Brexit’s Potential Impact for Trade Secrets in the UK

To the surprise of many and the dismay of more than sixteen million United Kingdom voters, the previously unthinkable has occurred, the UK has voted to leave the European Union. In a tightly contested referendum, voters have chosen to end UK’s time as an EU member. Though the referendum is not technically legally binding, most expect the government to heed the voice of the people.

Prior to the referendum, the EU had been working for several years on a Directive on Trade Secrets. An EU directive is legislation that sets a goal for every EU member state to achieve. It is, however, up to each state to compose their own laws to reach the goals of the directive. As we have discussed, the EU Directive on Trade Secrets was initially proposed in November of 2013. After years of hard work, a revised Directive was adopted by the EU Council in May 2016. The EU member states have two years to implement the Directive into national law.

What Brexit means for trade secrets law in the UK is not entirely clear and calls for close observation in the years ahead. As we all know, the UK will not be out of the EU tomorrow. There will be negotiations over the terms of an exit over at least the next two years, but the impact could still be significant.

Despite the similarities between the Directive and laws in the UK and despite the laws in the UK pre-Directive having already met most of the Directive’s standards, some differences remain. For instance, article 3(4) of the Directive appears to allow trade secrets owners to seek injunctions and damages against third parties who knew or should have known the trade secret was being disclosed unlawfully. And the UK’s expansive laws on confidentiality would actually offer greater protection than those under the EU Directive.

Some have raised concerns about the Directive being used to restrain whistleblowers. The fear for whistleblowers is the wide ranging definition given to trade secrets will lead to employers being able to sue whistleblowers who disclose confidential information. This is potentially mitigated by two “whistleblower” exceptions, but the scope of these exceptions has yet to be tested by a court, thus leaving room for ambiguity and trepidations amongst both employees and employers. And while uncertainty remains for EU whistleblowers, in the UK, courts will continue to apply existing domestic law that has substantial legal history and the security that comes from such history. But as the EU Directive gains clarity through implementation, the appeal of a uniform European standard will increase. Correspondingly, the UK will likely face, in the long term, a challenge in the face of the growing appeal of a uniform European standard. UK courts will also likely face the challenge of interpreting contractual language and provisions designed around the EU Directive rather than domestic laws.

Furthermore and depending on the terms of exit and the relationship going forward, the UK will, after it has left the EU, be subject to the issue of transferring data outside of the EEA (European Economic Area), which is strictly regulated. If the country outside the EEA has not put adequate data privacy protections in place, the transfer cannot occur unless it fits within a small number of exceptions or transfer regimes. The United States was determined to have inadequate protections. The UK will face a similar inquiry once they have exited the Union, if they do not continue to be part of the wider EEA. The UK, being a former EU member, will likely be deemed to have sufficient protections provided its current regime remains in place and provided it conforms with the forthcoming EU General Data Protection Regulation framework (due to be implemented by 2018) but this is not a guaranteed result and should be monitored closely.

By and large the direct impact of the Brexit on trade secret law will initially be minimal. The Directive has not yet been implemented in the UK. Rather than drastically altering UK trade secrets law the Brexit insures the continued use of preexisting law and, at least in the short term, the stability that comes from the continued use of established legal standards.