Better protection for technical trade secrets in Sweden

Inquiry into change in the Trade Secrets Act

In 2020, the Department of Justice published an investigation (Ds 2020:26) regarding an expanded protection of corporate secrets through changes to several laws.

The key part of the proposed amendments concerns the Trade Secrets Act (FHL), which exists as a protection that information held by companies and research institutions cannot be used for undue purposes.

What is regulated is, among other things, the type of information covered by the protection, the circumstances under which it must not be disclosed and exploited, and the consequences of which anyone who breaks the law may suffer.

In some cases, criminal liability can be actualized.

The inquiry addresses the possibility of extending criminal responsibility, mainly towards people working within an activity.

What is being weighed against the interest of companies and research institutions are issues linked to freedom of expression and printing, labour rights and the wider labour market.

Punitive responsibility of the day and Ericsson

In the FHL there is a definition of what constitutes a corporate secret in Section 2.

According to the clause, the business or operating conditions of a trader’s movement or the activities of the research institution shall concern business or operating conditions.

It shall be a matter of data which are not generally known or readily available to the person who normally has access to information of that kind.

It also requires that the company or institution legally controlling the corporate secret has taken reasonable steps to keep it secret.

Furthermore, the disclosure of the information shall be devoted to causing injury to the holder from competitive terms.

Information that constitutes a crime or other serious malpractice is not to be considered a corporate secret.

Corporate spying

At present, only corporate espionage (Section 26) is penal under the FHL.

For someone to be guilty of corporate espionage, the information in question must be defined as a corporate secret (Section 2) and subjected to an unauthorized assault (§§ 3 and 4).

It also requires someone to unlawfully prepare access to the secret (Section 26).

Thus, a prerequisite is that someone perform an active act to obtain information that the person does not normally have access to.

For employees, information is clearly outside their duties.

Other types of attacks by persons within an activity may instead actualize tort liability (5-10 §§)

Even an outsider who procures a corporate secret knowing that someone has unlawfully prepared access to it may be criminally affected (Section 27).

In addition, criminal liability for procurement applies in several stages, so even if the information does not come directly from the person who has unlawfully prepared access to it.

Attacks cannot be punished under the Trade Secret Act if the purpose is to publish information in medium covered by the Freedom of Pressure Regulation (TF) or the Freedom of Speech Basic Law (YGL).

Ahead of access

With the so-called Ericsson case in 2003, the question was brought to light whether the current protection of trade secrets is indeed satisfactory.

An employee for Ericsson had disclosed corporate-secret and security-rated documents to the outside person.

That person, in turn, forwarded the document to a foreign sub-justice officer who was employed by foreign power.

The person who forwarded the document to the junior justice officer was sentenced to prison for aggravated espionage.

However, the employee of Ericsson could not be punished because he had had legal access to the document and thus had not prepared access to it under section 26.

Following the case, the issue of extended criminal liability has been investigated several times and the last proposed change in law was unveiled in 2017.

The government assessed extended punitive responsibility as necessary but saw the proposal as too far-reaching to the difficult trade-offs that needed to be made between full protection of corporate secrets on the one hand, and workers’ rights, and freedom of expression issues on the other.

The government therefore stressed the importance of balanced and cautious neo-criminalisation.

A central part of the now current proposal is therefore to delineate the criminalised area to meet only qualified and punishable cases.

Why is the protection of trade secrets important?

With a world in intense development, we are constantly facing new complex threats and challenges of industrial espionage, among other things.

According to the Security Police (Säpo), intelligence activities against Sweden are tangible and foreign power has come to turn increasingly attention to research and technological development driven by companies.

For example, Iran is pursuing espionage directed at Swedish high-tech industry and Swedish products that can be used in nuclear weapons programs.

China, too, is reported to be a real threat.

Information and knowledge that is unlawfully obtained, according to Säpo, can be valued at billion-dollar amounts; both jobs and growth are thus negatively affected.

One method set out for accessing valuable information is to place people on the inside of companies, alternatively soliciting internal informants.

Säpo also states that increased digitisation has led to facilitating attacks on information and substantially increasing cyber espionage.

Intangible assets – increased digitisation

Intangible assets are of the utmost importance to a large proportion of Swedish companies, not least seen to the ever-increasing digitisation.

The protection of corporate secrets is therefore a cornerstone for many activities and a prerequisite for them to receive coverage for their investments and be able to continue to develop.

Intellectual property intensive companies generate more than every three jobs in Sweden and account for more than 40% of our gross domestic product.

In addition, 55% of all Swedish companies with more than 10 employees conduct innovation activities.

Intellectual property assets are of course also of the utmost importance for universities and other research institutions.

In other words, the fact that organisations can provide for what they invest in terms of money and work is important for large parts of the Swedish labour market.

Corporate secrets – complement to other intellectual property

The Law on Corporate Secrets can also be seen as a complement to other types of intellectual property such as patents.

Intellectual property protection means that the applicant is granted a limited time exclusive right to something created by the latter.

Because the application process is often both costly and time-consuming, the FHL can act protection in the meantime.

Some companies don’t even apply as it is not considered worth it seen at the cost and effort required.

Yet another reason why some companies not to apply for intellectual property protection is that it is time-limited which does not apply to information classed as corporate secret.

In conclusion, the FHL is an important law for the majority of organisations essential to Sweden’s development and wider economy.

Thus satisfactory protection is not solely in the interests of companies and researchers but also the broad public according to the Department of Justice.

Whistleblowing and Message Protection

One interest in workers who, according to the investigation, need to be observed is the possibility of whistleblowing for workers because it is essential to ensure acceptable working conditions.

The right, as a rule, to use knowledge and experiences acquired in the workplace in a new workplace is also important to avoid lock-in effects that may affect labour mobility.

These rights are conferred today by, inter alia, the freedom of print and expression as provided for in the Swedish Constitution and the ECHR.

An important part of freedom of print and expression in Swedish law is the message protection which implies the right for each to impunity notify or obtain data for publication in medium subject to TF or YGL.

The right freedom of communication applies only to the general.

Similar protections for activities funded to some extent by the general, such as school and medical care, are instead contained in the Message Protection Act.

Employees of all kinds of companies and activities enjoy protection through, for example, the Whistleblower Act.

Thus, a trade-off against all the above rules and interests needs to be made in the case of an extension of criminal liability in the FHL.

How should an extended protection be designed?

As already mentioned, only those cases when someone unlawfully prepared access to a company secret are covered by the criminalisation of the law.

However, in many cases, utilization and clearing poses a greater risk than acquisition, which became evident with the Ericsson case.

Ruling can, among other things, lead to the disappearance of competitive advantage and that information is no longer protected as a corporate secret or patent.

One way to consider the problems, according to the Department of Justice, is that exploitation and clearance actualizes the risk posed by acquisition.

After all, the detrimental thing to a company or research institution is rarely for someone to make available some information but rather how the latter is used.

Therefore, according to the investigation, unlawful use and unpromising clearance should be introduced as new punitive provisions.

As the undue use of any other information is assessed as highly blameworthy behaviors, the Department sees no problem given the restrictivity to be observed in new criminalisation.

Disloyal use – legal access

Unlike the form of the law at present, the Justice Department wants punishments to be up-to-date even when people attack information to which they have legal access.

The idea, therefore, is that criminal responsibility for the new provisions should cover employees, certain contractors and others who, on a similar basis, participate in a movement.

The reason is that in many cases employers need to give employees and people in a similar position access to corporate secrets in order for them to perform their duties.

Considering current criminal liability, it is therefore difficult for someone holding a corporate secret to protect it from unfair use.

It applies especially to the technique of soliciting informers or placing someone within a movement to make available information.

Under the proposal, an extended liability should also be introduced.

Damage for repairing damage can already be actualized in a number of deeds.

The idea under the proposal is that the liability of compensation in case of crime should be more extensive and also apply to loss resulting from exploitation or clearance.

Criminal liability for outsiders through business connections

According to the investigation, people who take part of corporate secrets because of business links should also be able to face criminal liability.

Admittedly, in such contexts, it is unusual for corporate secrets to be cleared or exploited, and if that were to happen, damages should be covered by insurance or liability.

If criminal liability hits only employees or people in similar positions, however, the Justice Department sees a risk of some punitive behavior not being intercepted.

It therefore considers that even outsiders who come into contact with secret information through business connections should be punished.

Directors and auditors, on the other hand, should not be covered according to the investigation.

The position is based on the fact that they may be subject to other safeguards under both the Association Law and the FHL.

Both auditors and members also take a position of trust which means that under certain conditions they can be punished for faithlessness to the principal under Criminalbalken 10 Cape 5 § 5.

Auditors also have confidentiality under the Auditors Act 26 §.

In conclusion, therefore, the need to be able to punish auditors and directors under the FHL is not judged as sufficient.

Drawings, source codes, computer programs and research papers

According to the investigation, the provisions should be delineated to apply only to secrets of a technical nature.

What is to be classified as information of a technical nature is, according to the Department, that which forms part of a production, production of good or performance of service.

These may include drawings, source codes, computer programs and research papers.

Information around prestages, such as prototypes and tests, should also be covered.

According to the investigation, there should be no requirement that the secret be documented or have a working height in order for a penalty to be applied.

However, it is assumed that the information has some commercial value, although such may be difficult to determine.

The reason that only technical secrets should be covered, according to the Department, is that attacks on that type of information have the potential to cause the absolute greatest harm to corporations and research institutions.

The assessment is based in part on the impact of such information on the possibility of technology development, which is essential for activities involved in innovation.

Even threats from foreign power most often touch technical information.

Admittedly, exploitation of commercial corporate secrets can also result in substantive harm to an activity, but the need to punish attacks on that type of information is nonetheless not considered as pressing by the Department.

Therefore, the criminalisation of new areas shall only be implemented if it appears necessary, commercial commercial commercial secrets are not covered by the proposal.

Nor is it judged necessary to criminalise attacks on secrets of an administrative nature.

Injury from competitive terms

The Department of Justice further notes that the definition of what constitutes corporate secret in Section 2 of FHL 2 implies certain demarcations in itself.

The paragraph initially excludes information constituting crimes or serious malpractice.

In addition, there must be an unauthorised assault on information that the employee made an effort to keep secret.

The aim of the attack shall also be to cause injury from competitive terms.

The assessment of what constitutes unauthorised assault must always be made on a case-by-case basis, but if the purpose of the person making the disclosure is to benefit himself or someone else financially, it should always be unauthorised.

Examples of what can be classed as a competent assault on information include such as revealing suspicion of crimes equivalent to at least imprisonment on the punishing scale.

According to the investigation, specific requirements are to be placed on work and assignments who provide information to persons who have a position comparable to employment without being employed.

The holder of the commercial secret should in such cases need to be made extra clear that the information must not be used in order to enable criminal liability to be brought to date if exploitation takes place.

The reason is that those who are not employed are also not subject to a duty of loyalty to the mission officer.

Further, the Department believes that intent, and not just negligence, should be required for criminal liability.

Nor does it judge that calling deeds should actualise punishment.

The assessment of what constitutes a lowly deed shall be made on a case-by-case basis, according to the investigation

Leaked corporate secrets

According to the Justice Department, the starting point as previously mentioned should be that workers are free to use information and knowledge they acquired in one workplace as they move on to the next.

It therefore considers that specific reasons should be required for criminal liability if someone takes advantage of a company secret after leaving an activity unless agreements are concluded that the information must not be exploited.

Examples given for such specific reasons include that someone has adopted a mission for the purpose of accessing certain information or having prepared the transfer of a company secret during ongoing interconnection with the organization.

The size of the injury should also affect the assessment, according to the investigation.

Leaked corporate secrets can cause great damage for a long time.

There are specific reasons, the Department therefore assesses that there should not be a time limit on how long criminal liability can be updated.

Even that some companies use FHL as an alternative to patents and are able to be considered to speak against ending protection when someone leaves a business.

Extended possibility of seizure and use of secret obsessive agents

In addition to changes to the FHL, the Justice Department is proposing changes to several other laws to expand the possibility of use of seizures and secret coercive funds in preliminary investigation into state-run unlawful disclosure of corporate secret.

It should therefore be about situations where the unpromising clearing is done by foreign power, alternatively someone who works for foreign power.

Seizure means that items that may be presumed to have a bearing on criminal investigation may be seized under the Court of Procedure (RB) 27 Chapter 1 §.

Items also refer to written documents.

However, there is a seizure ban in Chapter 2 of RB 27, which means that messages between a suspect and his related may not be seized.

For example, secret obsessives can be monitoring of electronic equipment and various kinds of communication channels.

Use of secret coercive agents is regulated in the RB, the Preventive Act, the Secret Data Reading Act, and the Obtaining Act.

Exemption from seizure ban

At present, there is an exception to the seizure ban that applies in the case of preliminary investigations into state-run corporate espionage, so when foreign power conducts espionage against Swedish companies in order to prepare access to commercial secrets.

Under certain conditions, the use of secret coercive agents is also allowed in such preliminary examination.

However, the same rules do not apply to state-run wrongful disclosure of corporate secrecy.

The proposal under the investigation is that the exemption from the seizure ban and the possibility of use of secret coercive means should be extended to state-run unlawful clearance.

The changes are thought to be called upon in part because basically the same interests are actualized whether foreign power spying on corporations or unlawfully clearing their corporate secrets.

Fewer attacks on tech company secrets

The Justice Department initially believes that, according to the investigation, the proposal will mean that assaults on technical company secrets are diminished as well as increasing the possibility of intervention should attack occur anyway.

That, in turn, should lead to positive consequences for companies, particularly those engaged in innovation.

The same goes for research institutions and universities.

Furthermore, it is believed that confidence in Sweden as an innovation country will increase, which should lead to increased investment willingness, more jobs and increased prosperity.

One expected negative consequence is that the costs of the judiciary will increase as a result of more filings.

However, such an increase is judged to be marginal as a result of the relatively sharp demarcation of the bill.

In terms of workers and the labour market, it expects mainly positive consequences due to safer conditions for employers as a result of the change in the law.

Since the Department believes that necessary demarcations have been made in the investigation, it expects very low, if even any, negative effect on labour market mobility and whistleblowing opportunities for workers.