The recent scandal surrounding Mossack Fonseca shows just how quickly confidential documents can be obtained and distributed across the globe, retracting the information within being practically impossible. Efforts in the United States and the European Union are being made to pass legislation which would better coordinate the protection of trade secrets. Corporate Partner Maung Aye looks at how these changes impact transatlantic trade…

The damage theft of trade secrets does to businesses should not be underestimated, some sources estimating that the United States economy loses up to $450 billion each year as result of the practice, an amount which severely damages the opportunities for innovators across many industry sectors.

Variations and inconsistencies in the laws on trade secrets between countries can hamper the effectiveness of protection across borders, decreasing investment in innovation and making the retention of commercial and technical information significantly more difficult.

Transatlantic trade has been in the spotlight in recent years due to the ongoing negotiations on the Transatlantic Trade and Investment Partnership free trade agreement between the United States and the EU, which will need to harmonise regulations between the two jurisdictions in order to be successful. It follows that a harmonised approach to the law on trade secrets would be an essential component in providing comfort to businesses for any cross border trade.

The European Union Trade Secrets Directive 2016 (EU Directive), formally adopted by the Council of the EU on 27 May 2016 and in the US, the Defend Trade Secrets Act 2016 (DTSA), effective on 11 May 2016 go some way to achieve this objective.

Both legislative approaches broadly define trade secrets as confidential information which is of value due to the fact that it has been kept secret, providing that profit can be made from disclosure of the information. This similar approach will offer clearer guidance to parties on what will qualify as a trade secret in addition to clarifying any exclusions, such as reverse engineering of products by competitors, helping businesses to protect their confidential information more effectively under any transatlantic trade agreement in the future.

Improving the civil legal remedies available to individuals and commercial entities is an important step in discouraging and limiting theft of trade secrets. These legislative changes in isolation are unlikely to solve a problem which is worsened by inadequate training and resources being in place to enforce the law. Despite this, legislation specifically dealing with the misappropriation of trade secrets and increasing the penalties for engaging in such activity (or indirectly benefitting from it) could help to encourage more investment in innovation, by reassuring parties that their competitors will not profit from their research and techniques.

The approach of the EU Directive is notable in this regard by offering protection against secondary appropriation of trade secrets, the use of such information being unlawful where a person or business knew or ought to know that the information was obtained by another unlawfully. While seemingly wide ranging in its application, adequate protections have been included for whistle blowers and journalists revealing secrets for the general public interest.

Transatlantic coordination of trade secret protection as envisaged by the EU Directive and the DTSA will hopefully ensure criteria across legal jurisdictions will not differ significantly.

In addition, taking the positive step of increasing the penalties for companies utilising valuable economic information from competitors where it was (or could have been) acquired dishonestly is essential in a market where data can so easily be obtained and transferred.

What remains to be seen is whether legislators can effectively deal with the sheer variety of outlets disseminating this confidential information. Cybercrime is at an all-time high, with anonymous hacker groups posting information on black market sites without fear of being identified. The real challenge may actually be how to identify the perpetrators in the first place.