The new Trade Secrets Act

Category: compliance, cybersecurity, contract law Industry: automotive Author: Year:

What´s new?

Protecting trade secrets is of enormous importance for companies. Until now, the only protection afforded for trade secrets was through the provisions of the Act on Unfair Competition (primarily §§ 17–19 of the Act on Unfair Competition) and, otherwise, through general tort law (§§ 823 and 826 of the Civil Code, possibly in conjunction with § 1004 of the Civil Code).

With the Trade Secrets Act, which implements Directive (EU) 2016/943 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure into German law, German lawmakers have responded to this issue by establishing a consistent set of rules for the protection of know-how and confidential trade secrets.

This Act is to be applied only in cases where specific conditions are met. Specifically, the case must involve a "trade secret" as defined in § 1 I, § 2 No. 1 of the Trade Secrets Act, which defines "trade secret" as "any information which is secret (i.e. not generally known or readily accessible) and therefore of commercial value and which has been subject to reasonable steps by the person lawfully in control of the information to keep it secret." For the question as to when steps taken to keep information secret are to be considered "reasonable," it is advisable to base our assessment on the size of the company, the economic importance of the trade secret and the contractual arrangements which have been reached with employees and business partners (e.g. BT Doc. 19/4724, p. 25).

The centerpiece of the law is § 4 of the Trade Secrets Act, which specifies when a trade secret is unlawfully acquired, used or disclosed. Of particular practical importance is § 4 II, No. 3 of the Trade Secrets Act: under this provision, violating a non-disclosure agreement not only carries the legal consequences defined in the agreement itself, but is also a violation of the law, with the legal consequences specified in the Trade Secrets Act. Additionally, § 4 of the Trade Secrets Act prohibits the acquisition, use or disclosure of trade secrets e.g. in cases of unauthorized access to documents or files or in the event of conduct contrary to the principles of good faith with due regard for fair market practices. Trade secrets may be acquired e.g. if the secret is discovered independently or is obtained by observing or testing the product, provided that the acquiring person was not subject to any duty to limit acquisition of the trade secret. The acquisition, use or disclosure of trade secrets is justified if this is done for the protection of a legitimate interest, with § 5 of the Trade Secrets Act providing a non-exhaustive list of examples of such interests.

Practical significance

If the information in question qualifies as a trade secret, and acquisition, use or disclosure of the information is prohibited and not justified, and if the respondent is an infringer and the applicant is the holder of the trade secret, the Trade Secret Act provides for a comprehensive list of legal consequences. In addition to claims for rectification of the infringement, injunctive relief, claims to information and damage claims, the Act also provides for claims for destruction, surrender, recall, removal and withdrawal from the market, as well as other elements of liability. 

But companies can only invoke the Trade Secrets Act in cases where reasonable steps were taken to keep the information secret. If they wish to effectively protect their trade secrets under the current law, companies need to take active protective measures and demonstrate a legitimate interest in keeping the information secret, while before a subjective intent to maintain confidentiality would have been sufficient.

[May 2019]