret litigation involves a variety of party profiles and contractual relationships:

• Claimants: Mainly private companies, including a significant share of SMEs, 27%, large companies, 10%, and micro-enterprises, 11%.
• Defendants: A large proportion, 38%, are former employees; 23% are private entities whose size is not specified; 13% are SMEs; and 11% are large companies.
• Contractual relationships:
  • Former employment, 55%: This is the most common relationship, where a former employee is accused of having used or disclosed trade secrets belonging to a former employer.
  • No known contractual relationship, 29%: These cases may involve acts of industrial espionage or unlawful acquisition by third parties with no prior link.
  • Commercial partnership, 24%: Disputes arise between partner companies or subcontractors.
  • Current employment, 5%: Cases of infringement by current employees are also observed.

Disputes involving former employees are particularly frequent, and accusations often concern unauthorized use or disclosure based on breach of contract or a non-disclosure agreement, rather than the initial unlawful acquisition. Disputes involving direct competitors are also common.

6. What trends are observed in the types of technical and commercial information involved in litigation?

Trade secret litigation mainly concerns commercial rather than technical information:

• Commercial information, majority: This represents the largest share of disputes. The most frequent types are:
• Downstream commercial information, such as distribution methods, advertising strategies, marketing data, and customer lists: 31% of proceedings.
• Financial information, such as pricing models and accounting data: 13% of proceedings.
• Management information, such as business strategies and development plans: less frequent, but present.
• Technical information: The most common type is “manufacturing process/know-how,” accounting for 19% of proceedings. Prototypes or designs of non-marketed products account for only 3% of cases.

This predominance of commercial information highlights the important role of trade secrets across all sectors of the economy, beyond technical innovation alone.

7. What are the main economic sectors involved in trade secret litigation and the most active jurisdictions?

Although commercial information predominates, the sector most often involved in trade secret litigation is manufacturing, representing 48% of cases. Other notable sectors include:

• “Wholesale and retail trade; repair of motor vehicles and motorcycles,” 11%.
• “Financial and insurance activities,” 7%.
• “Professional, scientific, and technical services,” 7%.
• “Transportation and storage,” specifically in Poland, 24%.
• “Accommodation and food service activities,” particularly in Spain, 14%.

Regarding the most active jurisdictions:

Specialized intellectual property courts, 26%, courts of appeal, 25%, and general civil courts, 24%, are the most common forums for litigation. Specialized labor courts, 7%, and specialized competition forums, 6%, are less frequent.

Italy stands out with a remarkably high volume of cases, with 151 reported proceedings compared with other Member States.

Member States such as Bulgaria, Croatia, Latvia, Lithuania, and Romania have disproportionately high levels of trade secret litigation relative to their GDP.

The overall success rate of claims is 27% in the EU, meaning that most decisions are in favor of the defendant, 73%. Appeal rates vary considerably between Member States, for example 72% in Spain and 14% in Finland.

8. What are the main concerns and limits of trade secret protection in the EU, and how does the Directive seek to address them?

Despite progress, trade secret protection in the EU faces several challenges and limitations:

• Legislative fragmentation and lack of a uniform definition: Before the Directive, major differences existed between Member States regarding the definition of trade secrets, the treatment of good-faith third parties, and the available measures. Some countries had statutory definitions, while others relied on case law or other laws, such as unfair competition law or labor law. The Directive aimed to harmonize these aspects, but challenges remain, particularly regarding the relationship with criminal law and the definition of employees’ “experience and skills.”
• Difficulties of proof: Proving the existence of a trade secret and its infringement is often difficult for the claimant. Courts require specific information and evidence of the reasonable measures taken to protect the secret. The absence of direct evidence, the difficulty of distinguishing the secret from general know-how or publicly accessible information, and the high burden of proof are frequent obstacles.
• Risk of information leakage during litigation: The fear that confidential information may be disclosed during judicial proceedings is a major concern, despite protective measures such as closed hearings, redacted documents, and confidentiality clubs.
• Length and cost of proceedings: Litigation can be lengthy and costly, which deters companies, especially SMEs. The time required to obtain a decision on the merits may range from several months to several years.
• Adequacy of remedies: Although injunctions and damages are available, their effectiveness may be limited. For example, injunctions are not always available against good-faith third parties, and damages may be difficult to calculate in the absence of objective market parameters.
• Access to lower-court judgments: The lack of public availability of lower-court judgments in some Member States limits the ability to obtain a complete view of litigation trends.
• Arbitration and out-of-court settlements: The report notes that no information is available on the extent of disputes resolved by private arbitration or out-of-court settlements, meaning that the statistics do not reflect all disputes.

Directive 2016/943 aims to strengthen and harmonize trade secret protection in the EU by clearly defining trade secrets, unlawful acts, and the available measures, procedures, and remedies, in order to create a more coherent regulatory framework and foster business confidence in the judicial system.

We value your trade secrets and support you in developing a strategy to protect and enhance the value of your know-how. Feel free to contact us with any questions.