Protection of Business Secrecy


The Law (no. 2018-670) of July 30, 2018 on the protection of business secrecy transposes into French law a European Directive (2016/943/EU) of June 8, 2016 on trade secrets, which had been proposed in 2012 on the initiative of the French government.


In response to an increasingly aggressive economic environment, the new regime aims primarily at the legal empowering of companies, especially small businesses, SMEs and start-ups. A growing number of illicit attacks and illicit captures strikes every year intangible assets that escape for the most part the traditional rules of industrial property (patents, trademarks, designs and models).


Facing an economy dominated by services and digital systems, the Legislator had to intervene in order to preserve innovation and secure associated jobs, while strengthening the competitiveness of the French operators and the attractiveness of the French market. Although legitimate, such goals are not without safeguards justified in democracy by the rule of law, fundamental rights and individual freedoms.


PURPOSE AND CONDITIONS OF PROTECTION


Protected Information and Legitimate Holder of Business Secrecy


The Law defines information protected by business secrecy according to three cumulative criteria (Article L151-1 of the French Commercial Code) :


  • 1° It is not, in itself or in the exact configuration and assemblage of its elements, generally known or easily accessible for people familiar with this type of information because of their sector of activity”;

  • It has a commercial value, actual or potential, because of its secrecy;

  • It is the object of its legitimate holder of reasonable protective measures, considering the circumstances, to preserve its secrecy”.

This definition calls for two remarks.


A first one on the European notion of “commercial value”, which refers to the French notion of “economic value” and includes, beyond the commercial aspects themselves, the know-how, the strategic knowledge or the technical information of the company concerned.


A second one on the assessment of the “reasonableness” of the measures and the relevant circumstances, which must be evaluated by the judge according to the means of the company concerned and the elements that it has put in place to protect itself, such as explicit statements of secrecy, contractual confidentiality commitments or access restrictions.


Since the secret is not presumed, it is up to the operator seeking to rely on it to demonstrate its reality on the cumulative basis of the three conditions mentioned above.


Article L151-2 of the French Commercial Code treats the “legitimate holder” of the secret as “the one who has lawfully the control of it”.


The Law distinguishes this person from those who may obtain, use or disclose the protected information in a lawful or unlawful manner.


Lawful Obtaining of the Business Secrecy


Obtaining is lawful when it results from one of the following two methods (Article L151-3 of the French Commercial Code) :


  • 1° A discovery or an independent creation [first case of an autonomous invention];

  • 2° The study, disassembly or test of a product or object that has been made available to the public or that is lawfully in the possession of the person who obtains the information, unless otherwise stipulated in the contract prohibiting or limiting the obtaining of secrecy [second case of reverse engineering]”.

Unlawful Obtaining, Use and Disclosure


Obtaining secrecy is said to be unlawful (Article L151-4 of the French Commercial Code) at the dual condition that it occurs without the consent of its legitimate holder and that it comes from :


  • unauthorized access to any document, object, material, substance or digital file which contains the secret or from which it may be inferred or of unauthorized appropriation or copying of such material”;

  • Or “any other behavior considered, in the circumstances, unfair and contrary to commercial practice”.

The use and disclosure (Article L151-5 of the French Commercial Code) of the secret are said to be unlawful from the moment they are made “without the consent of its rightful holder by a person who has obtained secrecy under the conditions mentioned [above] or acts in violation of an obligation not to disclose the secret or to limit its use”.


In addition, the law specifies that the “production, offering or placing on the market, […] the import, export or storage […] of any product that result significantly from a breach of confidentiality are also considered to be unlawful use where the person carrying out those activities knew, or ought to have known in the circumstances, that the secret was unlawfully used”.


Finally, the obtaining, use and disclosure are still unlawful (Article L151-6 of the French Commercial Code) “when, at the time of obtaining, using or disclosing of secrecy, a person knew or should have known in the circumstances, that the secret had been obtained, directly or indirectly, from another person who used or disclosed it illegally”.




Non-invocability of Business Secrecy


The Law provides for three groups of exceptions in which the legitimate holder can not invoke his right to the protection of business secrets.


The first concerns public authorities, whenever the applicable law authorizes them or obliges them to obtain, use or disclose protected information. It covers in particular the “investigation, control, authorization or sanction” prerogatives of the administrations and jurisdictions (Article L151-7 of the French Commercial Code).


The second and the third can be raised only “in the course of a proceeding relating to an infringement of business secrecy”.


One (Article L151-8 of the French Commercial Code) concerns information professionals and whistleblowers with :


  1. The exercise of individual freedoms of expression and communication, including the freedom of the press;

  2. The disclosure of general interest and in good faith of an illegal activity, fault or misconduct “including the exercise of the right of alert defined in Article 6 of Law No. 2016-1691 of December 9, 2016 on transparency, the fight against corruption and the modernization of economic life” (see the opposite box);

  3. The “protection of a legitimate interest recognized” in French or European law (environment, public health, etc.).

The other (Article L151-9 of the French Commercial Code) concerns employees and their representatives with :


  1. Obtaining a secret in the exercise of their “right to information and consultation”;

  2. The disclosure of a secret in the lawful exercise of their functions, “provided that this disclosure was necessary for this exercise”.

ACTIONS IN PREVENTION, TERMINATION AND REPARATION


The new legislation sets out a principle of civil lability (Article L152-1 of the French Commercial Code) with a limitation period of five years from the facts of the case (Article L152-2 of the French Commercial Code).


Measures to prevent, terminate and repair a violation of business secrecy


The French judge has a series of tools to prevent or terminate breaches of business secrecy.

Among other measures available, it can:


  • Prohibit the disclosure or use of the protected secret;

  • Order the confiscation, destruction, modification or recall of derivative products and items containing the protected secret;

this at the expense of the author of the infringement and if required under penalty, the goal being “to eliminate any illegal commercial or economic advantage” (Article L152-3 of the French Commercial Code).


In addition to provisional and conservatory measures that may be adopted urgently to prevent an imminent infringement or to stop an unlawful infringement (Article L152-4 of the French Commercial Code), the competent court may substitute the aforementioned elements of compensation for the obligation to pay a compensatory indemnity at three conditions :


  1. that the author did not know or could not have known that the information he received was the unlawful disclosure of a secret by someone other than himself;

  2. that the ordinary measures of reparation might cause him disproportionate damage;

  3. that the payment of compensation seems reasonably satisfactory for the victim of the infringement (Article L152-5 of the French Commercial Code).

The author must repair in full the damage suffered by the victim as a result of the breach of business secrecy, which justifies compensating:


  • negative economic consequences, including loss of earnings, actual loss and opportunity loss;

  • moral injuries;

  • illicit profits, such as “intellectual investment [research and development], material and promotional savings”.

The judge may substitute for the payment of damages (excluding pecuniary damage) for a lump sum equivalent to the sum that would have been claimed from the author by the victim of the infringement, if he had asked him authorization to use the information (Article L152-6 of the French Commercial Code).


Finally, the Law provides for the possibility of ordering, at the expense of the author of the infringement, the publication or posting of the conviction (in whole or in part) by newspapers or online communication services (Article L152-7 of the French Commercial Code).


Sanction for delaying of abusive proceedings


Irrespective of the damages that may be claimed by the victim of a procedural abuse, the legislator exposes the author of the said abuse to the payment of a civil penalty equal to 60,000 euros or equivalent to 20% of the amount of the damages claimed by him in compensation for a breach of business secrecy that is not invocable (Article L152-8 of the French Commercial Code).


Defended by the French National Assembly, the device is intended primarily to protect journalists, whistleblowers, employees and their representatives against “gagging procedures” initiated by major companies and intended to “gag” them by fear of having to pay exorbitant damages for the disclosure of information that are not protected by law.


On the other hand, the French Senate’s proposal to supplement the protection of business secrecy with the creation of an offense of “misappropriation of economically protected information for purely economic ends”, that is to say, economic espionage, was not retained for now. The proposed criminalization would have sanctioned by a three years imprisonment and a fine of 375,000 euros the obtaining, using or disclosing “unlawfully information protected by the secrecy of business bypassing knowingly the protective measures put in place by its legitimate holder, in order to obtain an advantage of an exclusively economic nature”.


MEASURES TO PROTECT THE SECRET OF BUSINESS BEFORE JURIDICTIONS


The Law allows the judge to restrict the access to documents containing protected secrets (Article L153-1 of the French Commercial Code) by deciding :


  • to limit their communication or production to the parties and for each of them, to two recipients maximum, i.e. a natural person and his representative;

  • to debate and deliberate behind closed doors;

  • to adapt the justification and the methods of publication of its decision according to the protected secret.

An obligation of confidentiality is imposed on any person who had access to such documents during the procedure (Article L153-2 of the French Commercial Code).