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Article Contents

I. introduction 1, ii. the principle of good faith, iii. the request for delayed examination, iv. the priority system, v. patent term compensation, vi. international design application, vii. service inventions, viii. the open licensing system, ix. other minor revisions, x. conclusion.

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Commentary on the Latest Revisions to the Detailed Rules for the Implementation of the Chinese Patent Law

Professor of Intellectual Property Law, Law School, Tsinghua University, Beijing, China. Translated into English by Xiao Wang.

Postdoctoral Research Fellow, Law School, Tsinghua University, Beijing, China.

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Guobin Cui, Xiao Wang, Commentary on the Latest Revisions to the Detailed Rules for the Implementation of the Chinese Patent Law, GRUR International , Volume 73, Issue 6, June 2024, Pages 538–549, https://doi.org/10.1093/grurint/ikae054

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To implement its patent law amended in 2020, China revised the Detailed Rules for the Implementation of the Chinese Patent Law on 11 December 2023. Since the revisions concern many important and controversial topics in the patent field, it is necessary to evaluate how they will impact the interests of patentees and related parties domestically and worldwide, and how China can improve its patent system to not only meet the expectations from Chinese society but also accelerate the innovation process in the world community.

To achieve that goal, this report discusses the benefits of the changes, the controversies behind them, the factors and opinions that affected the revisions, as well as the unaddressed issues and problems. Specifically, it highlights the important revisions in the principle of good faith, the request for the delayed examination, the priority system, patent term compensation, international design application, service inventions, and the open licensing system. It then briefly discusses the minor changes in the ex officio examination conducted by the patent administrative department, the patent right evaluation report, information disclosure of generic resources, and the responsibility of the patent administrative department. Meanwhile, this report points out the unsolved issues and problems in the definition of new drugs, the compensation rules for the delays caused by the marketing review of new drugs, the legislative basis of the ex officio examination conducted by the patent administrative department in the patent invalidation procedure, and the reform of the re-examination and invalidation procedures.

The current Patent Law of the People’s Republic of China (hereinafter the ‘Chinese Patent Law’) was promulgated on 17 November 2020 and came into force on 1 June 2021. 2 Subsequently, the State Administration for Market Regulation and the China National Intellectual Property Administration (CNIPA) submitted the revised draft of the Detailed Rules for the Implementation of the Chinese Patent Law (hereafter the ‘revised draft of the Detailed Rules’) to the State Council on July 2021. The Detailed Rules for the Implementation of the Chinese Patent Law (hereinafter the ‘Detailed Rules’) was promulgated by the State Council on 11 December 2023 and came into force on 20 January 2024. 3 The Detailed Rules had been revised twice, in 2002 and then in 2010. 4 The latest revision took two more years than the previous ones because the continuous impact of the COVID-19 epidemic and the great controversy surrounding some issues (e.g., the term compensation of pharmaceutical patents, open licensing, the ex officio examination conducted by the patent administrative department, etc.) forced the Chinese decision-makers repeatedly solicit opinions to seek consensus. The authors participated in many consultation meetings during the revision process of the Detail Rules and are deeply impressed by the difficulty of the decision-making process. This report provides comments on the hard-won achievements in the latest revision, and helps readers better understand the latest progress in China’s patent system and its significance.

Many changes have been made in the current Detailed Rules. When they are compared with the 2010 Detailed Rules, we see that ten articles have been deleted, 35 articles have been added, and nearly 20 articles have been substantially revised. In general, the revisions can be summarized into the following aspects. (1) The improvement of the patent application system: the principle of good faith is refined and the legal liability for the applicant’s fraudulent behavior is stipulated; 5 relevant rules for the application in electronic form are clarified; 6 the procedural rules in the priority system are improved; 7 the writing requirements for the partial design application are clarified; 8 the procedural rules for international design application are refined; 9 and exceptional circumstances of the patent compulsory agency are added. 10 (2) The improvement of the patent examination system: the request for the delayed examination can be made by the applicant; 11 the patent right evaluation report system is revised to enable the applicant to make an earlier request; 12 the patent administrative department’s authority to conduct the ex officio examination in the patent re-examination procedure is clarified; 13 and administrative liability for abnormal patent application is stipulated. 14 (3) The strengthening of patent rights protection: the specific rules for compensating the delays in both the patent examination procedure and the marketing review of new drugs are stipulated to implement the patent term compensation system newly introduced to the current Chinese Patent Law; 15 and the scope of patent infringement disputes that can be handled by the patent administrative department is clarified. 16 (4) Miscellaneous revisions: the specific rules for open licensing are refined; 17 the scope of information disclosure of generic resources used by the applicant is expanded; 18 and the open sharing of basic patent data is clarified. 19

Among the above revisions, this report introduces and comments on the revisions regarding seven notable topics in the Detailed Rules: the principle of good faith; the request for the delayed examination; the priority system; patent term compensation; international design application; service inventions; and the open licensing system. Besides that, this report also briefly introduces the minor revisions regarding four topics: the ex officio examination conducted by the patent administrative department; the patent right evaluation report; information disclosure of generic resources; and the responsibility of the patent administrative department. Those revisions will be introduced in the order that follows the underlying logic of patent law rather than their importance and visibility. For example, although the patent term compensation had the highest visibility and caused most controversy in China, it is not introduced first in this report.

With the aim of cracking down on both the abnormal patent application and the abuse of patent rights, Art. 20 of the Chinese Patent Law introduces the principle of good faith by stipulating ‘The application for a patent and the exercise of patent rights shall adhere to the principle of good faith. Patent rights shall not be abused to damage the public interest or the lawful rights and interests of any other person’. Based on that, the Detailed Rules provide more specific requirements, namely that ‘the filing of various patent applications shall be based on real invention creation activities, and shall not practice fraud’, 20 and ‘the patentee shall not, by providing false materials, concealing facts or other means, make an open licensing declaration or obtain a reduction and exemption of patent annual fees during the implementation period of open licensing’. 21 Violation of the principle of good faith, according to the Detailed Rules, will trigger administrative liability: ‘the department responsible for patent enforcement at or above the county level shall issue a warning and can impose a fine of not more than CNY 100,000’. 22

The abnormal patent application is a persistent problem in China. Since the governments at different levels in China have provided the patent application funding policy 23 and the preferential income tax policy for the ‘high and new-tech enterprises’, 24 the abnormal patent application takes advantage of the loopholes in these policies to defraud government funding, subsidies or other preferential treatment. Before the Detailed Rules introduced the administrative liability, two legal documents – the Several Provisions on Regulating Patent Application Activities promulgated in 2007 and revised in 2017 by CNIPA, 25 and the Memorandum of Cooperation on Joint Punishment of Seriously Untrustworthy Entities in the Field of Intellectual Property (Patents) issued in 2018 by CNIPA and other 37 ministries and commissions 26 – provided a series of punitive measures to curb the abnormal patent application, such as prohibiting the reduction or relief of patent fees; making criticisms via public announcements; prohibiting subsidies or rewards; taking disciplinary actions to patent agencies; establishing criminal liability if the fraudulent behaviors to obtain government subsidies or rewards are serious enough to constitute a crime; restricting the applicant’s qualification to participate in certain business activities, and so on. However, these two legal documents lack the legislative basis to stipulate administrative liability for the abnormal patent application. Now, Art. 100 of the Detailed Rules fills this legislative gap and authorizes the patent administrative department to issue a warning and impose a fine to the abnormal patent application, which will curb this phenomenon more effectively.

Of course, since the governments at different levels in China are gradually cancelling the patent application funding policy, the applicant’s incentive to obtain the preferential treatment through patent application will gradually disappear, and the number of abnormal applications will gradually decrease as well. However, the phenomenon of abnormal patent application is unlikely to completely disappear because many preferential policies offered by the governments at different levels in China are still connected with patent application. Therefore, the administrative liability stipulated in the Detailed Rules will continue to play a role in solving the persistent problem of abnormal patent application in China.

The current Chinese Patent Law does not clarify whether the applicant can request a postponement of the patent examination procedure. According to the Chinese Patent Law, after an invention patent application is filed, the applicant must request a substantive examination within three years, otherwise the application will be deemed to have been withdrawn. When necessary, the patent administrative department can conduct the examination on its own initiative. 27 As for the patent application for a utility model or design, it is preliminarily examined according to the existing statutory procedure and then granted if no ground for rejection has been found. 28 If the applicant wants to have the patent rights granted earlier, they can choose the Patent Prosecution Highway (PPH) 29 or the rapid pre-examination mechanism provided by the Intellectual Property Right Protection Centers across China. 30

In 2023, before the current Detailed Rules were promulgated, the delayed examination system for invention patent applications had been established by the Guidelines for the Delayed Examination of Invention Patent Applications (hereinafter the ‘Guidelines for the Delayed Examination’) issued by the patent administrative department. 31 That system is confirmed from a legislative perspective by Art. 56 para. 2 of the Detailed Rules, and that provision for the first time clarifies that ‘[t]he applicant can make a request for the delayed examination on his/its patent application.’ This is an important reform of China’s patent examination system because it can protect the interests of patentees more effectively. As the Guidelines for the Delayed Examination say, applicants can gain many benefits from the delayed examination: they can write appropriate claims based on the latest technological progress, market competition condition or standardization process, thereby obtaining tailored patent protection; they have the opportunity to enjoy the convenience brought by the latest patent examination policies, such as the supplement of experimental data, storage media in the computer field, protection of program products; they can decide whether to continue the patent examination process based on the market situation of a product, thereby avoiding the cost of unnecessary patent examination activities; and they can reasonably arrange their response to patent examination opinions at their own pace and handle urgent matters with more concentration, and so on. 32

However, the Detailed Rules do not specifically regulate the application procedure for the delayed examination. This task is accomplished by the Guidelines for the Delayed Examination. According to that legal document, the request for the delayed examination shall be made when the applicant requests a substantive examination on their application; the delayed period can be one, two or three years; and after filing a patent application, the applicant can obtain a delayed examination period of up to six years. 33 The request for the delayed examination is free of charge and will not undergo a substantial review conducted by the patent administrative department, 34 which clearly shows the department’s supporting attitude towards the delayed examination request.

Although the establishment of the delayed examination system is good for applicants, it will have some negative effects on the public and patentees’ competitors. This is because the delayed examination leaves the patent application in an uncertain legal state for a longer period. This will make it difficult for the public and the related competitors to predict the claims in the application, and increase their operation risks and prevention costs for patent infringement to some extent. However, after weighing the advantages and disadvantages, Chinese legislators still believe that enabling the patentee to seek a tailored and effective patent protection will make a greater contribution to social welfare.

The priority system allows an applicant to cite the technical solution or design of their earlier application in a later application, and to obtain the benefit of an earlier filing date for the cited part, thus avoiding making the contents cited from the earlier application lack of novelty. In China, the priority system has experienced a change. The 2008 Chinese Patent Law stipulated two kinds of priority rights: the foreign priority enjoyed by the patent application of an invention, a utility model, or a design not filed in China; and the domestic priority enjoyed by the patent application of an invention or a utility model. 35 Based on that law, the design application filed in China could not enjoy the domestic priority. That regulation had been changed by the current Chinese Patent Law and the design application filed in China can also enjoy the domestic priority now. 36 In this context, the Detailed Rules provide the supporting rules for the priority system in three aspects.

First, the Detailed Rules clarify that the appended drawing in the patent application of an invention or a utility model can be used as the basis for requesting the priority of the design patent application. 37 The Detailed Rules also stipulate, as an exceptional provision, that when the design patent applicant requests a priority, that will not cause the patent application of an invention or a utility model on which the priority is based to be ‘deemed to have been withdrawn’. 38 This is because the double patenting on both the later design and the earlier invention or utility model is not possible, so there is no need for the applicant to waive their earlier application.

Second, the Detailed Rules stipulate that the applicant for an invention patent or a utility model patent, who has a reasonable ground, can request the restoration of priority within two months from the expiry of the time limit for requesting a priority. 39 The ‘reasonable ground’ mentioned above may include the existence of a force majeure . Through the above stipulation, the Detailed Rules provide applicants with more procedural flexibility.

At last, the Detailed Rules prescribe that after requesting a priority, the applicant can add or correct the request within 16 months from the priority date or within four months from the filing date; 40 or, the applicant can use the content of an earlier application on which the priority is based to supplement the missing content in the specification or claims of the current application. 41 The practice in the latter situation is called the ‘incorporation by reference’ system, 42 which to a large extent enables the applicant to use their earlier application to improve the relevant content of a later one.

The patent term compensation system (also called the ‘patent term extension system’) is the most important system introduced by the current Chinese Patent Law. It concerns the balance of interests between patentees and the public, and its actual operation needs very clear rules. However, in a general manner, the Chinese Patent Law only stipulates two situations where applicants can apply for patent term compensation: when there are unreasonable delays in the patenting procedure, 43 and when there are delays caused by the marketing review of new drugs. 44 The Detailed Rules therefore stipulate supporting rules for the operation of the patent term compensation system under the above two situations.

1. Existence of unreasonable delays in the examination procedure

Where unreasonable delays exist in the examination procedure, the Detailed Rules stipulate the time requirement for requesting the compensation and the calculation method of the compensation term. Specifically, the patentee needs to request compensation within three months from the date of the patent granting announcement. 45 The calculation method of the compensation term is ‘the number of days between the date when it has been four years since the filing date of the invention patent and three years since the date of requesting for a substantive examination and the date of the patent granting announcement, minus the number of days for reasonable delays and the number of days for unreasonable delays caused by the applicant’. 46 ‘Reasonable delays’ include the delays caused by the re-examination procedure, the dispute on the ownership of the right to apply for a patent or the patent right, the civil preservation measures, and other reasonable circumstances. 47 ‘Unreasonable delays caused by the applicant’ include circumstances where the applicant fails to respond to the notice issued by the patent administrative department, applies for the delayed examination, supplements application materials when claiming the priority under Art. 45 of the Detailed Rules, and so on. 48 If the applicant applies for both the invention patent and the utility model patent on the same invention creation, and obtains protection by relying on the utility model patent in the early stage, then the patent term compensation system is not applicable to the later-granted invention patent. 49 This is a special provision with a Chinese characteristic because it considers the fact that China provides overlapping protections on the invention patent and the utility model patent. To sum up, the rules regarding the patent term compensation caused by the delays in the examination procedure are very specific and highly operational.

2. Existence of the delays caused by the marketing review of new drugs

Where delays caused by the marketing review of new drugs exist, the Chinese Patent Law provides very general regulations:

‘[T]he patent administrative department of the State Council shall, at the request of the patentee, compensate the term of the invention patents related to new drugs which have been approved for marketing in China. The compensation term shall be no more than five years, and the total effective term of the patent right shall be no more than 14 years from the date of marketing approval.’ 50

To implement the above regulations at the operational level, the Detailed Rules provide specific rules in four aspects, including the scope of ‘new drugs’, the scope of the ‘invention patents related to new drugs’, the calculation method of the compensation term, and the effect of the patent rights during the compensation term.

(1) The scope of ‘new drugs’ . The current Chinese Patent Law does not clarify what ‘new drugs’ are. During the revision process of that law, Chinese legislators once suggested defining ‘new drugs’ as ‘innovative drugs that apply for marketing simultaneously in China and abroad’. 51 This suggestion was put forward because they concerned that pharmaceutical companies might first seek marketing approval of new drugs abroad and deliberately delay their applications for marketing review in China. If so, Chinese consumers will have a later access to those new drugs, and pharmaceutical companies can obtain a de facto longer term of patent protection for those drugs. To avoid the potential consequence mentioned above and encourage pharmaceutical companies to actively file marketing applications in China, it was required in the revised draft of the Chinese Patent Law that ‘new drugs’ shall at least be simultaneously marketed in China and abroad (of course, there will be no problem if these drugs are firstly marketed in China) and shall be so-called ‘innovative drugs’ as well.

In fact, the revised draft of the Chinese Patent Law established a ‘globally innovative’ standard when defining ‘new drugs’. To explain this, it is necessary to have a basic understanding of the drug registration and classification system in China. According to Art. 4 of the Administrative Measures for Drug Registration (2020), the registration of chemical drugs shall be classified by innovative drugs, modified new drugs, and generic drugs, etc., and the registration classification for both traditional Chinese drugs and biological products is roughly the same. 52 Based on that, the Work Plan for the Reform of Chemical Drug Registration Classification (2016) divides newly registered drugs into five categories: innovative drugs that have not been marketed abroad (Category 1); modified new drugs that have not been marketed domestically or abroad (Category 2); generic drugs that are produced by domestic applicants and have been marketed overseas but not domestically (Category 3); generic drugs that are produced by domestic applicants and have been marketed domestically (Category 4); and drugs that apply to be marketed domestically after being marketed overseas (Category 5). 53 According to this classification, the qualified ‘new drugs’ under the revised draft of the Chinese Patent Law will be the innovative drugs in Category 1 and the modified new drugs in Category 2, which actually required the new drugs filed in China to be globally innovative.

However, the ‘globally innovative’ standard, which requires the marketing applications for new drugs to be filed first or simultaneously in China, is a substantial challenge for many international pharmaceutical companies. In practice, it is costly for pharmaceutical companies to simultaneously apply for the marketing of a new drug in many countries, and this is especially true when the market prospects for the new drug are uncertain. Considering that, many international pharmaceutical companies adopt the ‘marketing overseas first’ strategy which markets a new drug first in the US, EU or other countries, and then decide whether to file marketing application in China depending on the performances of the new drug in those markets. Based on that, those companies will lose the chance to request patent term compensation under the revised draft of the Chinese Patent Law. Therefore, during the revision process of the Chinese Patent Law, many international pharmaceutical companies expressed their concerns when the patent administrative department solicited public opinions and suggested that Chinese legislators should expand the scope of ‘new drugs’ to any drug that has not been marketed in China, rather than to limit the scope to any drug marketed first or simultaneously in China.

For the concerns expressed by those international pharmaceutical companies, Chinese legislators did not provide a clear response, but they did not adopt the definition of ‘new drugs’ proposed by the revised draft of the Chinese Patent Law. Instead, they just left the general term ‘new drugs’ without any definition in the current Chinese Patent Law. In doing so, Chinese legislators have left the discretion to the patent administrative department and the drug administrative department of the State Council, hoping that these departments will clarify the standard for defining ‘new drugs’ in the subsequent regulations such as the Detailed Rules or the regulations on the administration of drug registration.

The revised draft of the Detailed Rules initially defined ‘new drugs’ as the ‘innovative drugs approved for marketing by the drug administrative department of the State Council and modified new drugs that comply with regulations’. 54 Although this definition does not emphasize that new drugs should be marketed first or simultaneously in China, it generally limits the scope of new drugs to the drugs in Category 1 and Category 2 mentioned above, thereby encouraging pharmaceutical companies to file marketing applications first or simultaneously in China. Not surprisingly, during the review process of the Detailed Rules, that proposal also aroused the aforementioned concerns expressed by many pharmaceutical companies. After giving this issue special focus and soliciting opinions from various parties, the decision-makers gave up the above definition of ‘new drugs’ and adopted a more general expression – ‘new drugs that comply with regulations’ – in Art. 80 of the current Detailed Rules.

Finally, the thorny issue of defining ‘new drugs’ was handed over to the Guidelines for Patent Examination (2023), 55 and this legal document accepted the above definition of ‘new drugs’ put forward by the revised draft of the Detailed Rules. 56 This practice leaves greater flexibility for subsequent improvement or future readjustment on the definition of ‘new drugs’. To explain that, it is necessary to first understand the hierarchy of legal norms in China. According to the Legislation Law of the People’s Republic of China (Amended in 2023), the legal effect of an administrative regulation is higher than that of a department rule, and the revision of an administrative regulation will be much harder than that of a department rule. 57 Based on that, since the Guidelines for Patent Examination issued by CNIPA belong to the department rule, and the Detailed Rules issued by the State Council belong to the administrative regulation, the practice of defining ‘new drugs’ in the department rule rather than in the administrative regulation will facilitate the future readjustment on the definition of ‘new drugs’ if necessary. For example, the drug administrative department can adjust the identification standard for innovative drugs and modified new drugs at any time in a department rule like the Work Plan for the Reform of Chemical Drug Registration Classification (2016) mentioned above, thus substantially changing the definition of ‘new drugs’ in the Guidelines for Patent Examination and the application scope of the patent term compensation system under the Detailed Rules.

(2) The scope of ‘the invention patents related to new drugs’. According to the Detailed Rules, ‘the invention patents related to new drugs refers to the patents for new drug products, the patents for preparation methods, and the patents for medical applications that comply with regulations’. 58 Based on that, the scope of qualified patents will be limited by both the time dimension and the frequency for the purposes of compensation.

From the time dimension, the current Chinese Patent Law does not clarify the scope of patents qualified for the term compensation. For example, it is not clear whether the patentee of a new drug that had been approved for marketing can apply for the term compensation before the current Chinese Patent Law took effect. In theory, there are three possible answers to that question: first, all the still-valid patents related to new drugs qualified when the current patent law took effect; second, the still-valid patents related to the new drugs that had already filed marketing applications and obtained approvals will be qualified after the current patent law took effect; third, the pharmaceutical patents that had been filed and granted will be qualified after the current patent law took effect. Since the above three answers have very different impacts on both the competition order in the pharmaceutical industry and the public interest, clearer operational rules are needed to clarify the ambiguity in the current Chinese Patent Law.

Among the above three answers, the Detailed Rules accept neither the first answer that is more beneficial to patentees nor the third answer that is more beneficial to the public, but instead choose a compromise solution close to the second answer. Specifically, the Detailed Rules stipulate that, to apply for the term compensation of the patent related to new drugs, the patentee shall ‘file with the patent administrative department of the State Council within 3 months from the date when the new drug obtains the marketing approval in China’, and at the same time ensure that the patent is still within the validity period. 59 Based on that, since the patentee can apply for the term compensation only after the current Chinese Patent Law took effect (that is, after 1 June 2021), only drugs that had been approved for marketing after 1 March 2021 can have the opportunity to apply for the compensation. Meanwhile, when the patentee actually files an application for the compensation (obviously later than 1 June 2021 when the current patent law took effect), their patent should still be within the protection term.

Besides the time dimension, the scope of a qualified patent is also limited by the number of times for compensation. According to the current Detailed Rules, the qualified patent must not have yet obtained the term compensation: ‘where multiple patents exist in a new drug concurrently, the patentee can only request the patent term compensation for one of the patents’; and ‘where a patent involves multiple new drugs concurrently, the request for the patent term compensation can only be made for one new drug in the patent’. 60

(3) Calculation of the compensation term. According to the Detailed Rules, ‘the compensation term shall be determined according to the number of days between the patent filing date and the date when the new drug obtained the marketing approval in China minus five years’. 61 Meanwhile, according to the Chinese Patent Law, the upper limit of the compensation term shall not exceed five years, and the total term of patent protection after the marketing approval shall not exceed 14 years. 62 This calculation method is similar to that provided by the European Patent Office, 63 and is favored by Chinese legislators because it is relatively simple to operate and can save a lot of administrative costs. However, due to the pursuit of simplicity, this calculation method does not link the patent compensation term with the review time spent by the drug administrative department. In theory, if the application for a new drug registration is filed rather late (e.g., the patent is not granted until the seventh year after the filing date, the application for a new drug registration is submitted in the 16th year and approved in the 18th year), the current calculation method still allows the patentee to obtain an additional compensation term of five years even if the delay has not been caused by the drug administrative department.

(4) The effect of the patent rights during the compensation term. When a patent is qualified to obtain the term compensation, the effect of the patent rights during the compensation term is only limited to ‘the new drug and the approved indication-related technical solution’. 64 Beyond that scope, the patent rights will not have any legal effect.

Although China joined the Geneva Act (1999) of the Hague Agreement Concerning the International Registration of Industrial Designs (hereinafter the ‘Hague Agreement’) in 2022, the possibility of joining the Hague Agreement was considered when the Chinese Patent Law was revised in 2020, and some provisions adaptive to that treaty were prescribed in advance. For example, the current Chinese Patent Law expands the scope of protection to partial designs, 65 and extends the protection term of designs from ten years to 15 years. 66 To meet the treaty obligations at the operational level, the Detailed Rules provide supporting rules to better connect the international procedures with the domestic ones for design application.

According to the Detailed Rules, ‘an international design application in which the international registration date has been determined in accordance with the Hague Agreement and China has been designated shall be deemed to be a design patent application submitted to the patent administrative department of the State Council’, and the international registration date is deemed to be the filing date of the domestic application. 67 After the International Bureau publishes the international design application, the patent administrative department of the State Council shall examine that application. 68 After examination, if the patent administrative department finds no reason for rejection, it shall make a decision to grant the patent. 69 Regardless of whether the patent is granted or not, the patent administrative department of the State Council shall notify the International Bureau of the examination result. 70 Moreover, the Detailed Rules make specific requirements on the request for a priority, 71 the grace period for novelty, 72 the divisional application, 73 the brief description of design points, 74 the formalities for the change of rights, 75 and so on.

Although many new provisions on international design application have been introduced into the Detailed Rules, they are only technical provisions and reflect the consensus on the review and granting practices of designs, which will not cause any substantial controversy.

The current Chinese Patent Law adds a second paragraph to the original clause for services inventions: ‘The State encourages entities that are granted patent rights to implement property right incentives in the forms of equities, options, dividends, etc., so that inventors or designers can appropriately share the benefits of innovation’. 76 Since that paragraph is not a mandatory regulation, the revised draft of the Detailed Rules did not promulgate supporting rules for the implementation of that paragraph but retained the specific rules on reward and remuneration for service inventions in Arts. 77 and 78 the 2010 Detailed Rules. According to Art. 77 of the 2010 Detailed Rules, in the absence of an agreement, the monetary reward after the granting of an invention patent shall be not less than CNY 3,000, and the monetary reward after the granting of a utility model patent or a design patent shall be not less than CNY 1,000. 77 According to Art. 78 of the 2010 Detailed Rules, after a patent is implemented, a certain proportion of operating profits or royalty shall be drawn as the remuneration for inventors or designers; the proportion of operating profits for an invention or a utility model shall be not less than 2%; the proportion of operating profits for a design shall be not less than 0.2%; and the proportion of royalty shall be not less than 10%. 78

Subsequently, in the review process of the Detailed Rules, an opinion held that the reward for inventors should be increased to reflect the government’s public policy of encouraging innovation. Therefore, the current Detailed Rules not only adjust the default reward standard by raising the reward for an invention patent to CNY 4,000 and the reward for a utility model or a design to CNY 1,500, 79 but also delete the specific rules stipulated in Art. 78 of the 2010 Detailed Rules and prescribe the application of related rules under the Law of the People’s Republic of China on Promoting the Transformation of Scientific and Technological Achievements (Amended in 2015) (hereinafter the ‘Chinese Law on Promoting Transformation’). 80 Specifically, the related rules that are applicable for service inventions can be found in Art. 45 of the Chinese Law on Promoting Transformation. Based on that provision, not less than 50% of the net income from the transfer or licensing of the sci-tech achievements, and not less than 50% of the shareholding or contribution resulting from the sci-tech achievements if such achievements are contributed as an investment, shall be used to reward inventors and persons who have made significant contributions to the transformation; after a patent is implemented independently or in cooperation with others, not less than 5% of the operating profits shall be used to reward those inventors and persons within three to five years. 81

Although the above rules had already existed in Art. 45 when the Chinese Law on Promoting Transformation was amended in 2015, it did not attract widespread attention. This is probably because in the past, the Detailed Rules were considered as a specific piece of legislation and took precedence over the Chinese Law on Promoting Transformation in application. From a theoretical perspective the potential conflict between Art. 78 of the 2010 Detailed Rules and Art. 45 of the Chinese Law on Promoting Transformation did not cause any in-depth discussion in China either. In judicial practice regarding the reward and remuneration for service inventions, it is also rare to see the cases in which Chinese courts made their decisions directly based on Art. 45 of the Chinese Law on Promoting Transformation. Now, the current Detailed Rules delete the specific rules in Art. 78 of the 2010 Detailed Rules and stipulates the applicability of the Chinese Law on Promoting Transformation, which will remind more companies to take Art. 45 more seriously.

When compared with Art. 78 of the 2010 Detailed Rules, Art. 45 of the Chinese Law on Promoting Transformation substantially raises the remuneration and reward standard for service inventions. Although that provision is applicable to all enterprises and institutions, most of the scenarios envisioned by Chinese legislators were the application and commercialization of patents made by the state-owned enterprises and scientific research institutes. 82 These entities lack sufficient motivation to commercialize patents and make profits, and many of their patents were set aside after being granted. So, the statutory standard requiring a higher proportion of rewards for inventors and contributors will not be a big problem for them and is reasonable to some extent. However, it may be unreasonable to require the non-state-owned high-tech enterprises to implement the same standard. After all, in the current business practice, there are few examples of the non-state-owned enterprises using 50% of the net income or shareholding to reward inventors and contributors after a patent project is successfully commercialized.

Under the existing legal framework, non-state-owned enterprises can avoid the default application of the statutory standard by signing contracts. However, if the standard in a contract deviates too much from the statutory one, a Chinese court would deny the reasonableness of that contract in the event of a dispute. Therefore, the statutory standard will still put a certain amount of pressure on non-state-owned enterprises. Some businesses that have no experience in intellectual property management, and as a result fail to agree on a standard with inventors and contributors in a timely manner, will have to face a more obvious threat brought by the default application of the statutory standard that is excessively high under the current business practice. To reduce the pressure and threat faced by non-state-owned enterprises Chinese courts should be more tolerant in future judicial practice to the standard agreed by the contracting parties and allow that standard to deviate from the statutory one to a greater extent.

Moreover, since Art. 45 of the Chinese Law on Promoting Transformation rewards not only inventors, but also managers of enterprises who have contributed to the transformation of achievements, it does not clarify the exact proportion that should be given to inventors. In that sense inventors will face uncertainty and even difficulty in proving the reasonable proportion they should receive in a specific case. This may inhibit inventors’ enthusiasm to assert their rights, thereby reducing the pressure faced by the non-state-owned enterprises to a certain extent.

The current Chinese Patent Law introduces a brand-new open licensing system to encourage patentees to proactively announce licensing conditions, and to facilitate potential implementers to obtain patent licenses. Specifically, ‘[w]here the patentee voluntarily files a written declaration with the patent administrative department of the State Council, indicating his/its willingness to permit any entity or individual to implement his/its patent and specifying the payment method and rate of royalty, the patent administrative department of the State Council shall make an announcement’. 83

‘Any entity or individual intending to implement the patent under an open license shall obtain the patent implementation license immediately after notifying the patentee in writing and paying the royalty according to the announced payment method and rate’. 84

This kind of open license can only be for ordinary non-exclusive licenses. ‘During the implementation period of the open license, the patent annual fees paid by the patentee shall be reduced or exempted accordingly’. 85 The Chinese Patent Law outlines the framework of the open licensing system, and the Detailed Rules supplement it with more specific operational rules.

According to the Detailed Rules, the patentee should state the patent number, the name or designation of the patentee, the royalty rate and payment method, the term of license, etc. in the declaration. 86 After an open license is granted, the patentee and licensee ‘shall complete record-filing with the patent administrative department of the State Council on the strength of a written document proving that the license has been granted’. 87 Based on those regulations the patentee must clearly state the core terms of a patent license in the open licensing declaration, especially the royalty rate. This is very different from the practices of other countries. For example, the rules for open licensing in the UK and Germany (called the ‘License of Right’ or ‘LOR’) only require the patentee to make a commitment on open licensing rather than to clarify licensing conditions; if a potential licensee cannot reach an agreement with the patentee, the patentee will accept the licensing conditions ruled by the patent office. 88

In the UK and Germany, the main motivation for patentees to participate in open licensing comes from the patent office’s preferential policy in reducing or exempting the official fees related to patent maintenance. 89 Specifically, the patentee gives up their right to unilaterally set prices in exchange for the reduction or exemption on the official fees made by the patent office. For the patentees in patent-intensive industries, participation in open licensing may be very attractive, because they usually own hundreds or thousands of patents, and the substantial reduction in official fees means a huge saving in expenses. However, China’s open licensing system does not restrict the patentee’s right to unilaterally set prices, but only requires them to publish licensing conditions. This obviously leaves the open licensing system vulnerable to abuse, allowing patentees the opportunity to fraudulently take advantage of the reduction of official fees. For example, the patentee can state a very high royalty rate in the open licensing declaration, and then reach an open licensing agreement with an affiliated company or a partner without having any intention of actually enforcing the agreement. In this way, the public cannot obtain any benefit from the open licensing, while the patentee can obtain the reduction of official fees. That situation had been foreseen by Chinese legislators, and some preventive measures have been stipulated in the Detailed Rules. For example, the patentee shall publish open licensing conditions and complete the record-filing of the open licensing agreements, and ‘shall not, by providing false materials, concealing facts or other means, make an open licensing declaration or obtain a reduction and exemption of patent annual fees during the implementation period of open licensing’. 90 If the above requirements are violated by the patentee, they will receive a warning or a fine of not more than CNY 100,000 issued by the department responsible for patent enforcement at or above the county level. 91 Moreover, in the future, before deciding whether to reduce the official fees, the patent administrative department can review whether the open licensing agreement has been actually enforced. For example, the review can be made by requiring the patentee to submit receipts regarding their royalty revenues.

Overall, China’s open licensing system has an experimental nature, and it remains to be seen to what extent it will promote patent licensing. Under the existing system, the patentee does not give up their right to unilaterally set prices and have a motivation to abuse the system. If the patent administrative department provides patentees with a substantial reduction of the official fees, it can be expected that the department will have to spend substantial costs to supervise the enforcement of open licenses to eliminate possible abuses of the open licensing system.

Besides the major revisions mentioned above, some minor revisions in the Detailed Rules are also worthy of attention. Due to the limited length of this report, the revisions regarding four topics are selected and will be briefly introduced in this section: the ex officio examination; the patent right evaluation report; information disclosure of generic resources; and the responsibility of the patent administrative department.

1. The ex officio examination

Based on the current Guidelines for Patent Examination, in both the patent re-examination procedure and the invalidation procedure, the patent administrative department follows the ‘on request’ principle – that is, it follows the applicant’s request – to examine the reasons for rejection or invalidation. 92 However, under exceptional circumstances, the patent administrative department is also permitted to conduct the ex officio examination on the reasons which are not put forward by the applicant in their request but may lead to the rejection of the patent application or the invalidation of patent rights. 93

The ex officio examination has positive impacts on improving procedural efficiency and ensuring the quality of patent granting. If the patent administrative department finds obvious defects in a patent application or a granted patent but does not intervene proactively, it may lead to the patent application going back and forth between the substantive examination procedure and the re-examination procedure, or the invalidation procedure being repeatedly proposed. Both situations will result in the waste of social resources. The lack of proactive intervention by the patent administrative department may also lead to the maintenance of the patent that should not have been granted, thus increasing social costs. However, the ex officio examination also has negative impacts. On the one hand, it may go beyond the normal expectations of the parties and damage their procedural interests. Specifically, when the department finds new reasons for rejection in the re-examination process, if the ex officio examination does not exist, the application will first be returned to the examiner for substantive examination and then enter the re-examination process. The existence of the ex officio examination will eliminate the opportunity for the applicant to persuade the examiner and resolve the dispute. On the other hand, the ex officio examination may also undermine the neutrality of the patent administrative department in the invalidation procedure. Therefore, the ex officio examination system is a double-edged sword. Decision-makers must maintain a balance between the principles of ‘on request’ and ‘ ex officio ’ by emphasizing ‘on request’ for most of the time and accepting ‘ ex officio ’ on exceptional circumstances. The core issue here is how to define the exceptional circumstances.

So far, the ex officio examination in the re-examination or invalidation procedure lacks a clear legal basis in the Chinese Patent Law and is directly authorized by the Guidelines on Patent Examination. In the revision process, the revised draft of the Detailed Rules proposed that the patent administrative department has the authority to conduct the ex officio examination in both the re-examination and invalidation procedures. 94 However, this proposal is not fully accepted by the current Detailed Rules. It is accepted that the patent administrative department can conduct the ex officio examination in the re-examination procedure. According to Art. 67 of the current Detailed Rules, after making a re-examination, if the patent administrative department believes that ‘the patent application contains other circumstances that obviously violate relevant provisions of the Chinese Patent Law and the Detailed Rules’, it can decide to reject the request for re-examination. 95 The Detailed Rules do not clarify the circumstances that obviously violate the existing regulations, but the Guidelines on Patent Examination explain those circumstances as the situations where the application has ‘obvious and substantive defects’, and specifically enumerate some common situations, such as where the application obviously violates the principle of good faith; the application has the defects that can be found in other reasons the examiner had told the applicant before the decision of rejection was made; or the application has the defects which have the same nature with those indicated in the decision of rejection. 96

However, Chinese legislators did not accept the proposal in Art. 74 of the revised draft of the Detailed Rules which said that ‘[i]n the process of the invalidation procedure, when necessary, the patent administrative department of the State Council can examine the ground not raised by the applicant in accordance with relevant regulations.’ 97 In that sense, legislators continue to remain silent on the legislative basis of the ex officio examination in the invalidation procedure. However, this has not changed the patent administrative department’s attitude towards the ex officio examination. The current Guidelines on Patent Examination clearly state that ‘the re-examination and invalidation department can make the ex officio examination on the cases that need to be examined, and is not limited by the scope of the parties’ request and the grounds and evidence raised by the parties’. 98 The Guidelines on Patent Examination also specifically enumerate the circumstances that the ex officio examination can be conducted in the invalidation procedure: the acquisition of patent rights clearly violates the principle of good faith; the grounds raised by the applicant are inconsistent with evidence; or the object is obviously not protectable subject matter, etc. 99

From the judicial practice in the past, Chinese courts held a relatively conservative view on the ex officio examination in the invalidation procedure. For example, the Chinese Supreme People’s Court held that the defects in non-obviousness did not belong to the ‘obvious and substantive defects’ where the ex officio examination can be conducted in the invalidation procedure. 100 In this context, it remains to be seen what the Chinese court’s attitude will be towards the dispute on the ex officio examination in the invalidation procedure.

2. The patent right evaluation report

Before the granting of a utility model patent or a design patent, the patent administrative department does not conduct a substantive examination, which makes the validity of this kind of patent unreliable. Therefore, according to the 2008 Chinese Patent Law, when handling patent infringement disputes, courts or the patent administrative department can require the patentee or interested parties to submit a patent right evaluation report for reference. 101 Based on that, the current Chinese Patent Law further clarifies that the patentee, interested parties, and alleged infringer can proactively ask the patent administrative department to make a patent right evaluation report. 102

Built on the above legislative basis, the current Detailed Rules prescribe that when undergoing patent registration formalities, the applicant can also ask the patent administrative department to make a patent right evaluation report, 103 and the department shall make the report within two months from the date of the patent granting announcement. 104 The time limit is set to ensure that the applicant has learned about the reliability of the patent validity before deciding whether to register the patent and complete the payment formalities. This positive regulation not only enables the applicant to adopt the patent maintenance and litigation strategies more rationally, but also overcomes the shortcoming that the missing of substantive examination makes the patent rights on utility models and designs lack sufficient certainty.

3. Information disclosure of generic resources

When the Chinese Patent Law was revised in 2008, legislators added a provision which stipulates that: ‘No patent right shall be granted to any invention creation where the acquisition or utilization of the genetic resources, on which the accomplishment of the invention creation relies, violates the provisions of laws or administrative regulations.’ 105 Then, when the law was revised in 2020, legislators added another provision which prescribes that:

‘Where an invention creation is accomplished by relying on generic resources, the applicant shall state the direct source and the original source of the generic resources in patent application documents; where the applicant fails to state the original source, he/it shall state the reasons’. 106

These two provisions give the current Chinese Patent Law a new task of protecting biological generic resources. They also reflect the legislators’ hope that after accomplishing an invention creation by using genetic resources, the applicant can proactively state the source information of the genetic resources in the patent application. This ensures that the owner of the biological genetic resources and the regulatory authorities can understand the situation of the biological resource utilization at any time and share the profits from the commercialization of the invention. If the inventor violates mandatory laws and regulations in China when accessing and acquiring biological genetic resources, their patent application may be rejected and their patent may be declared invalid.

As for the ‘generic resources’, the 2010 Detailed Rules defined them as ‘the materials obtained from human bodies, animals, plants or microorganisms that contain hereditary units and have actual or potential values’. 107 Based on that, the current Detailed Rules further expand the scope of ‘generic resources’ by including ‘the information generated by using such materials’. 108 The reason for the expansion is that, with the development of modern biotechnology, subsequent inventors are able to synthesize a certain genetic material in laboratory by directly using the DNA sequence information of the genetic material published by predecessors, and do not need to have physical contact with that material. Thus, the physical control of generic materials cannot necessarily prevent the public from accessing and using the hereditary units in the materials. Therefore, Chinese legislators believe that it is necessary to plug this loophole and protect the interests of the generic resource holders more effectively.

The Detailed Rules’ revision on the scope of ‘generic resources’, which enables the generic resource holders to control not only the generic materials but also the generic information on those materials, has an experimental nature and its operational effect remains to be seen. For this revision to achieve practical results in China’s generic resource protection, supporting legislation is also needed as a prerequisite. If supporting legislation cannot keep up with this revision in a timely manner, even if the patent applicant discloses genetic resource information in accordance with the legal requirement, it will not offer real help for the genetic resource holder to participate in sharing the benefits from the commercialization of that patent. At present, relevant legislation still remains at the level of principle, and the management practice on the acquisition and benefit-sharing of generic resources is quite limited. For example, Art. 11 para. 1 of the Seed Law of the People’s Republic of China (2021) (hereinafter the ‘Chinese Seed Law’) stipulates that: ‘The state has sovereignty over germplasm resources. Any entity or individual that plans to provide germplasm resources abroad or cooperate with a foreign institution or individual in research on germplasm resource exploitation shall file an application with the department of agriculture and rural affairs and the department of forestry and grassland of the State Council for approval and simultaneously submit a plan for the state to share benefits.’ To implement that provision, many local laws have similar requirements, but the operational rules for these requirements are not seen in China.

4. The responsibility of the patent administrative department

The current Chinese Patent Law authorizes the patent administrative department of the State Council to handle patent infringement disputes that have a major impact throughout the country at the request of patentees or interested parties. 109 Based on that, the Detailed Rules further clarify the standard to identify the circumstances having ‘a significant impact nationwide’, namely that they: (1) involve significant public interests; (2) have a significant impact on the development of the industry; (3) are major cases that cross provinces, autonomous regions, and municipalities; and (4) involve other circumstances that may have a significant impact in the opinion of the patent administrative department of the State Council. 110 For the patent infringement dispute that does not meet the above standard, the patent administrative department of the State Council can designate the patent administrative department of a local government with jurisdiction to handle it. 111 The key word in the above standard is ‘significant’, and it is essentially unquantifiable and depends on the patent administrative department’s discretion. Just how the discretion will be exercised in patent infringement disputes in the future depends on the patent administrative department’s human resource allocation and its willingness to enforce the law.

Furthermore, the current Chinese Patent Law requires the patent administrative department of the State Council to ‘strengthen the construction of the patent information-related public service system’. 112 To achieve that goal, the 2008 Chinese Patent Law required the department to ‘release patent information in a complete, accurate, and timely manner, and publish patent gazettes on a periodical basis’, 113 and the current Chinese Patent Law further requires the department to ‘provide basic patent data’. 114 The Detailed Rules echo the patent law and emphasize the need to realize the open sharing of basic patent data. 115 It is of great significance that the Detailed Rules emphasize the target of ‘open sharing’ because in the era of big data and artificial intelligence, information in patent documents has become increasingly important as a basic data resource, and Chinese society also has high expectations regarding the patent administrative department’s full disclosure of the basic patent data. It is expected that under the current Chinese Patent Law and Detailed Rules, the patent administrative department will use the latest information technology to substantially eliminate the obstacles for the public to acquire and use patent documents, create a healthy competitive order in the patent data market, and make fundamental contributions to China’s sci-tech innovation.

The latest revisions to the Detailed Rules are of great significance for implementing the current Chinese Patent Law and improving China’s patent system. The revisions – such as the operational rules for patent term compensation, the introduction of the delayed examination system, the seamless connection between international and national procedures for design application, and the refinement of the priority system – will systematically improve the level of patent protection in China. The refined regulation on the principle of good faith in patent application process also provides a powerful tool for the patent administrative department to crack down on abnormal patent application and improve the quality of patents. Overall, the vast majority of the revisions in the current Detailed Rules are in line with the public’s expectation and reflect the latest social consensus in China. As the latest legislative achievements in China’s patent system, these revisions are positive.

Of course, the Detailed Rules can only provide limited supplements and improvements within the framework of the current Chinese Patent Law. It cannot address the public policy problems that already existed in the past, which had not been solved by the legislators of patent law. For example, when refining the compensation rules for the delays caused by the marketing review of new drugs, the Detailed Rules avoid the issue of defining ‘new drugs’ that had been left by the legislators of patent law. Also, the Detailed Rules do not give a clear answer to the legislative basis of the ex officio examination conducted by the patent administrative department in the patent invalidation procedure. Moreover, the Detailed Rules do not cover the issue of reforming the re-examination and invalidation procedures at all. The above examples imply that there is still much room for improvement in future legislation. In fact, the balance of interests between patentees and the public is an endless and dynamic process. The improvement of a patent system cannot be accomplished in one go, and it is not rational to expect Chinese legislators to solve all the problems in the patent law through one amendment. It is expected that after many years’ implementation of the current Chinese Patent Law, Chinese society can reach consensus on some more complex issues, paving the way for the next revision of the Chinese Patent Law and the Detailed Rules.

Authors’ note: This article has been translated from its original Chinese version. Approximately one-third of the original content was previously published on the website of the Ministry of Justice of the People’s Republic of China < https://www.cnipa.gov.cn/art/2023/12/22/art_3318_189218.html > accessed 18 March 2024. The remainder was published on the IP Economy website < https://www.ipeconomy.cn/yuanchuang/8027.html > accessed 18 March 2024. The English translation includes substantive modifications and adds content not found in the original Chinese version. These changes are designed to meet the specific requirements of an English-speaking audience.

The Patent Law of the People’s Republic of China (Amended in 2020) (中华人民共和国专利法); the Chinese version is available at < https://www.cnipa.gov.cn/art/2020/11/23/art_97_155167.html > accessed 18 March 2024.

The Detailed Rules for the Implementation of the Patent Law of the People’s Republic of China (Amended in 2023) (中华人民共和国专利法实施细则); the Chinese version is available at < https://www.cnipa.gov.cn/art/2023/12/21/art_3317_189352.html > accessed 18 March 2024.

The Detailed Rules for the Implementation of the Patent Law of the People’s Republic of China (Amended in 2010); the Chinese version is available at < https://www.cnipa.gov.cn/art/2015/9/2/art_98_28203.html > accessed 18 March 2024. The Detailed Rules for the Implementation of the Patent Law of the People’s Republic of China (Amended in 2002); the Chinese version is available at < https://www.cnipa.gov.cn/art/2015/9/7/art_98_28201.html > accessed 18 March 2024.

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The State Taxation Administration of the People’s Republic of China, Announcement of the State Taxation Administration on Issues concerning the Implementation of Preferential Income Tax Policies for High-tech Enterprises (国家税务总局关于实施高新技术企业所得税优惠政策有关问题的公告), Announcement of the State Taxation Administration [2017] No 24; the Chinese version is available at < https://www.chinatax.gov.cn/chinatax/n810341/n810765/n2511651/201707/c2805187/content.html > accessed 18 March 2024. The Ministry of Science and Technology, the Ministry of Finance, and the State Taxation Administration of the People’s Republic of China, Circular of the Ministry of Science and Technology, the Ministry of Finance, and the State Taxation Administration on Revising and Issuing the Administrative Measures for the Accreditation of High and New-Tech Enterprises (科技部、财政部、国家税务总局关于修订印发《高新技术企业认定管理办法》的通知), Guo Ke Fa Huo [2016] No 32; the Chinese version is available at < https://www.gov.cn/gongbao/content/2016/content_5076985.htm > accessed 18 March 2024.

The China National Intellectual Property Administration, Several Provisions of the China National Intellectual Property Administration on Regulating Patent Application Activities (国家知识产权局发布《关于规范专利申请行为的若干规定》), Order of China National Intellectual Property Administration [2007] No 45; the Chinese version is available at < https://www.gov.cn/zhengce/2007-09/30/content_2603029.htm > accessed 18 March 2024; The China National Intellectual Property Administration, Decision of the China National Intellectual Property Administration on Revising the Several Provisions on Regulating Patent Application Activities (国家知识产权局关于修改《关于规范专利申请行为的若干规定》的决定), Order of the China National Intellectual Property Administration [2017] No 75; the Chinese version is available at < https://www.cnipa.gov.cn/art/2017/3/2/art_74_27619.html > accessed 18 March 2024.

The China National Intellectual Property Administration and other 37 ministries and commissions of the People’s Republic of China, Circular on Issuing the Memorandum of Cooperation on Joint Punishment of Seriously Untrustworthy Entities in the Field of Intellectual Property (Patents) (印发《关于对知识产权（专利）领域严重失信主体开展联合惩戒的合作备忘录》的通知), Fa Gai Cai Jing [2018] No 1702; the Chinese version is available at < https://www.gov.cn/zhengce/zhengceku/2018-12/31/content_5434249.htm > accessed 18 March 2024.

art 35 of the Chinese Patent Law.

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The mechanism of Patent Prosecution Highway (专利审查高速路，PPH) is operated like this: if the application for a patent in one country has been approved, the applicant can request the patent offices of other countries to accelerate the pace of granting the patent based on the cooperation agreements between the patent offices of different countries. For the basic information on how China established and operates the PPH mechanism, see the PPH Column on CNIPA’s website < https://www.cnipa.gov.cn/col/col46/index.html > accessed 18 March 2024.

On 23 November 2016, CNIPA started to set the Intellectual Property Right Protection Centers across China. One of the tasks of the protection center is to establish the rapid pre-examination mechanism (快速预审机制) which carries out the pre-examination before patent application, helps the applicant to improve the quality of his/its application, and speeds up the subsequent granting procedure at the patent administrative department. The rapid pre-examination mechanism has shortened the period from filing to granting of some patents to more than 30 days. See the China National Intellectual Property Administration, Notice on Providing Quick and Synergistic Intellectual Property Right Protection (关于开展知识产权快速协同保护工作的通知), Guo Zhi Fa Guan Zi [2016] No 92; the Chinese version is available at < https://www.cnipa.gov.cn/art/2016/11/30/art_53_116668.html > accessed 18 March 2024.

The China National Intellectual Property Administration, Guidelines for the Delayed Examination (发明专利申请延迟审查办理指南) [2023-8-30]; the Chinese version is available at < https://www.cnipa.gov.cn/art/2023/8/30/art_1567_187106.html > accessed 18 March 2024.

Guidelines for the Delayed Examination(发明专利申请延迟审查办理指南): 1. What are the benefits for applicants to request a ‘delayed examination’?

Guidelines for the Delayed Examination: 4. How long can a ‘delayed examination’ be delayed?

Guidelines for the Delayed Examination: 2. Is there a fee to request for a ‘delayed examination’? 6. Does the ‘delayed examination’ need to be reviewed?

art 29 of the Chinese Patent Law (2008).

art 29 of the Chinese Patent Law.

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Rules 4.18 and 20.5 of the Regulations under the PCT.

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art 81 of the revised draft of the Detailed Rules.

China National Intellectual Property Administration, The Guidelines for Patent Examination (专利审查指南), Order of China National Intellectual Property Administration [2023] No 78; the Chinese version is available at < https://www.cnipa.gov.cn/art/2023/12/21/art_526_189193.html?xxgkhide=1 > accessed 18 March 2024.

Part V c 9 s 3 of the Guidelines for Patent Examination.

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s 46 of the UK Patents Act 1977; s 23 of the German Patent Act.

Ilja Rudyk, ‘The License of Right, Compulsory Licensing and the Value of Exclusivity’ (2012) SFB/TR 15 Discussion Paper No 415, 2 < https://www.econstor.eu/bitstream/10419/93909/1/sfb-tr15-dp415.pdf > accessed 12 March 2024 (‘[T]he patent applicant will only declare LOR if his expected returns from patent protection without the right to exclude net of the reduced renewal fees will exceed the expected returns from full patent protection net of the regular renewal fees’.).

Part IV c 1 s 2.3 of the Guidelines for Patent Examination.

Part IV c 1 s 2.4 of the Guidelines for Patent Examination.

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Author notes

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The Role of EU Trade Secrets Law in the Data Economy: An Empirical Analysis

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• Published: 10 May 2023
• Volume 54 , pages 826–858, ( 2023 )

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• Tanya Aplin   ORCID: orcid.org/0000-0002-6825-8804 1 ,
• Alfred Radauer 2 ,
• Martin A. Bader 3 &
• Nicola Searle 4  

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This article draws on a recently completed study for the European Commission on trade secrets in the data economy. It distils the main findings of that Study and advances it by reflecting on and analyzing these findings in the context of existing legal, management and economics literature, as well as their implications for EU legal policymaking when it comes to trade secrets law. In order to facilitate data sharing, the article argues for a cautious approach, with very modest legislative reforms to the EU Trade Secrets Directive, instead preferring soft law and practical steps to be taken. There is, however, greater scope to reform legal regimes that are complementary to EU trade secrets law, such as the sui generis database right.

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1 Introduction

Data drives economies. In our now-digital economy, information is quickly digitized and circulated, and ubiquitous devices collect and generate data. The proliferation of data is astounding, with the prediction that the global volume of data will grow to 175 zettabytes by 2025. Footnote 1 It has quickly become a key asset for firms and informs every aspect of a firm’s decisions making, from innovation to market strategies. Advances in technologies such as machine learning Footnote 2 are poised to expand and entrench the power of data and its economic potential.

European policymakers have for several years sought to regulate how data is protected, shared and re-used through a raft of legislation. For example, the Database Directive, Footnote 3 Digital Single Market Directive Footnote 4 (with its explicit provisions on text and data mining), General Data Protection Regulation, Footnote 5 Digital Markets Act, Footnote 6 Digital Services Act Footnote 7 and Data Governance Act, Footnote 8 and proposed Data Act Footnote 9 are all examples of “horizontal” means to address data sharing and protection issues across industries. There are also “vertical”, industry specific regulations to be considered, such as the Open Data Directive Footnote 10 (that makes public sector and publicly-funded data re-usable); the Revised Payment Services Directive; Footnote 11 data exclusivity in the pharmaceutical sector, whereby clinical trial test data of originator pharma firms is protected for an initial period of up to eight years; Footnote 12 in the automotive sector, the Vehicle Repair and Maintenance Information Footnote 13 and Vehicle Emissions Regulations; Footnote 14 and, in the energy sector, the Energy Framework (Clean Energy for All Europeans Package). Footnote 15

The Trade Secrets Directive Footnote 16 (TSD), adopted in 2016, can be added to this complex assortment of regulation that frames the data economy. The Directive was introduced to address the problems of legal divergences in the protection of trade secrets in EU Member States and the benefit of such harmonisation was touted to be greater knowledge-exchange between businesses and increased incentives to engage in innovation-related activities in the EU, particularly on a cross-border basis. Footnote 17 Although the TSD was not introduced with the concerns of data specifically in mind, the fact that it is a “generally applicable, technology neutral regime of protection” Footnote 18 that protects “a wide range of know-how and business information” Footnote 19 means that it is an important legal tool to consider in relation to the data economy. Footnote 20

This article draws on a recently completed study for the European Commission on trade secrets in the data economy (“Study”). Footnote 21 It distils the main findings of that in-depth Study and takes it further by reflecting on these findings and their implications for legal policymaking in relation to specific aspects of EU trade secrets law. It therefore goes beyond the scope of the Study, incorporating further reflections and discussions with scholars and experts that occurred after the Study was published. In Sect. 2 we outline the methodology of the Study. In Sect. 3 we synthesize, according to thematic headings, the main empirical findings of the Study and comment on whether they are expected or unexpected in the light of existing legal, management and economics literature on trade secrets. Finally, in Sect. 4 , we examine the implications of these findings for legal policy in relation to EU trade secrets law.

The article argues for a cautious approach when it comes to reform of EU trade secrets law, suggesting minor adjustments to the recitals of the TSD and instead preferring to wait for judicial guidance to emerge from national courts and the CJEU. In the meantime, however, there is interpretative guidance and practical help that the European Commission can offer, along with monitoring and revisiting the relationship of trade secrets law to other areas of law, such as contract, copyright and the sui generis database right.

2 Methodology

The key research question underpinning the Study was: to what extent can the legal protection of trade secrets help in creating a safe environment for business-to-business (B2B) data sharing? In seeking to answer this question a mixed methods approach was used by the research team. Footnote 22 The Study conducted a literature review (which dealt with the management, economics and legal literature) Footnote 23 and used quantitative and qualitative empirical approaches. The focus for the empirical research comprised four sectors Footnote 24 – automotive, pharma/life sciences, energy/utilities and financial services. These sectors were chosen to reflect a breadth of business activity (including services vs. product related) and an expected growing significance of data sharing. A fifth sector (“Other”) was added, though, to account for respondents who would not consider themselves as part of the aforementioned four sectors.

An on-line survey, using a standardized questionnaire, was conducted between September 2021 and March 2022. The survey was deployed using a variety of channels, including social media, contacting European industry associations to share the survey with their members, an active search of individual experts and utilizing the professional networks of the researchers. There were 84 responses received: 40% of the respondents were large enterprises with 250 or more employees. The second largest share was comprised of research organisations, Footnote 25 which make up 17% of the sample. Business associations accounted for 11% of responses. Only a few answers came from consultants (4%) and other types of organisations (2%, which are NGOs). In terms of the sectoral breakdown of respondents, the largest response rate came from the automotive industry (32.1%), followed by firms in health and life sciences (25%). Responses from the utility/energy (14.3%) and financial services sectors (11.9%) were low. In the “other sector” category was 35.7% of respondents, and these respondents came from chemistry, ICT, mechanical engineering, steel making, and semiconductor sectors, amongst others. Another factor to consider was that there was a tendency towards German-speaking countries (which made up 49% of the responses). This might be explained by the sampling procedure that favoured, to an extent, firms in the network of the research team. However, it must also be emphasised that Germany is the largest economy in Europe and accounts for around a third of patent applicants at the European Patent Office, for example.

In addition to survey evidence, 51 interviews were conducted between April 2021 and March 2022 with experts in trade secrets and/or data sharing, using a semi-structured interview guideline. Footnote 26 From these interviews, and based on additional documentary analysis, 13 case studies were developed. Footnote 27 A further source of evidence was the validation and dissemination workshop for the Study, which involved various stakeholders in the trade secrets and data sharing sphere.

The originality of the Study lies in the fact that it explores, from an empirical perspective, the connection between EU trade secret protection and shared confidential and commercially valuable (“CCV”) data. Footnote 28 While there have been studies that analyse the motives and barriers for sharing of data, they have not focussed on the role of EU trade secrets law. Footnote 29 Another study, from 2018, Footnote 30 which deals with data access and control in the era of connected devices, considers the role of trade secrets protection, however, this is solely from a legal doctrinal perspective. Thus, the empirical focus on trade secrets and CCV data sharing that is featured in the Study is an important and valuable contribution to the existing literature. The contribution of this article is to extract and analyse, thematically, the main empirical findings of the Study and consider their implications for future EU legal policymaking.

3 Main Empirical Findings

The empirical data are discussed in detail in the Study. Footnote 31 The purpose of this section is to highlight the main empirical findings according to thematic areas and to comment on whether these were surprising or not, in the light of existing legal, management and economics literature. The key themes, important from the perspective of trade secret protection, which emerge from the survey and interview data may be classified under five headings: (i) data sharing practices; (ii) legal and practical mechanisms to protect shared data; (iii) motives for relying on trade secret protection to protect data; (iv) understandings of trade secret protection; and (v) barriers to relying on trade secret protection.

3.1 Data Sharing Practices (Independent of Trade Secrets Protection)

The first set of empirical findings relate to data sharing practices independent of the role played by trade secrets protection. The Study found that sharing of CCV data is relevant to businesses, and is particularly pronounced in the automotive, life sciences and health industries. Footnote 32 As well, respondents anticipated an increased relevance of sharing CCV data in future. Footnote 33 The Study also found that classic data (such as know-how Footnote 34 ) was more of a use case for data sharing than novel types of data (e.g. sensor generated data). Footnote 35 In relation to novel types of data, the more relevant and valuable are processed, aggregated and structured data, compared with raw data. Footnote 36 Further, the major barriers for firms sharing CCV data include the risk of losing competitive edge and a risk of losing control over data. Footnote 37

These findings are not surprising. As data has become more important in the economy, so has interest in new ways of doing research and development, such as via open innovation. Footnote 38 Open innovation, defined by knowledge flowing across organisational boundaries, even within the company, supports innovation, Footnote 39 and is associated with higher levels of innovation and improved business performance. Footnote 40 Thus, it is expected that respondents indicated the present and increased future relevance of sharing CCV data. In terms of the risks associated with sharing CCV data, this is also unsurprising considering Arrow’s (information) paradox. Footnote 41 Arrow’s (information) paradox may be explained thus: to capture value from data, companies share data, often with collaborators and customers, but in doing so, companies must reveal their data for the other party to understand what they are purchasing. The very act of revealing reduces its value, as the other party now has sufficient information to have less need of the data. Finally, the fact that there is not yet a propensity of novel types of data being shared and that the least valuable type of data is raw data also accords with the literature. Footnote 42

3.2 Legal and Practical Mechanisms to Protect Shared Data

The next set of empirical findings relate to the legal and practical mechanisms that firms rely upon when sharing CCV data. A clear result is that, for respondents, contracts are the most important means to protect CCV data. Footnote 43 This is followed by intellectual property (“IP”) protection (defined to include patents, copyright and the sui generis database right) and information technology/cybersecurity measures. Footnote 44

The centrality of contracts to data sharing, followed by IP protection and technological measures, is a not unexpected result. Footnote 45 Contracts are flexible, bilateral tools that can be used to facilitate data sharing Footnote 46 and invariably, in the context of data sharing, include non-disclosure obligations. Footnote 47 Meanwhile, technological measures are practical ways of controlling access to data, and these can include passwords, access codes, security questions or encryption. Footnote 48 IP protection should also help address Arrow’s paradox because – in contrast to trade secrets protection – it offers exclusive property rights. However, it is surprising that respondents considered IP to be suitable for protecting CCV data. The IP schemes relevant to protection of data would be copyright and sui generis database right, yet these offer either a limited or uncertain scope of protection.

In relation to copyright, ideas, information and data per se are not protected, Footnote 49 rather it is the creative expression of an author that is protected. Footnote 50 The sui generis database right protects collections of data (as opposed to individual data). Footnote 51 Moreover, it is contingent on substantial investment in collecting, rather than generating, data. Footnote 52 This distinction is not straightforward to apply, Footnote 53 although it has been suggested that the “substantial” threshold is an easy one to satisfy. Footnote 54 Further, the line between generating and obtaining is a difficult one to draw in the case of connected devices and, while there has been some jurisprudence at Member State level to suggest that datasets of machine generated data would be protected, Footnote 55 the CJEU has yet to decide this issue. Footnote 56 This might explain why, in one interview, the opinion was expressed that the database right is relatively limited and should be clarified or broadened to include investment in the generation of data (including machine-generated data). Footnote 57

3.3 Motives for Relying on Trade Secret Protection

The empirical data also provide a window into why firms rely on trade secrets protection. The most important motive to use trade secrets protection for shared CCV data is to prevent misappropriation by third parties. Footnote 58 Closely linked to this is the reason of having an additional safety net, should protection via contract fail. Footnote 59 Thus, it is difficult to conclude that trade secrets protection has encouraged firms to share data. However, it does seem that the TSD has had some impact on firms’ activities, in so far as businesses have been prompted to review their legal, technical and organizational measures. Footnote 60 For example, one of our interviewees (a large manufacturer of machines used in factories) reported that after the adoption of the TSD it trained its staff to classify information as for the public, for internal use only, and as confidential information only to be seen by select persons within the company. Footnote 61 Training such as this would be relevant to identifying which CCV data is secret or not and help show that reasonable steps are taken for preserving secrecy.

Insofar as the empirical data points to reliance on trade secrets protection to prevent misappropriation of CCV data, this makes complete sense in light of the TSD, given that the directive requires harmonized protection of trade secrets via misappropriation, which it defines in Art. 4 as encompassing unlawful acquisition, use or disclosure of trade secrets and commercially dealing in infringing goods. Perhaps surprising, however, is that contracts are still seen as the primary mechanism for CCV data sharing while trade secrets protection is viewed as a “safety net”. The reason this is unexpected is because contractual regulation is bilateral in nature and offers only in personam protection, i.e. it does not extend to third parties. Whereas, EU trade secrets protection, even though it does not offer exclusive property rights, Footnote 62 can extend to third parties. This is indicated by the scope of unlawful acquisition, use or disclosure in Art. 4 of the TSD. In the case of unlawful acquisition, this can reach third parties because it covers acquisition without consent of the trade secret holder by unauthorized access to, or appropriation of, or copying of any items from which the trade secret can be deduced. In relation to unlawful use or disclosure, this can be triggered by use or disclosure consequent upon having acquired the trade secret unlawfully. Moreover, Art. 4(2) TSD makes clear that third parties can be liable where they had actual or constructive knowledge that the trade secret had been obtained directly or indirectly from another person who was using or disclosing the trade secret unlawfully.

Finally, the fact that some (but not all) firms have instituted new protocols or training in response to the TSD is not unexpected. After all, the TSD is newly harmonized EU law and one that makes protection contingent on the existence of a trade secret, which in turn requires, inter alia, “reasonable steps” for preserving the secrecy of the information. Thus, one might expect firms to consider how best to comply with the regulatory change, for example, by assessing what mechanisms they have in place for maintaining the secrecy of their CCV data and to revise these where necessary. On the other hand, incorporating regulatory change is often complex for firms to grasp Footnote 63 and so this is likely to account for the fact that only some of our respondent firms had changed their internal processes in response to the TSD.As Dr Freij points out (more generally, rather than in relation to trade secrets law), there is a research gap in “what firms do to manage implementation of new requirements after a change has been introduced”. Footnote 64 Our empirical data hints at what firms have done, but a more thorough investigation into how the requirements of the TSD have been incorporated into firms behaviour could be pursued in future.

3.4 Understandings of Trade Secrets Protection

The empirical data also reveal interesting results about the level of familiarity with, and understanding of, trade secrets protection. Amongst respondents there were mixed levels of familiarity with trade secrets, with the health and life sciences sector having the greatest familiarity. Footnote 65 A clear point of uncertainty that emerges from the data relates to the meaning of “trade secret” and what might qualify as a “trade secret”. Footnote 66 This uncertainty was said to be compounded by a lack of developed jurisprudence relating to the TSD. Footnote 67 Despite varying levels of awareness of trade secrets, the data also indicates that this type of protection is frequently claimed. Footnote 68

The lack of understanding of what constitutes a “trade secret” is both surprising and unsurprising. It is surprising insofar as the definition of “trade secret” is not new. Article 2(1) TSD is comparable to Art. 39 of the Agreement on Trade Related Aspects of Intellectual Property Rights (“TRIPS”), which has existed in international law since 1994. Further, Art. 2(1) TSD broadly reflects a “recurrence of certain common requirements” that existed in Member States laws prior to harmonisation. Footnote 69 Moreover, there is developed, comparative jurisprudence of what constitutes a “trade secret” in the United States Footnote 70 and Japan, Footnote 71 where very similar definitions of “trade secret” are in operation.

The response is unsurprising, however, for two reasons. The first is that EU industry participants may not feel confident in assuming that the CJEU or national courts in Member States will take an approach similar to that which was taken previously in Member States, or which is taken in other jurisdictions. Second, comparative jurisprudence tends to focus on know-how and information generally and has not yet grappled with the complexities of how trade secrets law applies to the data economy. The applicability of trade secrets to the data economy is still relatively untested and unexplored in litigation, although it is an emerging area of scholarship. Footnote 72

It is also unsurprising that there is limited European jurisprudence on the meaning of “trade secret”. The TSD was adopted in 2016 and the deadline for implementation was 9 June 2018. Therefore, we are looking at a relatively recently implemented law and one whose operation has occurred through the tumult of the COVID-19 pandemic. Moreover, trade secrets tend to be less frequently litigated than IP rights (such as patents or trade marks) Footnote 73 and references on the TSD are likely to take some time to appear before the CJEU. Footnote 74 Finally, while there is emerging jurisprudence from national courts in the EU, this has not yet tackled the specifics of the data economy. Footnote 75

Finally, it makes sense that despite the uncertainty about what constitutes a trade secret, this type of protection is still claimed by organisations. This is because the definition of “trade secret” is broad: as indicated by recital 14 TSD, it includes technical information, know-how and business information. Provided the elements of secrecy, commercial value and reasonable steps are met, then there is nothing that prima facie precludes data (in the semantic sense) from being protected. Footnote 76 Moreover, trade secrets protection is an unregistered right and, as such, there is no formal process for obtaining protection (as compared with patents or trade marks). As such, there is limited risk in asserting trade secrets protection, unless such an assertion is made in bad faith as part of litigation, Footnote 77 and whether there is a protected trade secret will only be fully tested through litigation, in much the same way as we see in copyright law when it comes to whether there is a protected work.

3.5 Barriers to Relying on Trade Secrets Protection

The final theme to emerge from the empirical data relates to barriers to firms relying on trade secret protection when it comes to data sharing. The major, reported barriers relate to enforcement; specifically, the difficulty of tracking or controlling the use of shared CCV data; the difficulty of assessing whether a trade secret has been misappropriated; and unclearness about whether legal enforcement of trade secrets is efficiently and effectively possible. Footnote 78

In addition, respondents expressed concern about cross-border sharing of CCV data with China and the United States. This is attributed to inadequate protection of trade secrets and difficulties of enforcement. Footnote 79 Another challenge that was raised is when CCV data is carried over by former employees to a new employer. Footnote 80 The difficulties are identifying such instances and ascertaining the appropriate actions to be taken in response.

The findings on barriers to relying on trade secret protection have surprising and unsurprising elements. The surprising aspect of these results relates to cross-border sharing with the United States, in particular the perception that there is inadequate trade secret protection and difficulties of enforcement. This was an unexpected finding insofar as one can point to the United States as having very developed state and federal laws governing trade secrets. At state level, there is the Uniform Trade Secrets Act, which has been adopted by 47 states and forms the backbone of trade secrets law in the United States. Footnote 81 In addition, there is federal trade secrets law in the form of the Economic Espionage Act 1996, Footnote 82 which was amended in 2016 Footnote 83 to include civil redress alongside the existing criminal provisions. Footnote 84

As well, it is surprising that there are concerns about the effectiveness of legal enforcement in the EU, given that a central plank of the TSD was to provide a harmonized, effective framework for enforcement Footnote 85 that, in key (but not all) respects, mirrors that available in the IP Enforcement Directive. Footnote 86 The TSD requires Member States to provide for a significant array of civil remedies, including interim measures (Art. 9), final measures (Art. 10), damages (Art. 13) and publication of judicial decisions (Art. 14). Given these are comparable in several respects to the Enforcement Directive Footnote 87 one might have expected more confidence in the enforcement mechanisms.

There are four reasons that might account for the lack of confidence. First, to the extent that there are similarities between the TSD and Enforcement Directive, there has been only a small body of CJEU jurisprudence on the latter Footnote 88 and so only a limited amount of judicial guidance has emerged at this stage that can be “transplanted” to the TSD. In any case, it may be questionable whether it is appropriate to transplant that jurisprudence because the Enforcement Directive and TSD are separate instruments and, where there is overlap, the TSD takes precedence as lex specialis. Footnote 89 Second, to the extent that there are variations between the Enforcement Directive and TSD, Footnote 90 the CJEU has not explicated those features unique to the TSD. Footnote 91 For example, there is not yet an interpretation of the scope of who is the “trade secret holder”, which determines who has standing to sue, or about the factors relevant to proportionate remedies. Third, for some jurisdictions, the gap between previous law and implemented EU law is rather significant. Footnote 92 In such jurisdictions, there is bound to be less awareness and familiarity with how enforcement will occur for trade secrets. Whereas, for those jurisdictions whose enforcement measures were already largely compliant, this is less likely to be the case. Footnote 93 Finally, there is the fact of variation in national implementation of the enforcement measures. For example, there has been mixed implementation of Art. 9 of the TSD, which relates to preservation of confidentiality of trade secrets during litigation. To illustrate, the Czech Republic did not implement Art. 9 when implementing the TSD through Act No. 286/2018 because it relied on existing national rules that allow a judge to preclude the public from proceedings and to instruct persons to maintain the confidentiality of all trade secrets which they have heard during proceedings. Footnote 94 However, this leaves open the question of access to, and use of, court documents that contain trade secrets, which is covered by Art. 9 of the TSD. By way of contrast, in the United Kingdom (which implemented the TSD before Brexit), Art. 9 of the TSD was fully implemented, even though English procedural law already provided adequate protection. Footnote 95

The other concerns about enforcement reflected in the empirical data are less surprising. In relation to fears of inadequate protection and enforcement in China, this has some basis. As Jyh-An Lee, Jingwen Liu and Haifeng Huang have discussed, Footnote 96 despite China bolstering its trade secret protection through amending its laws, Footnote 97 this has not yet translated into more effective enforcement. Footnote 98 The authors conducted an empirical study of trade secrets litigation in China from the period 2010–2020 and found that the win rate of claimants has been relatively low, with unsatisfactory damages awards and only a small proportion of cases involving foreign claimants. However, the authors also point out that there have been amendments to the procedural law in 2019 that should assist foreign claimants in future years. Footnote 99 Therefore, we might expect greater confidence in data sharing with China in future. Footnote 100

Finally, the other concerns raised about enforcement relate to legitimate and predictable practical difficulties – such as tracking or controlling the use of the shared CCV data; the difficulty of identifying when a trade secret has been misappropriated, including when it has been used to produce infringing goods; and employee transfer or leakage of trade secrets. Here, the mechanisms for dealing with these concerns are more likely to be managerial or organizational, rather than legal. Footnote 101 Thus, the relevant issues regarding enforcement are likely to relate to technical and managerial ways of organizing and tracking data usage (and thus misuse), along with managerial improvements (such as education, training and clear data governance structures) to help minimize employee leakage.

4 Implications for EU Trade Secrets Policy

In this section, we consider what lessons should be taken from our empirical findings when it comes to future EU policymaking for trade secrets protection. In response to the empirical findings, our recommendations relate to three areas: (i) clarification of the definition of trade secret; (ii) complementarity between trade secrets and other protection regimes; and (iii) effective legal enforcement. We argue that, while there are some minor, legislative improvements that could be initiated in relation to trade secrets, for the most part, it is a matter of preserving the status quo and allowing for jurisprudence to develop. Alongside this, information gathering about implementation of the TSD and workshops to increase knowledge and awareness of best practices would be helpful. It will also be important to ensure that the flexibility trade secrets protection allows when it comes to data sharing is not undermined by complementary forms of protection, such as contract, copyright and the sui generis database right. To that end, there needs to be serious consideration of abolition or reform of the database right.

4.1 Clarification of the Definition of Trade Secret

Respondents across all industries indicated uncertainty about what would qualify as a trade secret in the data economy. This raises the question of whether to modify the legal definition of trade secret, in order to provide greater clarity about its application to data. Our answer is that it would not make sense to amend the definition, but that it might be useful to indicate some features of how the definition applies in the data economy using recitals or soft law guidance.

First, let us consider the existing definition in Art. 2(1) of the TSD, which states that, to qualify as a trade secret, information must meet the following requirements:

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;

it has commercial value because it is secret;

it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

It is clear, by reference to “information” that protection is at the semantic and not syntactic level Footnote 102 and that, according to recital 14 TSD, the type of information that can be protected is broad. What our respondents struggled with, it seems, are the subsequent questions of whether the information has “commercial value” and whether there have been “reasonable steps” taken to protect secrecy. However, before turning to “commercial value” and “reasonable steps”, we briefly deal with the first requirement – i.e. “secrecy” because “secrecy” is the link between all three requirements.

4.1.1 Secrecy

The first thing to note is that information does not have to be secret in an absolute sense – relative secrecy will suffice. This is because Art. 2(1)(a) TSD refers to where information is not “generally known” or “readily accessible” to persons within the relevant circles (i.e. “persons within the circles that normally deal with the kind of information in question”). When considering the data economy, it therefore will be important to distinguish between information which is secret and that which is not. In relation to this, it is worthwhile keeping in mind that data generated from connected devices or data drawn from public sources is unlikely to satisfy the “secrecy” requirement. Therefore, while data may be valuable, this value may not (as discussed below) always arise because of the status of the information as “secret”. Footnote 103 Moreover, this requirement for protection places a natural restriction on how much sharing of data is possible – too much sharing and eventually the data will become generally known or readily accessible, although what counts as “oversharing” will depend on the context (the circles normally dealing with that type of information). Footnote 104

4.1.2 Commercial Value

Article 2(1)(b) of the TSD requires information to have “commercial value because it is secret”. Recital 14 of the TSD elaborates upon the meaning of “commercial value” and indicates that it may be “actual” or “potential”. Further, that:

know-how or information should be considered to have a commercial value, for example, where its unlawful acquisition, use or disclosure is likely to harm the interests of the person lawfully controlling it, in that it undermines that person’s scientific and technical potential, business or financial interests, strategic positions or ability to compete.

Recital 14 indicates that “value” may be assessed by the harm caused by trade secret misappropriation, where harm is conceptualised broadly as undermining various interests – whether they be technical, business, financial, or the ability to compete. In other words, the example is framed as if there was misappropriation (i.e. acquisition, use or disclosure of this information without permission), would the person lawfully controlling the trade secret be in a less competitive position, or lose money, custom, goodwill, etc. To put the question in its positive sense, it requires asking whether the information provides an advantage vis-à-vis its competitors. However, recital 14 overlooks a key element of the definition in Art. 2(1)(b) TSD, namely, that there must be commercial value because the information is secret as opposed to commercial value per se. Thus, an interpretation of commercial value must include not just the competitive advantage bestowed by the information (or the harm caused if it were misappropriated), but the fact that this advantage (or harm) arises because the information is secret.

If we turn to consider how “commercial value” relates to the data economy it seems unlikely that individual data will satisfy this requirement. Footnote 105 On its own, individual data, such as a particular measurement or reading of a connected device relating to fitness, health, utilities, or cars, is not useful or meaningful in isolation, because the sensors on interconnected devices typically produce data that involve little semantic information. Further, the purpose of the TSD is to stimulate innovation and knowledge sharing and it is hard to imagine how individual or isolated data would contribute to that aim. Rather, it is only when individual data are combined into individual-level datasets (e.g., all data generated by a particular connected device) or aggregated datasets (all data generated by a multiple of connected devices) that such value may arise. Footnote 106

In the case of individual level datasets generated from connected devices, access to such information by competitors does not necessarily destroy the competitive advantage of the manufacturer of the device. The exception is where the data relates to the technical functioning of the device and helps the manufacturer to improve the device and provide maintenance services (i.e. when the raw data becomes derived or inferred data). Footnote 107

In the case of aggregated datasets, there are well-developed markets for non-personal data, relating, for example, to financial or commodities markets, credit scoring, weather, car matriculation data and geo-location data. Footnote 108 Where specific markets exist for such diverse data, it may be possible to show that unlawful acquisition, use or disclosure of aggregated datasets undermines the trade secret holder’s business or financial interests, or its ability to compete. Even where markets for data do not yet exist, potential commercial value might nevertheless be established. However, it is important to ensure that such information has secrecy and commercial value because of that secrecy . It may be that data generated from connected devices (such as smart meters that track energy consumption), or gleaned from public sources (e.g. public records to ascertain information about bankruptcy, judgment debts or tax liens or social media in relation to credit scoring) lacks secrecy, Footnote 109 and the aggregated version of this type of data will not change this status. Thus, while the data may have commercial value, this is not because of the secrecy of that information, as required by Art. 2(1) of the TSD.

Another consideration is whether datasets used to train AI may be protected as trade secrets. To the extent that much of the data is drawn from public sources, this is unlikely to be the case. Footnote 110 Further, in instances where there is widespread availability of datasets, the secrecy requirement will not be met. Footnote 111 To the extent that there is investment in “labelling” the training data for supervised learning, the dataset is more likely to reach the level of commercial value. Footnote 112 But this does not mean that there is commercial value due to secrecy. If anything, the commercial value (i.e. competitive advantage) arises because the data can now be more effectively used. The same goes for where the dataset has been “cleaned” of redundant data.

When it comes to what qualifies as a trade secret in the data economy, it seems clear that individual data and raw (or unprocessed), predominantly machine-generated data will not be protected. Individual and aggregated datasets, however, are less straightforward if they are inferred or derived data and protection will depend on whether the data within is drawn from publicly or widely available sources (and thus is not secret) or from restricted sources. Even if the information is secret, commercial value must be causally connected to secrecy, as opposed to the usefulness of the data. These assessments of secrecy and commercial value will be context specific and difficult to set out as legislative rules. Thus, it does not seem wise to amend the definition of trade secret to try and reflect these different scenarios. Instead, it is preferable that any uncertainties are resolved through judicial interpretation. That said, it might be useful to provide guidance on the scope of the definition through the recitals to the TSD. Here, at the very least, a statement could be inserted that “individual data, raw (or unprocessed) data will not be protected” and recital 14 of the TSD could emphasise that commercial value must be due to secrecy. Footnote 113

One legislative amendment that would be useful to make relates to the proposed Data Act Footnote 114 and its interface with trade secrets. The proposed Data Act creates mandatory data sharing obligations in particular instances. Footnote 115 According to recital 14 of the proposed Data Act, it will only apply to raw data generated or collected by connected devices, and will not apply to derived or inferred data. Footnote 116 However, as discussed above, raw data from connected devices is unlikely to qualify as a trade secret either because it lacks semantic meaning, or secrecy (where it is exchanged on large data sharing platforms) or commercial value due to secrecy . Footnote 117 Whereas, it is only when the raw data is processed to produce derived or inferred data, or aggregated into larger datasets, that commercial value will occur and, even in those instances, the competitive advantage must arise from the secrecy of the data. Thus, it appears that the data access obligations in the proposed Data Act would not clash with the trade secrets interests of data holders. If this is the case, then it is hard to see what role certain provisions – such as Arts. 4(3), 5(8), 17(2)(c) and 19(1) of the proposed Data Act – would have to play. Some commentators have remarked that the fact that the proposed Data Act is limited to raw data of the user (even if this can be a mixture of personal and non-personal data, and dynamic in nature) is highly problematic to achieving its aims. Footnote 118 As such, it is recommended that the proposed Data Act be amended to include inferred and derived data, and even the aggregated dataset of multiple users. Footnote 119 If this were the case then the purpose of the proposed Data Act would be better fulfilled, including the efficacy of Arts. 4(3), 5(8), 17(2)(c) and 19(1) which govern the interface with trade secrets. In this situation, it would be helpful also if, in the recitals to the proposed Data Act, it is clarified that “individual data, raw (or unprocessed) data will not be protected be as a trade secret”.

4.1.3 Reasonable Steps

The empirical data also raises the question of whether greater clarity can be provided on the requirement of “reasonable steps” to maintain secrecy. In determining what constitutes “reasonable steps”, there are questions about whether the assessment will be subjective, according to the circumstances of the business involved and the cost of those measures to that business, or whether it will be objective, measured by the usual protective measures that are adopted in the sector. There is only limited European jurisprudence so far, at the Member State level. Footnote 120 More extensive case law on this topic exists in the United States, and U.S. commentators have indicated that the rationale behind this requirement is to give notice to third parties that the information is subject to legal protection. Footnote 121 “Reasonable efforts”, as it is known in U.S. trade secrets law, requires a “highly factual and contextual analysis” and is treated as a question of fact. Footnote 122 Reasonable measures do not require absolute secrecy, but relative secrecy, and there is a weighing up of the nature and value of the putative trade secrets and the cost of precautions to the putative trade secret holder. This suggests that the greater the value of the trade secret, the higher the standard of “reasonable measures”. In short, U.S. trade secrets law takes a relative, contextual and subjective approach to “reasonable measures” – i.e. analysing the type of trade secret in the context of the trade secret holder’s business. Footnote 123

It is likely that national courts in EU Member States and the CJEU will adopt a similar approach to that in the U.S., Footnote 124 although there may still be a low, objective threshold that needs to be met, regardless of the type of business. For example, if a business decides to share data, a baseline “reasonable step” could be to use a non-disclosure agreement or non-disclosure obligations and to include a term requiring the licensee to take reasonable steps to ensure the information remains secret. In the case of digitally stored data, a minimum reasonable step could be to use technological protection measures to control access to that data. In anticipation of judicial clarification of “reasonable steps”, are there legislative amendments that should be made to provide more guidance to industry? We would advocate against prescribing in the statutory definition of “trade secret” what constitutes reasonable steps. This is because “reasonable steps” is a flexible standard that can be adjusted to a wide variety of contexts. To start articulating what constitutes “reasonable steps” would undermine this flexibility.

However, there is useful guidance that can be gleaned from U.S. case law about the types of measures that may be evidence of reasonable efforts. These are both internal and external to the organisation, such as: (i) use of non-disclosure or confidentiality agreements; (ii) restricting access to information; (iii) measures taken in relation to employees and ex-employees (e.g. exit interviews and terminating access to information systems once left); (iv) technological security measures; (v) physical security measures; and (vi) identifying and labelling information as confidential or trade secrets. Footnote 125 Also, the size of the organisation may impact what constitutes “reasonable steps” Footnote 126 and its level of sophistication may affect whether such steps are taken. Footnote 127 While there is evidence to suggest that industry is already taking many of these steps, this is not happening across the board. Therefore, as opposed to trying to crystallise “reasonable steps” in the legislative definition of “trade secret” in the TSD, it is suggested that a more practical approach is taken. For example, the European Commission, after holding relevant stakeholder meetings, could issue guidance (in the form of interpretative soft law Footnote 128 ) about the range of “reasonable steps” that may be taken. Further, the European Commission might consider hosting specific workshops for stakeholders to encourage industry dialogue about the practices that are routinely adopted in relation to maintaining the secrecy of their data.

4.2 Complementarity Between Trade Secrets and Other Protection Regimes

The empirical data revealed that contractual means are routinely used for protecting CCV data. For many industry participants, contractual measures are both essential and prevalent because they can be tailored to determine access and sharing and the obligations of how to handle data. A variety of contracts may be used, but what they have in common, it seems, are non-disclosure obligations in relation to CCV data. As well, our empirical findings show that IP rights, such as copyright and the sui generis database right, are seen as key legal tools for protection of CCV data. It is therefore important that complementarity between trade secrets and these different legal regimes of protection – contract, copyright and database right – is maintained. Footnote 129 We explore below how this might be better achieved.

4.2.1 Contract

In relation to contracts, the TSD is unlikely to disrupt the influential role of contractual agreements when it comes to data management and sharing. This is for several reasons. First, the TSD assumes that the protection it creates is in addition to that available under contract law. While the TSD is agnostic about the legal means of implementation (provided it does not create a property right as per recital 16), contract law would not suffice fully to implement the obligations in the Directive. Therefore, it is clear that contract sits alongside the obligations in the TSD. Second, use of contractual measures, such as non-disclosure agreements, confidentiality obligations on employees, or confidentiality obligations in transfer agreements, will be crucial for helping to establish the “reasonable steps” requirement for protection as a trade secret under Art. 2(1) of the TSD. Third, contractual obligations are a key means for determining when there is unlawful acquisition, use or disclosure of a trade secret under Art. 4 of the TSD. As such, contractual protection reinforces elements of EU trade secrets law. There is a mutuality that seems positive, and which should be continued.

That said, there are two areas where complementarity is harder to preserve. The first is the extent to which contractual measures can legitimately undermine or circumscribe lawful acts under Art. 3 of the TSD. The second is where contract leads to “overclaiming” of trade secrets protection. This refers to where contract is used to claim protection for information as “trade secrets”, even though such information would not satisfy the legal definition “trade secret”.

Turning first to the issue of contractual override of lawful acts, this arises in the case of reverse engineering in Art. 3(1)(b) of the TSD. This provision states that trade secret acquisition

shall be considered lawful when the trade secret is obtained by … (b) observation, study, disassembly or testing of a product or object that has been made available to the public or that is lawfully in the possession of the acquirer of the information who is free from any legally valid duty to limit the acquisition of the trade secret.

In cases of lawfully in the possession of the acquirer of the information, there must be no legally valid duty to limit the acquisition of the trade secret. Recital 16 of the TSD elaborates on this requirement, indicating that: “Reverse engineering of a lawfully acquired product should be considered as a lawful means of acquiring information, except when otherwise contractually agreed . The freedom to enter into such contractual arrangements can, however, be limited by law.” (emphasis added)

Although recital 16 suggests that there could be contractual override of all lawful acquisition by reverse engineering, when read together with Art. 3(1)(b) it seems clear that this is directed to instances where a person is in lawful possession of a product. In other words, it appears that agreements to hire, rent or license products could contain a provision that precludes study or disassembly for the purposes of reverse engineering. However, it is possible for Member States to limit the freedom to enter into such contractual arrangements. The same does not appear to be the case for contracts of sale and, by implication, this suggests that it is not possible contractually to override reverse engineering of products purchased on the open market. Footnote 130 To give an example, a purchaser of an autonomous vehicle could legitimately pull it apart to understand how the vehicle operates (in terms of physical and IT engineering) without this constituting unlawful acquisition of a trade secret. However, to the extent that an autonomous vehicle is rented or hired by a third-party organisation, the manufacturer of the vehicles could prohibit those third parties from any kind of disassembly or study of the vehicle that enables it to understand its functioning.

From a normative perspective, contractual restrictions on lawful acquisition by reverse engineering are problematic where the product is software, Footnote 131 because this creates an apparent inconsistency with copyright law, which makes exceptions for reverse engineering and decompilation imperative as a matter of EU law . Footnote 132 However, it can be argued that the Software Directive is lex specialis and so this potential conflict would not really arise. Footnote 133 Alternatively, it can be argued that, to the extent that software includes CCV data, reverse engineering should also be imperative as a matter of trade secrets law, in order to avoid undermining the reverse engineering copyright exception. Footnote 134 Another argument is that a person is not “free from any legally valid duty to limit the acquisition of the trade secret” (as stated in Art. 3(1)(b) of the TSD) where to do so would be contrary to the copyright rules for software (specifically, Art. 8 of the Software Directive which makes contractual override of reverse engineering or decompilation of software null and void). Footnote 135 To the extent that there is contractual override of reverse engineering for non-software products, whether this is problematic is likely to depend on whether such prohibition will undermine the innovation and price competition flowing from reverse engineering. Footnote 136

Our empirical findings did not suggest that contractual restrictions on reverse engineering of lawfully acquired products were regularly in use, or, if they were in use, were currently having a deleterious effect on access to, or sharing of, CCV data. Nevertheless, it would be advisable for the EU Commission to monitor this situation, particularly since Member States may take different approaches to whether contractual override of reverse engineering in the case of lawful possession of a product is permissible.

Another issue is the extent to which contract may contribute to “overclaiming” of trade secrets protection. To understand this, we must appreciate that those who factually have control over data can assert “ownership” of the data as a trade secret via contractual agreements. While there are objective requirements under Art. 2(1) of the TSD, these are not assessed ex ante, as occurs with registered IP rights, such as patents. Therefore, it is possible for a data holder to assert, in a transfer, licensing or non-disclosure agreement, that the data they control and are sharing is a “trade secret”, even where the data is not secret, lacks independent economic value or has not been subject to reasonable steps for protection. In other words, contract allows data that is factually secret – as opposed to a trade secret – to be preserved and monetised.

Several observations can be made about this tendency. The first is that the uncertainty about whether the objective criteria of “trade secret” are satisfied in the context of the data economy (in conjunction with the lack of ex ante assessment) contributes to the tendency to assert trade secret “ownership” of data in contractual arrangements. Second, to the extent that the data is not a trade secret, this will mean that “ownership” can only be effectively enforced between the contractual parties – it will not be possible to enforce the protection in the TSD against third parties. However, this fact may not preclude a data holder from asserting trade secrets protection, which can, ultimately, only be tested by litigation. This creates a risk of third parties being sued for trade secret misuse (even if the courts do not ultimately uphold the claim), which in turn may generate more conservative behaviour on the part of third parties when it comes to data sharing. Thus, it is important that the application of the TSD to the data economy is clarified. Judicial interpretation has the advantage of flexibility and a context-sensitive approach; however, it may take considerable time for jurisprudence to develop. Therefore, in light of the potential negative impacts of “overclaiming” trade secrets protection when it comes to the data economy, at the very least, it would be advisable to follow the recommendation made previously, of clarifying in the recitals to the TSD that trade secrets do not apply to individual data, or raw/unprocessed data.

The use of contract to regulate access to information – even where it may not satisfy the requirements of Art. 2(1) TSD – also means that the checks and balances of trade secret law, particularly in Arts. 3 and 5 – can be circumvented. Footnote 137 More attention therefore needs to be paid to whether those checks and balances should be applicable to factually secret data that does not reach the threshold of “trade secret”. This is a policy issue that warrants further investigation by the European Commission.

4.2.2 Copyright

As was mentioned above, copyright is likely to have limited application when it comes to data because the focus of protection is creative expression – facts, ideas and information are not protected. Footnote 138 It is worth, however, expanding on two aspects of copyright law: copyright databases and software.

According to EU copyright law, databases are protected by copyright if “the selection or arrangement of their contents, constitute the author’s own intellectual creation”. Footnote 139 The protection does not extend to the contents themselves, but only their “selection or arrangement”. An author’s own intellectual creation in the context of databases refers to “free and creative choices” and stamping a “personal touch” Footnote 140 and this “criterion is not satisfied when the setting up of the database is dictated by technical considerations, rules or constraints which leave no room for creative freedom”. Footnote 141 Thus, it is fair to say that copyright protection of databases does not extend to underlying data or information. Moreover, protection would only arise where there are creative choices in the selection or arrangement of data. In the context of the data economy, it is unlikely that these requirements will be fulfilled. Footnote 142 This is because the data collected is likely to be comprehensive, and so little “selection” will be involved, and the arrangement of the data will be frequently dictated by technical choices. Footnote 143 Moreover, one could argue that with connected devices the data is computer generated rather than human generated and, as such, there is an absence of an author. Footnote 144

Turning next to consider software, it is clear this type of subject matter is protected as a literary work. Footnote 145 In EU copyright law, it is also evident that copyright does not extend to the ideas and principles underlying any element of a computer program. Footnote 146 As such, it appears that software that may drive machine learning or other data analysis will be protected by copyright, but not the underlying data on which it operates. However, there is one potential problem, namely, whether copyright protection for application programming interfaces (APIs) “can cause and aggravate data lock-ins”. Footnote 147 This risk arises because APIs are crucial for interoperability of data formats and thus, in turn, for data portability and, if this type of software is copyright protected, the owner could control its use. Footnote 148 In the United States, the copyrightability of APIs was assumed by the Supreme Court in Google LLC v. Oracle America Footnote 149 although the court went on to find that the defendant’s copying of the API was fair use. Footnote 150 It is debatable whether APIs are protectable in the EU. There is no CJEU ruling squarely on the issue, the closest being SAS Institute Inc v. World Programming Ltd. Footnote 151 While the Court in SAS Institute held that “neither the functionality of a computer program nor the programming language and the format of data files used in a computer program in order to exploit certain of its functions constitute a form of expression of that program”, Footnote 152 it also indicated that this finding did not preclude the possibility that programming languages and data file formats might be protected as works under Directive 2001/29 if they resulted from an author’s own intellectual creation. Footnote 153 However, it can be argued that the technological constraints that shape APIs mean that creative choices are unlikely to be present, such that copyright does not arise. Footnote 154 Still, the issue has not been definitively resolved in the EU and so some doubt remains. Importantly, if APIs were held to be copyright protected in the EU, the existing interoperability exceptions in the Software Directive – i.e. reverse engineering and decompilation Footnote 155 – would not suffice. Thus, it may be that the Software Directive needs future amendment in order to include a data interoperability exception. Footnote 156

It is argued that the existing boundaries within copyright law – of non-protection of ideas and facts and protection only of creative expression and, in the case of copyright databases, creative selection or arrangement of contents – are appropriate because they allow for the “free flow of information”. Footnote 157 As well, it would be contrary to the rationales of copyright law to extend protection beyond creative expression to ownership of data. This is because copyright is usually justified as either an incentive to invest in creative expression or as a reward for that expression because it reflects the author’s labour or personality. Footnote 158 Moreover, to the extent that copyright in software could prove an obstacle to data interoperability, it is important to investigate whether a new or revised interoperability exception is needed. Footnote 159

In summary, it is suggested that the current boundaries to copyright protection are important vis-à-vis the purpose of copyright, but also to ensuring that there is no problematic overlap with trade secrets protection. Footnote 160 However, it will be important to monitor whether copyright protection of software unduly interferes with data interoperability.

4.2.3 Database Right

As was discussed above, the sui generis database right creates a property right in collections of data that are the result of substantial investment. The existence and scope of the database right has long been contentious Footnote 161 and this continues to be the case when one considers the data economy. Footnote 162 For example, the 2018 Final Report evaluating the Database Directive suggests this protection scheme is unsuitable and out-dated for a data-driven economy. Footnote 163 The Final Report notes uncertainties regarding the applicability of the sui generis database right to machine or sensor generated data, the identification of the database maker, and whether new types of activities, such as web scraping, amount to infringement of the database right. It also considers – without firmly recommending – introducing a compulsory licensing system for sensor-produced databases. Footnote 164 On this latter point, some scholars have advocated for compulsory licenses, in relation to sole source databases, including those that have not been published, on condition of fair and non-discriminatory remuneration. Footnote 165 Others, however, are sceptical about the value of a compulsory licensing system for dealing with “data lock-ins that result from de facto data control” and call instead for a focus on data access rights that prevail over any database right. Footnote 166

Some of the concerns about the breadth of database right protection, borne from earlier CJEU rulings, Footnote 167 have been addressed by the ruling in CV-Online Latvia v. Melons . Footnote 168 While the Court maintained a broad interpretation of “extraction” and “reutilisation”, it sought to balance the substantial investment of database makers and the legitimate interests of database users, such as to create innovative products, by stating that the extraction or re-utilisation must constitute “a risk to the possibility of redeeming that investment”. Footnote 169 Meanwhile, the suggestion of data access rights that override the sui generis database right has been adopted in Art. 4(1) of the proposed Data Act, which places an obligation on a data holder to make available to the user the data generated by the user’s use of a product or related service (where this cannot be directly accessed by the user). Further, Art. 5(1) of the proposed Data Act obligates a data holder to make data generated by the use of a product or related service available to a third party acting on behalf of a user. Importantly, Art. 35 of the proposed Data Act states that, in order not to hinder Arts. 4 and 5, the sui generis database right “does not apply to databases containing data obtained from or generated by the use of a product or a related service”. This seems to be a lex specialis provision and one that has been welcomed, albeit with various suggestions for improving clarity. Footnote 170

From the point of view of ensuring complementarity between trade secrets and database right protection in the data economy, it would be a pity to undermine the flexible, unfair competition type regime offered by trade secrets with a property-based regime that has the propensity to foster data lock-ins. Therefore, it is argued that the proposed Data Act adopts the correct structural approach of overriding the sui generis database right when it conflicts with mandatory data access and sharing obligations. However, it could be argued that reform should go further, and the sui generis database right should be repealed. This is because – according to European Commission studies – the right is of questionable value, with no evidence of positive impact since its introduction. Footnote 171 In the absence of this more radical step, which admittedly might give rise to concerns about whether this is contrary to Art. 17(2) of the EU Charter of Fundamental Rights, it is worth considering legislative amendments to the Database Directive to clarify what sorts of investments are applicable (and non-applicable) to the database right Footnote 172 and to codify infringement principles according to the CJEU ruling in CV-Online. Footnote 173 As well, the exceptions to the database right should be further aligned with those in copyright law Footnote 174 (which has been achieved to some extent via the Digital Single Market Directive) Footnote 175 and a compulsory license provision should be introduced. Footnote 176

4.3 Effective Enforcement

As discussed above, concerns about whether there is an adequate legal framework for enforcement of trade secrets are generally misplaced, except in relation to data sharing in China (although this looks likely to improve). Therefore, it does not seem that legislative changes are needed when it comes to EU trade secrets enforcement. Rather, the challenges relate to awareness and understanding of the new enforcement framework in EU trade secrets law and practical difficulties associated with enforcement (e.g. identification of misappropriation).

A better understanding of the trade secrets enforcement framework will occur once national court and CJEU jurisprudence emerges, although this may take some time. In the interim, it would be helpful for the European Commission to undertake a systematic mapping of how the enforcement provisions of the TSD have been implemented in different Member States, in order to identify whether there is compliance, but also where there might be variation. In addition, educational or awareness raising workshops could be useful, particularly in those Member States where there have been significant changes to procedural law as a result of the TSD. On the practicalities of enforcement, it may be helpful to arrange best-practice workshops in order to encourage greater industry knowledge about the most effective measures to track and identify trade secret misuse, and to share ways in which to best manage employees in order to ensure effective data governance and avoid leakage.

In other words, our recommendation is that the concerns about legal enforcement of trade secrets require pragmatic rather than legal responses at this stage.

5 Conclusion

The empirical data from our Study constitute an important and original contribution to the legal, management and economics literature on trade secrets and the data economy. This article has distilled that empirical data into the following thematic areas: CCV data sharing practices (independent of trade secrets protection); legal and practical mechanisms to protected shared data; motives for relying on trade secret protection; understandings of trade secret protection; and barriers to relying on trade secret protection. The major findings are first, independent of trade secrets protection, CCV data sharing is highly relevant to businesses but a major barrier to doing so is the fear of losing control over the data and a competitive edge. Second, the primary legal mechanism relied upon by businesses when sharing CCV data is contract law, followed by IP rights, such as copyright and database right. Trade secrets remain a relevant form of legal protection, primarily when contract fails or in the event of a misappropriation by third parties. Third, despite our respondents seeing the relevance of trade secrets, there is unfamiliarity with trade secrets law, in particular, uncertainty about the scope of the definition of “trade secrets”. Finally, the major barrier to relying on trade secrets was said to be difficulties of enforcement.

After reflecting on the empirical data, our recommendation for EU legal policymaking for trade secrets law is to adopt a cautious approach. In terms of legislative reforms of the TSD, we recommend a modest change, which is to clarify, in the recitals, that “individual data, raw (or unprocessed) data will not be protected”. In relation to “reasonable steps”, we recommend that soft law or guidance from the European Commission be utilised instead of any amendment to the definition of “trade secret”. With regards to other legislation, there are amendments that can be made. The proposed Data Act should clarify, in its recitals, that individual, raw or unprocessed data is not protected as a trade secret and that the scope of the Data Act does extend to inferred and derived data and the aggregated datasets of multiple users. When it comes to preserving complementarity between trade secrets and other legal regimes, it would be wise for the European Commission seriously to explore abolishing the sui generis database right or else to introduce express amendments to clarify the threshold and scope of protection, align exceptions more closely with copyright exceptions for databases and introduce a compulsory licence provision. In relation to complementarity with copyright law, this is largely fine, other than to monitor whether software copyright unduly interferes with data interoperability. Greater attention, however, should be paid to complementarity with contract law, in particular, whether there is a widespread practice of contractually overriding reverse engineering activities (especially for software products containing trade secrets) and considering to what extent it is legitimate to create factual exclusivity over data via contract that bypasses the limitations that exist in trade secrets law. Finally, when it comes to legal enforcement of trade secrets, we advocate for practical – rather than legal – steps being adopted for the time being, since the TSD introduced a robust enforcement framework that simply needs time to percolate through national laws and practice. Moreover, some of the enforcement concerns that were raised can only be addressed via managerial and organizational measures.

European Commission ( 2020 ).

See Drexl et al. ( 2019 ).

Directive 96/9/EC of the European Parliament and of the Council of 11 March 1996 on the legal protection of databases OJ L 77, 27.3.1996, pp. 20–28 (Database Directive).

Directive (EU) 2019/790 of the European Parliament and of the Council of 17 April 2019 on copyright and related rights in the Digital Single Market and amending Directives 96/9/EC and 2001/29/EC OJ L 130, 17.5.2019, pp. 92–125 (DSM Directive).

Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) OJ L119, 4.5.2016, p. 1.

Regulation (EU) 2022/1925 of the European Parliament and of the Council of 14 September 2022 on contestable and fair markets in the digital sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828 (Digital Markets Act) OJ L 265, 12.10.2022, pp. 1–66.

Regulation (EU) 2022/2065 of the European Parliament and of the Council of 19 October 2022 on a Single Market for Digital Services and amending Directive 2000/31/EC (Digital Services Act) OJ L 277, 27.10.2022, pp. 1–102, especially Art. 40.

Regulation (EU) 2022/868 of the European Parliament and of the Council of 30 May 2022 on European data governance and amending Regulation (EU) 2018/1724 (Data Governance Act) OJ L 152, 3.6.2022, pp. 1–44.

Data Act Proposal – see https://digital-strategy.ec.europa.eu/en/library/data-act-proposal-regulation-harmonised-rules-fair-access-and-use-data . Trilogue negotiations are ongoing and are unlikely to be finalised before Spring 2023.

Directive (EU) 2019/1024 of the European Parliament and of the Council of 20 June 2019 on open data and the re-use of public sector information OJ L 172, 26.6.2019, pp. 56–83.

Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No. 1093/2010, and repealing Directive 2007/64/EC (Text with EEA relevance) OJ L 337, 23.12.2015, pp. 35–127 .

De Jongh et al. ( 2018 ); technically, this is also compliant with Art. 39(3) TRIPS. See Directive 2011/83/EC of the European Parliament and of the Council of 6 November 2011 on the Community code relating to medicinal products for human use OJ L 311, 28.11.2011, p. 67.

Regulation (EC) No. 715/2007 of the European Parliament and of the Council of 20 June 2007 on type approval of motor vehicles with respect to emissions from light passenger and commercial vehicles (Euro 5 and Euro 6) and on access to vehicle repair and maintenance information (Text with EEA relevance) OJ L 171, 29.6.2007, pp. 1–16 and Regulation (EC) No. 595/2009 of the European Parliament and of the Council of 18 June 2009 on type-approval of motor vehicles and engines with respect to emissions from heavy duty vehicles (Euro VI) and on access to vehicle repair and maintenance information and amending Regulation (EC) No. 715/2007 and Directive 2007/46/EC and repealing Directives 80/1269/EEC, 2005/55/EC and 2005/78/EC (Text with EEA relevance) OJ L 188, 18.7.2009, pp. 1–13.

Regulation (EU) 2019/631 of the European Parliament and of the Council of 17 April 2019 setting CO2 emission performance standards for new passenger cars and for new light commercial vehicles, and repealing Regulations (EC) No. 443/2009 and (EU) No. 510/2011 (recast) OJ L 111 25.4.2019, p. 13.

See https://energy.ec.europa.eu/topics/energy-strategy/clean-energy-all-europeans-package_en for details.

[2016] OJ L157/1. Adopted 8 June 2016, with an implementation deadline for Member States of 9 June 2018. For an overview of the Directive and implementation in key member states see Schovsbo et al. ( 2020 ).

See recitals 2–4, 8 TSD.

Drexl ( 2018 ), p. 91.

Recital 2, TSD.

For an analysis, see Drexl ( 2018 ). See also Aplin ( 2017 ); and Nordberg ( 2020 ).

European Commission ( 2022 ).

For a more detailed discussion see Study, Section 2.

See Study, Section 3.

In defining the four industries, a rather open ecosystem/value chain approach was employed by which, for example, suppliers in different positions of the value chain for an industry were also considered to be part of that industry. That way we also tried to account for the changing and blurring “borders” of industries due to rapid technological change and business model innovation – an aspect particularly relevant for the subject matter scrutinised in the Study.

Comprising both universities and non-university organisations.

See Study, Section 3.2. The semi-structured interview guideline overlapped with the survey topics, insofar as it sought to explore the interviewees familiarity with the study topic, usage, motives and barriers to confidential and commercially valuable (“CCV”) data sharing, the types of data shared, the scenarios for data sharing, how data assets are identified, how CCV data is protected, the modes and conditions for data sharing, along with considering any international issues and whether breaches of agreements to share CCV data occur.

See Study, Appendix C.

Our focus was on data that is confidential and commercially valuable, as opposed to data generally. This was in order to more effectively explore the role of EU trade secrets law in influencing data sharing practices.

See European Commission ( 2021 ); and European Commission ( 2018b ).

Drexl ( 2018 ).

Study, Section 4 and Annex C for case studies.

Study, pp. 44–45.

Study, p. 45.

I.e ., company or employer know-how, as opposed to individual/employee know-how.

Study, pp. 39 and 51.

Study, pp. 39, 53, 54. See also Study, Appendix C, Case Study 7.

Study, pp. 57–58. See also Study, Appendix C, Case Studies 1 and 2.

Bader ( 2006 ) and Chesbrough ( 2003 ).

Bader ( 2008 ) and King ( 2007 ).

Chesbrough ( 2017 ).

Arrow ( 1962 ).

See Coyle and Manley ( 2022 ), p. 20; Drexl, ( 2018 ), pp. 41–42; World Economic Forum ( 2021 ), pp. 8–9 (discussing the data value chain and how the value multiplies beyond the raw data stage).

Study, pp. 2, 40, 49, 56, 58, 67, 69. See also Study, Appendix C, Case Studies 1, 2, 4, 5, 7, 8, 10, 12 and 13.

Study, pp. 58–60. Although note that IP rights were less important to organisations in the financial sector: see Study, Appendix C, Case Studies 5 and 9.

Ziegler et al. ( 2013 ); and Bonakdar et al. ( 2017 ).

For example, the “assignment” of trade secrets regularly happens in practice via contract, although often part of a larger transaction involving several intellectual property rights: see standard forms and precedents in this area, as discussed in Cook and Horton ( 1998 ); Melville ( 2006 ).

E.g. , see Study, Appendix C, Case Studies 1, 2, 10, 11 and 13.

Such access controls (alongside copy-protection controls) have been utilised in relation to copyright works for decades and there are legal prohibitions on circumvention of technological protection measures applied to copyright works (but not to data). E.g. , see WIPO Copyright Treaty 1996, Art. 11, WIPO Performances and Phonograms Treaty 1996, Art. 18 and Information Society Directive, Art. 6.

In support of this see : WIPO Copyright Treaty 1996, Art. 2 and TRIPS Agreement, Art. 9(2), Directive 2009/24/EC on the legal protection of computer programs OJ L 111, 5.5.2009, pp. 16–22 (Software Directive), rec 11 and Art. 1(2), and SAS Institute Inc v. World Programming Ltd Case C-406/10, EU:C:2012:259, paras. 31–33.

A copyright work must be original in the sense of an author’s own intellectual creation: see Infopaq International A/S v. Danske Dagblades Forening Case C-5/08, EU:C:2009:465, para. 37, and Football Association Premier League C-403/08 and C-429/08, EU:C:2011:631, para. 97, which refers to creative choices that reflect an author’s personality: Painer v. Standard Verlags GmbH Case C-145/10, EU:C:2011:798, paras. 88–89; and the protection of the work extends to the elements which are the expression of the author’s own intellectual creation: Infopaq, para. 39.

Database Directive, Art. 1(2): defining “database” as a “collection of independent works, data or other materials arranged in a systematic or methodical way and individually accessible by electronic or other means”.

As stated by the CJEU in British Horseracing Board Ltd v. William Hill Organization Ltd Case C-203/02, EU:C:2004:695, paras. 31–32.

See Davison and Hugenholtz ( 2005 ), p. 115 and note that Football Dataco v. Sportradar [2013] EWCA Civ 27, para. 39 (Jacob LJ, with Lewison and Lloyd LJJ in agreement) held that a database of “live” information about what was occurring in football matches was not creating data, but was recording (and thus collecting) data.

Derclaye ( 2005 ), pp. 20–21; Leistner ( 2002 ), pp. 448–449.

Case 1 ZR 47/08 Autobahnmaut [2010].

Drexl ( 2018 ), pp. 71–73.

See Study, Appendix C, Case Study 8.

Study, pp. 67–68.

Study, p. 47. See also Study, Appendix C, Case Study 1.

Study, p. 40.

See recitals 1 and 10, TSD; Knaak et al. ( 2014 ), paras. 16–17.

See Freij ( 2017 ), pp. 15 and 17. Also noting at p. 22 that “Very few academic or practical studies have provided any information on what firms do to manage new requirements from regulatory change”. Dr Freij argues that regulatory change influences products, processes and technology.

Ibid , p. 22.

Study, pp. 62–64.

Study, pp. 70, 72. See also Study, Appendix C, Case Study 4.

Study, p. 69.

Study, pp. 65–66.

De Martinis et al. ( 2013 ), p. 5.

Analysing the lessons from U.S. trade secret law for the “reasonable steps” requirement of “trade secret” see Beale and Foulser McFarlane ( 2020 ). Analysing the similarities between the EU TSD and U.S. trade secret law see Sandeen ( 2017 ); and Wennakoski ( 2016 ). On U.S. trade secret law more generally see Milgrim and Bensen ( 2019 ); Pooley ( 2022 ); and Sandeen and Rowe ( 2022 ).

Suzuki ( 2021 ), ch 1. See also Ministry of Economy ( 2003 ).

See , e.g. , Drexl ( 2018 ), pp. 93–106; Leistner ( 2021a , b ), pp. 232–235; Nordberg ( 2020 ); and Sandeen and Aplin ( 2022 ), ch. 24.

E.g. , see Willis Towers Watson, pp. 9–10, discussing IP litigation in the U.S. and noting that between 2012–2017 there was an average of 5,200 patent infringement cases filed in U.S. federal courts per year and between 2009 and 2016 there was an average of 3,900 trade mark cases filed in federal courts per year. Whereas, between 1994 and 2012, there was an average of 147 trade secret cases filed per year in federal court, although the numbers are increasing following the introduction of the Defend Trade Secrets Act 2016. We have not been able to find comparable data for the EU, but there is no reason to think that the broad trends would not be the same.

See Cook ( 2014 ), p. 57, who observes that references to the CJEU may be rare “given the long timescales involved in such references when ranged against the fleeting nature of much trade secrets protection, manifested in disputes that are usually resolved after applications for interim relief and which only rarely get as far as a full hearing on the merits.”

In the UK, which was obliged to implement the TSD before its departure from the EU, there has been consideration of national implementation of the TSD in Shenzen Senior Technology Material Co Ltd v. Celgard, LLC [2020] EWCA Civ 1293, para. 28 (Arnold LJ). See also De Vroey and Allaerts ( 2021 ); Germany (2021) 52(6) IIC 775 and Poland (2020) 51(9) IIC 1129.

Aplin ( 2017 ) and Drexl ( 2018 ), pp. 92–93 (referring to data collected through connected devices).

Art. 7(2) of TSD requires Member States to ensure that judicial authorities can apply appropriate measures where legal proceedings for trade secret misuse is “manifestly unfounded” and initiated “abusively or in bad faith”. Appropriate measures “include awarding damages to the respondent, imposing sanctions on the applicant or ordering the dissemination of information concerning a decision as referred to in Article 15”. See also recital 22 which indicates that such bad faith litigation may be for “the aim of unfairly delaying or restricting the respondent's access to the market or otherwise intimidating or harassing the respondent.”

Study, pp. 69 and 72, 73.

Study, pp. 60–61, reporting on 79% of respondents associating these problems with China and over 50% associating them with the United States.

Study, Case Study 7, Appendix C.

Sandeen and Rowe ( 2018 ).

See 18 U.S.C., chapter 90, § 1831, et seq.

Defend Trade Secrets Act 2016, Public Law 114–153, May 11, 2016.

For a discussion: see e.g. , Sandeen and Seaman ( 2017 ); Levine and Seaman ( 2018 ).

For discussion see Aplin ( 2014 ).

Directive 2004/48/EC on the enforcement of intellectual property rights, OJ L195/16, 2.6.2004.

For a detailed comparison see Riis (2020), ch. 12.

E.g. , Liffers v. Producciones Mandarina SL, Case C-99/15, ECLI:EU:C:2016:173 (on damages for moral prejudice); Mircom International Content Management & Consulting (MICM) Ltd v. Telenet BVBA Case C-597/19, EU:C:2021:492 (on persons entitled to remedies); Cooperatieve Verenigin SNB-REACT UA v. Mehta Case C-521/17, EU:C:2018:639 (whether collective body representing trade mark owners had legal standing under the Enforcement Directive); Stowarzyszenie Olawska Telewizja Kablowa (OTK) v. Stowarzyszenie Filmowcow Polskich (SFP) Case C-367/15, EU:C:2017:36 (on damages calculations).

Rec. 39, TSD; Riis (2020), p. 222.

Aplin ( 2014 ), pp. 276–277 explains they are comparable apart from three key differences, which relate to (i) the persons entitled to seek measures, procedures and remedies; (ii) the absence of remedies in the TSD for preserving evidence or for obtaining orders regarding the origin and distribution networks of infringing goods; or for obtaining interim or final injunctions against intermediaries whose services are used to infringe a trade secret; and (iii) the fact that TSD has explicit factors for the court to consider when determining proportionate remedies.

There has, however, been some scholarly attention: e.g. , see Mylly ( 2022 ).

Take the example of Finland which did not have provisions approximating Art. 9 of the TSD: see Schröder ( 2018 ).

An example here is the United Kingdom, which implemented the TSD before Brexit: see Aplin and Arnold ( 2020 ), ch. 5, esp. pp. 80–85.

See Chloupek ( 2019 ).

See Trade Secrets (Enforcement, etc.) Regulations 2018 SI 2018/597, which came into force on 9 June 2018, specifically regulation 10 and Aplin and Arnold ( 2020 ), p. 81.

Lee et al. ( 2022 ).

See Anti-Unfair Competition Law of the People’s Republic of China (2019 Amendment), discussed in Lee ( 2020 ), p.173.

This view is also supported by Wang and Chang ( 2019 ).

Lee et al. ( 2022 ), p. 774.

Although Wang ( 2023 ) suggests that there is still a need for improved legislation and judicial interpretation when it comes to trade secrets protection in China.

It is interesting to note that an issue that did not come up in the survey or interview data is the extent to which different Member States laws regulating employees/ex-employees complicates how organisations minimise and manage trade secret leakage by employees.

Drexl ( 2018 ), p. 92.

Ibid , p. 94; Sandeen and Aplin ( 2022 ).

Here it is interesting to note that in Study, Case Study 3, Appendix C, an OEM automotive supplier stated where its data is shared, it is no longer considered a trade secret.

See Aplin ( 2017 ) and Noto La Diega and Sappa ( 2020 ); Drexl ( 2018 ), p. 93.

See Noto La Diega and Sappa ( 2020 ); Drexl ( 2018 ), p. 93.

Drexl ( 2018 ), p. 94.

European Commission ( 2017 ), p. 13; Mayer-Schönberger and Cukier ( 2013 ), pp. 89–91.

Drexl ( 2018 ), p. 94; Sandeen and Aplin ( 2022 ).

Sandeen and Aplin ( 2022 ).

Peng et al. ( 2021 ) traces how two popular face and person recognition datasets (DukeMTMC and MS-Celeb-1M) remain widely available even after retraction by their originators, which they call “runaway data”.

Labelling means the training data is labelled as to what it represents, which allows the supervised learning model to determine whether its prediction was right or wrong: see Drexl et al. ( 2019 ).

On the role of recitals in EU law see Klimas and Vaiciukaite ( 2008 ).

See https://digital-strategy.ec.europa.eu/en/library/data-act-proposal-regulation-harmonised-rules-fair-access-and-use-data .

For a detailed evaluation see Drexl et al. ( 2022 ).

Present recital 14 of the proposed Data Act states: “Physical products that obtain, generate or collect, by means of their components, data concerning their performance, use or environment and that are able to communicate that data via a publicly available electronic communications service (often referred to as the Internet of things) should be covered by this Regulation … The data represent the digitalisation of user actions and events and should accordingly be accessible to the use, while information derived or inferred from this data, where lawfully held, should not be considered within scope of this Regulation”. Note that in the Draft Report by Committee on Industry, Research and Energy ( 2022 ), there are amendments proposed to rec 14. However, the changes extend to including raw data and “prepared data” (defined as “data cleaned and transformed for the purpose of making it useable prior to further processing and analysis”) but not derived or inferred data.

See Kerber ( 2022 ), pp. 11 and 12, referring to the covered data as too “narrow” to enable third parties “to offer additional services to the users like repair or predictive maintenance services on downstream or adjacent markets”.

Ibid , p. 12.

De Vroey and Allaerts ( 2021 ), p. 1394 briefly discuss a few cases decided before the TSD was implemented that could be relevant to reasonable steps. There has been limited discussion by European scholars, although see Mylly ( 2021 ), pp. 1329–1330.

Bone ( 2011 ), p. 59 and Sandeen and Rowe ( 2018 ), pp. 93–94.

Sandeen and Rowe ( 2018 ), p. 94 citing Rockwell Graphic Sys Inc v. DEV Indus., Inc ., 925 F. 2d 174, 176–77 (7th Cir. 1991).

Sandeen and Rowe ( 2018 ), p. 100: “The inquiry necessarily varies in each case based on the costs of the protective measures relative to the risks of misappropriation and the attendant benefits of protecting the information”.

For example, Prof. Angsar Ohly discusses how “reasonableness” is a “flexible, malleable and relative concept” and how the German government has provided basic criteria of the absolute value of the trade secret, its relative value to the trade secret holder and the costs and availability of protection measures: see Ohly ( 2020 ), at p. 109.

See Sandeen and Rowe ( 2018 ), p. 101 and Beale and McFarlane ( 2020 ).

See Puroon Inc. v. Midwest Photographic Res Ctr Inc., 2018 WL 5776334 (N.D. Ill. Nov 2, 2018) and Elmer Miller Inc. v. Landis, 253 Ill. App. 3d 129 (1st Dist. 1993).

Our interview with a U.S. legal expert suggested that U.S. companies either take a sophisticated approach to trade secrets, categorising their information and tailoring their protection measures accordingly; or they take a crude approach of lumping all information together and regularly using non-disclosure agreements in relation to sharing such information; or they take few measures.

It is appreciated that there is much contention over the influence and impact of EU soft law, which has been investigated at length, for example, in Eliantonio et al. ( 2020 ). See also Andone and Coman-Kund ( 2022 ).

Of course, other legal tools, such as tort law claims, may arise, but these did not emerge from our empirical data.

See also Ohly ( 2020 ), pp. 115–116.

Aplin ( 2013 ), pp. 32–33.

See Software Directive , Art. 8: “Any contractual provisions contrary to Article 6 or to the exceptions provided for in Article 5(2) and (3) shall be null and void”. See also SAS Institute Inc v. World Programming Ltd Case C-406/10, EU:C:2012:259, paras. 47–62 on the relationship between Arts. 5(3) and 8 of Council Directive 91/250/EEC of 14 May 1991 on the legal protection of computer programs OJ 1991 L 122, p. 42.

Noto La Diega ( 2018 ) para. 35 and Udsen et al. ( 2020 ) p. 35.

Mylly ( 2021 ), pp. 1325–1326.

Aplin ( 2013 ), pp. 4–5, discussing the rationale for allowing reverse engineering.

In much the same way as occurred in Case C-30/14 Ryanair Ltd v. PR Aviation BV, ECLI:EU:C:2015:10 and critiqued by Borghi and Karapapa ( 2015 ).

See supra note 49 above. See also Drexl ( 2018 ), p. 32.

Art. 3(1) Database Directive.

Football Dataco v. Yahoo! UK Ltd Case C-604/10, EU:C:2012:115 (Third Chamber), para. 38.

Ibid , para. 39.

Drexl ( 2018 ), p. 86; and Leistner ( 2021a ), p. 386.

The decision in Funke Medien NRW GmbH v. Bundesrepublik Deutschland C-469/17, ECLI:EU:C:2019:623, para. 24 would support this view too. Although the case did not concern a database, but rather military status reports, it does suggest the limited scope for intellectual creation in relation to informational works: here the CJEU indicated that purely informative documents would often by characterized by their technical function and thus struggle to meet the originality threshold.

Hugenholtz ( 2017 ), p. 85.

WIPO Copyright Treaty 1996, Art. 4; TRIPS, Art. 10(1) and Software Directive, Art. 1(1).

Software Directive, rec 11 and Art. 1(2), and SAS Institute Inc v. World Programming Ltd Case C-406/10, EU:C:2012:259, paras. 31–33.

Drexl ( 2018 ), p. 86.

See Google LLC v. Oracle America, Inc 141 S. Ct. 1183 (2021) No. 18-956, 2021 WL 1240906 (U.S. Apr. 5, 2021), 1197.

Ibid, 1200–1209.

Case C-406/10, EU:C:2012:259.

Ibid , para. 45.

See Leistner ( 2021a ), p. 385 who suggests APIs are unlikely to be protected as software copyright in the EU.

Software Directive, Arts. 5(3) and 6.

Drexl ( 2018 ), p. 87.

Ibid , p. 86.

This is an oversimplified statement of the various copyright justifications and there is a vast literature on this topic: for a synthesis see Spence ( 2002 ) and Aplin ( 2005 ). It is also important to note that there are less mainstream justifications for copyright, such as that in Drassinower ( 2015 ) (arguing that a copyright work is a communicative act and infringement is unauthorised appropriation of another person’s speech). This type of justification would also suggest against copyright protecting facts or data per se.

Mylly ( 2021 ). p. 1320 observes that overlaps between copyright and trade secrets protection have attracted much less attention than other IP overlaps.

E.g. , see Reichman and Samuelson ( 1997 ) (prior to the Directive’s adoption) and Davison and Hugenholtz ( 2005 ) (after the first CJEU rulings on the database right). More generally, see Synodinou ( 2019 ).

See Drexl ( 2018 ), pp. 68–85; Leistner ( 2021a ), p. 387 et seq. See also European Commission ( 2018a ) (“Study 2018”).

Study 2018, p. 27.

Ibid , pp. 25–44.

Leistner ( 2021a ), pp. 396–398.

Drexl ( 2018 ), p. 82.

Such as Directmedia Publishing GmBH v. Albert-Ludwigs-Universitat Freiburg Case C-304/07. ECLI:EU:C:2008:552; and Innoweb BV v. Wegener ICT Media BV Case C-202/12, ECLI:EU:C:2013:850.

C-762/19, ECLI:EU:C:2021:434. For a discussion of the impact see Derclaye and Husovec ( 2021 ).

CV-Online Latvia, paras. 44 and 46.

Drexl et al. ( 2022 ), paras. 256–266; Opinion of the European Copyright Society on selected aspects of the proposed Data Act, 12 May 2022 ; Noto La Diega and Derclaye ( 2022 ).

Commission of the European Communities ( 2005 ), paras. 1.4 and 4.2 indicating that database production had fallen back to pre-directive levels and that the economic impact of the sui generis right had not significantly improved the competitiveness of the European database industry, and Study 2018, ii stating that the “effectiveness of the sui generis right, as a means to stimulate investment in databases, remains unproven and still highly contested” and at (iii), indicating that “most stakeholders have experienced low, if any, benefits from the Database Directive”.

Study 2018, (vii).

Derclaye and Husovec ( 2021 ).

Study 2018, vii.

E.g. , see Arts. 3 and 4 of the DSM Directive related to text and data mining, Art. 5 relating to cross-border teaching activities, and Art. 6 preservation of cultural heritage.

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The article draws on the empirical findings and some limited text from European Commission, European Innovation Council and SMEs Executive Agency, Radauer A, Bader MA, Aplin T, et al., “Study on the legal protection of trade secrets in the context of the data economy: final report”, Publications Office of the European Union, 2022, https://doi.org/10.2826/021443 which was a piece of contract research for the European Commission (contract number EASME/2020/OP/0008). Many thanks to Ms Brigitte Lindner, Prof. Nari Lee, Prof. Ulla-Maija Mylly and Prof. Sharon K. Sandeen for their valuable comments on a draft version of this article and to Dr. Nazanin Aslani for her editorial assistance. Thanks also to the participants at the EPIP Conference, 14–16 September 2022, and the Oxford Intellectual Property Research Centre seminar on 27 October 2022 for their feedback on the research contained within European Commission ( 2022 ). The Study resulted from a piece of contract research (contract number EASME/2020/OP/0008) and thus the European Commission owns the IP rights in it. This article draws on the empirical findings of the Study and re-uses and adapts limited parts of its text, while adding new analysis and commentary by the authors, resulting from further reflection on, and discussion of, the Study with scholars.

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Aplin, T., Radauer, A., Bader, M.A. et al. The Role of EU Trade Secrets Law in the Data Economy: An Empirical Analysis. IIC 54 , 826–858 (2023). https://doi.org/10.1007/s40319-023-01325-8

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How ASML took over the chipmaking chessboard

MIT Technology Review sat down with outgoing CTO Martin van den Brink to talk about the company’s rise to dominance and the life and death of Moore’s Law.

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On a drab Monday morning in San Jose, California, at the drab San Jose Convention Center, attendees of the SPIE Advanced Lithography and Patterning Conference filed into the main ballroom until all the seats were taken and the crowd began to line the walls along the back and sides of the room. The convention brings together people who work in the chip industry from all over the world. And on this cool February morning, they had gathered to hear tech industry luminaries extol the late Gordon Moore, Intel’s cofounder and first CEO. 

Craig Barrett, also a former CEO of Intel, paid tribute, as did the legendary engineer Burn-Jeng Lin, a pioneer of immersion lithography, a patterning technology that enabled the chip industry to continue moving forward about 20 years ago. Mostly the speeches tended toward reflections on Moore himself—testaments to his genius, accomplishments, and humanity. But the last speaker of the morning, Martin van den Brink, took a different tone, more akin to a victory lap than a eulogy. Van den Brink is the outgoing co-president and CTO of ASML, the Dutch company that makes the machines that in turn let manufacturers produce the most advanced computer chips in the world. 

Moore’s Law holds that the number of transistors on an integrated circuit doubles every two years or so. In essence, it means that chipmakers are always trying to shrink the transistors on a microchip in order to pack more of them in. The cadence has been increasingly hard to maintain now that transistor dimensions measure in a few nanometers. In recent years ASML’s machines have kept Moore’s Law from sputtering out . Today, they are the only ones in the world capable of producing circuitry at the density needed to keep chipmakers roughly on track. It is the premise of Moore’s Law itself, van den Brink said, that drives the industry forward, year after year. 

To showcase how big an achievement it had been to maintain Moore’s Law since he joined ASML in 1984, van den Brink referred to the rice and chessboard problem , in which the number of grains of rice—a proxy for transistors—is doubled on each successive square. The exponential growth in the number of transistors that can be crammed on a chip since 1959 means that a single grain of rice back then has now become the equivalent of three ocean tankers, each 240 meters long, full of rice. It’s a lot of rice! Yet Moore’s Law compels the company—compels all of the technology industry—to keep pushing forward. Each era of computing, most recently AI, has brought increased demands, explained van den Brink. In other words, while three tankers full of rice may seem like a lot, tomorrow we’re going to need six. Then 12. Then 24. And so on. 

ASML’s technology, he assured the gathering, would be there to meet the demands, thanks to the company’s investment in creating tools capable of making ever finer features: the extreme-ultraviolet (EUV) lithography machines it rolled out widely in 2017, the high-numerical-aperture (high-NA) EUV machines it is rolling out now, and the hyper-NA EUV machines it has sketched out for the future. 

The tribute may have been designed for Gordon Moore, but at the end of van den Brink’s presentation the entire room rose to give him a standing ovation. Because if Gordon Moore deserves credit for creating the law that drove the progress of the industry, as van den Brink says, van den Brink and ASML deserve much of the credit for ensuring that progress remains possible. 

Yet that also means the pressure is on. ASML has to try and stay ahead of the demands of Moore’s Law. It has to continue making sure chipmakers can keep doubling the amount of rice on the chessboard. Will that be possible? Van den Brink sat down with MIT Technology Review to talk about ASML’s history, its legacy, and what comes next. 

Betting big on an unwieldy wavelength

ASML is such an undisputed leader in today’s chip ecosystem that it’s hard to believe the company’s market dominance really only dates back to 2017, when its EUV machine, after 17 years of development, upended the conventional process for making chips. 

Since the 1960s, photolithography has made it possible to pack computer chips with more and more components. The process involves crafting small circuits by guiding beams of light through a series of mirrors and lenses and then shining that light on a mask, which contains a pattern. Light conveys the chip design, layer by layer, eventually building circuits that form the computational building blocks of everything from smartphones to artificial intelligence. 

Photolithographers have a limited set of tools at their disposal to make smaller designs, and for decades, the type of light used in the machine was the most critical. In the 1960s, machines used beams of visible light. The smallest features this light could draw on the chip were fairly large—a bit like using a marker to draw a portrait. 

Then manufacturers began using smaller and smaller wavelengths of light, and by the early 1980s, they could make chips with ultraviolet light. Nikon and Canon were the industry leaders. ASML, founded in 1984 as a subsidiary of Philips in Eindhoven, the Netherlands, was just a small player.

The way van den Brink tells it, he arrived at the company almost by accident. Philips was one of a few technology companies in Holland. When he began his career there in 1984 and was looking into the various opportunities at the company, he became intrigued by a photo of a lithography machine.

“I looked at the picture and I said, ‘It has mechanics, it has optics, it has software—this looks like a complex machine. I will be interested in that,” van den Brink told MIT Technology Review . “They said, well, you can do it, but the company will not be part of Philips. We are creating a joint venture with ASM International, and after the joint venture, you will not be part of Philips. I said yes because I couldn’t care less. And that’s how it began.”

When van den Brink joined in the 1980s, little about ASML made the company stand out from other major lithography players at the time. “We didn’t sell a substantial amount of systems until the ’90s. And we almost went bankrupt several times in that period,” van den Brink says. “So for us there was only one mission: to survive and show a customer that we could make a difference.”

By 1995, it had a strong enough foothold in the industry against competitors Nikon and Canon to go public. But all lithography makers were fighting the same battle to create smaller components on chips. 

If you could have eavesdropped on a meeting at ASML in the late 1990s about this predicament, you might have heard chatter about an idea called extreme-ultraviolet (EUV) lithography—along with concerns that it might never work). By that point, with pressure to condense chips beyond current capabilities, it seemed as if everyone was chasing EUV . The idea was to pattern chips with an even smaller wavelength of light (ultimately just 13.5 nanometers). To do so, ASML would have to figure out how to create, capture, and focus this light—processes that had stumped researchers for decades—and build a supply chain of specialized materials, including the smoothest mirrors ever produced. And to make sure the price point wouldn’t drive away its customers. 

Canon and Nikon were also pursuing EUV, but the US government denied them a license to participate in the consortium of companies and US national labs researching it. Both subsequently dropped out. Meanwhile ASML acquired the fourth major company pursuing EUV, SVG, in 2001 . By 2006 it had shipped only two EUV prototype machines to research facilities, and it took until 2010 to ship one to a customer. Five years later, ASML warned in its annual report that EUV sales remained low, that customers weren’t eager to adopt the technology given its slow speed on the production line, and that if the pattern continued, it could have “material” effects on the business given the significant investment. 

Yet in 2017, after an investment of $6.5 billion in R&D over 17 years, ASML’s bet began to pay off. That year the company shipped 10 of its EUV machines, which cost over $100 million each, and announced that dozens more were on backorder. EUV machines went to the titans of semiconductor manufacturing—Intel, Samsung, and Taiwan Semiconductor Manufacturing Company (TSMC)—and a small number of others. With a brighter light source (meaning less time needed to impart patterns), among other improvements, the machines were capable of faster production speeds. The leap to EUV finally made economic sense to chipmakers, putting ASML essentially in a monopoly position.

Chris Miller, a history professor at Tufts University and author of Chip War: The Fight for the World's Most Critical Technology , says that ASML was culturally equipped to see those experiments through. “It’s a stubborn willingness to invest in technology that most people thought wouldn’t work,” he told MIT Technology Review . “No one else was betting on EUV, because the development process was so long and expensive. It involves stretching the limits of physics, engineering, and chemistry.”

A key factor in ASML’s growth was its control of the supply chain. ASML acquired number of the companies it relies on, like Cymer, a maker of light sources. That strategy of pointedly controlling power in the supply chain extended to ASML’s customers, too. In 2012, it offered shares to its three biggest customers, which were able to maintain market dominance of their own in part because of the elite manufacturing power of ASML’s machines. 

“Our success depends on their success,” van den Brink told MIT Technology Review . 

It’s also a testament to ASML’s dominance that it is for the most part no longer allowed to sell its most advanced systems to customers in China. Though ASML still does business in China, in 2019, following pressure from the Trump administration, the Dutch government began imposing restrictions on ASML’s exports of EUV machines to China. Those rules were tightened further just last year and now also impose limits on some of the company’s deep-ultraviolet (DUV) machines, which are used to make less highly advanced chips than EUV systems.

Van den Brink says the way world leaders are now discussing lithography was unimaginable when the company began: “ Our prime minister was sitting in front of Xi Jinping , not because he was from Holland—who would give a shit about Holland. He was there because we are making EUV.”

Just a few years after the first EUV machines shipped, ASML would face its second upheaval. Around the start of the pandemic, interest and progress in the field of artificial intelligence sent demand for computing power skyrocketing. Companies like OpenAI needed ever more powerful computer chips and by late 2022 the frenzy and investment in AI began to boil over. 

By that time, ASML was closing in on its newest innovation. Having already adopted a smaller wavelength of light (and realigned the entire semiconductor industry to it in the process), it now turned its attention to the other lever in its control: numerical aperture. That’s the measure of how much light a system can focus, and if ASML could increase it, the company’s machines could print even smaller components.

Doing so meant myriad changes. ASML had to source an even larger set of mirrors from its supplier Carl Zeiss, which had to be made ultra-smooth. Zeiss had to build entirely new machines, the sole purpose of which was to measure the smoothness of mirrors destined for ASML. The aim was to reduce the number of costly repercussions the change would have on the rest of the supply chain, like the companies that make reticles containing the designs of the chips. 

In December of 2023, ASML began shipping the first of its next-generation EUV device, a high-NA machine, to Intel’s facility in Hillsboro, Oregon. It’s an R&D version, and so far the only one in the field. It took seven planes and 50 trucks to get it to Intel’s plant, and installation of the machine, which is larger than a double-decker bus, will take six months. 

The high-NA machines will only be needed to produce the most precise layers of advanced chips for the industry; the designs on many others will still be printed using the previous generation of EUV machines or older DUV machines. 

ASML has received orders for high-NA machines from all its current EUV customers. They don’t come cheap: reports put the cost at $380 million . Intel was the first customer to strike, ordering the first machine available in early 2022. The company, which has lost significant market share to competitor TSMC, is betting that the new technology will give it a new foothold in the industry, even though other chipmakers will eventually have access to it too. 

“There are obvious benefits to Intel for being the first,” Miller says. “There are also obvious risks.” Sorting out which chips to use these machines for and how to get its money’s worth out of them will be a challenge for the company, according to Miller. 

The launch of these machines, if successful, might be seen as the crowning achievement of van den Brink’s career. But he is already moving on to what comes next.

The next big idea for ASML, according to van den Brink and other company executives who spoke with MIT Technology Review , is hyper-NA technology. The company’s high-NA machines have a numerical aperture of .55. Hyper-NA tools would have a numerical aperture higher than 0.7. What that ultimately means is that hyper NA, if successful, will allow the company to create machines that let manufacturers shrink transistor dimensions even more—assuming that researchers can devise chip components that work well at such small dimensions. As it was with EUV in the early 2000s, it is still uncertain whether hyper NA is feasible—if nothing else, it could be cost prohibitive. Yet van den Brink projects cautious confidence. It is likely, he says, that the company will ultimately have three offerings available: low NA, high NA, and—if all goes well—hyper NA. 

“Hyper NA is a bit more risky,” says van den Brink. “We will be more cautious and more cost sensitive in the future. But if we can pull this off, we have a winning trio which takes care of all the advanced manufacturing for the foreseeable future.”

Yet although today everyone is banking on ASML to keep pushing the industry forward, there is speculation that a competitor could emerge from China . Van den Brink was dismissive of this possibility, citing the gap in even last-generation lithography. 

“ SMEE are making DUV machines, or at least claim they can ,” he told MIT Technology Review , referring to a company that makes the predecessor to EUV lithography technology, and pointed out that ASML still has the dominant market share. The political pressures could mean more progress for China. But getting to the level of complexity involved in ASML’s suite of machines, with low, high, and hyper NA is another matter, he says: “I feel quite comfortable that this will be a long time before they can copy that.” Miller, from Tufts University, is confident that Chinese companies will eventually develop these sorts of technologies on their own, but agrees that the question is when. “If it's in a decade, it will be too late,” he says. 

The real question, perhaps, is not who will make the machines, but whether Moore’s Law will hold at all. Nvidia CEO Jensen Huang has already declared it dead . But when asked what he thought might eventually cause Moore’s Law to finally stall out, van den Brink rejected the premise entirely. 

“There’s no reason to believe this will stop. You won’t get the answer from me where it will end,” he said. “It will end when we’re running out of ideas where the value we create with all this will not balance with the cost it will take. Then it will end. And not by the lack of ideas.”

He had struck a similar posture during his Moore tribute at the SPIE conference, exuding confidence. “I’m not sure who will give the presentation 10 years from now,” he said, going back to his rice analogy. “But my successors,” he claimed, “will still have the opportunity to fill the chessboard.”

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