Irish law offers protection against trade secret misappropriation. Partners, Gerard Kelly and Gearoid Carey, discuss the practical and legal aspects of safeguarding trade secrets in Ireland and highlight potential challenges.

Every business wishes to ensure that its trade secrets are kept secure and taking steps to protect against use of trade secrets by a competitor is nothing new. However, recent high-profile instances have put the protection of trade secrets in the spotlight. This includes the most recent complaint filed by Crocs, the footwear company, in US federal court on 6 July 2023. In these proceedings, Crocs claims that a former employee misappropriated Crocs’ “trade secrets and other proprietary and highly confidential business information” when he left Crocs and launched a rival footwear company. Crocs’ claim that information was “used without authorization to develop, manufacture, and market footwear products” for the new brand. Crocs argues that the former employee used “stolen documents to build a rival shoe company”, which allowed him to “skip the years-long research and development process needed to independently develop high-quality material specifications and quality standards”. Crocs further alleges that he solicited and hired other Crocs employees and agents with the aim of making “footwear according to the same proprietary material specifications, component specifications and other quality standards and related test methods that Crocs uses for Crocs footwear.” Another recent example, not yet involving litigation, arises from the recent launch of Meta’s new Threads app, of which Elon Musk on behalf of Twitter has reportedly threatened to sue over what it asserts is Meta’s improper misappropriation of Twitter’s trade secrets and other intellectual property. Although those matters will play out subject to US law depending on how far they are pushed, we consider the protections available from an Irish law perspective where trade secrets have been misappropriated.

What is a trade secret?

A trade secret is confidential business information which is used to give a business a competitive edge. The preservation of the confidentiality of the trade secret is instrumental to keeping a competitive advantage. A trade secret may also be described as ‘proprietary information or ‘proprietary know-how’. Trade secrets do not fall within the scope of protection available by way of traditional intellectual property rights, such as patents, which by their nature must be in the public domain. So long as they remain confidential, they are capable of protection, for a theoretically unlimited period. Some of the best-known examples of trade secrets are long standing – think of the original Coca Cola recipe or KFC’s chicken coating. Ultimately, the protection of trade secrets is critical to foster innovation by safeguarding the time and resources a business puts into developing its offering which is generally unknown to competitors, due to the efforts of the owner to keep it secret or confidential.

Practical protections for trade secrets

In order to best protect itself from misappropriation of its trade secrets, and to maximise the prospect of successfully enforcing the confidentiality of its trade secrets, there are pre-emptive practical steps a business can take.

1. To the extent possible, the business should take steps to identify and define what constitutes a trade secret so there is certainty as to what is involved. Although traditional intellectual protection may not be available, depending on the nature of the trade secret it may be and this should be established and ownership registered, as appropriate.
2. The business should then determine who is to have access to the trade secret and appropriate security measures should be put in place, including physical and technological restrictions on access.
3. For employees and others working in the business, especially those permitted to have access to the trade secrets, their contracts should have appropriately worded confidentiality, non-compete and non-solicitation clauses. For third parties who may have access to the trade secrets as part of their engagement with the business, for example a potential purchaser of the business, relevant service providers, etc, any agreement providing for such engagement should also have appropriate non-disclosure and non-solicitation clauses.
4. Care should be taken that any contractual limitations imposed are clear, reasonable and proportionate in the context of the applicable facts and the relationship involved so as not be held to be unenforceable.

Legal protections for trade secrets

In Ireland, there are two essential legal bases for the protection of trade secrets – one legislative and the other is a common law derived.

Trade Secrets Directive / Regulations

The European Union Trade Secrets Directive[1], which aims to put in place a uniform approach to trade secrets across the EU, was implemented in Ireland by the European Union (Protection of Trade Secrets) Regulations 2018[2]. It defines a trade secret as information that

• Is secret, that being not generally known
• Has commercial value because it is secret, and
• The person lawfully in control of the information has taken reasonable steps to keep it secret.

Information meeting all three criteria benefits from protection under the Directive if acquired without the consent of the trade secret holder unlawfully or in breach of a relevant agreement. However, the protection is not absolute. The Directive clarifies that trade secret infringement does not arise where the acquisition of a trade secret may be considered lawful, such as independent creation or reverse engineering from what is publicly available. The protections available in the event of unlawful use include remedies such as damages, injunctive relief and other corrective measures.

Breach of confidence

Common law also affords protection for confidential information through recognition of a duty of confidence in certain circumstances, even without a formal confidentiality agreement and irrespective of the format in which the information is held.

Therefore, misappropriating a trade secret though misuse of confidential information can give rise to a breach of confidence action. In order to prevail in such a claim, the information must be

1. Confidential or secret so that it has the necessary quality of confidence about it
2. Communicated in circumstances which impose an obligation of confidence or trust on the recipient, and
3. Wrongfully communicated by the recipient or by another person who is aware of the obligation of confidence[3]

In contrast with the legislative position derived from the EU Trade Secrets Directive, the wrong is focused on the imparting of confidential information and does not necessarily include its simple acquisition without further use. However, it is similarly accepted that information which is already in the public domain cannot be protected as being confidential. To protect its position prior to the trial, a party may seek an injunction to restrain improper use. The reliefs to be sought at trial will likely involve damages or an account of profits arising from the misuse, an order for delivery up or destruction of the confidential information involved. The plaintiff may also seek an injunction of a perpetual nature to restrain misuse after the trial of the action.

Limitations

It can be difficult to prove misappropriation of trade secrets or breach of confidence since parties who have engaged in such activity are unlikely to make their unlawful conduct obvious. They will typically take steps to ensure there is no record or paper trail to demonstrate what they have done. In addition, they may wait before putting the misappropriated trade secret or confidential information into use. That said, Crocs contend in their recent claim in the US that the former employee had downloaded documents and e-mails to a personal USB from a folder on his laptop named ‘Take’ which, if true, may make the case stronger. However, without records or a paper trail, discovery can potentially fail to unearth a “smoking gun” to definitively determine the case in favour of the Crocs. Very often it will be the weight of circumstantial evidence and the evidence of one or more experts in the relevant field which will determine the question of liability.

In such cases, where one or more of the parties may claim that materials to be discovered may involve highly commercially sensitive material and constitute trade secrets, the court may impose a confidentiality club for certain material. Such confidentiality clubs are common in patent cases, for example, where confidential manufacturing or scientific data is involved. The imposition of a confidentiality club will necessarily limit access to certain relevant materials. Depending on the scope of the confidentiality club imposed, this can mean the relevant materials are accessible to a party’s legal representatives, and / or limited officers of the company. In addition, access is likely only to be available subject to commitments being given regarding how the relevant materials are to be stored, accessed and destroyed. Such confidentiality clubs which preclude the client, or at least certain of its staff, from accessing or reviewing certain materials can present significant challenges in understanding how best to present its case and / or meet the case being made against it. This makes it very difficult to give instructions regarding the case, whether to their lawyers or expert(s). There are provisions in the European Union (Protection of Trade Secrets) Regulations 2018 dealing with confidentiality clubs in breach of confidence cases.

Conclusion

Irrespective of whether Crocs can secure protection of what it claims to be its trade secrets, the cases demonstrate the importance of trade secrets for business. Whether or not formal contracts are in place, trade secret claims can be a useful weapon to secure protection in the event a business believes its trade secrets / confidential information have been improperly taken and used by a competitor. However, appropriate contractual protections may minimise the prospect of misappropriation and can increase the likelihood of succeeding in any enforcement action required.

Our Intellectual Property team has extensive experience on the protection of trade secrets and confidential information. We advise on whether traditional intellectual property protections are available in the first instance, to appropriately worded employment and commercial agreements. In addition, we advise and act in proceedings before the Irish courts on claims for misappropriation of trade secrets and confidential information. If you are interested in discussing any of the issues raised in this article, please a member of our Intellectual Property team.

The content of this article is provided for information purposes only and does not constitute legal or other advice

People Also Ask

[1] Directive (EU) 2016/943

[2] SI 188 / 2018

[3] Mahon v Post Publications Ltd [2007] 2 ILRM 1