European policy. The Trade Secrets Directive

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The European Parliament has voted for the adoption of the new Trade Secrets Directive, that may impact on the availability of safety and efficacy information of medicines.

tradesecrets

The new European Directive “on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure” was voted1 by the EU’s Parliament in first lecture last April. After publication of the directive in the Official Journal of the EU and its entry into force, member states will have a maximum of two years to incorporate the new provisions into domestic laws.

The new legislation is expected to have a deep impact across all industrial sectors, being the pharmaceutics, biopharmaceutics and medtech among the ones that need a very careful balancing between the protection of industrial know-how and information and the need to make available to the general public all relevant data about the safety and efficacy of medicines, medical devices and food supplements.

The first proposal of the directive was made in November 2013 by the European Commission in order to harmonise the already existing fragmented national laws. The draft received many critics by stakeholders representing different voices of the civil society, from environmental, health and food safety protection groups to consumer’s representatives, from journalists to trade unions.

In December 2015, after a very long phase of debate and amendment, a compromise text of the directive was preliminary agreed upon with the Council of the European Union. This text further underwent the examination of the European Parliament Committee on Legal Affairs (JURI), which voted to adopt the rapporteur’s report; the text was finally adopted by the Parliament on April 14th. It addresses the definition of trade secret (Box 1 e 2), the exceptions (Box 3) and the cases of lawful use of the information (Box 4).

The controversial drafting of the proposal

«We find both the adoption and the content of the Trade Secrets Directive indicative of the trend in the EU to pursue strong protection of information through intellectual property and trade secret protection, and to pursue economic growth at the expense of public access to information and the accountability of companies. The Directive, despite some improvement by the European Parliament, still creates legal uncertainty for journalists, researchers and whistle-blowers who want to expose the side effects of medicines or misbehaviour of pharmaceutical companies», says Tessel Mellema, policy advisor at Health Action International (HAI).

BusinessEurope, the overnational industrial advocate organisation representing the business interests in Bruxelles, in a preliminary comment3 and a in following position paper4 welcomed the Commission’s proposal for a directive, which is considered beneficial to decrease business risk in sharing confidential information across borders and costs to protect and enforce trade secrets. According to BusinessEurope, the directive will prevent theft and misuse of the companies’ know-how, will favour technology transfer and make investment in R&D more rewarding for companies. Also the Bruxelles office of the Italian Confindustria supported the draft proposal of the directive on its website. (Segreto industriale5; Proposta di direttiva n. 2013/0402 in materia di protezione del know-how riservato e delle informazioni commerciali riservate6).

The open issues

«If we look at the content, a key problem is that the directive allows the industry to also sue non-economic actors and non-competitors, including journalists, independent researchers, and NGOs, for exposing business information that is in the public interest», says Tessel Mellema.

HAI considers the definition of “trade secrets” given by the directive (art. 2.1) too broad, so that all information held by a company could deem to be a trade secret. «The Directive provides that you should take all reasonable steps to keep the information secret. But you can argue that nowadays reasonable steps would be already in place, as e-mails and computers are protected within companies and most employees have confidentiality obligations in their employment contracts», adds Mellema.

According to the Directive, the unlawful use of the commercial confidential information can be pursued by legal means by its owner. The compensatory damages (Box 5) may include not only the economic harm caused to the business but also, in appropriate cases, elements such as the moral prejudice caused to the holder. «This means that the amount of damages claimed by the trade secret owner can be very high. It is a very unbalanced piece of legislation, very much in the interest of the trade secret owner. There has been not a lot of thought about the need to explicitly exclude information in the public interest, such as medicines safety and efficacy information from the remit of the Directive. That’s what Health Action International is most worried about», says Mellema.

According to HAI, researchers, journalists and whistle-blowers that expose illicit practices by the pharmaceutical industry, or reveal important medicines safety and efficacy information may not be adequately protected under law.

According to the press release of the UE Council of 18 December 2015, the agreed text should allow to ensure that “persons acting in good faith that reveal trade secrets for the purpose of protecting the general public interest, commonly known as “whistle-blowers”, will enjoy adequate protection. It will be up to national competent judicial authorities to judge whether the disclosure of a commercial secret was necessary to denounce a misconduct, wrongdoing or illegal activity”.

Critical points from the industry’s perspective

BusinessEurope position papers highlighted some points of the proposal critical from the industrial point of view: a positive judgement was reserved to the confidentiality of trade secrets during legal proceedings (art. 8). The main critics referred to the legitimate use of the right to freedom of expression and information (proposed article 4.2), as there are already other EU law instruments available to protect the fundamental rights of information.

Among other amendments asked by BusinessEurope, were the activity of whistle-blowers, the request of pecuniary compensation for the damages and some provisions regarding the management of work and labour laws. According to the preliminary comment, the EU’s legislator should not provide uniform contractual rules on non-compete and/or non-disclosure clauses between trade secrets owners and employees. “It is therefore of utmost importance that an appropriate solution is found by the co-legislators”, wrote the business advocate organisation. The position of the industry has been considered during discussions and, as the EU Council press release states with respect to workers’ mobility, “the directive will not impose any restrictions on workers in their employment contracts, where national law will continue to apply. Therefore there will be no limitation to employees’ use of the experience and skills honestly acquired in the normal course of their employment…”.

The access to information on medicines

The possibility to access information on the safety and efficacy of medicines is crucial to independently assess new treatments and run independent research. More recently, one healthy volunteer died and five other were hospitalised with severe health problems during a phase I clinical trial run by the French CRO Biotrial under the sponsorship of the Portuguese pharmaceutical company Bial. According to Nature’s report of the case7, the company declined the request of the UK’s Royal Statistical Society to publish the trial’s “investigator brochure” and another document, citing French laws.

«For us the most important improvement compared to the original Commission proposal is that the European Parliament formulated some situations where trade secrets owners cannot enforce their rights. This includes information held by Union or national institutions, for example the European Medicine Agency or national medicine agencies. Also information submitted under the clinical trial regulation, such the summary of results, in principle fall under this exemption», tells Mellema.

«However, although the Directive states that it will not affect the application of public disclosure obligations by EU and national institutions, the implications of this provision in real practice remain uncertain. The European Medicines Agency and national medicines agencies may take a safe course of action in their interpretation of what constitutes commercially confidential information and become less inclined to disclose information – such as clinical trial data – that is in the public interest. Trade secret protection has long been a recurring argument by the pharmaceutical industry to justify data secrecy», says Mellema.

The availability of data and information on medicines allows also to better monitor the allocation of public resources to support innovative, and often very expensive, therapeutical treatments. Another point of attention highlighted by the NGOs’ open letter is the need to avoid unethical repetition of clinical trials on people.

The impact on research and innovation

R&D collaboration between pharmaceutical companies and universities or research centres are normally governed by specific “R&D agreements” contracts that generally arrange for conditions for protection and lawful disclosure of the project’s data. «Regardless of that, the Directive creates a signal that all information held by the company and shared by the company is their property. In cases where there is no contract or where the contract is not clear about when it is allowed to disclose research data, the Trade Secret Directive will ensure that a researcher cannot use or publish any information provided or generated by the company under this research collaboration», tells HAI’s policy advisor.

The adoption of the directive by the European Parliament is only the first, minimum step: after its final adoption by the Council of Europe, the single Member States will be free to implement stronger protection measures as stated by article 1.1. Something that France tried already on January 2015: the amendment proposed by French Economy Minister Emmanuel Macron to the economic growth and activity bill was withdrawn as a consequence of the increasing amount of public protest against the new law. The future could be different.

 

Box 1. The definition of trade secret

According to Article 2.1 of the Directive, ‘trade secret’ means information which meets all of the following requirements:

(a) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;

(b) has commercial value because it is secret;

(c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret;

Source: Council of the European Union, Interinstitutional File 2013/0402(COD), doc. n. 15382/1/15 REV 1 (18 Dec. 2015)1

 

BOX 2. What is not considered to be a trade secret

According to article 1.2 and 1.2a, the Directive shall not affect:

(a) the exercise of the right to freedom of expression and information as set out in the Charter of Fundamental Rights of European Union, including respect for freedom and pluralism of the media;

(b) the application of Union or national rules requiring trade secret holders to disclose, for reasons of public interest, information, including trade secrets, to the public or to administrative or judicial authorities for the performance of their duties;

(c) the application of Union or national rules requiring or allowing Union institutions and bodies or national public authorities to disclose information submitted by business which they hold pursuant to, and in compliance with, the obligations and prerogatives set out in Union or national law;

(e) the autonomy of social partners and their rights to enter into collective agreements, in accordance with Union and national law and practices.

Nothing in the Directive shall be understood to offer any ground for restricting the mobility of employees. In particular, in relation to the exercise of such mobility, the Directive shall not offer any ground for:

(a) limiting employees’ use of information not constituting a trade secret as defined on point (1) of Article 2;

(b) limiting employees’ use of the experience and skills honestly acquired in the normal course of their employment;

(c) imposing any additional restrictions on employees in their employment contracts other than in accordance with Union or national law.

Source: Council of the European Union, Interinstitutional File 2013/0402(COD), doc. n. 15382/1/15 REV 1 (18 Dec. 2015)1

 

BOX 3. The exceptions

According to article 4, Member States shall ensure that the application for the measures, procedures and remedies provided for in the Directive is dismissed when the alleged acquisition, use or disclosure of the trade secret was carried out in any of the following cases:

(a) for exercising the right to freedom of expression and information as set out in the Charter of Fundamental Rights of the European Union, including respect for freedom and pluralism of the media;

(b) for revealing a misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest;

(c) the trade secret was disclosed by workers to their representatives as part of the legitimate exercise of their representative functions in accordance with Union or national law, provided that such disclosure was necessary for that exercise;

(e) for the purpose of protecting a legitimate interest recognised by Union or national law.

Source: Council of the European Union, Interinstitutional File 2013/0402(COD), doc. n. 15382/1/15 REV 1 (18 Dec. 2015)1

 

BOX 4. The lawful use of information

According to article 2a.1, the acquisition of trade secrets shall be considered lawful when they are obtained by any of the following means:

(a) independent discovery or creation;

(b) observation, study, disassembly or test of a product or object that has been made available to the public or that it is lawfully in the possession of the acquirer of the information who is free from any legally valid duty to limit the acquisition of the trade secret;

(c) exercise of the right of workers or workers’ representatives to information and consultation in accordance with Union and national law or practices;

(c) any other practice which, under the circumstances, is in conformity with honest commercial practices.

Article 2a.1a states that the acquisition, use and disclosure of trade secrets shall be considered lawful to the extent that such acquisition, use or disclosure is required or allowed by Union or national law.

Source: Council of the European Union, Interinstitutional File 2013/0402(COD), doc. n. 15382/1/15 REV 1 (18 Dec. 2015)1

 

BOX 5. Compensatory damages

Article 13.2 of the Directive states that, when setting the damages pursuant to paragraph 1, the competent judicial authorities shall take into account all appropriate factors, such as the negative economic consequences, including lost profits, which the injured party has suffered, any unfair profits made by the infringer and, in appropriate cases, elements other than economic factors, such as the moral prejudice caused to the trade secret holder by the unlawful acquisition, use or disclosure of the trade secret.

However, the competent judicial authorities may also, in appropriate cases, set the damages as a lump sum on the basis of elements such as, at a minimum, the amount of royalties or fees which would have been due if the infringer had requested authorisation to use the trade secret in question.

Source: Council of the European Union, Interinstitutional File 2013/0402(COD), doc. n. 15382/1/15 REV 1 (18 Dec. 2015)1

 

BOX 6. The Trade Secret Directive and the TTIP

The Transatlantic Trade and Investment Partnership (TTIP) is an international agreement currently under negotiation between the European Union and the United States, which aims to create a free trade area across the two continents. The partnership should allow to make easier the circulation of goods, including medicines and medical devices, and it might also act to lower the regulatory barriers in order to achieve its goals.

The adoption of the Trade Secrets Directive makes available an harmonised legislation throughout the European Union for the management of companies’ intellectual property and commercially confidential information: a needed pre-requirement to allow the European Commission to include the topic into the negotiations, as the mandate to negotiate received by the EU Parliament refers only to harmonised legislations. «With the adoption of the Trade Secret Directive, the EU can and will negotiate trade secret protection as a part of the Intellectual property chapter in TTIP. Our worry for that is that if this is the minimum level of protection for the EU and it is then agreed also with the US in TTIP, it could not be possible to make change to the directive if it has negative consequences», tells Tessel Mellema.

 

References

1 Council of the European Union, Interinstitutional File 2013/0402(COD), doc. n. 15382/1/15 REV 1 (18 Dec. 2015)

2 European civil society organisations call for the rejection of the EU Trade Secrets Directive

3 BusinessEurope preliminary comments on the Commission proposal for a directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure

4 BusinessEurope recommendations on the proposal for a Directive of the European Parliament and of the EU Council on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure

5 Segreto industriale

6 Proposta di direttiva n. 2013/0402 in materia di protezione del know-how riservato e delle informazioni commerciali riservate

7 Nature doi:10.1038/nature.2016.19221

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