Debate as to whether "sum of knowledge" constitutes trade secrets
In a final and enforceable judgment of 12 March 2021 (LF-2020-92904), Frostating Court of Appeal found there to be unlawful use of trade secrets by a former employee using his knowledge gained at the employer to develop a competing product. Lawyers Sigurd Holter Torp and Trond Sollund in Schjødt represented the employer, and we have commented on the judgment in a previous newsletter. In the wake of the judgment, there has been a debate about the judgment and the protection of trade secrets.
By Sigurd Holter Torp
Professor Harald Irgens-Jensen has commented to Teknisk Ukeblad that the judgment in his opinion takes too little account of the fact that even employees with advanced technical knowledge should be able to change jobs and go to a competitor. Professor Irgens-Jensen is critical of the "sum of knowledge" concept and its use and believes that it is poorly anchored in the EU Directive on Trade Secrets. He believes that it should not simply be for a previous employer to point out that a person has benefited from experience from the development of a complicated technical product when the person has created a new, competitive product – and believes that one should compare products to a greater extent in cases on unfair use of trade secrets.
We have responded by commenting that the unanimous judgment of the Court of Appeal gives the correct expression of applicable law, and that the judgment thus does not represent any new application of law. This is also supported by the fact that the opposing party's appeal was not allowed for hearing in the Supreme Court, and also that other judgments from the Courts of Appeal that have been based on similar "sum of knowledge" views have not been allowed for hearing in the Supreme Court. There is nothing in the new Act relating to Trade Secrets that changes this. On the contrary, the preparatory work to the Act states that an important justification for the protection of trade secrets is to prevent business actors from gaining unfair competitive advantages through access to others' results of effort, investment and trial and error.
One may well be critical of the "sum of knowledge" concept and its use, but we have pointed out that the prevailing law has been established and clarified. In addition, the principle is based on the best reasons, namely, to protect the significant experience base a company accumulates by spending many years developing a technically demanding product which they alone possess. An employee with full insight into this knowledge base should not be able to take advantage of it to to develop an almost identical competing product, in a short time and at a cheap price. On the contrary, an employee with such knowledge and such plans must act with considerable care to avoid infringement, as case law has previously pointed out. Such a requirement for prudent and loyal conduct is also necessary in order to ensure that a company that invests in product development has reasonable assurance that key employees will not take with them the expertise they accumulate and use it in competing businesses.
The assessment of whether someone has unlawfully made use of others' trade secrets is far more complex than just comparing the products, as the Court of Appeal correctly assumes. If one were only to compare products, it would be very easy to circumvent the infringement of trade secrets by simply designing the product with a small difference to the original product.". Whether there is unlawful exploitation depends on a specific and complex assessment, where e.g. emphasis shall be placed on the similarity between the products, development time and development costs, as well as consideration for freedom of trade and the company in question.
Associate Professor Haakon Thue Lie has commented to Teknisk Ukeblad that the judgment is unfortunate for innovation and freedom of trade in Norway, and that the judgment makes it risky for employees to change jobs to a competitor. He believes that the judgment makes it possible for companies to claim that the knowledge a former employee has in his head constitutes the protection "sum of knowledge", without the employee having been specifically told what the secrets consist of.
We have refuted this by pointing out that Associate Professor Lie claimed the same as an expert witness in the Court of Appeal without succeeding with his views, which are also incompatible with several judgments from the Courts of Appeal. In our opinion, it is not reasonable to set such requirements for concretization as he claims, and which would not protect the company-specific experience base that over years is accumulated in innovation companies, and which, e.g., can be knowledge of what does not work.
The facts in this case were special, in that the employer had been able to develop a product over a number of years which was unique in the global market, and they protected their technology through secrecy. When a competing product entered the market, which was almost identical to the original product, it was from a trusted employee who for 16 years had accumulated total knowledge about the product and all the employers' experiences, and who had left a few years earlier. In that context it is quite easy to establish infringement of trade secrets, as the Court of Appeal concluded. A former employee who acts loyally and diligently, and who only uses the general experiences he has accumulated with the employer, will not be at risk. We have therefore commented that there is no basis for the far-reaching consequences Lie expresses.
The judgment has thus created debate, and the judgment is very important in order to protect innovation in Norway. It is a prerequisite for technology development in a modern society that there is a reaction against the abuse of trade secrets. The need to react to such abuse is emphasized, inter alia, in the preamble to the EU Directive on Trade Secrets, (EU) 2016/943, item 1. If such conduct as was seen in this case were allowed, the protection of trade secrets would in reality be undermined to the extent of being insignificant, contrary to the EU Directive and the legislator's intention to clarify and strengthen the protection of trade secrets.