Sweden: Trade secrets – policy and latest developments

In Sweden, trade secrets come under the EU Trade Secrets Directive (2016/943). Although this was enacted to ensure a harmonised regime across EU member states, each state has some flexibility in terms of how their national courts deal with the Directive. The Directive was enacted into Swedish national law through the Trade Secrets Act, lagen (2018:558) om företagshemligheter.

Sweden’s new Trade Secrets Act came into force on 1 July 2018. The Act consists of 28 sections that set out the related criminal offences, the damages for violating trade secrets and how to pursue injunctions and preliminary injunctions.

Under the Act, the information classed as a trade secret is information that:

• concerns the business or operational circumstances of a trader’s business or a research institution’s activities;
• is either as a body or in the precise configuration and assembly of its components, not generally known or readily accessible to persons who normally have access to information of the relevant kind;
• the holder has taken reasonable measures to keep secret; and
• the disclosure of which is likely to lead to competitive loss for the holder.

The Act strengthens the protection of trade secrets. In line with the EU Directive, holders of trade secrets must now take ‘reasonable measures’ to keep the information in question secret. The previous legislation did not have such a clear requirement for activity on the part of the holder of the information.

Reasonable steps are likely to involve some combination of administrative, legal and technical measures, and if you are likely to have to share secrets with other parties, you should put a legal framework in place to ensure that the other party also keeps it secret.

The Act relates specifically to the misappropriation of trade secrets. Misappropriation does not include whistleblowing. It includes the following acts done without the consent of the holder of the secret:

• accessing, appropriating or otherwise acquiring the trade secret;
• exploiting the trade secret; and
• disclosing the trade secret.

The new Act has also withdrawn the possibility of acquiring a trade secret ‘in good faith’. If it is claimed that the secret has been acquired in good faith, this will not constitute a criminal offence or require damages to be paid, but any further use of the secret can be stopped by issuing an injunction.

The Act also allows trade secrets to be kept secret if they are part of judicial proceedings. If a secret is disclosed during proceedings, the person who makes the disclosure may be liable to compensate the party that held the secret.

Finally, the definition of a trade secret outlined in the Directive is articulated with slightly different terms under the Swedish Act. Specifically, the criterion that a trade secret is likely to have commercial value is formulated differently in that the disclosure of the information is likely to cause competitive harm to the holder. The Swedish legislator has, however, stated that there shall be material consistency between the definitions in the Directive and the Act.

Despite the introduction of both the EU Directive and the new Swedish Trade Secrets Act and the extra light this has shone on the existence of trade secrets, we are still to see a significant increase in the volume of conversations we are having about trade secrets. Having said this, trade secrets are still a constant topic for discussion as clients look to find the most potent combination of IP rights for their assets.

In terms of the profile of the entities discussing trade secrets, it is fair to say they are considered valuable and, therefore, worth protecting by large and small companies alike. However, in our experience, when it comes to trade secrets litigation, disputes are most often national (ie, involving parties based in Sweden). This appears to correspond to the overall trade secrets litigation in the European Union where disputes tend to be localised at the national level, with cross-border disputes remaining relatively rare (as stated in the EU trade secrets litigation report).

In terms of litigation under the new Swedish Trade Secrets Act following the implementation of the EU’s Trade Secrets Directive, cases in which the courts have applied the new Act are beginning to come through. However, according to the EU’s trade secrets litigation report, one can see that while there are litigation cases concerning trade secrets in Sweden, the volume is rather average compared to other EU member states.

Out of 695 reported trade secrets litigation proceedings in the European Union in total, 28 proceedings were from Sweden between 1 January 2017 and 31 October 2022. In addition, all 28 judgments did not interpret the law according to the new Swedish Trade Secrets Act but only, we assume, because many arose while the old law was in force.

At time of writing, there haven’t been any preliminary rulings by the Court of Justice of the European Union (CJEU) at the EU level. Member states (including Sweden) haven’t yet referred any national cases to the CJEU concerning the correct interpretation of the provisions in the Trade Secrets Directive.

Looking more closely at litigation arising in Sweden, it is fair to say that disputes are often concerned with commercial information rather than technical information and are often concentrated between former business partners or employers and employees.

This was the case in a recent judgment by the Swedish Employment Court (AD 2021 No. 1), concerning an employee who had quit and moved from one place of work to another. This employee had taken with him trade secrets of the former employer, consisting of an Excel program, work environment document and staff handbook, which were being used to compete with the former employer by winning new customers.

This case also illustrates that claims regarding the misappropriation of trade secrets are often coupled with the assertion of other IP rights, such as copyright. The Court found that the employee, who had saved the documents to an external memory drive during his employment, had not only unlawfully used and disclosed the trade secrets in violation with the Trade Secrets Act, but had also made unauthorised copies of them in violation with copyright law.

A recent high-profile trade secrets dispute that attracted media coverage in Sweden revolved around Mobilt Bank-ID, a system for securing financial transactions with over 8 million users (PMT 7747-20). In this case, the plaintiff claimed that the defendant, a company jointly owned by a number of large banks in Sweden, should pay 1.3 billion Swedish kronor in compensation for the misappropriation of its trade secrets.

The alleged misappropriation happened in 2010, after the parties had ceased their discussions on potential cooperation as business partners regarding the development of a similar technology, during which the plaintiff claimed to have shared trade secrets under a strict confidentiality agreement. Apart from trade secrets, this case additionally concerned alleged copyright infringement as well as breach of the named confidentiality.

The Patent and Market Appeal Court agreed with the assessment of the Court of First Instance, and ultimately dismissed the plaintiff’s claims in their entirety. The Appeal Court stated that the plaintiff was not able show that the information regarding its technology qualified as a trade secret; the technical solution was not unique and was known by others in the industry.

This case is one of its kind due to its complex character, which is also reflected by the legal costs acquired during the proceedings. The plaintiff, being the losing party in both instances, was ordered to pay the defendant’s legal costs amounting to around 19 million Swedish kronor.

Where are trade secrets most likely to be used in Sweden?

Sweden has long been one of Europe’s most innovative countries. It sits second to Switzerland in the Global Innovation Index and according to European Patent Office figures, in 2020 Sweden had the largest number of European patent applications per capita in Europe.

One reason behind these rankings is the proliferation of industry in Sweden. Sweden is home to many market-leading engineering and manufacturing companies, including Ericsson, ABB, SKF, Alfa Laval, Electrolux and Sandvik. Sweden also has a vibrant life sciences industry, which has spun out of pharmaceutical giants Pharmacia (acquired by Pfizer) and AstraZeneca. Innovation continues apace by companies of all sizes within Sweden’s major industries – life sciences, automotive and telecoms.

Life sciences

Within the life sciences, trade secrets are increasingly being employed to protect assets that cannot be patented. These asset classes include:

• manufacturing and production processes;
• R&D data relating to ongoing research and development, and experimental results;
• ongoing and historical clinical trials data;
• client information and marketing;
• market research;
• marketing strategy and business plans;
• product development plans;
• quality control techniques;
• data on pharmacological and biological targets, pathways and receptors;
• customisation of any equipment or technology being used for research, testing or production; and
• employee know-how (ie, specialist knowledge employees have that is not known by competitors or more generally).

Patent protection is extremely valuable for the life sciences industry. Trade secrets are an effective means to complement and supplement patent portfolios, because they can be an effective way to protect gaps that patents cannot fill. Trade secrets are sometimes viewed as valuable because they are quicker and cheaper to progress, but their true value in a portfolio is far more extensive.

Automotive industry

The demands of the automotive industry are different. The automotive industry has always been fast moving and incredibly innovative but owing to the introduction and growing demand for electric vehicles and autonomous vehicles and the greater use of other technological advancements such as AI, the industry has had to re-evaluate its approach to protecting and leveraging its intellectual property. As trade secrets are perfect for sectors that innovate at a faster pace, it is no surprise the automotive industry’s use of trade secrets is increasing.

Again, trade secrets are being used to protect those inventions that would prove difficult to patent. These can include user interfaces and the extra functionality new cars offer as these are powered by software and, increasingly, some forms of AI.

The pace at which tech is being employed in new models and new types of cars has seen more manufacturers teaming up with specialist tech companies. This has hugely increased the risk of trade secrets being breached, a threat that must be minimised by putting the right contractual protections in place.

Telecommunications

Telecoms is an extremely tech-heavy sector that has long used trade secrets to safeguard multiple forms of business-critical information including:

• the specific design, configuration and architecture of a telecoms network and any proprietary technology or algorithms developed to maximise the performance of the network;
• any software, algorithms and applications developed for signal processing, data compression or network optimisation;
• market intelligence such as analysis of customer preferences and market behaviour;
• security measures, protocols and technologies;
• hardware specs and information relating to the performance of handsets, antennae and other components and units being used;
• business strategies, expansion plans and other sensitive business information (eg, analysis of potential acquisitions or partnerships);
• information related to ongoing or planned R&D projects (up to the point the innovation in question is disclosed as part of the patent process); and
• employee know-how, including any proprietary skills or knowledge gained by employees while working on particular projects.