In an appeal proceeding, the Düsseldorf Regional Labor Court addressed the question of what information can constitute trade secrets and how these trade secrets can be adequately protected (or not) within the meaning of Section 1 lit. b) of the Trade Secrets Protection Act (GeschGehG).
What was the issue?
The defendant was an external sales representative for the plaintiff. The employment contract contained provisions regarding confidentiality obligations. According to these, the defendant was to keep confidential all matters and processes that had become known to him or would become known in the course of his activities, as well as other factual and personal circumstances within the company that did not constitute formal business or trade secrets. Finally, the defendant was required to return all official documents (e.g., records, meeting notes) to the plaintiff upon request at any time, and no later than on the last day of employment.
After the termination of the employment relationship, the defendant entered into an employment contract with one of the plaintiff's clients for the role of product manager.
Issue of Customer Lists
A dispute arose between the plaintiff and the defendant concerning whether, and to what extent, the defendant utilized the plaintiff's customer lists, including acquired product quantities and prices paid, as well as the defendant's personal notes for targeted customer outreach within his new employment relationship.
After the Düsseldorf Labor Court rejected an urgent application by the plaintiff, the Düsseldorf Regional Labor Court, upon the plaintiff's appeal, prohibited the defendant in commercial dealings from exploiting, or having exploited, and/or using, or having used, privately made notes concerning customers, contact persons, their contact information, and/or sales for competitive purposes.
In addition to various procedural issues that led to the partial rejection of the appeal, the Düsseldorf Regional Labor Court addressed the following points:
Can customer lists and personal records constitute trade secrets?
According to Section 1 lit. b) of the German Trade Secrets Act (GeschGehG), a trade secret is information that is neither generally known nor readily accessible, either in its entirety or in the precise arrangement and composition of its components, to persons in circles that typically deal with this type of information, and therefore possesses economic value.
If customer lists contain data of clients with whom a business relationship already exists and who are therefore potential future purchasers of the offered products, they generally represent significant value for the company concerned, and their confidentiality is usually highly valued by the business owner. A trade secret does not need to possess a specific asset value; it is sufficient that its disclosure could have a detrimental effect if competitors gain knowledge of the data. In the present case, these conditions were met for the plaintiff's list and the personal records.
However, the Düsseldorf Regional Labor Court emphasized, with regard to customer lists, that they would not constitute a trade secret if they were merely an address list that could be compiled at any time from publicly accessible sources without significant effort.
When Do Information Qualify as Trade Secrets?
In the opinion of the Düsseldorf Regional Labor Court, the plaintiff did not adequately protect the confidentiality of his own list. However, not optimal but only adequate protection is required. Contractual confidentiality clauses in employment agreements can serve as a possible protective measure. The Düsseldorf Regional Labor Court deemed the existing confidentiality clause insufficient. It lacked any reference to the concept of a trade secret within the meaning of the GeschGehG. It referred to all matters and processes that became known to the defendant during the course of his activities. Furthermore, the provision was too broad, as it explicitly covered even information that did not constitute a trade secret.
What Constitutes Adequate Confidentiality Measures?
The plaintiff could potentially have safeguarded his interest in confidentiality by demanding the return of his list from the defendant. However, the plaintiff failed to do so. By this omission, the plaintiff did not document a genuine interest in confidentiality and consequently failed to implement adequate protective measures.
For the defendant's personal records, the contractual obligation to return them would have generally sufficed as an adequate protective measure. However, the plaintiff was unaware of the defendant's personal records until the proceedings before the Labor Court. Therefore, no further protective measures exceeding the contractual return obligation could be demanded from him. The plaintiff was not legally obliged to proactively request a complete inventory of the returned documents without any indications.
The Düsseldorf Regional Labor Court determined that the defendant was contractually obliged to return personal records under the employment agreement. Furthermore, the defendant no longer had any interest in his personal records. For this reason, the defendant violated the prohibition of action stipulated in Section 4 of the GeschGehG.
What Must Businesses Do to Adequately Protect Their Trade Secrets?
In short: You must absolutely implement adequate protective measures!
Active Protection
1. Firstly, you must recognize the particular significance of the characteristic of adequate protective measures: Through this characteristic, the law indicates that only those who actively protect confidential information enjoy legal protection. Anyone who makes no efforts to protect information or merely relies on confidential information not being discovered and remaining hidden receives no legal protection!
The more valuable the information, the stronger the protection must be.
2. The adequacy of a protective measure heavily depends on the individual case and the following factors:
– Value of the trade secret and its development costs
– Nature of the information
– Significance for the company
– Size of the company
– Customary confidentiality measures within the company
– Type of information marking
– Agreed arrangements with employees and business partners
It can certainly be stated that the more valuable the information, the more robust the protective measures must be. The case scenarios are numerous and correspondingly complex. It is advisable to seek legal counsel for protective measures at an early stage.
What Must Be Regulated in the Employment Agreement?
3. With regard to employment contract regulations, the Düsseldorf State Labor Court provides at least a restricted 'guidance'.
Precisely define the secrets
Generalities, as in the present case, are by no means sufficient. Depending on the employee's area of deployment, the confidentiality clause must describe as concretely as possible what constitutes a trade secret. Regarding customer lists, it would certainly be necessary to specify that these contain not only names and addresses but also types and quantities of products sold, as well as prices and similar information. For software products, for example, the relevant products should be described by name and a keyword-like function.
In any case, you must avoid diluting specific protective measures by attempting to protect all other information that has become known. This could lead to ambiguity regarding what genuinely constitutes a trade secret and what does not.
Document which secrets the employee is privy to
4. Should you become aware of personal records kept by employees, you must absolutely document this. In such a case, you must also demand the surrender of these personal records. Failure to do so will most likely result in the loss of confidentiality protection for these personal records.
Reclaim information
5. Seriously exercise your right to the return of information from your employees. If, for any reason, you fail to reclaim information, you risk losing confidentiality protection for that information.
Source: Düsseldorf State Labor Court, Judgment of 03.06.2020, File No. 12 SaGa 4/20
Previous Instances: Düsseldorf Labor Court, Judgment of 23.01.2020, File No. 12 Ga 5/20
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GoldbergUllrich Attorneys at Law 2020
Julius Oberste-Dommes LL.M. (Information Law)
Lawyer and Specialist Lawyer for Information Technology Law
