European Commission publishes report on the legal protection of trade secrets in the data economy

In September 2022, the European Innovation Council and SMEs Executive Agency of the European Commission published a report titled "Study on the legal protection of trade secrets in the context of the data economy". The report focuses on the automotive, pharmaceutical/life sciences, energy and utilities, and financial services industries and examines two key aspects: a) the extent to which the EU's legal framework for trade secret protection applies to data shared among different firms and organisations, and b) how European companies actually implement trade secrets in practice. This analysis takes place within the context of the increasingly important data-driven economy and the sharing of data.

Trade secrets

As previously explained in our Law-Now article "EUIPO publishes report on Trade Secrets Litigation Trends in the EU", trade secrets vary widely in their forms and contents. In short, the most important requirements for trade secrets are as follows: information designated as a trade secret is maintained as confidential, the information holds commercial value, and the owner of the trade secret has implemented reasonable measures to safeguard its confidentiality.

In practice, trade-secret designation is primarily used as a supplementary layer of protection, typically after formulating a contract, which is the preferred method of safeguarding data. Trade secrets also serve as a tool to counter unauthorised use by third parties with whom no contractual relationship exists.

A lack of protection and utilisation

The study of the European Commission reveals that although data sharing is growing in importance, what data sharing lacks is the protection and utilisation of shared data through trade secrets. Only a handful of companies have a comprehensive understanding of how to apply trade secrets in the context of shared data. This is partly due to the relatively recent introduction of the EU Trade Secrets Directive (TSD) and the ongoing development of intellectual property management practices among many firms that are starting to incorporate trade secrets.

Furthermore, the lack of well-established legal precedents has left many companies uncertain about the precise definitions and enforceability of certain trade secret-related terminology. While some of this uncertainty can be addressed through legal reasoning, other aspects may require additional clarification or legal precedents to evolve.

Major conclusions

This study's key findings are as follows:

1. Data sharing and the protection of data through trade secrets will become increasingly important in the future. However, only a small number of companies are currently well-versed in this area.
   Several factors contribute to this situation:
   Modern data sharing methods, like sharing large datasets for AI model training, are not yet widespread across industries.
   The EU Trade Secrets Directive (TSD) is relatively new, and firms are still adjusting to its provisions and how they relate to novel data-sharing methods.
   Many companies lack clear ownership of trade secrets, especially in the context of data sharing, leading to the recent development of specific policies.
2. Companies are now beginning to consider trade secrets as a second layer of protection, used when contractual agreements (the preferred method) fail. Trade secrets also serve as a means to counter misappropriation by third parties without contractual relationships.
3. The precise meaning of the defining elements of trade secrets, such as when shared data qualifies as commercially valuable, what constitutes "reasonable steps," and when data is considered a secret, remains unclear due to a lack of European jurisprudence.
4. Some uncertainty might be resolved by referring to jurisprudence from countries with similar legislation, such as the US. However, aspects of the TSD and its relationship to other legislation (employment law, competition law, criminal sanctions) require further discussion to facilitate data sharing using trade secrets.
5. The impact of trade secrets protection on data sharing varies. While it can facilitate data sharing in some cases, it can also hinder it in others. Many firms are willing to share data but hesitate due to uncertainties, a fear of losing control over data, or concerns about equitable sharing of benefits and profits once data is shared.

Future recommendations 

As a result of these key findings, the study offers recommendations in three key areas:

1. Enhance firm performance in using trade secrets for shared valuable data through awareness and training, contract templates, and stakeholder engagement.
2. Clarify the Trade Secrets Directive (TSD) through explanatory guidelines and potential amendments, drawing inspiration from practices in Japan and the US.
3. Improve the legal framework for trade secrets in conjunction with other laws, including employment, criminal sanctions, and competition laws, while monitoring their impact on data sharing.

We will carefully monitor further developments regarding the European Commission's report and trade secrets.

For more information on how to effectively utilise trade secret protection, contact your CMS client partner or local CMS experts.