Reed Smith Client Alerts

At long last, Germany transposed the Trade Secrets Directive (“Directive”) into national law. Almost a year after the implementation deadline, the Geschäftsgeheimnisgesetz (Trade Secrets Act, “Act”) came into effect on April 26, 2019. It replaces the provisions of the Unfair Competition Act on misappropriation of trade secrets and introduces new procedural rules for trade secret litigation. Many perceive the Act as a game changer, and companies doing business in Germany are well advised to take action rather sooner than later.

1. What is the scope of the Act?

The Act defines the “trade secret” as “any piece of information that is neither generally known nor readily accessible, subject to reasonable steps to maintain confidentiality.” Shortly before the bill passed parliament, a third requirement was added according to which the holder must have “a legitimate interest in maintaining confidentiality.” This definition potentially covers any and all business-related information, irrespective of whether it constitutes, for example, customer data or technical know-how.

2. Who is affected?

The Act applies to any company doing business in Germany, no matter the size or the industry sector.

3. What are the main changes and implications?

The definition of a “trade secret” requires that companies take adequate steps to safeguard confidentiality. The meaning of “adequate” depends on the individual circumstances and, in particular, the value of the secret. Companies are well advised to conduct trade secret audits and subsequently consider the introduction of confidentiality policies, employee training and changes to contract templates (licensing, material transfer agreements, etc.). The Act further creates potential liability for the use of information obtained from third parties. In order to mitigate risks, companies need to rely on adequate warranties.

4. A game changer

The Act comes with a “trade secret” definition that is narrower than that of the Directive, because it refers to the legitimate interest. Also, it provides for an unparalleled whistleblower protection and forces companies to rethink and rebuild their trade secret protection. However, apart from these obvious consequences, the Act also offers new possibilities with regard to trade secret litigation.

Going forward, specialist judges will hear cases, and the Act introduces a “confidentiality club” similar to English law. Courts can now impose confidentiality obligations on the parties, sanction breaches with fines and limit the number of persons who may be granted access to confidential information. With all due caution, this will significantly improve the enforcement of claims and result in a rise in litigation.

How the courts will interpret the details is, of course, yet to be seen. In terms of immediate next steps, it is safe to say now is the time to take action! The Act came into effect without a transitional period. Therefore, companies need to take appropriate steps now – if not, their trade secrets will lose protection.

Client Alert 2019-115