Trade secret laws and regulations in Germany

Yes, the Directive is implemented through the new law for the protection of business secrets (Gesetz zum Schutz von Geschäftsgeheimnissen/GeschGehG) of 18 April 2019 (BGBl. I p. 466). The protection of trade secrets was previously regulated in the now repealed Sections 17-19 of the Unfair Competition Act (Gesetz gegen den unlauteren Wettbewerb/UWG).

As a consequence of the fragmentary framework before the implementation, protection can also be derived from Sections 280 (1), 241 (2) for contractual claims for damages as well as tortious claims according to 823 and 826 of the German Civil Code (BGB). Regarding criminal law, Sections 201 to 206 of the German Criminal Code (StGB) make the violation of the personal sphere of life and secrecy punishable.

According to Section 2 no. 2 GeschGehG, a ‘trade secret’ is an information which:

1. is not, either as a whole or in the precise configuration and assembly of its constituent parts, generally known or readily accessible to persons in the circles that normally handle this type of information and therefore has commercial value;
2. is subject to, in view of the circumstances, reasonable confidentiality measures by its rightful owner; and
3. there is a legitimate interest in confidentiality.

The legitimate interest as a prerequisite for a trade secret is a special German approach, as the definition of a trade secret in Directive (EU) 2016/943 does not contain this requirement.

There are no further requirements apart from those listed above. The relevant national legal provision corresponds almost literally to the text in Article 2 (1) sub c of the Directive, which stipulates that only information ”subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret “ suffice to qualify as a trade secret. Therefore, reasonable steps must be taken to identify and protect trade secrets. The GeschGehG, however, does not specify the relevant measures, which may include:

1. Organisational measures (e.g. access and entry restrictions for employees, access and exit controls at the company premises, etc.);
2. technical measures (e.g. encryption, password protection, etc.);
3. legal measures (e.g. conclusion of NDAs).

Yes. Against the background of the definition in Section 2 no. 2, a licensee may also be the holder, meaning a natural or legal person who exercises legal control over the trade secret. Needless to say, the licensing of the secret should be contractually regulated in a licence agreement. The agreement must contain an obligation of the other contracting party to keep secret the knowledge and information that has become known as a result of this cooperation. 

No.

Yes, several persons can be classified as owners. The person concerned must have legitimate control over the trade secret. A person who acquires a license to a trade secret and thereby has the right to learn, use or disclose it also has legal control over the trade secret.

According to Section 4 GeschGehG, the following actions constitute an infringement of trade secrets:

1. A trade secret may not be obtained by:
   1. unauthorised access to, unauthorised appropriation or unauthorised copying of documents, objects, materials, substances or electronic files that are under the lawful control of the holder of the trade secret and contain the trade secret or from which the trade secret can be derived, or
   2. any other conduct that, in the circumstances, does not comply with the principle of good faith, having regard to honest market practice.
2. A trade secret may not be used or disclosed by someone who:
   1. Obtained the trade secret by an own act according to paragraph 1 -
      1. number 1; or
      2. number 2
   2. violates an obligation to limit the use of the trade secret; or
   3. violates an obligation not to disclose the trade secret.
3. A trade secret may not be obtained, used or disclosed by anyone who has obtained the trade secret through another person and who, at the time of obtaining, using or disclosing it, knows or ought to know that the other person has used or disclosed the trade secret contrary to paragraph 2. This applies in particular if the use consists of the production, offering, placing on the market or import, export or storage for these purposes of infringing products.

Acc. to Sec. 8 GeschGehG, the holder of a trade secret may request from the infringer information on the following:

1. the name and address of the producers, suppliers and other previous owners of the infringing products, as well as of the commercial customers and sales outlets for which they were intended;
2. the quantity of infringing products manufactured, ordered, delivered or received and the purchase prices;
3. the documents, items, materials, substances or electronic files in the possession or property of the infringer, which contain or embody the trade secret; and
4. the person from whom they have obtained the trade secret and to whom they have disclosed it.

The trade secret holder is entitled to claim for cease and desist (Sec. 6 GeschGehG), for special measures, such as destruction, recall, etc. (Sec. 7 GeschGehG) and for information and compensation (Sec. 8 GeschGehG).

At the request of the trade secret holder, the court can order by way of an interim injunction a cease and desist of the use or disclosure of the trade secret as well as a seizure of the documents, items, materials, substances or electronic files in the possession or property of the infringer that contain or embody the trade secret. The aim of the injunctive relief is to prevent a renewed (injunctive relief) or a first-time (preventive injunctive relief) infringement.

In addition, a court decision taken on the merits (main proceedings) can order the following:

1. destruction or release of the documents, items, materials, substances or electronic files in the possession or property of the infringer that contain or embody the trade secret;
2. recall of the infringing product;
3. permanent removal of the infringing products from the distribution channels;
4. destruction of the infringing products; or
5. withdrawal of the infringing products from the market, if the protection of a trade secret is not affected.

Finally, the holder of the trade secret is entitled to information claims in accordance with Section 8 GeschGehG.

The preliminary injunction is only a temporary measure, so that the holder of a trade secret is in principle obliged to bring the action on the merits of the case in order to definitively protect his rights. There is no need for legal recourse in this regard if the defendant recognises the preliminary injunction as a final provision equivalent to a legally binding main action title in terms of validity and effect (i.e. if he submits the final declaration).

Following Sec. 926 Code of Civil Procedure (ZPO), if the main action is not pending, the court responsible for the seizure is to order, upon corresponding application being made and without holding a hearing for oral argument, that the party having obtained the interim injunction is to bring main proceedings in the courts within a period to be determined (i.e. at least two weeks).

Should this order not be complied with and a corresponding application be made, the seizure is to be set aside in a final judgment.

Yes, the infringer must then invoke the right to compensation under Section 11 GeschGehG, which provides that an infringer who has acted neither intentionally nor negligently may, in order to avert the claims under Sections 6 or 7, compensate the owner of the trade secret in money if the infringer would suffer a disproportionately large disadvantage by the fulfilment of the claims and if the compensation in money appears to be appropriate.

(2) The amount of the monetary compensation will be based on the sum that would be appropriate in the event of a contractual grant of the right of use. It may not exceed the amount corresponding to compensation within the meaning of sentence 1 above for the length of time during which the holder of the trade secret is entitled to injunctive relief.

In light of the character of Sec. 11 as an exception, it must be assumed that in case of doubt there is a lack of appropriateness.

The court may, at its discretion, decide without an oral hearing, entirely without a hearing or after an oral procedure.

As a rule, an oral hearing as well as a hearing of the infringer will be out of the question if the application for cease and desist is combined with an application for seizure. Otherwise, the warning risks the infringement being obscured. If such a case is credibly demonstrated and legally clear, there is usually no reason to hear the defendant beforehand, particularly in view of the possibility of a claim for damages under Sec. 945 ZPO.

With the triple damage calculation, according to Section 10 (2) GeschGehG, the injured party can choose between three variants of how to quantify the compensable damage: he can demand compensation for the actual damage incurred, demand the return of the profit made by the infringer or calculate the damage on the basis of an appropriate remuneration, which the infringer would have had to pay if he had obtained consent to obtain, use or disclose the trade secret. In contrast to concrete damages, the licence analogy and the publication of the infringer's profit are manifestations of the objective calculation of damages.

According to Section 10 (3) GeschGehG, the owner of the trade secret may also claim monetary compensation from the infringer for non-material damages, to the extent that this is equitable.

The GeschGehG does not contain any special regulation on the statute of limitations. The shortened limitation period of Sec. 11 of the Unfair Competition Act is not applicable. Rather, the claims are subject to the regular limitation period of three years pursuant Sec. 195, 199 BGB. However, a special statute of limitations in Sec. 13 provides that the infringer is under special circumstances obliged to surrender acquired goods even after the limitation of the claim for damages. This claim becomes statute-barred six years after it arises.

The standard limitation period commences at the end of the year in which the claim arose and the obligee obtains knowledge of the circumstances giving rise to the claim and of the identity of the obligor or would have obtained such knowledge if he had not shown gross negligence.

Yes, the general rules of the BGB (Sec. 203-209) apply.

Yes. In Sec. 16-20, which are based on Article 9 of the Directive, the law regulates the secrecy of trade secrets as far as they are introduced into the legal proceedings.

One consequence is that all persons involved, including those in the administration of justice and those who have access to the documents, must keep the information classified as confidential and may not use or disclose it outside of judicial proceedings. The trade secrets requiring secrecy must be rendered unrecognisable in the event of inspection of the files by third parties. The need for secrecy does not prevent the exploitation in other judicial proceedings.

The owner of a trade secret himself is not restricted in its use and disclosure by the order.

Yes, in particular, the laws lists in Sec. 5 GeschGehG

1. the exercise of freedom of expression and information, including respect for the freedom and plurality of the media;
2. to disclose any illegal activity or professional or other misconduct, where the obtaining, use or disclosure would be likely to protect the general public interest;
3. in the context of disclosure by employees to the employees' representatives, if this is necessary to enable the employees' representatives to carry out their duties.

As shown by the formulation “in particular” in Sec. 5 GeschGehG, this list is not exhaustive. Other legitimate interests may include fundamental rights positions that conflict with the protection of business secrets.

This legal regulation is aimed at protecting the activity of whistleblowers.

Yes, according to Sec. 14 GeschGehG, the assertion of claims under this Act will be inadmissible if it is abusive in the light of all the circumstances. In the event of an abusive assertion, the defendant may demand compensation for the expenses necessary for his legal defence. Further claims for compensation remain unaffected.

In this case, the infringer may demand the expenses necessary for his legal defence from the holder of the trade secret. The further claims include, for example, claims under unfair competition law due to a deliberate obstruction (Section 3 I UWG, Section 4 No. 4 UWG, Section 9 UWG) or claims in tort (Sections 823 et seq. BGB).

In addition to technical and organizational precautions, employers can and should enter into a contractual confidentiality agreement with their employees for the duration of the employment relationship. These can either be part of the employment contract or be drafted as a separate confidentiality agreement. In any case, confidentiality clauses must meet the general requirements of German law, especially regarding transparency. In this respect, they should at least specify categories of information requiring confidentiality (e.g., construction plans, client lists etc.) and ideally also define actions that will be particularly considered a breach of the confidentiality agreement. It is also advisable to agree on a contractual penalty. 

In addition, post-contractual confidentiality obligations can be agreed. However, these are subject to particularly high requirements if they are formulated extensively. Like other post-contractual non-compete covenants, the extensive prohibition of use of memorized confidential information can only be effectively agreed for a maximum period of two years and only in return for appropriate compensation. In addition, the scope of the prohibition must be sufficiently defined and clearly formulated. 

Furthermore, company directives on the classification and handling of confidential information can also be established, taking into account possible co-determination rights of the works council. Confidentiality obligations can also be the subject of works agreements (Betriebsvereinbarungen).

Yes, this results from the employee's side obligation not to harm the employer. Accordingly, employees are obliged to show reasonable consideration for the employer's business interests and to protect trade and business secrets. This also includes that employees may not disclose or otherwise use for external purposes any company documents or data in the confidentiality of which the employer has a legitimate economic interest without the employer's consent. These obligations also apply to agency workers in relation to the lender.

In addition to any (post-contractual) confidentiality obligations and contractual penalty clauses, employer may consider the following:

• Issuing explicit instructions about the obligation to keep trade secrets confidential,
• Using protective provisions to prohibit the private use of e-mails and internet,
• Prohibition of storing data on private end devices or sending company data to private email inboxes, 
• Instruction on compliance with IT security requirements and the use of company communication tools,
• Implementing rules of conduct, particularly in sensitive areas (no photography/filming) or on entering certain areas.
• In addition, regular trainings should raise awareness in the workforce about the importance of protecting trade secrets and confidential information.

Yes, the Directive (EU) 2019/1937 of the European Parliament and of the Council of 23 October 2019 on the protection of persons who report breaches of Union law (Whistleblower Protection Directive) provides for a minimum level of protection for whistleblowers who report infringements of Union law. The implementation deadline expired on 17 December 2021. In Germany, unlike in other Member States of the European Union, the Directive has not been implemented yet. The draft legislation for a Whistleblower Protection Act (Hinweisgeberschutzgesetz – HinSchG) was not adopted in 2021. However, the implementation of the Whistleblower Protection Directive will probably is expected for 2022. 

The coalition agreement of the Federal Government provides for a "legally secure and practicable" implementation of the Directive into national law. In addition, the coalition agreement already indicates the possible shape of the future protection of whistleblowers in Germany. whistleblowers are to be protected from legal disadvantages not only when reporting violations of EU law, but also when reporting other significant misconduct under national law that is in the particular public interest. In addition, whistleblowers' claims will likely be protected against retaliation because of a report.

Although the Directive has no direct effect in relations between private individuals (i.e. a private individual cannot invoke the text against another private individual in court), labour courts are obliged to interpret the general clauses of national law in the sense of the Directive.

Yes, an employer can be liable under the Trade Secret Protection Act (Geschäftsgeheimnisschutzgesetz – GeschGehG) if he/she knows or should have known of the unauthorised obtaining of the trade secret by his/her employee. The Act extends liability to the owner of the company whose "employee or representative" is the actual person infringing the trade secret. Any claims under the Act are then also directed against the owner of the business.

Contracts should include confidentiality clauses with direct reference to the mutual protection of trade secrets. If a separate NDA has been concluded, it should be ensured that this NDA also explicitly refers to trade secrets. Contractual partners should be required to obligate their employees to maintain confidentiality as well and to make confidential information required for the execution of the contract available only to those employees who absolutely need it.

The GeschGehG permits reverse engineering (i.e. the dismantling of products to gain further insights). Reverse engineering can be contractually excluded for previously unpublished products that are made available to a contractual partner.

Clauses that are too vague do not constitute appropriate confidentiality measures. This applies in particular to so-called "catch-all" clauses in employment contracts. This means far-reaching clauses, which declare all information without further differentiation that employees obtain in the context of their employment relationship to be confidential. Such clauses have already been dismissed as inappropriate by German courts.

In addition, care should be taken not to use old NDA templates or model clauses. Outdated templates often do not meet the requirements of the GeschGehG.

The GeschGehG is modeled on the EU Directive on the protection of trade secrets (2016/943). In this respect, trade-secret protection is mostly harmonised within the EU. For detailed questions, it is nevertheless advisable to review the respective national law since the directive also contains opening clauses.

For the protection of trade secrets outside the EU, the respective national laws must be considered. It is therefore advisable to gather information at least on one's own main markets and, if necessary, to obtain legal advice.

Under German law, penalty clauses do not constitute a mandatory confidentiality measure. It can therefore be dropped from contracts. However, a contractual penalty may be appropriate to ensure more effective enforceability of agreements on trade-secret protection. This particularly applies since damages caused by the infringement of trade secrets are often difficult to quantify.

Lump-sum penalty clauses in pre-formulated contracts may be unreasonable under German law, especially in the case of unequal contracting parties. It is therefore preferable to negotiate jointly and/or to stipulate a contractual penalty, the amount of which is determined at reasonable discretion and can be reviewed by a court.

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