Written by Rosa Huang.
Recently an interim relief is granted by High Court of Justice of UK in a case enforcing the Trade Secrets (Enforcement, etc) Regulations 2018 (“the Trade Secrets Regulations”), Celgard LLC v Shenzhen Senior Technology Material.
What we know about the case
The dispute is between Celgard LLC (“Celgard”), a US company, and Shenzhen Senior Technology Material Co Ltd (“Shenzhen Senior”), a Chinese company, over lithium-ion battery components.
Dr Zhang is a former employee of Celgard. As alleged by Celgard, during Dr Zhang’s employment at Celgard, Dr Zhang had access to valuable trade secrets in regards to the design and manufacture of Celgard’s dry battery separator material, which he disclosed to Shenzhen Senior during his employment thereby enabling production of an infringing competing product by Shenzhen Senior.
Celgard had been in the process of winning a contract with a UK customer, but this contract was won by Shenzhen Senior by undercutting Celgard on price; Shenzhen Senior subsequently delivered the allegedly infringing products to the UK customer after the initial hearing (though before the order of interim relief was made).
The court was convinced that there was a good arguable case under the Trade Secrets Regulations for upholding the interim injunction and therefore granted the injunction against Shenzhen Senior.
What is “Trade Secrets” and how it is protected in the UK
Historically, trade secrets may be protected either through a breach of contract action (breach of obligation of confidentiality), where a non-disclosure agreement exists or can be implied, or a common law action for breach of confidence. The latter is based on the common law principle that, for information received in confidence, a person cannot take unfair advantage of that information or prejudice the person giving the information.
In 2016, the EU adopted Directive (EU) 2016/943 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure, which was implemented in the UK via the Trade Secrets Regulations, bringing the protection of trade secrets onto the UK statute book for the first time.
It has been widely believed that the Trade Secrets Regulations is unlikely to have a significant impact in the UK due to the existing UK common law on confidentiality and it is just a codification of English law principles, however, the case of Celgard v Shenzhen Senior Technology Material is changing such position.
This is because in the Celgard LLC v Shenzhen Senior Technology Material, there was not a clear claim under law of confidence (the non-disclosure agreement to which the former employee was subject was governed by US law and the acts complained of appeared to all have taken place outside the UK), but the Trade Secrets Regulations’ recitals provide clear direction in such cases. By seeking interim relief as provided by the Trade Secrets Regulations, trade secrets were effectively protected. The Trade Secrets Regulations therefore seems to provide a potentially easier and more effective route of relief compared to an English claim of breach of confidence.
Let’s see what is “trade secrets” as defined by the Trade Secrets Regulations:
“trade secret” means information which:
(a) is secret in the sense 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,
(b) has commercial value because it is secret; and
(c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.’
Briefly, in order for information to be protected by the Trade Secrets Regulations, three requirements shall all be fulfilled:
- the information is secret, that is, the information should remain hidden from others especially persons within the circles that normally deal with this kind of information;
- the information has commercial value because it is secret; and
- the information has been subject to “reasonable steps” to keep it secret by the person lawfully in control of the information.
The first two requirements are self- explanatory; as to the third one, however, it suggests that if businesses wish to benefit from the available rights and remedies to protect their trade secrets, they must show that they have already taken reasonable steps to protect the secret. A simple labelling of information a trade secret is unlikely to be enough of itself.
What we suggest
Whilst the meaning of “reasonable steps” will be developed as the courts apply the Trade Secrets Regulations and some uncertainty exists as to how it will be interpreted, it is still clear that there are actions that businesses can take to protect their valuable trade secrets.
Here are some of our suggestions:
- Ensure that confidentiality provisions are included in your contracts, such as employment contract, contract with supplier or with client; when collaborating with third parties, enter into Non-Disclosure Agreement (“NDA”) instead and ensure that their terms are suitable for scope of the collaboration;
- Develop and implement procedures for the protection and this could include:
- mark trade secrets as “confidential”;
- Store trade secrets (including electronic information) safely, securely and ensure that access to it is restricted appropriately;
- Keep written records of all individuals such as employees and third parties who had access to the information;
- Ensure that the relevant policies are in place and available to all employees and that your employees are trained in that respect, and so on.
However, businesses shall also be aware that trade secrets protection is far from straightforward.
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