Newsletter - The newly adopted Luxembourg law on trade secrets: It pays to be proactive!

The Luxembourg law of 26 June 2019 on trade secrets (the Trade Secrets Act) implements into Luxembourg law the EU Directive No 2016/943 of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure.

The Trade Secrets Act sets out new provisions protecting trade secrets in a context where such secrets can rarely be subject to an intellectual property right, such as a patent or copyright, but still have substantial commercial value for a company and thus deserve legal protection.

What is a trade secret?

The Trade Secrets Act defines a “trade secret” as any information that:

  1. is secret in that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
  2. has commercial value because it is secret; and
  3. has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

In practice, trade secrets can, for instance, consist in information relating to clients and suppliers (e.g. client or supplier database), markets research, strategies or business plans, specific business methods, etc.

When is a trade secret protected?

The Trade Secrets Act specifies where the acquisition, use or disclosure of trade secrets is lawful and where it is unlawful.

The use or disclosure of a trade secret will, for instance, be unlawful whenever it is carried out without the consent of the trade secret holder and in breach of a confidentiality agreement or any other contract with the trade secret holder limiting the use of the trade secret. Acquisition of a trade secret will however be lawful inter alia when the trade secret is obtained through independent discovery or creation or through any other method that is in line with honest commercial practices.

To address issues relating notably to freedom of the press or the protection of whistle-blowers, the Trade Secrets Act sets out derogations in relation to unlawful acquisitions, uses and disclosures of trade secrets that are made for:

  • exercising the right to freedom of expression and information, including respect for the freedom and pluralism of the media;
  • revealing misconduct, wrongdoing or illegal activity, provided that the person acted for the purpose of protecting the general public interest;
  • disclosure by workers to their representatives (e.g. staff delegates) as part of the legitimate exercise by those representatives of their functions in accordance with EU or Luxembourg law, provided that such disclosure was necessary for that exercise; or,
  • the purpose of protecting a legitimate interest recognised by the EU or Luxembourg law.
How can a trade secret be protected?

Prior to the Trade Secrets Act, companies could protect their trade secrets in Luxembourg by using any or all of the following legal grounds:

  • criminal law, as Article 309 of the Criminal Code prohibits the use or communication of trade secrets under certain circumstances;
  • civil liability law which, pursuant to Article 1382 of the Civil Code, allows the trade secret holder to obtain damages following an infringement that has caused a prejudice to the trade secret holder;
  • contract law, whenever the acquisition, use or disclosure of the trade secret breaches a contract between the trade secret holder and the infringer (e.g. a commercial contract or an employment contract); and/or,
  • unfair competition law.

In addition to these mechanisms, the trade secret holder can now use a wide array of measures, procedures and remedies introduced by the Trade Secrets Act, amongst which are civil proceedings to obtain:

  • the prohibition of the unlawful acquisition, use and disclosure of trade secrets;
  • the prohibition of production, offering, placing on the market, importation, export or storage of infringing goods;
  • corrective measures including a recall of the infringing goods and their destruction or withdrawal from the market;
  • the destruction of infringing documents, objects, materials, substances or electronic files containing or embodying the trade secret; and/or
  • damages awarded to compensate the prejudice suffered as a result of the infringement.

The Trade Secrets Act allows trade secret holders to request the above through summary proceedings (référé), which are fast-track civil proceedings.

How can organisations take advantage of the newly adopted legal framework?

Although the measures, procedures and remedies set out in the Trade Secrets Act are meant to apply only once a trade secret has been infringed (e.g. following a data breach), organisations would be well advised to take the opportunity of the newly adopted legal framework to review their policies and practices on the protection of trade secrets.

Indeed, the Act’s definition of a “trade secret” gives a certain amount of leeway to organisations to define what their trade secrets are, and especially to qualify an information as a trade secret, it must notably have been subject to reasonable steps by the trade secret holder to keep it secret. This should encourage organisations to:

  1. Identify information that is not known by their competitors and that is valuable to the organisation (e.g. a client database, a market strategy); and,
  2. Take reasonable steps to maintain the secrecy of this information. These steps can include for instance implementing IT security measures, redefining HR internal procedures, updating non-disclosure agreements or confidentiality clauses in employment or supplier contracts.

The benefits of carrying out the above tasks and being pro-active when it comes to trade secrets are threefold:

  1. In the event of an infringement, the trade secret holder will be in a far better position to evidence the fact that the related information is protected as trade secret and therefore that it is entitled to seek redress under the Trade Secret Act;
  2. The injunctions and corrective measures set out in the Trade Secret Act (e.g. a recall or destruction of the infringing goods) will be more easily ordered by the court if the trade secret holder has taken measures to protect the trade secret; and
  3. The measures taken to protect the trade secret may be one of the factors determining the amount of damages awarded by the court.

PwC Legal is at your disposal should you require additional information on the Trade Secrets Act or wish to take advantage of this new legal framework.

Contact us

Marielle Stevenot

Partner, Avocat à la Cour au Barreau de Luxembourg, PwC Legal

Tel: +352 26 48 42 35 13

Audrey Rustichelli

Partner, Avocat Liste IV au Barreau de Luxembourg, PwC Legal

Tel: +352 26 48 42 35 98

Raphael Dionis

Associate, Avocat Liste IV au Barreau de Luxembourg, PwC Legal

Tel: +352 26 48 42 35 77

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