Trade secret laws and regulations in the UK

Yes. Directive (EU) 2016/943 (the “Directive”) was implemented in UK through the Trade Secrets (Enforcement, etc) Regulations 2018 (SI 2018/597) (the “Regulations”).

Yes. Confidential information and trade secrets are also protected under common law and equity (Scots law does not recognise the concept of equity). There is now a large crossover with the Regulations.  The Regulations make clear that a trade secrets' owner can rely on wider protection than granted under the Regulations where that wider protection exists under UK law.

The Regulation defines Trade Secrets as information that:

1. 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;
2. has commercial value because it is secret; and
3. has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

This definition is sufficiently broad to encompass what common law and equity has regarded as confidential information as well as trade secrets.

No specific measures are required.  As per the third point of the above “Trade Secrets” definition, the Regulation requires Trade Secrets to be subject to “reasonable steps under the circumstances… to keep it secret”.  Depending on the value of the information, the requisite measures could range from marking information as confidential through to more stringent measures, such as encrypting and segregated buildings and teams.

Yes. In the usual manner for assets, Trade Secrets are transferable and licensable.  Care should be taken to ensure physical and electronic copies of the information are passed along with transfer, and that licensees are under strict obligations to maintain the secrecy of the information.

No specific consequences apply.  It may be argued that a purported transfer or license of Trade Secrets by a party other than the owner means the Trade Secret is no longer secret, which could mean protection ceases to apply.  Any such transfer or licence is also unlikely to have legal effect given the lack of legal title by the transferor / licensor, and any parties adversely impacted by this may have claims under standard UK law principles (e.g. misrepresentation, procuring a breach of contract).

Yes.

The Regulations confirm Trade Secrets are infringed through their unlawful acquisition, use or disclosure. Since only one of these three acts need occur for infringement, it is possible for infringement to take place in circumstances where a Trade Secret was lawfully acquired but subsequently unlawfully used or disclosed.
Under common law / equity, threatened or actual unauthorised use of confidential information can constitute a breach of confidence.

Yes. The Regulations confirm that the usual range of UK court measures are available in respect of Trade Secrets claims.  Available measures designed to preserve evidence include: evidence preservation orders; computer imaging and inspection orders; search orders; and orders for disclosure of documents (whether pre-action or after proceedings have started).

As explained above, the Regulations confirm that the usual range of UK court measures are available in respect of Trade Secrets claims.  The Regulations specifically mention the following (although others are available):

Interim measures

An order for:

1. the cessation of, or (as the case may be) the prohibition of, the use or disclosure of the trade secret on a provisional basis;
2. the prohibition of the production, offering, placing on the market or use of infringing goods, or the importation, export or storage of infringing goods for those purposes; and
3. the seizure or delivery up of the suspected infringing goods, including imported goods, so as to prevent the goods entering into, or circulating on, the market.

Final measures

An order for:

1. the cessation of, or (as the case may be) the prohibition of, the use or disclosure of the trade secret;
2. the prohibition of the production, offering, placing on the market or use of infringing goods, or the importation, export or storage of infringing goods for those purposes; and
3. the adoption of corrective measures with regard to infringing goods, including where appropriate: (i) recall of the infringing goods from the market; (ii) depriving the infringing goods of their infringing quality; and (iii) destruction of the infringing goods or their withdrawal from the market, provided that the withdrawal does not undermine the protection of the trade secret in question; and
4.  the destruction of all or part of any document, object, material, substance or electronic file containing or embodying the trade secret, or where appropriate, the delivery up to the applicant of all or part of that document, object, material, substance or electronic file.

The Regulations state that, where a court orders any of the interim measures set out above, it may set a reasonable period within which a trade secret holder must bring proceedings for a decision on the merits of the case before a court.  Where no such period is set, a trade secret holder must bring proceedings before a court within a period not exceeding 20 working days or 31 calendar days after court order is made.

The Regulations specifically allow a defendant liable to the imposition of an order for the above final measures to apply for an order that they must pay compensation to the injured party rather than the above final measures if:

1. if at the time of use or disclosure the person neither knew nor ought, under the circumstances, to have known that the trade secret was obtained from another person who was using or disclosing the trade secret unlawfully;
2. if the execution of the final measures in question would cause disproportionate harm to the person liable to the measures; and
3. if it appears reasonably satisfactory to pay compensation to the injured party.

Interim measures are available through ex parte hearings in England and Wales for Trade Secrets (and other) cases in exceptional cases, such as where the matter is so urgent that there may not be time to notify the defendant, or where there is real concern that the defendant may seek to dispose of evidence.  

Interim measures are generally more available in Scotland through ex parte hearings than the English courts.  While the Scottish court’s maintain ultimate discretion as to whether or not to grant an interim measure on an ex parte basis, if the defender has not lodged caveats in the relevant court then the defender is at risk of having an interim measure awarded against them on an ex parte basis.  

Final measures not available through ex parte hearings except specific circumstances such as default judgments.  

Under UK law damages are designed to compensate for loss suffered.  The Regulations state that financial compensation must not exceed the amount of royalties or fees which would have been due, had that person obtained a licence to use the trade secret in question, for the period for which use of the trade secret could have been prohibited.

Under the Regulations, the limitation period is six years in England.  A breach of confidence/trade secrets under equity does not have a limitation period – see Limitation Act, Section 36(1).  

In Scotland, the prescriptive period is five years.  

The limitation period begins from the later of: (i) the day on which the unlawful acquisition, use or disclosure that is the subject of the claim ceases; and (ii) the day of knowledge of the trade secret holder (i.e. when the owner becomes aware of the breach).  

Disability is specified in the Regulations as a legitimate reason for suspension of the limitation period. 

UK courts are able and accustomed to taking a variety of steps to preserve confidentiality during court proceedings, including closed hearings, declarations that certain evidence is confidential, and limiting information to "confidentiality clubs".  

The Regulations specifically require that trade secrets remain confidential during and after legal proceedings, and prevent those who take part in trade secret proceedings (including parties, lawyers, experts and court officials) from using or disclosing the trade secret or information alleged to be a trade secret.  The Regulations also allow for a court to restrict access to a document or hearing, or redact its judgment.

The main exception to trade secrets protection is in relation to whistleblowers, which is dealt with below.

Where a court finds that court proceedings concerning trade secrets are manifestly unfounded or made abusively or in bad faith, the court will usually order the offending party to pay a larger proportion of the other party’s legal costs.  In particularly serious cases, this costs award can be made on an indemnity basis, meaning a considerably higher proportion of the other side’s legal costs is payable.

Further, court pleadings contain a Statement of Truth by the parties.  Where these are incorrect, the person that signed the Statement of Truth may, in certain circumstances, be subject to contempt of court proceedings.  While court pleadings in Scotland do not contain a Statement of Truth, pleadings will routinely be accompanied by witness statements or affidavits, which will contain such a statement. Any individual who knowingly provides false information in such documents could be subject to contempt of court proceedings. 

Finally, where the court grants an interim injunction, UK courts may require the applicant to give a cross-undertaking in damages, which means the applicant would pay damages to the injuncted party for losses caused if the injunction is later deemed to have been wrongly granted.

In Scotland, the court would be granting an interim interdict.  There is no requirement for the applicant to give a cross-undertaking in damages in Scotland.  However, any interim interdict is effectively taken out “at risk”. If the interim interdict is later found to have been wrongly granted then the application would have to pay damages to the party who was subject to the interdict. One important distinction between England and Scotland, however, is that in Scotland it is only the party who is subject to the interdict who can claim damages.  Whereas in England, in theory a cross-undertaking in damages can be granted to a third party who is not a party to the action.

Employers can, and should, put in place express contractual obligations on employees to protect trade secrets and confidential information during and after termination of employment.  The contractual terms must meet the usual legal requirements for an effective contractual obligation in the UK and, in particular, the obligations must be sufficiently certain.  There should therefore as a minimum be a clearly drafted definition of “confidential information”.

Employees are subject to an implied contractual obligation during their employment to protect the employer’s confidential information and trade secrets.  Once employment has ended, this implied duty extends only to protection of trade secrets (and not the lesser category of mere confidential information).  
Note that the above implied contractual obligations apply only to “employees” and not to other categories of personnel such as workers, agency staff or self-employed contractors.
However, even without an express or implied contractual obligation, certain individuals may be bound by a common law or equitable duty of confidence.  In brief terms, this applies where:

• the information has the ‘necessary quality of confidence’; and
• the information has been imparted in circumstances importing an obligation of confidence; and
• there is unauthorised use of that information, to the detriment of the person who holds the rights in that information.

The statutory duties regarding protection of trade secrets imposed by the Regulations, described above, run alongside this common law duty.  The UK courts have stated that the Regulations are not intended to supplant or replace the common law position.

Employers can rely in certain circumstances on post-termination restrictive covenants to limit the activities of staff when they leave.  Such contractual restrictions are generally unenforceable as a matter of UK public policy, unless they go no further than is reasonably necessary to protect the employer’s legitimate business aims.  

Protection of trade secrets and confidential information may be a legitimate business aim in this context.  To ensure that the contractual restrictions go no further than is reasonable to achieve that legitimate aim, they must be carefully drafted.  There is extensive case law in the UK that assists in understanding what is reasonable but, in very broad terms, restrictions on working for a competitor, soliciting or dealing with clients and suppliers, poaching staff, interfering with business opportunities (and so on) should be limited in scope, time and application.  The position also varies depending on whether the contractual obligation is entered into by an employee, a shareholder, a member of an LLP or another commercial party.

There are a number of other considerations, such as whether the obligations are contractually binding and whether they were considered reasonable at the time they were entered into.  The period of restrictions is typically offset by any time spent by the employee on “gardening leave” before their employment ends.

It is not a legal requirement to pay for a period of restriction (although the UK government has indicated that it may consider such a step) and it is not widespread market practice to do so.

This is a complex area of law and advice should be sought from your CMS employment contacts on a case-by-case basis.

Potentially, but it will depend on the circumstances – please see our Expert Guide to Whistleblower Protection and Reporting Channels for more information.

Yes, under certain circumstances an employer can be liable for the employee’s infringement of a third party’s trade secrets where the acts were done during the course of the employee’s employment.

Provisions are usually included in contracts to reserve the rights in, and preserve the confidentiality of, trade secrets that are disclosed by the parties. Trade secrets are often included within the definition of “Confidential Information” in a contract, and trade secrets are a type of intellectual property so included within that definition too.

You would typically find provisions dealing with the following in supply or similar contracts in respect of trade secrets:

• provisions regarding the handling of confidential information which require the recipient of the confidential information to put in place appropriate measures to safeguard the confidentiality of the information being disclosed;
• the purposes for which the information may be used, to whom and in what circumstances it may be disclosed;
• what happens to the information disclosed once the contract terminates or the purpose for which information was disclosed comes to an end; and
• the duration of the confidentiality obligations. 

The consequences of misappropriation of information are usually included in the contract and the process to be followed by the recipient in the event that it becomes aware of an actual or anticipated breach may also be included.

Disclosure and dissemination of trade secrets can irreparably harm or undermine their value. The typical pitfalls in contracts generally arise as a consequence that agreements protecting confidentiality can be difficult to enforce and the contracts do not always adequately prescribe what practical steps can be taken to maintain confidentiality. We have set out some suggestions below of additional provisions that are not always contained within contracts with respect to the protection of trade secrets.

A pre-requisite for protection as a trade secret under the Regulations is that the secret has been subject to reasonable steps to keep it secret (regulation 2(c)). The measures taken to protect the trade secret are also a factor the court can take into account in determining whether to grant the trade secrets holder interim remedies (regulation 12(2)(b)) and injunctions and corrective measures (regulation 15(1)(b)). It is therefore advantageous for a trade secret holder to pass obligations to maintain secrecy down through their contracts to demonstrate that they are taking reasonable steps to maintain the secrecy of their trade secrets.

Where a party intends to disclose valuable trade secrets it is recommended that a clear and robust system of confidentiality obligations to protect the trade secrets is agreed with the recipient and included in a contract between the parties. For example, the discloser may require the recipient to disclose information to its personnel on a need to know basis only, require any persons to whom information is to be disclosed to enter into confidentiality undertakings and maintain records of persons to whom information has been disclosed. The disclosing party could prescribe that they are entitled to undertake due diligence to ensure the recipient has adequate IT security systems, require that training on confidentiality is delivered to personnel, require that confidential documentation is marked as such and stored appropriately and not in locations which are accessible to all personnel. The disclosing party may also wish to include a right to audit compliance with confidentiality obligations.

The discloser may wish to include contractual provisions to address the steps to be taken if the recipient of the trade secrets becomes aware of intended misuse of the trade secrets or an actual breach of confidentiality to enable the discloser of the trade secrets to take immediate action to seek an injunction to prevent disclosure, or further disclosure, of the trade secrets. Aside from the right to seek an injunction, the disclosing party may also include an indemnity for breach within the contract and seek to ensure that any breach of confidentiality is an uncapped liability.

Where there are related contractual agreements, such as a non-disclosure agreement that has already been entered into by the parties, it is helpful to clarify the relationship between these agreements to avoid any confusion regarding the terms that apply. 

Agreeing the governing law and jurisdiction of a contract avoids ambiguity and the risk of disputes concerning law and forum, which is a risk where the parties are domiciled in different jurisdictions and the contract has an international dimension. 

It is generally preferable for the governing law and jurisdiction clauses across related agreements to be the same to ensure that the agreements are interpreted consistently and to reduce the risk of a party having to defend related claims across different jurisdictions.

It is important to take local advice to ensure that the procedural and substantive law in a given country is adequate to protect trade secrets. In addition, irrespective of the choice of governing law and jurisdiction, in certain circumstances national laws and regulations may apply or take precedence over provisions set out in a contract. Legal restrictions relating to matters such as anti-competitive behaviour, consumer protection or national defence may prohibit or mandate disclosure of confidential information in particular circumstances. Some jurisdictions may also require the duration of the agreement to be reasonable.

Different countries also apply duties under general law such as to negotiate in good faith or relating to pre-contractual misrepresentations which it is not usually possible to contract out of entirely and may impact on the enforceability of agreements.

It would be unusual to include a clause requiring payment of a given sum for breach of rights relating to trade secrets – not least as it is hard to quantify in advance what the appropriate amount would be. It is more usual, as indicated above, to rely on levers to incentivise compliance such as the indemnity and an uncapped liability if there is a breach. In addition, whilst the law relating to penalties is evolving in the UK, there has been a general rule against penalties. Where the parties have agreed that a specified sum is to be paid upon breach of a contractual provision, the general rule is that, if the clause is a liquidated damages clause, it will be encorceable, but if it is considered to be a penalty then the clause will not be enforced.

An award of damages is a typical remedy for misappropriation of trade secrets, but a range of remedies are available under the Regulations. Certain remedies are available on an interim basis, such as an injunction or delivery up and forfeiture of the allegedly infringing goods to the trade secret holder, although a time limit is set within which a claim must be brought after an interim order has been made. The court may also grant an injunction after hearing the claim, or an award of compensation if an injunction would not be appropriate. Other corrective measures are available, such a a product recall of the infringing goods, adaptation to remove any infringing part of the product, or destruction of the infringing goods.