KEEPING TRADE SECRETS SAFE IN PRIVATE NEGOTIATIONS: LIABILITY FOR MISAPPROPRIATION OF IDEAS NOT PROTECTED BY INTELLECTUAL PROPERTY RIGHTS IN
GERMANY AND THE NETHERLANDS
MASTER THESIS
YULIIA KOZLOVA
M. EUROPEAN PRIVATE LAW UNIVERSITEIT VAN AMSTERDAM
SUPERVISOR: C. LEONE
ABSTRACT
On the everyday basis legal entities engage in various legal transactions which may aim at the transfer of tangible and non-tangible property having certain market value to them. One vivid example of such property constitute trade secrets – information which from strictly legal perspective does not bear legal protection tantamount to registered intellectual property rights, despite still having high importance to a business in commercial terms. It appears to be highly vital to the actual survival of an enterprise and development of its competitive ability on the market. One of the possible occasions whereby a legal entity may be rendered deprived of information capable of constituting an object of a trade secrets is a contract customarily negotiations involving active information exchange between its participants, including commercially sensitive information. The non-diligent negotiating party may simply leave the negotiations table without a solid reason, but with a solid piece of secret information lawfully owned by a former business partner.
This legal research scrutinizes which legal remedies in Germany and the Netherlands are available to an injured party upon breaking-off negotiations of a contract combined with misappropriation of trade secrets exchanged in the course thereof. It undertook to determine which legal systems among the two specified above endows the loss sustaining party with the higher level of legal protection, in strictly statutory terms and on the empirical level. Upon analysis of both legal systems and detailed juxtaposition thereof it has been found that the legitimate owner of a trade secret has higher chances of obtaining a just compensation for unauthorized use of trade secrets in Germany, as the country appears to adhere to historically established approach of eager trade secrets protection as being part of public policy aimed to support research and innovation.
TABLE OF CONTENTS
Introduction………...3
Chapter 1: Legal basis for liability upon breaking-off negotiations A.1. Germany………..7
A.2. Standard of compensation………..10
B. 1. Netherlands………11
B. 2. Standard of compensation……….16
Chapter 2: Protection of trade secrets in Germany and the Netherlands: statutory safeguards A. Germany……….18
B. Netherlands……….…20
Chapter 3: Remedies granted by national courts upon misappropriation of trade secrets after breaking-off negotiations A. Germany……….22
B. Netherlands………27
Chapter 4: Comparison between legal systems of Germany and the Netherlands: juxtaposing national standards A. Liability for breaking-off negotiations………...31
B. Protection of trade secrets in Germany and the Netherlands: statutory safeguards……...32
C. Legal remedies granted by national courts……… 34
Analysis………...35
Conclusion………..38
INTRODUCTION
During economic growth, companies on the territory of the European Union constantly engage in the agile business cooperation. Integral part of such cooperation constitutes business negotiations among undertakings engaged in different levels of production and provision of services. Even though business usage demands that negotiating parties treat each other equitably and fairly, with mandatory observance of good faith principle, participants in business negotiations may often find themselves deprived of economically valuable assets brought to the negotiation table, in particular trade secrets which may fully or partially constitute an economic basis for their business activity on the market. As stated in par. 2 of the recital to the European Trade Secrets Directive (hereinafter – EUTSD)1:
“Businesses, irrespective of their size, value trade secrets2 as much as patents and other forms of intellectual property right. They use confidentiality as a business competitiveness and research innovation management tool, and in relation to a diverse range of information that extends beyond technological knowledge to commercial data such as information on customers and supplies, business plans, and market research and strategies. Small and medium-sized enterprises (SMEs) value and rely on trade secrets even more”.3
Admittedly, the cost for loss of business ideas not protected by intellectual property rights (hereinafter – IPRs) varies depending on the indicators of economic stability of an enterprise: for instance, for a start-up which has newly entered a defined product market loss of business ideas may utterly become fatal and endanger existence of an undertaking as such, whereas business enterprises firmly established on the market risk at large losing competitive advantage over rival enterprises. 1
Parliament and Council Directive on Trade Secrets (EU) 2016/943. 2
Being one of the means business use to appropriate the valuable results of their innovation-related activities, next to intellectual property rights (Ibid, par.1of recital).
3
For instance, enterprises belonging to chemical sector indicated that loss of trade secrets resulted in 30% potential loss of turnover, whereas for businesses where trade secrets are the foundation of the product differentiation or production process, this number reaches up to 80-100%. For more information on economic value of trade secrets, see European Commission, Impact Assessment: Proposal for a Directive of the European Parliament and of the Council on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure, SWD (2013) 471 Final (28.11.2013).
When business negotiations gain cross-border dimensions, it is possible for the negotiating parties to rely on the fundamental international private law instruments. According to Article 12 (1) of the Rome II Regulation,4 the law applicable to non-contractual obligations arising out of dealings prior
to the conclusion of a contract, regardless of whether the contract was actually concluded or not, shall be the law that applies to the contract or that would have been applicable to it had it been entered into. Article 3 (par. 1) of the Rome I Regulation5 provides that “a contract shall be regulated
by the law chosen by the parties”. Hence, the choice of law governing conclusion and performance of a business contract is a matter of the foremost importance assuring application to the given (pre)contractual relations the standards of protection of the legal system intended to be relied on by the contracting parties had the contract been concluded.
In the proceeds of business negotiations, the contracting parties customarily include preference for the law applicable to the subsequent contract between them (and thus potentially to the pre-contractual obligations arising out of negotiations). The aim of this research paper is to make a determination about which legal system out of the two, Dutch or German law, provides stronger legal protection of an injured party having had its trade secret misappropriated by the other negotiating party (a misappropriating party) in the proceeds of business negotiations. Hence, the legal remedies and standards of compensation available to the aggrieved party shall be put into scrutiny. Misappropriation in this context shall be understood as unlawful use of business ideas without prior authorization of their legitimate possessors for the benefit of an unlawfully appropriating party or for someone other’s benefit. For the purposes of this research paper only private party – natural and legal persons- shall be considered,6 although no distinction shall be made
between legal treatment accorded to SMEs and large enterprises. It is crucial to note that the prevalent share in German and Dutch markets belongs to SMEs7: whereas in Germany the total
4
Rome II Regulation (2007). 5
Rome I Regulation (2008). 6
Albeit not excluding legal persons with minor share of state ownership, which, however, do not fall to be governed by specific public law regime.
market share of SMEs constitutes 82,55%, in the Netherlands it reaches up to 95,45%, as of 2015 calendar year.8
I have chosen the legal systems of Germany and the Netherlands for the following reasons. Firstly, both legal systems have developed extensive mechanisms of pre-contractual liability characterized by the high level of expectations placed on behavior of market players in the course of contract negotiations.9 Strictly technical comparability thereof is ensured by the fact that both legal systems
belong to civil law family. Secondly, according to my exploratory research at the start of this project, the “state of art” on the issue in consideration is peculiarly different across the selected jurisdictions: whereas Dutch case law have been pointing in the direction of affording quite high level of compensation upon breaking-off negotiations in general, while having not extensively elaborated on the particular case of breaking-off negotiations in question, the German case law, while having abundant number of cases specifically dealing with misappropriation of trade secrets occurring under diverse circumstances, opts for somewhat lower level of compensation available upon breaking-off negotiations in general. Thirdly, as for a purely economic justification, both countries have been a long-term committed trade partners with high levels of trade volumes circulating every year.
In order to reach the aim of the legal research outlined above, I shall adhere to subjective stance on the matter and evaluative legal research method. As this paper entails consideration of particular legal institutions in the selected legal systems providing for protection of legitimate interests of
In policy papers adopted by the Commission an “SME” is used as a generic concept encompassing enterprises employing less than 250 persons. Eurostat, Statistics on Small and Medium-Sized Enterprises, available here:< http://ec.europa.eu/eurostat/statistics-explained/index.php/Statistics_on_small_and_medium-sized_enterprises>accessed on 06 April 2018.
8
Eurostat, Annual Enterprise Statistics by Size Class for Special Aggregates of Activities (NACE Rev. 2), 2015. 9
See for Germany: W. Lorenz, Pre-contractual Liability in the Law of the Federal Republic of Germany in E.H. Hondius (ed.), Pre-contractual Liability (Deventer, Kluwer, 1991), Peirre Jr. Legrand, Information in Formation of Contracts: A Civilian Perspective [1991] Can. Bus. L. J. 318, 319. For the Netherlands: Marcel Ruygvoorn, Afbreking van Onderhandelingen en de Juridische Kwalificatie van Voorbehouden [2010] TB 58, Martijn W Hesselink, De Schadevergoedingsplicht bij afgebroken onderhandelingen in het licht van het Europese privaatrecht [1996] WPNR 6249 906.
negotiating parties in the event of breaking-off negotiations coupled with misappropriation of trade secrets connected by identical social purpose, a functional-institutional method of comparative legal research has been selected.10 Taking into account the selected methodological approach, I propose
the following research question: Which legal system provides for the strongest legal protection of an injured negotiating party in the event of breaking off negotiations combined with misappropriation of business ideas not protected by IPRs? In order to answer this question, the following sub-questions shall be addressed: What is the legal basis for liability upon breaking-off negotiations in the selected legal systems? What standard of compensation is available for an injured party? (Chapter 1); What legal framework currently in place in Germany and the Netherlands for the trade secrets protection? (Chapter 2); What standard of recovery is promoted by national courts for misappropriation of business ideas combined with breaking off negotiations? (Chapter 3). “Protection” shall be understood as accumulation of substantive and procedural legal rules, in particular legal remedies intended to preserve the party’s proprietary rights derived from possession of trade secrets for the time period when business negotiations take place. Due to the limited volume of this legal research, however, I shall not delve into particularities of legal rules of civil procedure, but rather concentrate on the threshold of proof required by national courts in cases of misappropriation.
In order to answer this question, a range of primary and secondary sources are to be contemplated, including the relevant statutory provisions of Dutch and German law, decisions of the national courts of different levels, academic articles and publications. After answering the above mentioned sub-questions, deducted similarities and differences between the respective legal systems shall be outlined in a comparative part (Chapter 4), followed by analytical part whereby the legal system affording negotiating parties with the strongest legal protection shall be identified.
10
Marieke Oderkerk, ‘The Need for a Methodological Framework for Comparative Legal Research: Sense and Nonsense of “Methodological Pluralism” in Comparative Law’ [2015] 79(3) RabelZ 589, 612.
CHAPTER 1
LEGAL BASIS FOR LIABILITY UPON BREAKING-OFF NEGOTIATIONS
GERMANY
The modern legal regime addressing responsibility for breaches committed during pre-contractual stage is based upon the culpa in contrahendo doctrine (lat. “fault in conclusion of a contract”) introduced by Rudolf von Jhering. At the outset the doctrine was developed to address the specific problem presented by the party who, having taken the initiative to enter into a contract, then sought its invalidity on the ground of a mistake.11 In order to protect the bona fide contractor von Jhering
held that a breach of the diligentia in contrahendo (prudence and diligence in pre-contractual relations) would entail contractual liability.12 He was convinced that German legal system (Gemeines Recht) at the time was substantially flawed due to that fact that it did not address the pivotal needs of commercial practices.13 R. von Jhering also proposed a standard of compensation allowing the
injured party who relied on a conclusion of a contract to recover reliance damages (Vertrauensschaden) aimed at restoration of the status quo ante;14 however, the sufferer was not
able, in general, to recover the full value of promised performance, the expectation interest (Erfüllungsinteresse).15
11
Supra note at 9, P.J. Legrand, 319. 12
Ibid. In other words, the very essence of von Jhering’s fictitious construction was pointing on the fact that there was an implied contract between the parties having as its object the conduct of negotiations in good faith.
13
Julija Kiršienė, Natalja Leonova, Qualification of Pre-contractual Liability and the Value of Lost Opportunity as a Form of Losses, Jurisprudencija [2009)]1 (115) 221, 226, citing Sylviane Colombo, The Present Differences between the Civil Law and Common Law Worlds with Regard to Culpa in Contrahendo [1993] TFLR 2 (4) 350.
14
Supra note at 11, 402. 15
Despite not being initially recognized at the statutory level, the culpa in contrahendo doctrine gradually permeated German jurisprudence. It informed some of the 1900 (Bürgerliches Gesetzbuch, hereinafter – BGB) legal provisions: for instance, Section 122 established strict liability of the party in error to the other contracting party upon provision of declaration of intent in the form of reliance damages.16 At the beginning of the XXth century the doctrine was further developed by the French
lawyer Raymond Saleilles who insisted that parties, after having entered into contract negotiations, were bound to act in accordance with the principle of good faith and neither of them was allowed to break off negotiations arbitrarily, without providing the injured party with the proper compensation of reliance damages.17 By the aid of court practice, the culpa in contrahendo doctrine became
embedded in good faith (Treu und Glauben) principle, laying at the basis of the German contract law and informing all legal transactions governed by the latter.18 It is enshrined in § 242 BGB whereby
“an obligor has a duty to perform according to requirements of good faith, taking customary practice into consideration”. The principle tells us that once the parties enter into a contract negotiations a relationship of trust and confidence comes into existence irrespective of whether such negotiations shall lead to a conclusion of a contract.19 Thus, a contracting party shall be held liable in damages for
having created expectation that an inter parte agreement would be established.20 Essentially, when
contracting parties have commenced negotiations with the intent to make a business transaction in Friedrich Kessler, Edith Fine, Culpa in Contrahendo, Bargaining in Good Faith and Freedom of Contract: A Comparative Study [1964] HLR 77 (3) 401, 402.
16
Supra note at 9, Peirre Jr. Legrand, citing W. Lorenz, Pre-contractual Liability in the Law of the Federal Republic of Germany in E.H. Hondius (ed.), Pre-contractual Liability (Deventer, Kluwer, 1991).
17
Mathias Reimann, Reinhard Zimmermann, The Oxford Handbook of Comparative Law (OUP, 2006) (section by Alan Farnsworth).
18
Omer Tene, Good Faith in Pre-contractual Negotiations: A Franco – German – American Perspective (Working Paper) (November 8, 2006) 1, 10.
19
Supra note at 12, 404. 20
the future, they are deemed to have created pre-contractual relations capable of detrimentally affecting their economic interests (gesteigerte Einwirkungsmöglichkeit).21
In the proceeds of 2002 civil law reform,22 the pre-contractual duty of good faith was codified by
the German Bundestag in the following statutory provisions. § 241 (2) BGB established that “an obligation may also, depending on its contents, oblige each party to take account of the rights, legal interests and other interests of the other party”. Furthermore, as to the moment when such obligation commences, § 311 (2) contains a provision whereby “an obligation with duties under § 241 (2) also comes into existence by (1) commencement of contract negotiations, (2) the initiation of a contract where one party, with regard to a potential contractual relationship, gives the other party the possibility of affecting his rights, legal interests and other interests, or entrusts these to him, or (3) similar business contracts”. Lastly, in accordance with § 280 (1) BGB, an injured party may claim damages if his counterparty breaches a duty arising from the aforementioned obligation.
Already before the 2002 reform, Bundesgerichtshof had ruled that pre-contractual duty of good faith arises when one party assures the other that a contract will be signed, when a party is required to begin performance of the contract before it is finalized or when both parties provisionally begin to fulfill their duties under a prospective contract.23 It held that culpa in contrahendo amounting to the
awakening of confidence in the negotiating partner in the imminent conclusion of a contract (which in reality never comes into existence) causes him to incur expenses, which subsequently may be subject to reimbursement.24 Meanwhile, the Bundesgerichtshof stressed that a contracting party may,
21
Jonathan Cardenas, Deal Jumping in Cross-Border Merger & Acquisition Negotiations: A Comparative Analysis of Pre-Contractual Liability under French, German, United Kingdom and United States Law [2013] NYU J L & B 941 941, 966.
22
During the largest German civil law reform the Act to Modernize the Law of Obligations (Schuldrechtsmodernis-ierungsgesetz) was adopted and subsequently came into force on 1 January 2002 becoming the second most important civil law codification in the country after the BGB itself.
23
Supra note at 17, 11. 24
at any time, legitimately withdraw from a negotiations table without any justified reason provided that no expenditure was incurred in the reliance on the certain conclusion of a contract.25
Therefore, in order to establish a prima facie case for culpa in contrahendo, liability arising from the breaking off of the negotiations, three cumulative conditions should be met: firstly, it must be demonstrated that the defendant has intentionally or negligently created an expectation that a contract would be concluded;26 secondly, the plaintiff has incurred expenses on the basis of these
expectations; thirdly, the defendant has broken off negotiations without a good reason (ohne triftigen Grund) or just cause (rechtfertigenden Grund).27 Accordingly, in order for liability to arise, the
plaintiff must prove that the defendant created the expectation of a contract, either intentionally or negligently.28 Judicial standard of assessment applicable to the conduct of a defendant in this case is
objective rather than subjective, meaning that whether justifiable expectations in certain conclusion of a contract have been reasonably awoken is to be decided based on the objective evaluation of the defendant’s conduct.29
25
BGHZ 29 March 1996 – V ZR 332/94, (translation by Raymond Young), available at:
http://www.utexas.edu/law/academics/centers/transnational/work_new/, [copyright holder] accessed on 25 April 2018.
26
Albeit in the cases of BGH 05 April 1971 – VII ZR 163/69 (Supra note at 25) and BGH 29 March 1996 – V ZR 332/94 the Bundesgerichtshof stated that the duty to reimburse reliance costs arises only upon intentional breach of the duty of
good faith. 27
Supra note at 21, 966, citing Basil S. Markesinis & Hannes Unberath, German Law of Torts: A Comparative Treatise 25 (4th ed, Hart Publishing, 2002) 100. Despite it has not been clearly defined what would constitute a “good reason” or “just cause”, Dietrich suggested that “good reason” may connect to a fact impeding the conclusion of an agreement laying in the plaintiff’s sphere (in Joachim Dietrich, Classifying Pre-contractual Liability: A Comparative Analysis [2001] Legal Studies 21 153, 179).
28
Ibid, Dietrich, 178. An exception is presented in BGH 22 February 1989, VIII – ZR 4/88 whereby the Bundesgerichtshof held that merely falsification of plaintiff’s expectations may also give rise to liability of the defendant who has withdrawn from negotiations without good case. Therefore, demonstrating any culpable creation of expectation was regarded to be unnecessary. However, the case has been treated as an exception rather than the rule in the German law on pre-contractual liability.
29 Ibid.
STANDARD OF COMPENSATION
Following the fundamental principles of culpa in contrahendo, doctrine contemporary legal practices allow for the recovery of reliance damages (Vertrauensschaden, or negative interest)30
serving the purpose of covering losses that the plaintiff sustained as a result of his reliance on the prospective contract. The Bundesgerichtshof has held that only reliance damages sustained after the moment when justified reliance had been awoken may be subject to compensation, rather than the total costs incurred from the moment of commencement of contract negotiations.31 Prior to the
emergence of justified reliance expenses incurred during contract negotiations are to be borne by negotiating parties: “the risk that later the contract does not materialize and the expenses thus prove useless falls to each negotiating partner. Even if the parties are already engaged in longer and more serious contract negotiations, each side can refrain from concluding the contract without having to pay damages for withdrawal from contract negotiations”.32 In addition, it has been added that only justifiable (vertretbar) expenses must be compensated.33
The court practice sets up definitive limitations on what an injured party may claim as a measure of recovery. Specific performance is not generally available as a remedy in the context of pre-contractual negotiations.34 With respect to the recovery of other missed options, Bundesgerichtshof
has ruled that “a claim based on culpa in contrahendo is limited to the so-called reliance interest (Vertrauensschaden); neither lost profit nor additional costs of the alleged purchases are covered by
30
For economic analysis of pre-contractual reliance decisions under different legal, see Lucian Bebchuk, Omri Ben-Shahar, Pre-contractual reliance [2001] HLS John M. Olin Center for Law 319.
31
BGH 22 February 1989, VIII – ZR 4/88, par. 16. 32
OLG Cologne Urt. 11 December 1998 – 19 U 40/98, citing ibid, 19. 33
BGH WM 1976, 923. 34
Rob Kottenhagen, From Freedom of Contract to Forcing parties into Agreement: The Consequences of Breaking Negotiations in Different Legal Systems [2006] 12 Ius Gentium 58, 77.
the reliance interest”.35 Thus, it may be inferred that the application for the recovery of expectation
interest (Erfüllungsinteresse, or positive interest) shall not be, under ordinary circumstances, granted by German courts.36 However, it may in principle be allowed if required in order to provide an
injured party with a fair and effective compensation.37 Nevertheless, it is necessary to note that such
cases are rather exceptions to the general approach taken by the court practice informed by the principal considerations of the culpa in contrahendo doctrine.
THE NETHERLANDS
Unlike in Germany, the Dutch legislator did not include any specific provisions in the Dutch Civil Code38 (extensively reformed in 1992) governing pre-contractual liability. As a result, a crucial role
in spelling out the core provisions on pre-contractual liability, including liability for breaking-off negotiations, has been accorded to the court practice.
In 1957 the Dutch Supreme Court (Hoge Raad) has pronounced that pre-contractual stage, as well as contractual performance, are governed by the principle of good faith (de goede trouw) which obliges each party to take legitimate interests of another party into account.39 A few years later the
35
Supra note at 20, 966, citing Landgericht Bielefeld, 12 December 2003 – 15 O 50/03. 36
Albeit in exceptional cases such as BGH, 04 July 1989 – VI ZR 217/88 (in Van Erp & Akkerman, Cases, materials and
text on Property Law (Ius Commune Casebook) (Hart Publishing 2012) 409) concerning holding an insurer liable for culpa in contrahendo by having failed to correctly inform an insured party regarding which countries were covered by his insurance policy. Another example is Oolitic stones (BGH, 25 November 1992 - VIII ZR 170/91) case whereby Bundesgerichtshof would award a positive interest (loss of profit) if a plaintiff established that, had the correct tendering procedure been followed, he would certainly been awarded the contract.
37
F. Kessler and E. Fine point out, expectation interest may in principle be recovered provided that the plaintiff is able to demonstrate that without culpa in contrahendo the contract would have certainly been concluded on the terms anticipated by the innocent party (Supra note at 15, 405).
38
Burgerlijk Wetboek, hereinafter referred to as BW. 39
Martijn W. Hesselink, Dutch case note, in Cour de Cass., 26.11.2003 – “Perte de Chance’ (Expectation interest) and Liability of a Third Person in Case of Breaking Off Negotiations, ERPL [2005] 3 443, 444, citing HR, 15 November
Court stated that the seller owes a similar duty of care to the buyer amounting to a disclosure obligation in the context of contract negotiations.40 The case touched upon the good faith principle
governing contract formation stage in the context of misrepresentation doctrine.41
The principle was subsequently codified in Art. 6:248 BW as the standard of reasonableness and fairness (redelijkheid en billijkheid): “a contract has not only the juridical effects agreed to by the parties, but also those which, according to the nature of the contract, result from the law, usage or the requirements of reasonableness and equity”. Crucially, it has been approved by the legislator42 that
the breach of reasonableness and fairness standard alone is able to constitute an autonomous ground for an obligation to come into existence and therefore fulfills the condition of Art. 6.1 BW (stipulating that “obligation can only arise if such results from the law”).43 In the light of the
reasonableness and fairness standard the withdrawing party should take into account the legitimate interests of the other party, as well as the latter is also expected to make regard of legitimate interest of the other to break off negotiations.44 Art. 6:220 (2) BW provides an offeree with the possibility to
obtain equitable compensation upon revocation of an offer granted if he has already begun preparation for a contract performance. One more suitable ground for granting damages in the course of the illicit breaking off (taking place during the third stage of negotiations, as shall be demonstrated
1957, NJ 1958, 67 (Baris/Riesenkamp). 40
Supra note at 34, 83, citing case of HR 21 January 1966, NJ 1966, 183 (Booy/Wisman). 41
Ibid. 42
Memorie van Antwoord, Parlementaire Geschiedenis, Boek 6 Invoeringswet 1439, in C. Bollen, Afbreken van Onderhandelingen: de Drie Mythes [2004] WPNR 6596 857.
43
Ibid, C. Bollen, 861. 44
Rieme-Jan Tjittes, De aansprakelijkheid voor afgebroken onderhandelingen – een kritish overzicht [ Rechtsgeleerd [2016] RMT 5 237, 238, citing HR 14 June 1996, NJ 1997 (Ruiterij/MBO-Ruiters), HR 12 August 2005, NJ 2005, 467 (JPO/CBB).
below) is an unlawful act (onrechtmatige daad), Art. 6:162 BW.45 Another ground for liability is
unjust enrichment (ongerechtvaardigde verrijking) in the sense of Art. 6:212 (1) BW, whereby “a person who has been unjustifiably enriched at the expense of another must, to the extent this is reasonable, make reparation for the damage suffered by that other person up to the amount of his enrichment”. C. Bollen has rightly observed an unjust enrichment to be particularly relevant in the cases when a withdrawing party has obtained on occasion of negotiations a particular data from the other party that may prove useful in the course of subsequent business activities.46 As in this case a
direct connection between enrichment of an unlawfully appropriating party and impoverishment of an injured party must be demonstrated, the chances to sustain a claim for lost profit (gederfde winst) or lost opportunities on the basis of ongerechtvaardigde verrijking appear to be strikingly small.47
Already prior to BW reform the matter of breaking-off negotiations was specifically elaborated upon by the Hoge Raad in a benchmark Plas/Valburg case.48 The Hoge Raad distinguished three
stages in the process of contract negotiations therein:
- At the first stage the parties are entirely free to break off contract negotiations;
- At the second stage breaking off of the negotiations is also considered to be legitimate. If withdrawal nevertheless occurs, an obligation arises to compensate the other party expenses incurred (negative interest, or negatief contractsbelang);49
45
Establishing the right to claim damages which has arisen as a consequence of an unlawful act, which includes the violation of a right, an act or omission violating a statutory duty or a rule of unwritten law pertaining to proper social conduct. For the critique of taking an unlawful act as a ground for responsibility, see Ibid, 861-862.
46 Supra note at 42, 863. 47 Ibid. 48 HR, 18 June 1982, NJ 1983, 723. 49
- On the contrary, the contracting parties are no longer free to withdraw from contract negotiations during the third stage. It commences at the moment when a contracting party was induced to believe that a final agreement shall come into existence. When exactly the moment of justified reliance (gerechtvaardigd vertrouwen) occurs (if at all) is to be determined from the strictly factual perspective, on the basis of all circumstances surrounding the conclusion of an agreement rather than submission of an injured party pointing on the fact of subjective reliance.50 Upon withdrawal from contract negotiations during the third stage a
party is liable in damages amounting to a positive interest (positief contractsbelang).51
In the subsequent calendar year the Hoge Raad stated that when a party is unwilling to continue contract negotiations, he can nevertheless be ordered to resume the negotiations process.52 Therefore,
it allowed for specific performance as a remedial instrument to withdrawal from the conclusion of a contract, an unprecedented case in the field of liability for breaking-off negotiations.
The decision of the Hoge Raad in Plas/Valburg has been subject of extensive critique coming from the national and international legal scholars in the light of the fact that it set up the standard of compensation substantially deviating, at least prima facie, from corresponding compensation standards of other legal systems. For instance, in foreign legal systems it has been widely accepted that it would be fair enough if a contracting party were to be brought into position it would have been into had disheartening negotiations never begun.53 Furthermore, the Plas/Valburg dictum has been
perceived to contradict the freedom of contract principle, because the possibility to recover a positive interest at the third stage of contract negotiations in effect elevates a contract formation phase to the phase of contract performance and thereby compels the contracting parties to enter into an
50
Marcel Ruygvoorn, Afbreking van Onderhandelingen en de Juridische Kwalificatie van Voorbehouden [2010] TB 58. 51
Supra note at 49, Van Erp & Akkerman, 405.
52
Supra note at 34, 84, citing HR, 11 March 1983, NJ 1983, 585. 53
Martijn W Hesselink, De Schadevergoedingsplicht bij afgebroken onderhandelingen in het licht van het Europese privaatrecht [1996] WPNR 6249 906, 908.
agreement.54 In essence, the Dutch doctrine seems to replace the moment when a binding effect of an inter parte agreement emerges, from the moment when a contracting party might rely that an agreement was concluded (under Art. 3:35 BW)55 to the moment when a contracting party might
justifiably rely that an agreement would be concluded.56 Thereupon, such approach is deemed to
create a fictitious presumption that during the third stage of negotiations an agreement has already been entered into and thus “prematurely” offers contracting parties the level of compensation pertinent to the stage of contractual performance.
On the other hand, it has been argued that it is not particularly decisive if justified reliance comes into existence at some point of contract negotiations, but rather whether such reliance exists at the moment of withdrawal. Moreover, contracting parties in the course of the consecutive contract negotiations may reach the conclusion that “meeting of minds” shall never occur, which, in turn, brings about the extinction of justified reliance on the conclusion of a contract, as well as the obligation to compensate the losses sustained.57 In regard to the argument that the rule artificially
accelerates the emergence of a binding effect of an agreement, the existence of justified reliance on the conclusion of a contract is not in itself enough to conclude that it is not possible any more for a contracting party to withdraw from contract negotiations; it is also necessary to take into account the manner whereby a withdrawing party has contributed to emergence thereof, as well as his legitimate interests, as has been stressed by the Hoge Raad in Ruiterij/MBO-Ruiters case.58 It may also be
relevant to consider that contract negotiations may protract for so long after the moment when 54
Ibid. 55
Art. 3:35 BW reads as follows: “the absence of intention in a declaration cannot be invoked against a person who has interpreted another's declaration or conduct, in conformity with the sense which he could reasonably attribute to it in the circumstances, as a declaration of a particular tenor made to him by that other person”.
56
Supra note at 53. 57
Supra note at 42, 863, referring HR 04 October 1996, NJ 1997, 65 (ABB/De Staat). 58
justified reliance had been awoken that certain external circumstances may alter.59 Furthermore, in
deciding if withdrawal was legitimate, a court is likely to consider whether essential and material terms of the agreement have been agreed upon.60 Thus, in the light of the above the critique of the
Dutch judicial approach as striving to offer advantages of the contract performance stage while still dealing with contract formation and thereby running counter to the freedom of contract principle seems not to be sustainable.
STANDARD OF COMPENSATION
It is also necessary to accentuate the particularities of compensation pertinent to the Dutch legal tradition that an injured party may claim in case of breaking-off negotiations. Dutch case law extends the scope of negatief contractsbelang not solely to the expenses incurred by the other contracting party as a result of justified reliance, but also to lost opportunities. Lost opportunities encompass the profit which an injured party may have gained from other contracts had those contracts been pursued.61 As to the expenses incurred by the injured party, van den Berg proposed to make a
distinction between the costs reasonably incurred during the preparation of price offer and costs incurred in the preparation for a contract performance: the first category of costs should be covered by normal entrepreneurial risk and thus falls on the account of the negotiating party, whereas the latter costs should in principle be covered by negatief contractsbelang.62 However, the Hoge Raad
has neither given a clear cut categorization of such costs, nor spelt out any criteria serving to determine whether the costs pledged by an injured party fall under that category. Overall, in the case 59
Supra note at 39, 445. 60
For instance, in Shell Nederland case (HR 29 February 2008, NJ 2008, 6869) the Hoge Raad decided that the parties could break off negotiations because contract price as an essential term was not agreed. Mathias Cheung, Ethics in the Tender Process: Implied Duty of Good Faith and Remedies for Breach [2017] ICLR 34, 242, 250. On this account C. Bollen noted that weighting whether essential terms of the agreement has been decided upon might serve as a yardstick for finding if justified reliance has been awoken supra note at 41).
61
Supra note at 42, 862. 62
Matheus van den Berg, Plas-Valburg in de Toekomende Tijd, in B. W. M. Niekens – Isphording et al. (red.), In het nu, wat worden zal (Schoordijk – bundel) (Deventer, 1991) 18-19.
of withdrawal from contract negotiations during the second stage, the scope of the compensation of negatief contractsbelang varies from reimbursement of all costs incurred during the contract formation to compensation of only a few points of incurred expenses.63 On this account M.R.
Ruygvoorn argues that contract negotiations, along with entrepreneurship per se, are by their nature risk-inducing activities and thus the costs of organization thereof should not be repayable, except when damages upon withdrawal have been inflicted intentionally.64
As to positief contractsbelang, it implies the right of an injured party to be brought into position which would have existed had the agreement been concluded65 and includes costs such as lost profit.
It is crucial to note that the granting of positief contractsbelang and negatief contractsbelang are, in principle, mutually exclusive.66 Despite the Dutch legal system is widely known for allowing positief contractsbelang on the basis of Plas/Valburg case, in practice it seldom happens. As an illustrative example, even in the case when positief contractsbelang has been granted, the Hoge Raad stressed that “it is rather a rare event when compensation of positief contractsbelang is awarded, but positief contractsbelang in the current case does not differ from ‘lost opportunities’ as a part of negatief contractsbelang”.67 To that effect C. Bollen argues that Plas/Valburg, in the light of the subsequent
63
Marcel Ruygvoorn, Bestaat de ‘tweede fase’ uit Plas/Valburg nog? [2011] Contracteren 2 39, 48. For instance, in Planoform/ABN AMRO case (HR 15 December 2006, RvdW 2007, 05) the Hoge Raad set up the scope of the negative interest as encompassing all costs (costs of preparation, development, investment and project management) incurred for project preparation. On the other hand, in Rechtbank Haarlem 14 May 2008, NJF 2008, 263 the Court stated that a negative interest comprises the costs “really and reasonable made”. Furthermore, the Rechtbank Almelo the year before ruled that the principle should be that the costs incurred during the pre-contractual phase should lay on the negotiating party (Rechtbank Almelo, 31 January 2007, LJN BB4068).
64
Ibid, 48-49. He noted “after all, they choose to start negotiations requiring certain level of investment to be made” and “in my opinion, in commercial negotiations the following starting point should be valid: “You win some, you lose some’”. 65 Supra note at 43, 241. 66 Ibid, 242. 67
case law clarifying the matter, should be understood as allocating two separate stages in the negotiation process: the first stage permits legitimate withdrawal from negotiations, with the possibility to claim in special cases full or partial reimbursement of the expenses incurred, whereas the second stage encompasses illegitimate breach of de goede trouw obliging the contracting party to offset the negatief contractsbelang, and in only exceptional cases – positief contractsbelang.68
Therefore, on the basis of subsequent case law the critique of the Dutch system allowing for enormously high level of an injured party protection is by and large mitigated.
CHAPTER 2
PROTECTION OF TRADE SECRETS IN GERMANY AND THE NETHERLANDS: STATUTORY SAFEGUARDS
GERMANY
German legislators have not (yet) provided market participants with a single statutory instrument designated to set up a comprehensive framework enforcing uniform trade secrets protection. Prior to the planned adoption of the Trade Secrets Act (Gesetzes zum Schu tz von
68
Geschäftsgeheimnissen, GeschGehG ),69 stakeholders have been forced to inquire protection of
mandatory rules scattered around miscellaneous legal acts.
The most important provisions crucial to of our consideration include the following statutory instruments piercing simultaneously public and private law dimensions.70 At the core of
protection of the trade secrets not covered by IPRs lays the Act Against Unfair Competition (Gesetz gegen den unlauteren Wettbewerb, UWG) safeguarding consumers, competitors, and other market participants against unfair commercial practices (§1 UWG). § 17 UWG established criminal liability amounting to imprisonment or pecuniary damages for (attempt of) unauthorized disclosure of trade and industrial secrets by a person being in employment relations with a business (par. 1), as well as by external competitors (par. 2) for the personal gain or for the benefit of a third party, or with an intent of causing damage to the owner of the business. Furthermore, §18 provides for criminal liability upon unauthorized use by a person of models or instructions of technical nature entrusted to him for the purposes of competition or for personal gain. Peculiarly, §19 criminalizes even incitement to illegal acts prohibited by § 17 and § 18 UWG. In order to bring a claim for pecuniary damages under German law, § 17 or § 18 UWG must be invoked in conjunction with § 823 (par. 2) BGB (tortious liability in damages) or §3 (prohibition of unfair competition practices), §4 (protection of competitors), §8 (elimination, injunctive relief), §9 (compensation for damages) UWG.71
Other statutory provisions of the outmost importance for our legal research are § 311(2) BGB together with § 241(2) BGB (see Ch.1, section A) indirectly prohibiting negotiating parties from making unauthorized use of the business partner’s trade secrets, including disclosure thereof to third 69
A legislation which is drafted in order to implement provisions of EUTS (Supra note at 1). Art. 19(1) of the Directive requires Member States to bring into force the laws, regulations and administrative provisions necessary to comply with EUTS by 09 June 2018. However, due to the inherent complexity of legislative procedure in Germany it seems problematic that the aforementioned deadline shall be met.
70
The list presented, however, is not exhaustive, as a public law dimension of the matter is largely omitted, save the rules on criminal liability contained in UWG.
71
Thomas Hoeren, The Protection of Trade Secrets and Know-How in Germany (German Report) [2015] Quest. for NR of LIDC STOCKHOLM 9.
parties. Under § 280(1) such party may be liable in damages. As shall be seen in the subsequent section, the aforementioned legal provisions setting up liability for culpa in contrahendo are often invoked in conjunction with § 823 (par. 2) BGB instituting tortious liability for breach of statutory provisions.72
The definition of a “trade secret” (Geschäftsgeheimnisse) in Germany, absent statutory one, has been developed by court practice. It defines a trade secret as a fact that: a) relates to a certain business concern; b) is known only to a limited group of persons; c) has to be kept secret (thus not be publicly available) according to the explicit or implied will of the proprietor; d) is kept secret by a legitimate interest of a proprietor that may regard such fact as being capable of improving the market position of his business competitors or weaken his own.73 In regard to secrecy requirement, Amtsgericht Koblenz, while deciding whether customer lists are to be treated as trade secrets, stressed that “a trade secret exists as long as its object is not obvious, as what in its concrete manifestation can be experienced by any interested party without great difficulty and effort is not a secret”.74
Under the German law, a broad variety of information is encompassed by the definition of a “trade secret”, including technical know-how, commercial data and other business information.75 It is
possible to infer from the explicit wording of § 17 UWG that German law makes a distinction among business secrets, composing facts related to commercial side of the company, and industrial secrets, comprising technical methods of production or provision of services (technical processes and
72
Andreas Splittgerber, Sebastian Rockstroh, ‘Protecting Trade Secrets in Germany’ (Trade Secrets Watch, 08 August 2013), available at: https://blogs.orrick.com/trade-secrets-watch/trade-secrets-laws/protecting-trade-secrets-in-germany/ > accessed on 12 May 2018.
73
Supra note at 74, 5, referring to the decisions of BVerfG of 14 March 2006, 1 BvR 2087/03 & 1 BvR 2087/03. 74
AG Koblenz, 06 September 2011 – 2050 Js 56362/08.26. 75
Dirk Jestaedt, Jochen Buehling, ‘Trade Secrets in Germany’ (July/August 2010) IAM< http://www.iam-media.com/Magazine/Issue/42/Management-report/Trade-secrets-in-Germany> accessed on 12 May 2018.
production methods, computer programs, formulas etc).76 However, such distinction is rather a
tribute to the historical development of competition law in Germany and in practice barely has any legal consequences.77
Interestingly, the definition outlined above does not explicitly require a proprietor of such information to take reasonable steps under the circumstances of the case to keep it secret, contrary to the requirement of Art. 2 (c) EUTSD.78 Moreover, the German court practice considers an intention
to keep the information secret to be implied in respect to the internal information of the company not broadly available to general public.79 In contrast, the EUTSD definition of a trade secret does not
refer to the subjective volition of a proprietor to keep a certain fact secret,80 but rather lists objective
criteria identifying certain commercial fact as a trade secret.
NETHERLANDS
Unlike in Germany, the Dutch legal system neither on the statutory level, neither by means of judicial interpretation has established a comprehensive definition of a trade secret. In addition, there has been no regulatory act aiming exclusively at securing a lawful possession of trade secrets (bedrijfsgeheimen). However, it should be noted that at this moment, the Netherlands, similar to
76
Supra note at 74, 7. 77
Björn Kalbfus, Die EU-Richtlinie für den Schutz von Geschäftsgeheimnissen und inhre Umsetzung – unter besonderer Berücksichtigung der Produzentenhatfung [2018] WRP 2 150.
78
For concrete recommendations on how to satisfy this requirement in practice, see P. Koch and L-C. Willems, ‘Draft Trade Secrets Laws Leaked in Germany’ (Out-Law.com, 25 April 2018), available at:< https://www.out-law.com/en/articles/2018/april/draft-trade-secrets-laws-leaked-germany/ > accessed on 13 May 2018.
79
Köhler/Bornkamm, Kommentar UWG (33rf edition, 2015), § 17 UWG, mn 10. 80
Germany, is in the arduous process of adopting the Trade Secrets Protection Act (Wet Bescherming Bedrijfsgeheimen, WBB) implementing EUTSD. The latest version of WBB contains the following definition of trade secret: “information which meets all of the following requirements: (a) it is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; (b) it has practical value because it is secret; (c) it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret”.81 Ostensibly, the definition proposed perfectly mirrors up the one contained in Art.
2(c) EUTSD, which in turn objectifies the EU MS commitment under Art. 39 (2) TRIPs Agreement. Nevertheless, as WBB has not been enacted yet, the other statutory acts containing references to the information which would reasonably qualified as a trade secret, are to be considered. Due to the fact that the object of our legal research lays in the area of private law, criminal and labor law provisions shall be omitted. In order to vividly illustrate the modern ‘state of art’ of Dutch law it is important to note that the legal provisions explicitly mentioning trade secret protection relate primarily to anti-competitive actions of (former) employees and do not extend to an outsider party.82 Nevertheless, in
order to hold an outsider party liable for misappropriation of trade secrets Art. 6:162 BW may be invoked, a generic tort law clause establishing liability in damages for an unlawful act attributed to a tortfeasor. The legal provision was expanded by the Hoge Raad ruling in 1919 stipulating that obtaining information by improper means, in case of bribery of another’s employee, constitutes an act of unlawful competition and consequently the act of tort.83 Subsequently, Gerechtshof Den Haag
ruled that the essence of Art. 39 TRIPs Agreement is incorporated in the Art. 6:162 BW, thereby officially extending the scope of protection of legitimate interests safeguarded thereby to the international law instrument.84
81
Regels ter Uitvoering van Richtlijn 2016/943/EU, Art. 1. 82
Willem van Dijk et al, Protection of Trade Secrets Through IPR and Unfair Competition Law (Netherlands) (2010) AIPPI Q215.).
83
Ibid, citing HR 31 January 1919, NJ 1919/161 (Lindenbaum/Cohen). 84
Evidently, Dutch law does not possess legal instruments specifically tailored to the protection of trade secrets. It merely contains a series of scattered private and public law provisions subject to expansive judicial interpretation. Nevertheless, in the draft WBB it has been proposed to include new provisions in the Civil Code setting up tailored measures of trade secrets protection in litigation proceedings, in particular those ensuring safeguarding of confidentiality of the latter.85
CHAPTER 3
REMEDIES GRANTED BY NATIONAL COURTS UPON MISAPPROPRIATION OF TRADE SECRETS AFTER BREAKING-OFF NEGOTIATIONS
GERMANY
Submission for damages, in cases of any financial loss incurred in general, as well as for Veruntreuung von Geschäftsgeheimnissen in particular, is the primary remedial measure safeguarding legitimate interests of the business. Granting of damages under German private law has explicitly restitutionary nature: § 249 (1) BGB states that a person liable in damages must restore the position that would exist had the circumstances obliging him to pay damages not occurred. In addition, an injured party may also rely on compensation of lost profits guaranteed by § 252 BGB, on condition that in the normal course of events or in the special circumstances such profits would have been obtained. Furthermore, § 253 (1) BGB accords compensation for non-pecuniary loss, provided that such compensation is statutorily guaranteed.
In contrast to rather succinct statutory references to generic notions of trade secrets, the court practice followed by the miscellaneous doctrinal research on the subject have elaborated a thick body of legal principles supplementing the statutory law. Before turning to consideration of concrete cases spilling over the legal remedies granted by German courts to an injured party in the event of misappropriation, it is substantial to point out that the court practice requires proof of different
Ibid, citing Gerechtshof 's-Gravenhage 29 March 2011 (Ajinomoto). See also Cavotec, Ch. 3 (B). 85
factual elements depending upon the nature of legal relationships between the disputing parties (a former employee, a contractor, a state official etc.) and the exact object of misappropriation in consideration. Specifically, in regard to the categories of facts capable of being recognized as trade secrets, the local courts oftentimes tend to adopt a flexible approach in regard to the legal qualification of a certain fact as a trade secret in accordance with the criteria outlined in Ch. 2 (A). In early Petromax II86 case a claim has arisen for the use of technical drawings entrusted to a
contracting party in the course of fabrication tools supply. An injured party brought a claim under §1, 18 UWG in conjunction with §826 BGB (immoral intentional damage) and § 823 (1,2) BGB insisting that the other counterparty, in breach of a relationship of trust developed over preceding business negotiations between the parties, has intentionally used the drawings supplied in the course of negotiations in order to execute a one-off order from a direct competitor of the claimant located in India. Whereas the appeal court framed the concept of trust under § 18 UWG as including a recognizable will of trade secret possessor to preserve the secrecy of the entrusted object (which has naturally ceased upon the drawings transfer), the BGH recognized that it is sufficient for the tacit will of the transferor to bind the contractor in regard to the use of the object transferred.87 By
referring to the sense of propriety of the average professional and general public as a yardstick for assessment of anti-competitive conduct, the Court recognized the general duty of loyalty of a contractor prior to entering into the tools supply agreement,88 not dependent on personal relationship
between the parties, to execute the use of the supplied technical drawings.
In regard to the generic methods of damage calculation upon misappropriation of trade secrets (albeit not focusing on specific case of misappropriation following the breach of negotiations, but extending to all cases of the respective category), stands out the landmark case of Process
86
BGH 10.07.1963 - I ZR 21/62 “Petromax II”. 87
Interestingly, in the previous case of Petromax I (BGH 07.01.1958 - I ZR 73/57), the trust developed in proceeds of contract negotiations would nevertheless entangle keeping secrecy of technical drawings.
88
Computer.89 Claimant, a company engaged in manufacturing and development of data processing
equipment, brought a claim for damages against its direct competitor (its former shareholder) alleging the unauthorized use by the three employees of the latter90 of his processing equipment in
order to design a commercially attractive model of the computer identical to the one of the claimant. Moreover, he requested disclosure of information on the commercial use of technical knowledge and documents of the defendant’s computer. The Court found that anti-competitive actions of the defendant entail criminal liability under § 17(2) and § 19 (UWG), as well as tortious liability for intentional breach under § 826 BGB. Furthermore, it stressed that “trade secrets often provide an entrepreneur with a legal position that is particularly close to intellectual property law, since it is not always easy to draw the boundaries between an invention and non-inventive achievement”,91
entailing the possibility of utilizing for trade secrets damages assessment methods relevant for IPRs (see below).
In the same case it has been recognized that the injured party is not dependent on precise
determination of the exact loss suffered, including lost profits. Essentially, BGH allowed the claimant either to require reimbursement of the profit he would have made by marketing the design himself, or claim the monetary sum he would have obtained in the case of lawful conclusion of license agreement with an appropriator92, or the profits attained by the latter as a result of unlawful
marketing of the design.93,94 It may be inferred that the choice of calculation method shall largely be
89
BGH 18.02.1977 - I ZR 112/75 “Process Computer”. 90
Previously been employed by the claimant. 91
Supra note at 86, 31. 92
In the latter case of BGH 17.06.1992 – I ZR 107/90 “Tchibo/Rollex II”, BGH stressed that by means of license analogy calculation, the fictitious licensor cannot take into account the change of contractual risk to the detriment of the fictitious licensee, after the date of the conclusion of fictitious license agreement.
93
Martijn W Hesselink et al, Pre-contractual Liability in European Private Law (CUP, 2008) 346. 94
dependent on the particular circumstances surrounding the misappropriation and convenience to the sufferer of substantiating the facts related thereto. For instance, in the preceding case on unlawful imitation of wall sockets, license analogy method has been chosen to apply, as the product being subject of unlawful imitation was bearing IPRs exploited in favor of the appropriator.95 For a trade
secret, however, it is insignificant whether the claimant would have indeed been granted a license.96
In order to calculate a royalty, it is necessary to appraise what would have been demanded by a reasonable parties to license agreement upon artistic and economic importance of trade secret, along with the scope of the legal use of a license (duration, location, type and intensity).97As to the loss of
profit calculation method, the case law indicates that it has not gained a substantial popularity in practice owing to the arduousness of proof, despite the “relief” approach indicated below.98
Similar to the standard of factual proof demanded to establish existence of a trade secret, the level of certainty regarding the damage suffered by the claimant is also somewhat flexible. The reason for the relatively flexible standard of proof (has not been departed from since the Process Computer, as case law demonstrates) is the practical difficulty of safeguarding the trade secret, coupled with the difficulty of proof of the lost profit, as hypothetical risks related thereto cannot easily be reconstructed.99 Furthermore, in Tchibo/Rollex II, BGH, on the basis of “natural evidence difficulties
in competition law”, instructed German courts to the make ex officio estimation (if any) of minimum Admittedly, upon misappropriation of trade secret acquired in violation of § 17 UWG, the entire infringer’s profit is to be surrendered, unless absence of causal connection between market success of the defendant and misappropriation has been proven (see BGH 19.03.2008 – I ZR 225/06). For the unlawful imitation, however, the profit encompasses the benefit derived specifically from marketing of counterfeit products.
95
BGH 08.10.1971 – I ZR 12/70 “Wall socket II”. 96
Münchener Kommentar zum Lauterkeitsrecht (UWG), sec. 279 (citing BGH 23.06.2006 – I ZR 263/02 “Catwalk”). 97
BGH 22.03.1990 – I ZR 59/88 “License analogy”, para. 12, 18. 98
Ibid, sec. 277. 99
retribution possible if the claimant had doubtlessly been harmed, but no indications of approximate amount of damages have been provided.100
It is crucial to mention that in Process Computer the Court emphasized the possibility of using license-based calculation method irrespective of the legal basis for liability (whether it has been applied for claim in tort, culpa in contrahendo or contractual liability), as it is utilized as a mere supplement to the general right to damages (§§ 249, 252 BGB).101 Following the Court’s reasoning, it
seems likely that this principle would apply to the other two calculation methods introduced above. In the latter Blackberry Pattern102 case, a claimant, a graphic artist designer, after exchanging his
design pattern in the course of contract negotiations, brought a claim against multiple unauthorized use in different forms of his design samples by the former negotiation partner and his sub-contractor reproducing the samples. In particular, the graphic artist requested to order an injunctive relief prohibiting another party to reproduce and distribute design pattern, followed by a claim for reimbursement of the full damage suffered and providing information on the precise extent of the acts of infringement (including delivery quantities, delivery times, places of delivery, prices and customers) under §242 BGB. In regard to the question whether the blackberry pattern design not protected by IPRs qualifies for judicial protection, the Court stated that a competitive performance protection can only be granted in the case of merit worthy of performance having certain competitive nature. As a result, the blackberry pattern samples submitted were recognized to be an aesthetically pleasing and technically successful achievement. BGH concluded that the replication and exploitation of a substance sample, in which no special protection rights exist, must be ordinarily assessed as anti-competitive and as such able to endanger legitimate commercial interest of the claimant if the pattern is entrusted to the misappropriator in the course of contract negotiations and subsequently exploited by the latter without authorization of the legitimate possessor. The action for
100
Henning Harte-Bavendamm & Frauke Henning-Bodewig, Gesetz gegen den unlauteren Wettbewerb (UWG) (4th edn, Verlag C.H. Beck München 2016), sec. 63.
101 Ibid, 33. 102
injunctive relief succeeded in full, whereas the request for information was not fully satisfied (regarding information on places of delivery and customers), as such elements appeared to be redundant. Thus, due to the necessity for a claimant to appraise the exact amount of damage suffered in the light of the information provided, award of damages was postponed.
Another case involved a company incorporated in the UK (the claimant)103 which engaged in
distribution, through subsidiaries or licensees, of concrete block elements.104 In the proceeds of 1983
trade fair in Paris the claimant conducted business negotiations (not leading to any positive result) for the conclusion of a license agreement with a concrete factory. Subsequently the claimant revealed the consistent use by the defendant of the production methods, product design and advertising which were supposedly emulated from his own production methods. However, the defendant denied anti-competitive behavior stating that the he has previously marketed similar concrete blocks having been developed by his own efforts. Despite the district court and the Court of Appeal granted the claim, the decision of the inferior courts has been set aside due to the fact that BGH found a procedural error constituted by the fact that the Court of Appeal had not given an explanation in regard to which particular features of the marketed product make it a unique industrial design capable of being transferred to a licensee under a license agreement, as compared to analogous products circulating on the German and English market.
All in all, an injured party in Germany may bring a claim for damages and (or) injunctive relief
aiming at cessation of unlawful exploitation of secret information. In order to determine the amount of damages, which may be potentially granted under the German law, account must be taken of all circumstances surrounding the case of misappropriation. This may include negative economic consequences, such as the claimant’s loss of profit, any unlawful profit procured by the defendant, as well as other economic factors such the possible moral damage (damage to business reputation) of an injured party.105 In other cases, however, the calculation of pecuniary damages may be based on lump
103
Despite being a resident of the UK, the claimant enjoyed supplementary competition protection under § 1 UWG and Art. 1(2) and Art. 2(1) of the Paris Convention for the Protection of Industrial Property.
104
BGH 21.03.1991 – I ZR 158/89 “Betonsteinelemente”.
sum that could have been paid by the appropriator under the fictitious license agreement.106
Furthermore, in order to fix the amount of damages suffered, §242 BGH allows a sufferer to demand information about modality, time and circumference of misappropriation.107
NETHERLANDS
In accordance with Art. 6:95 BW, the Dutch civil law provides for the right of reparation of the damage sustained which consists of patrimonial damage and other harm, the latter to the extent that the law grants a right to reparation thereof. Furthermore, Art. 6:96 BW clarifies that patrimonial damage consists of the (financial) loss sustained by the creditor and the lost profit; it may also include reasonable costs incurred to mitigate damage resulting from unlawful event, to assess the losses incurred, or obtain extrajudicial payment. In assessing the exact monetary amount an injured party may be entitled to, the court shall take into account the nature of damages (Art. 6:97 BW), as well as all circumstances of the case, and tries largely to restore the status quo ante of an injured party.108 Admittedly, due to the fact that the abovementioned civil law provisions are in essence
tantamount to substantial requirements of Art. 14 EUTSD, no implementation of provision on damages has been proposed (see footnote at 81). In addition, an injured party has an option to bring a claim (in the course of preliminary proceedings or proceedings on the merits) for injunctive relief prohibiting unauthorized use or disclosure of trade secrets.109
Similar to the previous section, we shall now look at the treatment of trade secrets reflected in case law. In Cavotec,110 the company engaged in production of airplane wells applied for injunctive relief
Supra note at 87, 63b. 106
Ibid. Peculiarly, German damage calculation methods have been completely reverberated in EUTSD. 107 Ibid, mn 64. 108 Ibid. 109 Supra at 85, 4. 110
