Denmark: Trade secrets – policy and latest developments

As one of the countries that continuously ranks as one of the most R&D intensive countries in Europe (based on researchers per capita and the fact that Denmark’s published patents increased from 51 to 1000 between 2000 and 2022, which, per capita, equates to four to five times the average of the 10 leading research nations), in our experience trade secrets are becoming an increasingly common topic in discussions regarding the protection of a business’ intellectual property assets.

It is not a surprise that this is the case. In comparison to patent protection, trade secrets can look like a faster, cheaper and easier option.

There are other attractive features. Trade secrets negate the need for public disclosure. You also have closer control over the level of confidentiality around your innovations. Arguably, trade secrets can also offer more flexibility when negotiating licensing arrangements as one can choose exactly what is disclosed, to whom and under what terms.

However, speed, expense and ease are certainly not reasons for choosing trade secrets over patents. Instead, they should be viewed as something to either fill the gaps where patent protection is not feasible or to use when patent protection simply isn’t commercially practical.

Denmark’s trade secret regime falls under the EU Trade Secrets Directive. The Directive was enacted into Danish law through the Trade Secrets Act. The Act sets the legal framework for the protection of these assets. In accordance with the Directive, Danish law defines a trade secret as information held by a business that is:

• secret;
• likely to have commercial value (either now or in the future); and
• subject to reasonable steps to keep the information secret.

And as with the other territories that fall under the EU Trade Secrets Directive, to maintain a trade secret under the Act, the owner must take ‘reasonable steps’ to ensure the secrets in question remain confidential, with reasonable steps likely involving a combination of:

• administrative or organisational measures – putting the required internal trade secret policies and procedures in place and providing training for employees;
• legal or contractual measures – using confidentiality agreements including NDAs, adding non-compete clauses and other provisions to employment contracts for employees with access to or potential to share the company’s trade secrets with external parties, putting provisions in supplier or partnership contracts to ensure the other party also keeps your trade secrets secret; and
• technical measures – making use of the latest technology to secure trade secrets.

As explicitly stated in Denmark’s Trade Secrets Act, violation of the Act can be punished with a fine or imprisonment for up to one year and six months. Particularly, aggravating circumstances can trigger an even higher penalty in accordance with the Criminal Act. This carries a maximum sentence of six years.

Litigation

The continued rise of the popularity of trade secrets in Denmark has been underlined by the volume of the recent trade secrets litigation arising in Denmark.

In a recent decision of the Eastern High Court, U 2022.1255 Ø, a company’s trade secrets were determined to have been unjustifiably used by an infringer, who had recently employed three employees from the company.

These employees had great insight and experience with the company’s devices and were directly involved in the development of the infringed devices. The company’s software – which contained a variety of recipes, models and algorithms along with its underlying data – was found in the infringer’s products, leaving no doubt that the functionality of the company’s devices had been copied.

Moreover, disputes are also often related to commercial information rather than technical information as seen in the recent case of BS-40573/2021-SHR from the maritime and Commercial Court, which concerns a request for a temporary ban against S making direct contact with O’s approximately 16,000 named clients for a period of 18 months following the termination of the parties’ collaboration.

The Court assumed that S, through the collaboration with O, was in possession of information about which technical facilities were nearby each individual client and when these were due for service. The Court found that this constituted a trade secret and that S had unjustifiably used the trade secret to sell or seek to sell its own service to the clients.

However, as there were only isolated violations, the Court found that no general, systematic and significant violation had taken place. On that background, the Court refused to grant a temporary injunction.

Claims regarding the misappropriation of trade secrets are often coupled with the assertion of other IP rights, for instance copyright and designs, as seen in BS-9628/2020-SHR, from the Maritime and Commercial Court. The case concerned whether the plaintiff’s smoke alarms were design and copyright protected and, if so, whether the defendant’s products infringed upon those rights.

The plaintiff also claimed that drawings, know-how and technical specifications that the defendant had received in connection with the parties’ discussions on the development of a new smoke alarm constituted trade secrets.

The Court found that the plaintiff had not specified which of this information constituted trade secrets, or how the defendant allegedly had misappropriated this information.

Information on future requirements for smoke alarms shared by the plaintiff to the defendant and the fact that the defendant had developed new products in view thereof did not change the Court’s decision. The Court emphasised this knowledge must be considered known in the industry.

The future of trade secrets in Denmark

Historically, agriculture has been the most important industry in Denmark. With only 2.5 per cent of all employed people in Denmark now work in farming, it is of less importance today, but it is still a highly innovative sector with particularly significant developments in:

• new chemicals and biologics, including pesticides and crop stimulants;
• the use of AI and machine learning to aid precision agriculture;
• seeds and asexually reproduced and improved plant strains; and
• robotics and other forms of crop automation.

While patents remain the most popular form of IP rights in these areas, trade secrets are set to play their part in protecting these new inventions.

As trade secrets offer an effective way to protect proprietary information, agritech businesses recognise it is highly applicable to the protection of internal methods, procedures and the techniques used, for example, to propagate new strains of plants. While the actual plant varieties will likely be protected by patents, trade secrets are being used to protect the specific techniques and processes being used to produce them to ensure the producer’s competitive advantage is maintained.

Allied to agritech, Denmark is also at the forefront of Europe’s foodtech industry. In 2022, €56.7 million was invested in 19 deals in Copenhagen in comparison to the €46.7 million invested in two deals in Berlin, the €36.1 million invested in 8 deals in Amsterdam and the €29.2 million invested in six deals in Paris. Today there are more than 130 companies in Denmark developing and producing new food-based technologies, most notably those involving fermentation.

Consumer demands for more healthy and ethical foods are fuelling a renewed interest in fermented foods, and more demand for product means more demand for new fermentation technologies. Many of these now have a digital – or more specifically AI or machine learning – component. This is having a transformative effect on foodtech.

AI is being used to enhance the precision, efficiency and productivity of fermentation processes. As fermentation is a complex metabolic process, it requires meticulous monitoring and control. AI can analyse the vast amount of data involved quickly and accurately as is attractive because analysis is not prone to human errors. AI can also identify and make immediate adjustments to maintain optimal fermentation conditions, efficiency and quality of product and predict the outcome of fermentation processes, which in turn reduces the risk of batch failure and wasted resources.

As the coding behind an AI is difficult to patent, we are seeing more inventors turn to trade secrets to protect their algorithms and applications.

Similarly, as these AIs are being used to create new recipes and formulations and develop new processes that optimise the use of resources, minimise waste and find ways to make products more sustainable, trade secrets are perfectly suited to their protection.

Another important contributor to the Danish economy is the energy industry.

Denmark has long had a heavy reliance on the natural reserves that made the country one of the largest producers of oil and natural gas in the European Union. Although production has decreased in recent years, Denmark is now investing heavily in the renewable energy sector. Wind farms are a particular focus, but Denmark is also actively involved in the production of new and more environmentally friendly battery and storage systems.

Trade secrets are becoming increasingly prevalent in the clean energy sector.

The main reason for cleantech companies choosing trade secrets is again to provide protection when the material is not patentable; however, there are some other reasons why a trade secret may be preferable for innovators in this sector.

The first is to minimise the risk of reverse engineering.

With physical inventions such as wind turbines, the key aspects of the technology could be easily scrutinised by competitors if a patent application is filed. This could allow them to reverse engineer their own solution. If this is a realistic risk, it may be better to keep these assets as trade secrets.

In many cases, new inventions in the clean energy markets involve the reapplication of existing technologies for new purposes. If this is the case the technology cannot be considered novel so is therefore not patentable, so trade secrets could be the best form of protection.

Again, the growing use of software and AI in renewable energy solutions is one of the reasons why companies are opting for trade secrets protection. As patent protection is hard to come by for computer-implemented inventions and as there will be significant levels of knowhow involved in the digital elements of an energy solution, trade secrets can provide a more practical means of protection.

There is another more sinister aspect to consider. As the world’s demand for more sustainable energy sources grows, so does the threat of industrial espionage as competitors look to cut corners so that they can bring their own solutions to market more quickly. Trade secret theft is a particularly high risk in the renewables sector.

Up to this point, theft is most likely to be the result of both current and former employees divulging trade secrets for financial gain. This means it is even more important for energy companies to ensure they have the required contractual measures in place.

The other sector in which we are seeing increasing use of trade secrets in Denmark is tech. Denmark is traditionally strong in electronics and industrial equipment and is home to international market leaders like Danfoss and Grundfos.

As in the other sectors we have mentioned, trade secrets can provide a means of protection for subject matter that would not be eligible for a patent including formulae, algorithms, processes and coding, all of which are fundamental to the development of new inventions in the tech sector.

However, there is another reason why tech companies can sometimes lean towards trade secrets: disclosure. Certain aspects of new technology will be placed under huge risk if they are made public. Trade secrets circumvent these risks because the key elements can never be made public.

Similarly, trade secrets can also prove useful if there is a likelihood that a competitor’s infringement of a patent would be so subtle that it would be missed by the patent owner despite the commercial impact this infringement would have on their intellectual property and business model.

The speed and ease of putting trade secrets in place is also hugely attractive to tech companies. However, the ultimate aim must be to maximise protection, not minimise cost. As such, we would always stress that they should be used only when patent protection is unobtainable and as the third stream in a comprehensive IP protection strategy involving patents, designs (particularly for graphic user interface and casings) and trade secrets.

Two of Denmark’s other major industries – manufacturing and transport – are also making full use of trade secrets for many of the same reasons as the other sectors we have covered above.