Trade Secrets in Employment Relationships in Germany

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Carsten Domke LL.M. CMS Hasche Sigle and the low penalties always cause §17 of the Unfair Competition Act to be applied in important cases. VII. Labor Law Consequences and Damages When employees breach their confidentiality obligations, there are consequences under labor law, and not only under criminal law. What labor law instruments come into consideration for an employer depends on whether the violation was committed prior to the commencement of employment, during employment or in the postcontractual area. 1. Prior to Commencement of Employment In the pre-contractual area, a company can assert damage claims based on a breach of pre-contractual protective duties under §311(2) and §241(2) of the Civil Code. Because it is often difficult to calculate the amount of damage done, the courts have developed the principles of triple damage calculation according to which the damaged party has a right to choose whether to calculate the actual damage, to be paid a reasonable license fee or to be awarded the net profits of the offender. The calculation of actual damage corresponds to the system of the general law on compensation. The company must provide proof of the actual loss incurred. The damage then includes the actual incurred asset reduction and the increase of assets that did not take place. Alternatively, the company can demand payment of a reasonable license fee. The amount is then calculated on the basis of what a reasonable licensor would have charged and a reasonable licensee would have paid if a license agreement had been concluded if both parties had been familiar with the circumstances of the case at the time of the decision. 11 Courts have awarded license fees between 1 percent and 12.5 percent. The calculation of damage is done objectively, regardless of whether the employer has in fact lost profits, and if so, in what amount. The company may also demand the net profit gained by the offender; it is implied that the company would have gained the same profit that the offender did. In this case, the company must prove that the offense in all probability caused the company to incur a loss and the offender to gain a profit. 2. During Employment In the event of breaches of confidentiality obligations during employment, employers may dismiss such employees without notice for good cause, in addition to filing claims for damages in accordance with the above-mentioned principles, because communication of trade secrets, as well as the suspicion 12 that secrets have been 11 BGHZ 44, 372, 380 f., BGHZ 77, 16, 27. 12 BAG decision of 26 September 1990, 2 AZR 602/89; decision of 17 August 2001, Landesarbeitsgericht Köln, 11(7) Sa 484/00. L:\JOBS\42179 ABA LEL\42179_Book vol 1\WIP files\Papers\125_Domke.doc 8
Carsten Domke LL.M. CMS Hasche Sigle betrayed, constitutes good cause for termination without notice under §626(1) of the Civil Code. 13 . Court Ruling The decision of the Regional Labor Court of Berlin rendered on 10 July 2003 dealt with a case in which an employee had copied a considerable number of files belonging to her employer. These files were projects lists including names of customers, names of project leaders, descriptions of projects, offer prices and general company data. The court held the opinion that the employee's act constituted an intentional betrayal of trade secrets that gave the employer the right to dismiss her for good cause and without giving her prior warning. 14 Employers are also entitled to an injunction against future offenses pursuant to §8(1) of the Unfair Competition Act in conjunction with §3 of the Unfair Competition Act if employees have committed acts of unfair competition. If there was no competitive purpose, the employer is entitled to an injunction in any case based on tortious acts pursuant to §823(1) and §1004 of the Civil Code. In urgent cases, an action can be filed for a preliminary injunction. In preparation for actions for damages and injunctions, companies are also entitled, under §242 of the Civil Code (good faith), to demand information from offenders if they lack information to assert their claims, for example, for the calculation of lost profits, on the amount of profits gained that was made possible by using the trade secret. 3. After the End of Employment If employees breach their post-contractual confidentiality obligations after the end of their employment, their former employers may assert compensation claims in accordance with the above-mentioned principles. VIII. Conclusion This shows that in Germany applicable law, primarily §17 of the Unfair Competition Act and §2667 of the Criminal Code, contains statutes providing comprehensive protection for trade secrets. In addition, companies can impose obligations on their employees by way of contractual clauses to hold trade secrets in confidence if they restrict such clauses in employment agreements to specified trade secrets. Otherwise, the boundary for a prohibition on competition without compensation and limited in terms of time to a maximum of two years would be overstepped, with the result that employers would be obligated to compensate their employees. 13 Decision of 12 November 2004, Landesarbeitsgericht Rheinland-Pfalz, 8 Sa 460/04; decision of 15 June 1967, Landesarbeitsgericht München, 1 Sa 648/67. 14 LAG Berlin decision of 10 July 2003 – 16 Sa 545/03. L:\JOBS\42179 ABA LEL\42179_Book vol 1\WIP files\Papers\125_Domke.doc 9
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