According to the Vienna Supreme Court (Case No.: 4Ob182/20y), the granting of a right to use a software source code (which is to be classified as a trade secret) may give rise to an implied duty of confidentiality on the part of the author. The court’s reasoning is of interest to German legal practice from two perspectives.
The initial case
The plaintiff sought a preliminary injunction to prevent the defendant from disclosing her trade secret. This trade secret consisted of the software source code that the defendant had developed and later contributed to a limited liability company (GmbH) that he had co-founded. Until 2019, the defendant was also the managing director of this GmbH.
In 2017, the GmbH, represented by the subsequent defendant, entered into a cooperation agreement and an escrow agreement with the plaintiff. The agreements granted the plaintiff the exclusive right of distribution in Austria and Germany, as well as a right of first refusal regarding the software source code. The GmbH continued to further develop the source code. Only after the right of first refusal was triggered was the plaintiff to receive an unlimited right of exploitation and take over further development of the software. After the defendant stepped down as managing director of the GmbH, the GmbH entered into an agreement with the plaintiff for the complete transfer of all intellectual property rights to the software product family.
In 2020, the defendant threatened to make the software source code public. The plaintiff sought interim relief against this, requesting that a disclosure injunction be imposed on the defendant. While the court of first instance granted the request, the court of second instance lifted the injunction. The Vienna Supreme Court ruled again in favor of the plaintiff.
Reasoning
In addition to various copyright considerations not relevant here, the Vienna Supreme Court stated that the defendant’s conduct posed a risk of unlawful infringement of a trade secret through disclosure.
The source code constitutes a trade secret within the meaning of Section 26 b) (1) of the Austrian Unfair Competition Act (öUWG) (= Section 2 (1) GeschGehG), of which the plaintiff became the owner as a result of the transfer. According to the Vienna Supreme Court, the defendant’s threatened disclosure of the source code would also be unlawful because, by disclosing it, the defendant would violate a contractual confidentiality obligation within the meaning of Section 26 c) (2)(2) öUWG (= Section 4(2) no. 3 GeschGehG). This obligation, in turn, arises from the implied transfer of the right to use the work by the defendant to the GmbH. Otherwise, the subject matter of the contract – i.e., the rights to the software source code – would be “drastically devalued”. The plaintiff, as the current holder of the trade secret, may also invoke this confidentiality obligation.
Assessment
The judgment is noteworthy in two respects:
First, the court bases the plaintiff’s claim on an agreement concluded between the defendant and the GmbH – that is, specifically, not the plaintiff. The fact that her status as the holder of the trade secret also allows her to rely on this contract is assumed without further examination.
Whether the contract between the defendant and the GmbH is in fact a contract for the benefit of a third party can, at most, be assumed in light of the fact that a contract already existed between the GmbH and the plaintiff. Whether this could have been asserted against any future contractual partner seems doubtful.
Above all, the decision contains the important clarification that, even under the Know-How Protection Directive 2016/943, a contractual duty of confidentiality may arise as an implied ancillary obligation or on the basis of supplementary contractual interpretation. This also corresponds to the prevailing opinion in German legal literature (as expressly stated, for example, by Ohly, in: Harte-Bavendamm/Ohly/Kalbfus, GeschGehG, 2020, Section 4, para. 32; Alexander, in: Köhler/Bornkamm/Feddersen, 39th ed. 2021, GeschGehG Section 4, para. 48). However, the practical significance of this finding is immense: Provided – as is to be hoped – that German courts also adopt this view, it would thereby be explicitly clarified that appropriate confidentiality measures do not always and without exception require the conclusion of a written confidentiality agreement.
When assuming an implied confidentiality undertaking, however – and this is something the Vienna Supreme Court does not further address in its decision – it must be taken into account that such an assumption has far-reaching consequences for the seller or provider of a trade secret: If the disclosure of a trade secret entails an implied duty of confidentiality, the discloser is thereby also obligated to take its own confidentiality measures for a potentially unlimited period and to protect the disclosed secret from access by third parties. This can lead to a considerable burden if the discloser is unable to destroy all copies.
Conclusion
Even without an express confidentiality agreement, the seller or provider of a trade secret may be subject to an implied duty of confidentiality upon transfer. This is certainly the view of the Vienna Supreme Court and German legal scholarship. Ensuring appropriate confidentiality measures therefore does not always require an express agreement. Nevertheless, it is advisable to enter into such an agreement. The case in question had certain unique characteristics, and it is entirely conceivable that other courts would be less lenient toward the failure to implement such simple and cost-free protective measures.