Author: Marco Conti

The importance of trade secrets is well known in the world of IP. The TRIPS Agreement requires undisclosed information (trade secrets or know-how) to benefit from protection. Marco Conti of Bugnion reports.

This article first appeared in World Intellectual Property Review, published by Newton Media Ltd.

According to article 39.2, the protection must apply to information that is secret, that has commercial value because it is secret and that has been subject to reasonable steps to keep it secret. These concepts are also reflected in the IP law of European countries. Hence, awareness of the undisclosed information itself and its economic importance is a prerequisite for allowing IP protection for trade secrets.
Trade secrets include, inter alia, technical information which companies have acquired through years of R&D activity, as well as improvements driven by trial and error—this type of trade secret is sometimes referred to as “know-how”. However, in such cases, companies often are not fully aware that they possess undisclosed technical know-how of strategic importance, and it is difficult for them to access the protection granted by IP law.

One advantage of know-how, compared with patents, is that it probably applies to a large share of the business; in other words, a large majority of the goods or services provided by the company takes advantage of the know-how, whereas often only a few of these goods and services are covered by patents, and furthermore, patents often protect only specific embodiments.

In Italy, this aspect of the importance of know-how has been particularly apparent as a consequence of the introduction of the Patent Box tax-saving tool. Italy established a Patent Box regime in 2015, which allows reduced taxation for income derived from the direct use or licensing of IP assets, where these IP assets include know-how (unlike corresponding Patent Box regimes in other European countries, which are essentially focused on patents).

In this context, which is characterised by an increasingly wide awareness of the importance of know-how, one may wonder whether IP law is sufficiently developed to support a higher demand for know-how protection.

How the law works
In June 2016, the European Parliament and Council adopted Directive (EU) 2016/943, which aims to standardise the national laws in European countries against the unlawful acquisition, disclosure and use of undisclosed know-how and business information (trade secrets). European countries are expected to put their IP law in compliance with the directive by 2018.

This directive will probably enhance the tools for enforcing trade secret-related IP rights. However, the directive, per se, does not appear to provide means for boosting development, awareness, and consequent valuation of know-how within companies. In this light, Germany adopted (starting back in the 1940s) regulations specifically designed to incentivise patent innovation (eg, the German Employees’ Inventions Act), through measures for providing economic compensation for employee inventors. These incentive systems have proved to be effective. Corresponding measures are provided in the IP law of other European countries, albeit with some, sometimes remarkable, differences.

However, such incentive measures are normally not provided for technological innovation results that companies exploit in secret—know-how is not covered by such measures. The Italian Industrial Property Code (CPI) was amended in 2010, at article 64 dealing with inventions of employees, to rule that an employee has the right to be economically compensated for a patentable invention, even if the employer decides to exploit the invention as a secret.

This provision is not explicitly linked to article 99 of the CPI, which deals with trade secrets protection; however, the fact that a company decides to exploit the invention as a secret appears to imply a recognised economic value for the secrecy and steps to preserve it—in other words, the requirements for trade secret protection. For the time being, this measure appears to be rarely adopted in Italy, although it is hoped that in the future there will be greater awareness of this topic.

Technical innovation dynamics are changing rapidly, and trade secret or know-how protection could play a key role. In this scenario, developments of corresponding legislative measures are approaching and it would be beneficial for others to be promoted.