The new German Trade Secrets Act
The new law on the protection of trade secrets entered into force on 26 April 2019. This means that Germany has also implemented the provisions of Directive (EU) 2016/943 - with a delay. The newly introduced provisions of the Trade Secrets Act ("GeschGehG") replace the previously applicable provisions of §§ 17 - 19 German Act against Unfair Competition ("UWG"). The GeschGehG brings some innovations with consequences for corporate compliance, which we would like to briefly present to you here.
The first section of the GeschGehG (§§ 1 - 5) contains the most relevant provisions with definitions as well as permitted and prohibited activities. While the second section (§§ 6 - 14) sets out the remedies for violations and the third section (§§ 15 - 22) deals with procedural rules for the protection of secrets. Finally, the fourth section in § 23 GeschGehG contains the criminal provisions previously standardized in §§ 17 - 19 UWG.
Redefinition of the term "trade secret"
One of the central points of the new law and of particular practical relevance is the definition of a trade secret in § 2 No.1 GeschGehG. A trade secret is any information which
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is neither generally known nor readily accessible, and therefore of economic value,
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is protected by appropriate confidentiality measures, and
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in which the owner has a legitimate interest in confidentiality.
Furthermore, § 3 GeschGehG defines which actions are now permitted. This concerns, among other things, the reverse engineering discussed below. As a further clarification, § 4 GeschGehG lists prohibited acts. Among other topics § 5 GeschGehG regulates the handling of whistleblowers.
Appropriate confidentiality measures
While before the implementation of the new law, the subjective motivation to keep information secret had been sufficient, now perceptible objective measures have to be taken. If this is not done, or if the confidentiality measures are not appropriate, the information is not considered to be a trade secret. It is not only the company/owner itself that suffers damage if this is not implemented properly, those responsible may also be prosecuted under civil or even criminal law.
Against the background of the new legal situation, an in-depth analysis is necessary as to which information is of economic value to a business and whether appropriate confidentiality measures have been taken in this respect. In principle, the more important the trade secret, the stricter the measures that must be taken to protect it, so that such measures qualify as appropriate. By underestimating or missing appropriate measures, a business runs the risk that information is not protected as a trade secret and that ownership of the information is lost.
As a consequence, it is necessary to implement suitable contractual, technical and/or organisational protective measures after the appropriate evaluation has been completed (such measures include (among other things): contract/template adjustments for employment, cooperation, work and development contracts, precise non-disclosure agreements, employee training and staff awareness, improvements in IT security and access restrictions/controls).
Reverse engineering - a turnaround?
There is a change in paradigm as compared to the previous legal situation with regard to reverse engineering, i.e. the dismantling of products for the decoding of secrets. Until now, this was only permitted to a limited extent in Germany. However, § 3 I No. 2 GeschGehG now provides for its admissibility under certain conditions. This is the case either where a product is publicly available or where it is lawfully in the possession of the other party without the latter being obliged to keep it secret. The latter in particular becomes relevant in the context of cooperation with other companies prior to market maturity (e.g. in case of the provision of prototypes). At this stage, protection of secrets must be regulated by appropriate contractual obligations on both sides.
Regulation of whistleblowing
A regulation for whistleblowers can be found (for the first time in German law) in § 5 No.2 GeschGehG, which now provides a high level of protection for whistleblowers. Information containing trade secrets based on unlawful acts or other misconduct may be disclosed if it is likely to protect the general public interest. Due to the lack of clarity of these legal criteria, it is necessary to carefully examine which information falls hereunder, and may therefore be lawfully disseminated.
With regard to the EU General Data Protection Regulation (GDPR), it should be noted that the German data protection supervisory authorities, abandoning their earlier view, recommend that whistleblowing notifications be made possible on an anonymous basis.
Legal remedies, in the event of unlawful use of a trade secret
The German Act on Trade Secrets provides for numerous remedies to which the owner of a trade secret is entitled in the event of a violation of rights if another uses the trade secret unlawfully.
The owner of the trade secret may demand that the trade secret no longer be used (omission according to 6 GeschGehG). The owner may demand that all documents and storage media on which the trade secret is stored be surrendered or destroyed (§ 7 No. 1 GeschGehG). Furthermore, the owner of the trade secret may enforce a product recall or destruction if the products were unlawfully manufactured on the basis of the trade secret (§ 7 No. 2, 4 GeschGehG). The owner may also claim damages (§ 10 GeschGehG) and information on the extent to which and the manner in which the trade secret was used (§ 8 para. 1 GeschGehG).
In urgent cases, the owner of the trade secret may (if necessary also as a precautionary measure) have an interim injunction issued to prohibit the illegal use of a trade secret by another party. This may also include a sales ban on a particular product.
Protection from public in court proceedings
An important new provision is that the court may classify certain information as being a secret that should be kept confidential during a trial (§ 16 para 1 GeschGehG). In such case, no party may disclose this information outside the court proceeding (§ 16 para. 2 GeschGehG) and the confidentiality is secured by high fines. During the oral proceedings the public may be excluded and the inspection of files by third parties may be restricted if business secrets are discussed (§ 19 para. 1 sentence 1 no. 2 GeschGehG).
This protection of information makes it easier for companies to enforce their rights. In the past, the public nature of legal proceedings had often deterred companies from enforcing their rights in court.
Consequences for companies
Even if there are no legal deadlines for the implementation of certain measures, the requirements for the existence of a protected trade secret have increased. Companies should, in their own interest, prepare an internal analysis of what information is of central and of economic importance to them, involving a range of departments. In order for critical information to be classified as a trade secret, appropriate protective measures must be taken and documented. As mentioned above, this may include organisational, technical and legal measures. Only through the cooperation of the various business units can the protection of trade secrets, IT and information security, legal storage obligations and data protection deletion obligations be harmonized and effectively implemented.
Contact us
Fieldfisher will be happy to assist you with all of these actions, from classifying the information to implementing appropriate measures to enforcing remedies after violations.