Employment Newsletter

New Swedish legislation on trade secrets – Enhanced protection for knowledge-driven entrepreneurship?

From an em­ploy­ment law per­spec­tive, an em­ploy­er’s pos­si­bil­i­ty to pro­tect its most valu­able as­sets – trade se­crets – is of­ten of ut­ter­most im­por­tance. The in­creased dig­i­tal­iza­tion with­in to­day’s work­ing life of­fers a va­ri­ety of ben­e­fits for knowl­edge-dri­ven en­tre­pre­neur­ship, but has al­so brought new chal­lenges for em­ploy­ers when try­ing to keep in­for­ma­tion and com­pet­i­tive ad­van­tage se­cret. Today, high­ly valu­able trade se­crets can eas­i­ly be down­loaded and spread by em­ploy­ees and oth­ers, po­ten­tial­ly caus­ing great dam­age for an em­ploy­er’s busi­ness.

A gov­ern­ment bill (prop. 2017/18:200, En ny lag om före­tagshem­ligheter) has most re­cent­ly been pre­sent­ed by the Swedish gov­ern­ment, in which a new act on trade se­crets is pro­posed. The act is sug­gest­ed to re­place the cur­rent Act (1990:409) on the pro­tec­tion of trade se­crets (Swe. la­gen (1990:409) om sky­dd för före­tagshem­ligheter), in the fol­low­ing re­ferred to as the “PTS”. The new act, in the fol­low­ing re­ferred to as the “Suggested New PTS”, is pro­posed to en­ter in­to force on 1 July 2018.

The Suggested New PTS aims at im­ple­ment­ing the EU Directive 2016/943 on the pro­tec­tion of undis­closed know-how and busi­ness in­for­ma­tion (trade se­crets) against their un­law­ful ac­qui­si­tion, use and dis­clo­sure. The EU Directive was adopt­ed on 8 June 2016, with the pri­ma­ry pur­pose to har­monise the dif­fer­ent EU mem­ber states’ pro­tec­tion in civ­il law against un­law­ful ac­qui­si­tion, use and dis­clo­sure of trade se­crets.

The cur­rent PTS con­tains pro­vi­sions about re­spon­si­bil­i­ty and sanc­tions for unau­tho­rized ac­qui­si­tion, use or dis­clo­sure of trade se­crets. Trade se­crets, de­fined wide­ly with­in the PTS, in­clude in­for­ma­tion con­cern­ing the busi­ness or in­dus­tri­al re­la­tions of a per­son con­duct­ing busi­ness or in­dus­tri­al ac­tiv­i­ties; in­for­ma­tion which is con­cealed by such per­son and in re­la­tion to which dis­clo­sure is in­tend­ed to re­sult in a com­pet­i­tive dis­ad­van­tage.

The Suggested New PTS in out­line

To a large ex­tent, the pro­vi­sions in the cur­rent PTS re­spond to the re­quire­ments of the EU di­rec­tive. Consequently, the essence of the PTS will re­main un­changed with­in the Suggested New PTS. Nevertheless, the gov­ern­ment bill sug­gests a num­ber of al­ter­ations and sup­ple­ments, which to­geth­er forms the Suggested New PTS.

The essence of a “trade se­cret”

A new le­gal de­f­i­n­i­tion of the no­tion “trade se­cret” is pro­posed to be in­clud­ed in the Suggested New PTS, clar­i­fy­ing the nec­es­sary com­po­nents of a trade se­cret. To a large ex­tent, the le­gal de­f­i­n­i­tion is in­tend­ed to elu­ci­date the preva­lent mean­ing of the no­tion trade se­cret. A nov­el­ty is that re­search in­sti­tu­tions are ex­plic­it­ly men­tioned as po­ten­tial hold­ers of trade se­crets. It is al­so ex­plic­it­ly de­clared that em­ploy­ees’ per­son­al ex­pe­ri­ence and skills falls out­side the scope of the Suggested New PTS, which en­tails that such per­son­al ex­pe­ri­ence and skills can nev­er be re­gard­ed as a trade se­cret.

Infringements of trade se­crets with­in one joint pro­vi­sion

The Suggested New PTS pro­pos­es that the term “in­fringe­ment of trade se­crets” is clar­i­fied in one joint pro­vi­sion and that the scope for var­i­ous forms of in­fringe­ments is ex­tend­ed. The pro­pos­al en­tails that ad­di­tion­al in­fringe­ments will be deemed unau­tho­rized, in­ter alia by in­clud­ing im­port, ex­port and stor­age of in­fring­ing goods with the pur­pose of ex­ploit­ing these.

An in­fringe­ment of trade se­crets should not re­quire in­tent or neg­li­gence by the of­fend­er. It will in­stead be suf­fi­cient that the in­fringe­ment have oc­curred with­out the right­ful hold­er’s con­sent. It should nev­er­the­less, as un­der the cur­rent PTS, be stat­ed that pro­tec­tion un­der the Suggested New PTS on­ly ap­plies in re­la­tion to unau­tho­rized in­fringe­ments.

Damages

The pro­vi­sions re­gard­ing dam­ages in cas­es of unau­tho­rized in­fringe­ments of trade se­crets are pro­posed to be ex­tend­ed with­in the Suggested New PTS. New pro­vi­sions on li­a­bil­i­ty for dam­ages for any­one who neg­li­gent­ly ac­quires a trade se­cret as well as for any­one who makes use of a trade se­cret that a par­ty or a par­ty’s rep­re­sen­ta­tive has been giv­en ac­cess to due to a court de­ci­sion are pro­posed.

Confidentiality dur­ing court pro­ceed­ings

A new and im­por­tant ad­di­tion in the Suggested New PTS con­cerns the pro­tec­tion of trade se­crets dur­ing and af­ter court pro­ceed­ings ac­cord­ing to the act. Confidentiality is pro­posed to ap­ply with­out lim­i­ta­tion in time, al­though not af­ter it has been fi­nal­ly de­cid­ed that the in­for­ma­tion in ques­tion does not con­sti­tute a trade se­cret.

Measures against at­tacks – Publication of ju­di­cial de­ci­sions

The Suggested New PTS pro­pos­es that a court shall be per­mit­ted to de­cide that a per­son who has com­mit­ted or par­tic­i­pat­ed in an in­fringe­ment of trade se­crets shall pay for the ap­pro­pri­ate mea­sures to dis­sem­i­nate in­for­ma­tion about the judg­ment, if deemed rea­son­able. This shall al­so ap­ply in cas­es re­gard­ing im­pend­ing in­fringe­ments.

Penal pro­vi­sions

The min­i­mum penal­ty for grave cas­es of in­dus­tri­al es­pi­onage is pro­posed to be in­creased to six months’ im­pris­on­ment.

Reflections from an em­ploy­ment law per­spec­tive

Employees are of­ten pro­vid­ed with var­i­ous in­for­ma­tion re­gard­ing the em­ploy­er’s busi­ness; in­for­ma­tion which they have been per­mit­ted ac­cess to with­in their re­spec­tive em­ploy­ment. This en­tails that ac­tions by em­ploy­ees sel­dom will be de­fined as in­dus­tri­al es­pi­onage.

If an em­ploy­ee unau­tho­rized uti­lizes or dis­clos­es the em­ploy­er’s trade se­crets, the em­ploy­ee could be li­able to com­pen­sate the em­ploy­er for the dam­age in­curred. If the em­ploy­ment re­la­tion­ship has been ter­mi­nat­ed, a for­mer em­ploy­ee can nonethe­less on­ly be li­able to pay dam­ages to the em­ploy­er in a case of ex­tra­or­di­nary rea­sons.

In many cas­es, an em­ploy­er’s trade se­crets al­so eas­i­ly be­come part of the em­ploy­ees’ per­son­al ex­pe­ri­ence and skills; knowl­edge which is not pro­tect­ed un­der statu­to­ry pro­vi­sions on pro­tec­tion of trade se­crets.

If ac­cess to var­i­ous types of in­for­ma­tion is al­lowed from the em­ploy­er’s side, it is of­ten dif­fi­cult to pro­tect the in­for­ma­tion by means of statu­to­ry pro­vi­sions. In or­der to as­sure that trade se­crets can be suf­fi­cient­ly pro­tect­ed, oth­er mea­sures are of­ten re­quired.

Such mea­sure could, in­ter alia, in­volve the fol­low­ing;

  • Limiting the num­ber of em­ploy­ees with ac­cess to trade se­crets;
  • Implementing var­i­ous forms of tech­ni­cal mon­i­tor­ing, su­per­vi­so­ry and pro­tec­tion;
  • Informing and ed­u­cat­ing em­ploy­ees about trade se­crets, in or­der to pre­vent trade se­crets from be­ing re­vealed be­cause of ig­no­rance.

Supplementary agree­ments be­tween an em­ploy­er and an em­ploy­ee re­gard­ing con­fi­den­tial­i­ty and – for cer­tain cat­e­gories of em­ploy­ees – non-com­pe­ti­tion, can al­so be valu­able tools for an em­ploy­er in or­der to bet­ter pro­tect its busi­ness and com­pet­i­tive edge.