German Federal Court of Justice strengthens trade secret protection
In March 2018, Germany's Federal Court of Justice (FCJ) handed down a ruling which serves to strengthen protection for trade secrets across the country. The FCJ clarified that protection for trade secrets also extends to cases where the employee making use of the trade secret in the form of written documents would have been capable of reproducing the trade secret solely by virtue of their own education and experience and without having to rely on the written documents.
In the case before the Court, a former employee of the claimant, a company manufacturing a 'hollow fiber membrane spinning system' which produces hollow fibers used in kidney dialysis, had begun to work for the respondent, a competitor company. The respondent subsequently began producing a spinning system which was substantially similar to that of the claimant, upon which the claimant instituted proceedings, alleging that the respondent was illegally using their trade secrets, making use of construction plans and other information belonging to the claimant. Before the court of first instance the respondent was ordered to stop the manufacture and sale of their machine and to pay damages. The appellate court reversed this decision and dismissed the claim. The case then came before the FCJ upon further appeal by the claimant.
The FCJ decided for the claimant and restored the decision of the court of first instance. It held that even where the relevant trade secret belongs to what is now considered "state of the art" it can be protected where the relevant secret can only be discovered and made accessible and useful to another business at considerable time and expense. Therefore, the construction plans were capable of protection as a trade secret, as they would enable a competitor business to construct technical components and machines with a considerable reduction in construction time and cost. Even though the machine itself may not necessarily have been capable of protection, the construction plans would save any competitor a significant amount of time and money in recreating the machine independently and were therefore capable of protection as a trade secret. Additionally, the fact that others were capable of developing such devices by themselves without reference to the construction plans does not lead to the loss of status as a trade secret.
The Court reiterated that a former employee may subsequently use the knowledge which they acquired during their employment, provided that they are not subject to a non-compete obligation. Where it differed from the appellate court, however, was in considering that this only extends to information preserved in the memory of the former employee. It held that the entitlement to employ acquired knowledge beyond the termination of employment does not cover information which is only available to the employee because they can refer to written documents which they had prepared or obtained during their employment.
The Court emphasized that an employee is not entitled to refresh their memory by taking or misappropriating construction documentation and to continue to use the 'know-how' incorpo-rated in this documentation for their own purposes. This does not lose its significance under competition law simply because the respondent is in a position to develop such devices, or parts thereof, independently without reference to the documentation.
With this decision, the FCJ has provided for legal certainty for companies seeking to protect their trade secrets and, in so doing, has struck a difficult balance between protection of those secrets and the ability of employees to gain experience through employment and make use thereof in their future professional life. A former employee not bound by non-compete clauses is free to make use of all acquired skills in future activities. However, the right of employees to acquire and develop skills must not enable them to encroach on trade secrets of their former employers. Even though a former employee may be in a position to recreate the process protected by the trade secret by virtue of their education or experience, written documentation such as construction plans provide an enormous shortcut and significant savings in monetary expenditure for a competitor. If this cannot be ensured and enforced then the mere hiring of a competitor's former employee would enable the hiring company to circumvent trade secret protection, acquiring secrets which they would otherwise be unable to access. At its most extreme this could even lead to trade secrets for sale via employment contract. The decision of the FCJ can therefore be welcomed by both employers and employees alike as a balanced approach to protecting trade secrets.
Reference: FCJ, Decision of the 22nd March 2018 – Ref: I ZR 118/16.
The contribution was created with the collaboration of Sam Cross. If you have any questions on this topic, do not hesitate to contact Dr Sebastian Heim.
Dr. Sebastian Heim
Rechtsanwalt, LL.M., Fachanwalt für Gewerblichen Rechtsschutz