Trends in Trade Secrets Litigation - view from the EU and UK

Why should I read this?

Trade secrets litigation is increasingly becoming common across the UK and EU Member States. It has been a number of years since the Trade Secrets Directive came into effect and the EU IPO has recently published a report highlighting some the key trends that have emerged in related litigation. The UK has also recently seen an uptick of breach of confidence disputes with a number of important reported decisions from the High Court. In this briefing, we will explore some of the key themes that we are seeing in trade secrets disputes in the UK and across the EU.

Key points from the EU IPO’s report

The EU IPO’s Trade Secrets Litigation Trends report analyses cases between 1 January 2017 and 31 October 2022. It is split into three sections: a quantitative analysis, a qualitative analysis and a series of case summaries. Some of the overarching themes from the analysis include the following:

• There are significant divergences between Member States in terms of number of cases and fora in which cases are heard. The Member States where most of the cases are heard include Italy, Germany and France. Litigation appears to be localised with few cross-border disputes recorded.
• Disputes are largely between employers and ex‑employees rather than third-party businesses. The ‘disgruntled employee’ is a common theme in many of these disputes.
• Disputes are emerging across diverse industry sectors, manufacturing being the sector most often involved. The focus of most disputes appears to relate to breaches of commercially sensitive, rather than technical, information (or know-how).
• A number of cases have considered whether ‘reasonable steps’ were taken to protect the confidential information, which is a key requirement to qualify as a ‘trade secret’. In many EU countries, this has been a new concept that has been introduced into the law in implementing the Trade Secrets Directive.
• For information to be protected under trade secrets law through contractual measures (i.e. confidentiality agreements), it is crucial for specific objects of protection to be clearly identified. This serves as a reminder of some of the problems that may be created through overbroad NDAs and why it is important to make sure they are fit for purpose.

Trends in UK trade secrets litigation

We conducted a review of approximately 40 UK claims brought in the Intellectual Property Courts in the Chancery Division between 2016 and 2023 relating to trade secrets, breach of confidence and misuse of confidential information/trade secrets. Our review showed that more claims in the UK are brought against third parties than against ex-employees (in contrast to the position seen in the EU). Where claims are brought against ex-employees however, there is a general trend that a third party (often a company/business incorporated by the ex-employee(s) purportedly taking advantage of the confidential information/trade secrets) will also be party to the claim. It is also notable that a large number of the disputes in the UK related to trade secrets contained in software, data and databases. This is not surprising given the ease with which this type of information can be misappropriated.

The majority of the UK case we reviewed were still ‘ongoing’, however, more claims ended in settlement or appeared to settle than have led to a judgment. This may be due to the fact that whilst it may be ‘easy’ to initially raise a claim for breach of confidence and/or misuse of confidential information/trade secrets, the reality is that it is much harder to prove the necessary details for the claim to succeed. This finding underscores the importance of properly identifying the nature and scope of the confidential information early in the case and gathering evidence of not only breach but also misuse of such information. The UK also has certain procedures – such as pre-action or third party disclosure (discovery) – that can be a powerful tool in certain instances to gather information in trade secret cases. The courts have, however, become more strict in recent years on how readily these types of procedures can be deployed and are now requiring parties to identify the relevant confidential information with more specificity earlier on in the dispute.

“More claims in the UK are brought against third parties than against ex-employees (in contrast to the position seen in the EU).”

What else do I need to know?

The protection of trade secrets is a particularly nuanced area of law which also overlaps with a variety of other topics such as IP law and unfair competition law. A report published by the UK IPO in April 2021 found that there is a growing emphasis on the role of trade secrets as a mechanism of IP protection. Further, the report suggested that trade secrets are increasingly becoming the preferred means of protection for innovation, sometimes even ahead of patents.

As the EU IPO’s report highlights, it has only been a few years since the implementation of the Trade Secrets Directive and the Court of Justice of the EU has not yet provided clarification on some of the Directive’s substantial provisions, therefore common trends in litigation of trade secrets are only set to develop further. Equally, and discussed in the UK IPO’s report, due to certain challenges with litigation data such as access, identification and sample selection bias, caution should be taken when attempting to generalise from such data. Nevertheless, the experience over the last few years suggests that – both in the UK and EU – trade secret disputes will likely become more prevalent with the growing digitisation of data across all industries and as trends such as remote working become more entrenched. This is why it will be all the more important for companies to have robust systems in place to properly capture and protect their trade secrets and other confidential information as part their overall IP strategy.

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