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ITALY: How the new trade secrets’ protection affects the content of the commercial agreements, in particular the distribution contracts.

The Italian Decree no. 63/2018, dated May 11, 2018, implemented the rules contained in the EU Directive 2016/943 “on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure”, modifying the Italian Industrial Property Code.

Marco Venturello - 15.04.19

With this reform, the limits of the unlawful behaviour have been redefined and broadened, both under the subjective element and the objective element.

With reference to the objective element of the conduct, the modified article 99 introduces the notion of “significantly benefits”, in order to explain what kind of goods could be recognized as infringing goods, that is “goods, the design, characteristics, functioning, production process or marketing of which significantly benefits from trade secrets unlawfully acquired, used or disclosed”. Therefore, the production or placing on the market of infringing goods, or the importation, export or storage of the same, shall be considered an unlawful use of a trade secret if the goods involved take “significantly benefits” as above indicated.

With reference to the subjective element of the conduct, the reform extends the protection, since also the negligence conduct becomes relevant.

The modified article 99 states that the conduct of a party could be relevant also if “he was aware of or, according to the circumstances, should be aware of [in the wording of the EU Directive: knew or ought, under the circumstances, to have known] the fact that the trade secrets have been acquired, directly or indirectly, by a third party which used them unlawfully”. Therefore, the subjective element now includes also the negligence (it is under discussion whether slight or gross) and, as a consequence, the party involved cannot defend himself invoking his good faith, which in the past was the usual defence of the distributor of products incorporating third party’s trade secrets; it is internationally known that trade secrets, contrary to patents, do not have a system of legal publicity. The wording “he was aware of or, according to the circumstances, should be aware of” (or a similar one) is already present and interpreted at international level since it is present in both the Vienna Convention (at art. 42) and in the TRIPS’ Agreement (at art. 39). The other wording of the modified article 99, which will give room for discussion before the Courts is the parenthetical element “directly or indirectly”.

Like for patents, the reform introduces a kind of “droit de suite” in the sense that the legitimate owner of a trade secret can challenge not only the manufacturing but also the commercialisation of products incorporating the trade secrets. As a consequence, as is customary for patents, not only the manufacturer but also the distributors of the products could be sued before a Court for trade secrets’ infringement.

All the above-mentioned news has an important impact also in writing the clauses of commercial agreement, such as distribution contracts or general conditions of purchase, because the distributor should ask more protection to the manufacturer. This in order to give evidence that “according to the circumstances” he could not be aware of.

In order to ensure more protection to the distributor, in the agreement it becomes important to insert:

a) among the “whereas”, a declaration of the manufacturer that the products have been realized without any infringement of third party’s trade secret rights;

b) a specific “hold harmless clause” according to which the manufacturer shall indemnify the distributor from and against any claim or legal action arising out from the use of the products, because of the violation of a trade secret owned by a third party.

It is important to underline that, according to several national laws (the Italian one is an example), a clause with which the liability of a party is excluded or limited for gross negligence or wilful misconduct is null and void (art. 1229 of the Civil code).

Another important aspect from a contractual point of view is that the rules contained in the EU Directive 2016/943 state that the so called “reverse engineering”, except for the case of conducts constituting acts of unfair competition, is lawful. Therefore, it would be useful to evaluate to insert a clause in the distribution contracts or in the general conditions of sale, in order to limit the right of the distributor to reverse engineer the products; the consistency of such limitation with antitrust law should be evaluated.

 

Marco Venturello, IDI Member

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