Trade secrets and know-how: more effective legal protection is available as of August 2018

So far in Europe, so in Hungary the legal protection of trade secrets and know-how was not really effective, which was a serious risk and business disadvantage to companies. The new regulation(1) implementing the corresponding EU directive adopted on 20 July 2018 and effective from 8 August 2018(2), will hopefully significantly change this adverse situation.

The new regulation demonstrates a systematic kind of change: the protection of non-public business information and know-how (trade secrets) is no longer under the regime of the rights of personality (such as privacy or non-discrimination), rather it enjoys a commercial value-kind of protection like copyright and patent rights in the future. In particular, this change appears in the legislative recognition of the exclusive right of the trade secret holder for use, communication and disclosure of the trade secret. Moreover, the trade transferability and licensing right of the trade secrets also follows from this legislative recognition.

One of the fundamental pre-condition of the trade secret is the confidentiality. Confidentiality means on the one hand, that the subject of the trade secret shall not be a generally known or readily accessible information. On the other hand, the trade secret holder shall make reasonable steps to keep this information secret (e.g. non-disclosure agreements, IT security measures etc.). Know-how (i.e. technical, economic or organisational skills) additionally, requires recording and documentation in an identifiable way. So, it shall be emphasized that, in the absence of protective measures to preserve the confidentiality of the trade secret, the available legal protection also vanishes.

The list of potential infringement situations helps the enforcement of the legislation. Such infringements might be in particular the unauthorized access to documentation, or the overrun of contractual licensing limits, even if it has been done by an individual who knew or should have known the illegal acquisition of the trade secret. The list of non-infringement clause helps the daily business in borderline cases. For example, independent development or testing of the product already on the market does not constitute an infringement.

In the future effective remedies are available for the trade secret holders. Regardless whether the infringement was a culpability conduct or not, the trade secret holder can claim the prohibition of placing the infringing goods on the market, the destruction of the infringing goods, disclosure of all business relations involving in the infringement or in trade of infringing goods, the reimbursement of the enrichment, as well as the publication of the final decision on the infringement. If the infringer did not know and should not have been known the infringement, it may request cash compensation only instead of providing other remedies for the trade secret holder. Finally, full compensation of damages can be also claimed. If lump-sum damage compensation will be convicted, the sum of the compensation may not be less than the amount of a customary license fee.

The regulation also opens the way for provisional and precautionary measures which may help to avoid non-irreversible adverse consequences of the trade secret infringements. In order to protect the trade secrets, the restriction of access to the files and limitation of attendance on the court hearings may be also requested.

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(1) Act LIV of 2018 on protection of trade secrets [abrogating the regulation on trade secret in Civil Code (Act V of 2013) and in the Competition Act (Act LVII of 1996)]

(2) DIRECTIVE (EU) 2016/943 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure