We’re taking the occasion of the Geheimnisblog’s first New Year to look back on our favorite topic: We’re drawing an interim conclusion regarding how the courts have handled appropriate protective measures within the meaning of Section 2 no. 1 c) of the German Act on the Protection of Trade Secrets (GeschGehG) and examining the critical and still unresolved question of when such protective measures must have been in place in the past.
Interim assessment of reasonable protective measures
From our subjective perspective, at least, the case law on reasonable protective measures has not yet produced any completely surprising decisions. We have already summarized the key rulings and requirements here on the Geheimnisblog. Overall, it appears that the courts – at least so far – have consistently applied reasonable criteria and have not imposed excessive demands on the protective measures. The Higher Regional Court of Düsseldorf provided a clear and important clarification in its “Zentrifugentrommel” decision:
“Which confidentiality measures are appropriate in individual cases within the meaning of Section 2 no. 1 c) GeschGehG is determined based on an objective standard, bearing in mind that the law does not require “optimal protection” or “extreme security” (Düsseldorf Higher Regional Court, Decision of March 11, 2021, Case No.: 15 U 6/20, para. 64).
This gives rise to two key considerations: First, appropriateness is not measured by a party’s subjective perceptions. Rather, an objective standard must be applied. This means, however, that for particularly important trade secrets, stricter requirements may be appropriate than those that have been the subject of published judgments to date. In practice, the secret holder will have difficulty arguing that the loss of its formula would lead to the immediate ruin of its company unless it can also demonstrate that it has taken exceptionally stringent protective measures to safeguard this one exceptionally important secret.
On the other hand, the Senate clarifies that the protective measures do not require extreme security. This also applies to important trade secrets. Although higher standards must be met in such cases, it is still not necessary to turn companies into Fort Knox in order to satisfy the legal requirements. Furthermore, the mere fact that a trade secret loss has occurred does not permit the conclusion that the protective measures were inadequate.
Three cautionary notes on protective measures
Upon a close reading of the decisions, we came across several specific points which, from our subjective perspective, every trade secret holder should regard as a warning, and every litigation attorney should be aware of:
- Allowing trade secrets to be stored on private data storage devices is “extremely problematic” and may therefore give rise to an allegation of inadequate protective measures (Higher Regional Court of Stuttgart, Decision of Nov. 19, 2020, Case No. 2 U 575/19, para. 387 – Schaumstoffsysteme)
- Sensitive trade secrets must be kept under lock and key within the company (ibid., para. 388)
- The failure to take measures after unauthorized access to trade secrets has been detected constitutes a (clear) indication of inadequate protective measures (Hamm Higher Regional Court, judgment of Sept. 15, 2020, Case No. 4 U 177/19, para. 463 et seq. – Stopfaggregate).
From what point in time must protective measures have been in place?
Another important question has so far been only partially clarified: in the view of the Higher Regional Courts of Stuttgart and Düsseldorf, the appropriate protective measures need only have been in place since the entry into force of the GeschGehG. If the protective measures were insufficient prior to the Act’s entry into force (April 26, 2019), this deficiency must be disregarded. According to the courts, any other interpretation would constitute impermissible retroactive application (Higher Regional Court of Stuttgart, Decision of Nov. 19, 2020, 2 U 575/19, paras. 363–365 – Foam Systems; Higher Regional Court of Düsseldorf, judgment of March 11, 2021, Case No. 15 U 6/20, para. 65 – Centrifuge Drum).
The Higher Regional Court of Hamm appears to take a different view. In the opinion of the panel there, when assessing an allegation of infringement based on the GeschGehG, the protective measures applied prior to its entry into force may also need to be considered. A lack of adequate protective measures may preclude a claim, although the panel has not yet had to make a final decision on the details (Hamm Higher Regional Court, Decision of Sept. 15, 2020, Case No.: 4 U 177/19 – Packing Units, para. 430).
The question of whether the end of the transposition period for the Trade Secrets Directive on June 9, 2018, constitutes a temporal turning point remains entirely unresolved. The aforementioned decisions by the Higher Regional Court of Stuttgart and the Higher Regional Court of Düsseldorf did not have to address this aspect because the acts in question occurred before that date, and further differentiation was not necessary. In our view, there are strong indications that a trade secret owner can invoke the protection under the GeschGehG only if they have taken appropriate protective measures as of June 9, 2018. Even if an infringer cannot directly invoke the failure to transpose the Directive, the court at least has the option of applying the (sufficiently specific) requirements of the Directive. It would be difficult to understand if, in a case arising after the implementation deadline has passed, a court were to base its decision on the fact that – despite the absence of any protective measures – a trade secret exists under Section 17 UWG (old version) because the intent to maintain confidentiality is presumed. It is precisely this presumption that has been rebutted under EU law. So, things remain exciting.
With that, the Geheimnisblog bids farewell for this year. We appreciate the interest shown by our visitors and wish you a great start to 2022!