A ruling by the Schleswig Higher Regional Court dated April 28, 2022 (Case No. 6 U 39/21) contains some interesting and highly practical insights into the concept of trade secrets and the requirements for reasonable confidentiality measures.
Price Calculation in an Excel Spreadsheet constitutes a valuable Trade Secret
The subject of the proceedings is a dispute over a “partial cost calculation” in the form of an Excel spreadsheet with seven columns. This spreadsheet contains the income statement and the price calculation, apparently broken down by individual orders. Furthermore, the spreadsheet includes the individual cost items of the price calculation.
The Higher Regional Court states that this compilation of pricing information constitutes a trade secret because the compilation has economic value. It allows competitors insight into the cost calculation and enables them to determine in which individual items the trade secret holder’s profitability is particularly strong or particularly weak. According to the court, by using this information, a competitor could deliberately undercut the secret holder’s bids.
This assessment is not surprising and is consistent with earlier case law regarding Section 17 of the Unfair Competition Act (UWG) in its previous version. The element of “economic value” in Section 2 no. 1 a) of the German Act on the Protection of Trade Secrets (GeschGehG) has no truly independent significance and serves only to distinguish such information from purely scientific or private information. Economic value is always present whenever the information can confer an advantage on even a single competitor in relation to the secret holder. To put it simply: If someone can take advantage of it, it has economic value.
Level of risk constitutes a criterion for the appropriateness of protective measures
The Senate further addressed the question of whether the cost accounting was subject to appropriate protective measures in accordance with the requirements of Section 2 no. 1 b) GeschGehG. It is worth noting here that the appropriateness of protective measures in a specific case must be assessed, considering the specific level of risk.
With regard to the cost calculation, the risk was minimal because the very existence of the table was not even known. Furthermore, only one company, namely, the other party to the proceedings, could have had a concrete interest in the calculation. The assessment would be different in the case of technical know-how. If the know-how could be of interest to a competitor, industrial espionage would be more likely.
This consideration is likely to have some practical significance. While less stringent protective measures may suffice in cases of isolated incidents and purely economic information, the holder of technical trade secrets would generally need to take stricter measures because, in principle, interest from competitors can be expected. Moreover, this consideration is likely not limited to technical know-how. Rather, a customer list is also likely to be of considerable importance to a competitor on a regular basis.
Furthermore, this criterion overlaps with another aspect that is recognized as needing to be considered in the assessment: Even though all trade secrets must be subject to protective measures, particularly sensitive secrets also require particularly high levels of protection. This comes as no surprise but simply follows from the concept of reasonableness. Among other things, it has already been ruled that sensitive information, for example, must generally be stored under lock and key and that the rooms must be locked (Higher Regional Court of Stuttgart, judgment of Nov. 19, 2020 – Schaumstoffsysteme; we have already reported on this here).
Specific explanation required regarding the selection of involved persons
Another important aspect in assessing security measures is the question of which individuals have access to the information requiring protection. It is now undisputed that the circle of those with access must be limited as much as possible, and only those individuals within the company who need the information for their work should have access to it (the so-called “need-to-know” principle).
The decision by the Higher Regional Court of Schleswig raises several new considerations regarding this aspect. The court, which is not necessarily standard practice in other cases, conducts a very detailed examination of which specific individuals had access to the information and for what reason. At the same time, the court clarifies that the owner of the trade secret has a certain discretion in selecting the individuals involved. While the secret holder must provide a reasonable explanation for the group of individuals who gain knowledge of the protected information, they are not limited to granting access only to those who objectively and absolutely require it. Rather, it is sufficient if granting access is reasonable and helpful from the secret holder’s perspective.
These findings could take on considerable significance. Judicial review of the group of individuals who have access to specific information in individual cases has thus far been the exception. Secret holders should expect this aspect to be challenged by an opposing party in future litigation. Accordingly, the secret holder should exercise due care in making selections. Even if the recipient’s expertise is sufficient, the group of individuals involved should not become boundless.
Significance of confidentiality clauses
Finally, the Senate explains that the – assumed – absence of explicit confidentiality clauses in employment contracts does not imply a lack of adequate protective measures. Furthermore, an indirect confidentiality obligation on the part of a secret holder, arising from their status as a company officer, is also sufficient.
Great caution is warranted in light of these remarks. In our view, the Senate’s assessment is heavily influenced by the circumstances of the individual case and cannot be generalized. Among other things, the court expressly relies on the fact that there is no evidence that the parties involved had any doubts about the validity of the confidentiality clauses during the relevant period (2019). For this reason, the use of the potentially invalid clauses cannot constitute evidence of negligent handling of the information.
Even if this assessment may still be understandable in this specific case, a careful review of all confidentiality obligations remains urgently necessary. There are now a number of decisions that deem overly broad confidentiality obligations to be invalid (we have reported, among other things, here on the risks of catch-all clauses). If a party continues to rely on these clauses to protect its trade secrets and fails to conduct a proper review, it must face the question of whether its protection is still adequate.
Conclusion
Things remain exciting when it comes to the fundamentals of trade secret protection. The four lessons that the Geheimnisblog draws from this decision are:
- The requirements for establishing the economic value of a trade secret are and remain minimal. Any small economic advantage for a competitor is sufficient.
- When assessing whether protective measures are adequate, one must also ask whether a concrete risk exists. With technical know-how, this situation can arise quickly.
- The selection of individuals granted access to a trade secret is scrutinized in detail by the courts. The trade secret owner must be able to provide a clear explanation of the objective criteria that led to the decision to disclose the secret to a specific person.
- The invalidity of a confidentiality clause does not necessarily lead to the assumption that no appropriate protective measures are in place (caution—in our view, the emphasis here is on “not necessarily” – as a general rule, this is likely to be an indication).