Major changes in trade secret protection are coming to Hungary

Background

On 8 June 2016, the European Parliament and the European Council adopted a Directive ("Directive") which aims to standardise the national laws in EU countries to stop the unlawful acquisition, disclosure and use of trade secrets. The aim is a common, clear and balanced legal framework which will support innovation and discourage unfair competition in the EU. The deadline set for the Member States to transpose the Directive into their national law was 9 June 2018.

Prior to the implementation of the Trade Secrets Directive, the Hungarian provisions on trade secrets could be found in several acts. Trade secrets and know-how were defined in the Civil Code as part of personality rights, and the infringement of the respective rules was mainly sanctioned by the Civil Code. However, one could find relevant provisions e.g. in the Competition Act, the Labour Code, and in the Penal Code.

The implementation of the Directive and the main changes

Hungary now complies with its obligation by having chosen to implement the rules of the Directive by way of adopting a separate new act on 20 July. The new act came into force on 8 August 2018.

The definition of trade secret is now amended to be in line with the Directive, including the secret nature of the information. The new definition stresses that trade secret protection only applies if "it has been subject to reasonable steps under the circumstances to keep it secret".

The new Trade Secrets Act moves away from the current Hungarian concept and ensures protection of trade secrets similar to intellectual property rights, especially in the case of an infringement. It removes the trade secret and know-how protection from the personality rights section of the Civil Code and clarifies that they are marketable economic rights. They can be sold as a whole or in part, and they can be licensed to a contracting party.

The sanctions for infringement are now regulated uniformly in the new act. The relevant provisions will be removed from the Competition Act and the Civil Code. Further to the previously also applicable legal consequences in the case of a breach of trade secrets (e.g. establishing and termination of the infringement), the trade secret holder may, among others, demand that the infringer (i) gives information on the persons involved in the infringement and the supply chain; (ii) reimburses the enrichment etc. As a new sanction, it may be requested to publish the decision establishing the infringement in a national daily paper or on the internet. For a faster and more effective enforcement, an interim injunction may now also be claimed at court against the wrongdoers. The possibilities therefore have become significantly broader.

The Trade Secrets Act also contains special rules on civil proceedings, e.g. with regard to the limitation of access to trade secrets and participation in court hearings.

Companies need to prepare in advance

Based on previous practice, courts most often reviewed confidentiality agreements with employees and business partners when assessing whether companies had taken reasonable measures to protect trade secrets.

However, there are a number of additional steps the companies can and should take to protect their crown jewels. Adopting the GDPR regulation, if not done so already, is a great opportunity to revise company policies, also in respect of trade secrets.

Takeaway

If the necessary preparatory measures are taken, the new act will ensure more effective protection of the intellectual capital of the companies. Among others, it is also beneficial for start-ups which generally lack the required funds to register their intellectual property. Overall, the improved legal protection will support innovation, help the knowledge transfer, and enhance the competitiveness of Hungarian businesses.

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Further reading:

Beware: not only 25 May but also 9 June has passed