For your eyes only: trade secrets and other IP highlights of 2016

With the European commission looking to introduce major reforms to EU copyright law, and little indication yet as to how the UK will approach matters of EU IP law post-Brexit, the next 12 months is set to bring even more fundamental changes to IP law in the UK and the EU.

Trade Secrets Directive

The new Trade Secrets Directive will be implemented across the EU by June 2018. It sets a minimum level of protection for trade secrets, defined as information that:

• is secret, meaning that it is not generally known or readily accessible within the relevant circles;
• has commercial value, because it is secret; and
• has been subject to reasonable steps under the circumstances, by the holder to keep it secret.

The Directive gives no guidance as to what might be considered “reasonable under the circumstances“. Other countries, such as Russia and Japan have opted to stipulate detailed lists of protection measures, but did not adopt the same ones. Similar culturally-inspired divergence between European Member States is likely when the Directive is implemented into national law – almost guaranteeing litigation in due course. Under the English law approach, the steps required will depend on the value of the information and how easy it is to keep that information secret.

Who “owns” the trade secret?

The Directive maintains the current position in all Member States’ laws, that possession of a trade secret is not a property right. This absence of ownership contrasts with the default position in patent and copyright law, where the rights in work done by an employee automatically belong to the employer. Employers will not automatically be the holder of trade secrets in an innovative but unpatentable idea. It will be important to provide for this in employment contracts.

What will be prohibited?

The Directive makes it unlawful to acquire, use or disclose a trade secret in certain circumstances.

Acquiring a trade secret without the owner’s consent will be considered unlawful when it is obtained:

• by unauthorised access to documents, electronic files or materials; or
• under circumstances which are considered “contrary to honest commercial practices”, including in breach of a confidentiality agreement.

However, acquisition, use and disclosure of trade secrets will be lawful where that acquisition, use or disclosure is required or allowed by EU or national law.

What other exceptions apply?

Consistent with international norms, the new law on trade secrets will not confer any power to object to a competitor using information which it has independently discovered or created. There are also provisions stipulating that:

• trade secrets must not interfere in the exercise of the rights of workers’ representatives to information, consultation and participation in accordance with trades union laws;
• the exercise of the right to freedom of expression is not to be restricted, particularly in relation to investigative journalism; and
• the Directive should not affect the mobility of employees, for example in relation to non-compete clauses in employment contracts.

How strong are the remedies?

Importantly, where the infringer neither knew, nor had reason under the circumstances to know that the trade secret was obtained from another person unlawfully, courts may order damages to be paid instead of a prohibition, recall or destruction of goods. The court can only do so if alternative measures would cause disproportionate harm to the alleged infringer, and where financial compensation is reasonably satisfactory to the trade secret holder.

WiFi providers not liable for copyright infringement by network users

On 15 September 2016, the Court of Justice of the European Union (CJEU) issued its decision that the operator of a shop, hotel or bar who offers the public free access to an internet network may be able to rely on the ‘mere conduit’ defence to avoid liability for copyright infringements committed by users of that network and therefore is not liable for damages flowing from the infringement.

The court ruled that operators could be injuncted to cease the infringement, and fined if they fail to comply, and could be ordered to password protect the connection in certain circumstances, but ought not to be required to terminate the internet connection or monitor for copyright infringements carried out via the internet connection.

The CJEU noted that it was for a national court to ensure that a fair balance is struck between the fundamental rights of the parties involved. However, it emphasised that in the previous case of Telekabel, it had held that this balance could be struck by the network access provider deciding on what measures need to be taken to achieve the required result.

By contrast, the English court’s approach in the website-blocking orders it has granted over recent years has been to specify at a technical level what needs to be done in order to comply, rather than stipulate an outcome which may be technically impossible or disproportionately costly to achieve. This has included stipulating IP address blocking or re-routing, and the details of a system which the court accepts is compliant, thereby confirming that perfection is not required. It is to be hoped that the courts of other jurisdictions will recognise the need for balance in such cases and adopt a similar approach.

Hyperlinking: GS Media

The CJEU has set out new guidance in a decision relating to the use of hyperlinks on the internet. The guidance may cause issues for owners of websites when they use hyperlinks to provide access to material on other websites. They will have to consider whether the linked content was illegally uploaded to the internet.

What was the case about?

The decision is in response to questions posed by a Dutch court in a case brought by Playboy’s Dutch publisher, Sanoma. In this case, Sanoma’s leaked photos were anonymously uploaded to FileFactory. A Dutch media company proceeded to publish hyperlinks to FileFactory, promoting access to the
photographs. Despite Sanoma’s notification and request to the media company that the content be removed, the hyperlinks remained active.

What did the CJEU decide?

Previously, it was considered that posting hyperlinks on a website to copyright works freely available on another website would not constitute an infringing act. Analysing the current case, the CJEU confirmed that an infringing act would occur if it was known that the works were illegally placed on the internet (for example, through notification by the copyright holder). The court added that, where the posting of hyperlinks is carried out for profit, the court expected that the hyperlink poster would carry out checks to ensure the works accessed by the hyperlinks were not illegally published. Therefore, there would be a rebuttable presumption that posting a link had occurred with the full knowledge of the protected nature of that work and the possible lack of consent to publication.

What are the implications of this decision?

Following this decision, there is now a greater risk of being found liable for copyright infringement if you publish links and have not taken steps to check the provenance of the material that becomes accessible. On the other hand, it could provide copyright owners with a new means of taking action to protect their copyright works. The CJEU’s decision means that once a copyright owner has given notice to a website that it is linking to material that infringes
copyright, those links will necessarily become infringing. This means that copyright owners now have strong grounds for getting links to infringing material removed.

Fanatix.com: 8 second samples

The England and Wales Cricket Board Ltd, which owns the copyright in television broadcasts of most cricket matches played by the England men’s and women’s cricket teams in England and Wales, sued Tixdaq (who operate the website www.fanatix.com) for uploading a number of 8 second clips of cricket matches onto its website, app, Facebook page and Twitter feed. The users of the website/apps added comments to the clips and then shared them. The Cricket Board claimed that Tixdaq’s use of the clips had infringed their copyright. Tixdaq denied infringement and claimed that the use was anyway fair dealing for the purposes of reporting current events.

The court held that the clips did infringe despite being very short extracts of much longer broadcasts because the clips were highlights of the matches and action replays; they contained the most important parts of the matches, and so were a substantial part of the whole. Tixdaq was not protected by the defence of fair dealing for the purpose of reporting current events. The use was not for the purpose of reporting currents events; the clips were used because of their interest and value. But even if the use was considered fair dealing, the clips did not provide sufficient acknowledgement to the claimants.

Community registered Designs

Magmatic owns a Community Registered Design (CRD) for a clamshell ride-on suitcase designed to look like an abstract of an animal with horns. It sued PMS International for infringement by selling an animal version with handles formed to look like ears, and an insect version with handles formed to look like antennae. These were decorated to create a variety of models, including a tiger and a ladybird.

At first instance, Arnold J held that the PMS’s Kiddee Case did infringe the design rights registered for Magmatic’s Trunki, taking into account the shape of the cases but ignoring markings on the side and the eyes at the front.

In the Court of Appeal, Kitchin LJ reversed the decision because:

• First, the Judge had failed to give proper weight to the overall impression of the shape of the design as an animal with horns, which was significantly different from the impression made by the Kiddee case with its ears or antennae.
• Second, the Judge had failed to take into account the reinforcement of the impression of a horned animal by the absence of surface decoration on the CRD (although the Trunki cases as sold were indeed decorated as animals).
• Third, in stating that the claim was solely in respect of the shape of the design the Judge had failed to take into account the two-tone feature of the design, including wheels which strongly contrasted with the body. The Kiddee Case had concealed wheels, so this feature was absent.

The Supreme Court upheld the Court of Appeal’s decision, albeit commenting that the reinforcement provided to the overall horned animal impression by the absence of surface decoration could be given only minor weight. The choice of contrasting monochrome colours in the design registration was deliberate, and meant that the trial Judge was wrong to hold that the registered design was simply a claim for a shape. As it was not just for a shape, the presence of contrasting colours should be taken into account when assessing the overall impression.

Practical implications of the decision

Cartier: website blocking orders

On 6 July 2016, the Court of Appeal gave its decision in an appeal from the first ever case in which internet service providers (ISPs) had been ordered to block their subscribers’ access to websites on the basis that those websites were offering for sale counterfeit goods.

The Court of Appeal confirmed that similar orders can be sought by the owners of trade marks, design rights and patents.

What were the issues?

Orders which require the ISPs to take technical steps to block subscribers’ access to websites supplying or enabling the supply of infringing copies of copyright material have become relatively routine. Website blocking has also been reasonably effective in reducing the use of copyright-infringing websites in the UK. But over time, the number of websites required to be blocked is increasing and so the ISPs’ willingness to absorb the cost of monitoring and blocking has eroded.

Richemont, the group which owns luxury brands such as Cartier and Mont Blanc, applied for an equivalent order based upon their trade mark rights rather than copyright. The ISPs argued that a whole new category of IP rights should not be introduced as the foundation for such applications, and still less should they have to shoulder the costs of implementing the resulting blocking orders.

What did the court decide?

The issue in dispute was whether requiring the ISPs to block websites, which involves cost and will not be completely effective, was an appropriate and proportionate way to enforce Richemont’s trade marks. The court held that although the cost of implementing the blocking orders may in time mount up, it was fair and proportionate to require the ISPs to bear these costs since they also receive the benefit, under the E-Commerce Directive, of a defence to allegations of infringement arising from their users’ activities in posting pirated content online.

Further, the court held that website blocking of websites selling counterfeit goods was likely to be more effective than it was where pirate copyright works were in issue, since the websites selling counterfeits are unlikely to build up ‘brand loyalty’ in the way that, say, The Pirate Bay had done. The court therefore found that the costs of implementing blocking orders should be treated simply as a cost of carrying on business as an ISP – provided that the order did not impose an obligation to implement disproportionately costly technical solutions, and that the cumulative costs of complying with such orders was kept under review.