Strengthened protection for trade secrets

Since the entry into force of the Act for the Protection of Trade Secrets almost 20 years ago, the conditions for running businesses have changed in many ways. While today many companies are more dependent on information and knowledge than on industrial production, modern techniques have made it easier to store and transfer information. Hence, trade secrets are in the risk zone. Because of these circumstances, as well as a number of international commitments made by Sweden concerning the protection of business secrets, the government appointed an inquiry to review certain issues regarding the protection of trade secrets and to consider whether the act should be amended to fulfil the needs of modern businesses more effectively. The inquiry delivered its report on 9th June 2008 and this article looks at the amended suggestions therein.

The inquiry’s suggestions
One of the inquiry’s most important findings was that the current criminal liability rules of the act are deficient; this was also clear from the heavily discussed Ericsson Case which was handed down five years ago. This case involved, among other things, an employee who had access to trade secrets in the course of his work and disclosed them to another person, who further disclosed them to Russian intelligence agents. The prosecution of the employee for grave corporate espionage was rejected, while the person who provided the details to the agents was sentenced to eight years in prison for grave espionage. One judge wrote to the Department of Justice to complain that it had been impossible to charge the employee under the act and that the act needed to be amended in order to cover this gap in the law.

The inquiry proposed to extend criminal liability to cover a person who has gained access to a business operation’s trade secrets as a result of having participated in the business as part of an employment contract or an assignment. In addition to the business operator’s employees, employees from employment agencies, certain consultants, directors and auditors would be covered by the proposed provision. According to the inquiry’s proposal, such individuals could be punished if they unlawfully disclose or unlawfully use in a business operation a business secret to which they have gained access as a result of participating in the business. Attempts to commit such acts and preparations made towards the commission of such acts will also be punishable.

The penalty for unlawful disclosure and unlawful use of a trade secret would be a pecuniary fine or imprisonment up to a maximum of two years, whereas serious offences would be punished by imprisonment for between six months and six years.

In addition, the inquiry proposed that under the new penal provision it should also be possible to sentence those who acquire a trade secret from someone who commits an offence for the unlawful handling of a trade secret.

The inquiry also proposed that the current provision on damages be amended to cover anyone who commits an offence under the new penal provision. A person covered by the provision should be liable to pay damages for negligent acts only if the conduct took place during the course of employment.

Finally, in order to enhance the collection of evidence, the introduction of a new security measure was proposed: in case of suspicion that a trade secret has been compromised, the victim should be able to obtain a court decision that allows for the suspect’s house to be searched.

If implemented, the inquiry’s proposals would introduce a number of efficient remedies for modern businesses to protect their trade secrets more effectively, thus fixing the previously unsatisfactory protection. The report is currently under review and a bill is expected by Summer 2009.

This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight

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