Germany: What Are The Implications Of The New Trade Secrets Act (Geschäftsgeheimnisgesetz) For Companies?

With the entry into force of the German Trade Secrets Act, measures will become necessary for companies to appropriately protect their trade secrets in the future as well.

Key Facts

  • In the future, companies will have to take further technical and legal secrecy measures to protect their trade secrets. In addition to technical and organisational precautions, regulations in contracts with employees, customers and business partners may be required.
  • The analysis and dismantling of products for the decoding of secrets (reverse engineering) has been deemed permissible in principle, but can be contractually excluded.
  • Whistleblowers are protected when disclosing trade secrets if the disclosure is made in order to protect the public interest to uncover an illegal act or other misconduct. Furthermore, a separate EU directive for the protection of whistleblowers is expected to be adopted in the spring of 2019, which will then have to be implemented in national law.

We have summarized below in more detail the most important information:

  1. Implementation of Directive (EU) 2016/943

On 21 March 2019, the Bundestag passed the Trade Secrets Act (GeschGehG). After months of discussion and 9 months of delay, the Directive (EU) 2016/943 of the European Parliament and the Council of 8 June 2016 will be implemented into German national law. The law will come into force in the coming days following its promulgation by the Federal President. It does not contain a transitional period.

The GeschGehG aims at a stronger protection of trade secrets against unlawful obtaining as well as unlawful use and disclosure. Until now, trade secrets have only been protected fragmentally under German law, in particular under the criminal provisions of sections 17 to 19 UWG and under general rules of German civil law.

  1. Legal Changes

According to the legal definition in section 2 no. 1 of the GeschGehG, an information is only a trade secret if (i) it is confidential (not generally known or publicly accessible) and therefore of economic value to the company, (ii) there is an interest in the information being kept confidential and (iii) appropriate secrecy measures have been taken. Particularly new is the requirement to prove that appropriate secrecy measures have been taken by the company, in order to justify the legal protection. The appropriateness of the measures taken depends on the (economic) significance of the information for the company and the circumstances of the individual case.

Reverse engineering (i.e. analysis and dismantling of products for the decoding of secrets) is now generally permissible according to the new regulation in section 3 para. 1 no. 2 GeschGehG - but still only within the restrictions of the UWG and the intellectual property laws.

For the first time, explicit regulations for the protection of whistleblowers have been established. The disclosure of trade secrets is justified if it is made with the intention of protecting the public interest to uncover illegal acts and other misconduct. The explanatory memorandum gives as examples of other misconduct the systematic and dishonest evasion of taxable events, as well as company's activities abroad which, although not illegal in the countries concerned, are nevertheless regarded as misconduct by the general public, such as child labour or production conditions that are harmful to health or environment.

Furthermore, it is expected that a separate EU Whistleblower Directive will be implemented in national law in the coming months.

  1. Consequences for Companies

For companies, the GeschGehG initially means increased protection of their trade secrets. At the same time, however, companies will also be required to take increased measures of confidentiality and will be obliged to provide documentation in order to obtain legal protection at all.

This means in practice to identify, evaluate and categorize trade secrets according to their importance, in order to take appropriate measures of secrecy. This can be done by means of labour law directives and regulations in the employment contracts and agreements with business partners and customers adapted to the GeschGehG as well as by means of non-disclosure agreements. Existing contracts and samples must be reviewed. Reverse engineering should also be contractually regulated and, if necessary, explicitly excluded in the contracts.

In addition, organizational measures, such as the marking of important documents as "secret", and technical protective measures should be implemented. Indications for a corresponding strategy can be found in the ISO/IEC 27001 standard on IT security procedures and information security management systems. Complete documentation of the accomplished measures is decisive for future judicial assertion. All persons who have knowledge of trade secrets should be documented, informed of the implemented measures and made aware of their obligation to maintain confidentiality. Where applicable, employees should be trained accordingly.

If a company does not take necessary measures to protect its key information, it is in danger of wholly or partially losing the legal protection of secrets in the future. Especially for companies that create value with ideas and innovation, such protection is of superior importance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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