In its decision dated January 13, 2022, the Aachen Labor Court made several problematic statements regarding the German Act on the Protection of Trade Secrets (the Geheimnisblog has analyzed the ruling here). Following various comments and questions, we have conducted a more in-depth analysis of what we consider to be the court’s particularly problematic statements regarding the relationship between the existence of a trade secret and the possibility of reverse engineering.
The case at hand
The plaintiff is a leading manufacturer of specialized machinery for the beverage industry. The defendant held a managerial position within the plaintiff’s sphere of operations for many years and, during his employment, indisputably sent a series of emails with attachments to shareholders of a competitor. The attachments contained detailed technical information regarding various features of the plaintiff’s specialized machinery. The plaintiff is seeking an injunction, disclosure, and damages against the defendant.
In the proceedings, the defendant defends himself – apparently in a well-substantiated and detailed manner – by arguing that the technical information does not constitute trade secrets. In support of this argument, the defendant points out, first, that a number of technically equivalent competing products are available on the global market. This, the defendant argues, demonstrates that the technical information is generally known among interested experts. Furthermore, the defendant contends that numerous individual data points can be determined using standard measuring equipment or calculated. The plaintiff disputes the technical equivalence of the competing products and asserts – perhaps without sufficient substantiation – that the special quality of its products is based on the extremely precise selection and coordination of dimensions and performance data.
Aachen Labor Court: Burden of proof for lack of Reverse Engineering
It is likely due to the large volume of technical information that the Aachen Labor Court lost track of the matter in these proceedings and provided some misleading explanations in paragraphs 73 and 74 of its judgment (here).
First, the court states that the plaintiff, “in light of the competing products available on the global market, has not demonstrated that the performance data and process parameters of the AFK machines, as well as the geometry and tolerance data … are not readily accessible” (para. 73). The court initially assumes – correctly, of course, as a starting point – that the plaintiff, as the holder of the trade secret, bears the burden of presentation and proof regarding the existence of the trade secret under the general rules. However, since the element of “lack of general knowledge” under Section 2 no. 1 (a) GeschGehG constitutes a negative fact, the plaintiff is entitled – also in accordance with general rules – to certain relaxations of the burden of proof. Apparently, however, the defendant has presented such detailed arguments on the technical issues that the court is unwilling to grant these relaxations or is willing to do so only to a limited extent. We cannot assess whether this is appropriate in this specific case due to a lack of knowledge of the pleadings.
But then comes the fateful sentence:
“Therefore, in view of the defendant’s very detailed presentation of the facts regarding the manufacture and equivalence of the competing products, as well as the possibility of determining the necessary parameters through reverse engineering, it would have been incumbent upon the plaintiff, pursuant to Section 46(2) first sentence of the ArbGG,
Section 138 (2), (3) ZPO, to respond specifically and set forth in detail in what exact respects the competitors’ sleeves are defective, why reverse engineering is not possible, and thus why their production cannot be based on know-how exclusively available to the plaintiff.” (para. 74).
The court thus holds – and the wording can hardly be understood otherwise – that the possibility of reverse engineering precludes the classification of information as a trade secret. This is fundamentally incorrect and demonstrates a fundamental misunderstanding of the GeschGehG.
The “Could-have-defense” – “Could have obtained” – Is not a valid defense
As a reminder: A trade secret – unlike an industrial property right – does not grant a monopoly. The Trade Secrets Act (GeschGehG) prohibits certain acts (Section 4 GeschGehG) but does not establish an exclusive right in favor of a secret holder. Any third party may exploit and even publish information that the holder considers to be “their” secret in any manner, provided that the third party has lawfully obtained the information. This is now expressly clarified in Section 3 GeschGehG. One form of lawful acquisition of trade secrets, pursuant to Section 3 (1) (2) GeschGehG, is the “observation, examination, reverse engineering, or testing of a product or object,” in short, “reverse engineering.”
The error (or at least the misunderstanding) on the part of the Labor Court lies in the fact that it conflates the elements of the offense under Section 2(1)(a) of the GeschGehG (is the specific information a trade secret?) with the question of whether the information can also be obtained through reverse engineering. As a general rule, these questions are unrelated.
A substantive overlap may arise in determining whether information within the meaning of Section 2(1)(a) of the Trade Secrets Act is “readily accessible.” This criterion precludes the possibility that information can be obtained with very little effort. This covers cases in which technical information is embodied in an object and becomes available through trivial and relatively simple steps (e.g., unscrewing). Such information is therefore not a trade secret from the outset. There is no rigid threshold for classification. A certain indication of the lower limit arises from a decision by the Higher Regional Court of Celle: If information can be obtained through a four-hour search at a cost of approximately €300, that information is not a trade secret.
However, the case before the Aachen Labor Court was clearly not comparable to this situation: The facts of the case indicate that the defendant had disclosed numerous individual technical data points regarding a wide variety of parameters of the production process and the design of the machines to the competitor. It can – at least in our experience – be ruled out with certainty that the entirety of all production parameters and dimensions can be obtained within a few hours with a manageable amount of effort. Rather, the reverse engineering of machines and systems generally requires a time-consuming and costly process.
In addition, it should be noted that numerous dimensions cannot be obtained at all through reverse engineering. This applies, on the one hand, to tolerances – which are important in mechanical engineering – and, on the other hand, to all dimensions of components that, once assembled (for example, through welding), can no longer be measured as individual parts.
This is where the crux of the error lies: If a court determines that the technical information (in this case, the dimensions and production parameters of a complex system) is not readily accessible and the other elements of the offense under Section 2 GeschGehG are met, reverse engineering is irrelevant. The possibility that the technical information could be obtained through reverse engineering does not affect the validity of the trade secret.
This line of reasoning is known in U.S. trade secret law as the so-called “could-have defense.” The infringer thus defends itself by arguing that no unlawful act (misappropriation) has occurred because it could have obtained the secret at issue through lawful means as well—whether through reverse engineering, its own research, or other lawful conduct. It has been recognized for decades that the “could-have defense” is irrelevant, because otherwise the protection of trade secrets would effectively be nullified.
This naturally applies to the GeschGehG as well. The hypothetical possibility of lawfully obtaining information through reverse engineering is not equivalent to the actual obtaining of that information. What matters is not whether the person seeking to obtain a trade secret could perform reverse engineering, but rather that they did in fact perform reverse engineering. Merely pointing to the possibility does not exonerate the alleged infringer. More importantly, anyone invoking reverse engineering bears the burden of proof that they actually carried out the relevant actions.
Conclusion and request to the Cologne Regional Labor Court
Upon proper consideration, the ruling of the Aachen Labor Court does not, therefore, lead to the loss of trade secret protection. However, the misleading statements are likely to result in these arguments being used again in the future. In the interest of efficient trade secret protection, it would be highly desirable for the Cologne Regional Labor Court to have – and to seize – the opportunity to clarify the statements of the lower court.
The only issues to be clarified, therefore, are whether a trade secret exists and whether the (quite numerous) pieces of information are, in particular, “not readily accessible.” The burden of proof lies with the plaintiff in this regard, though the plaintiff benefits from a reduced burden of proof for negative facts. Furthermore, the court must, of course, determine whether the other requirements of Section 2 of the Trade Secrets Act (GeschGehG) are meeting particular, whether appropriate protective measures were taken, which was also in dispute in this case (see the standards here). By contrast, the Regional Labor Court does not need to address the question of whether competitors could obtain the information through reverse engineering. This hypothetical question is irrelevant to the proceedings. In short: “could have obtained” does not apply.