On June 21, 2018, the French Senate finally adopted the Bill aimed at transposing European Directive 2016/943 on trade secrets adopted by the European Parliament in June 2016 and introducing a new Title V in the French Commercial Code entitled “Protection of Trade Secrets”.
The text in the reform is aimed at protecting company know-how and information against industrial espionage and unfair competition, regardless of their size or field of business.
Companies should adopt good practices in compliance with these new regulations as of now:
1. Information covered by the protection
Trade secrets deal with information of various types such as technical, commercial, accounting and financial, or strategic data.
In order to be considered a trade secret and be covered by the new protection regime, information must meet the following three requirements. It must:
– be secret, i.e. not readily accessible by the public,
– have commercial value,
– be the subject of reasonable protective measures, such as pre-contractual or contractual measures or personnel awareness measures.
2. Acts considered as an infringement of trade secrets
If the abovementioned prerequisites are all met, the law makes it possible to object to access, use and disclosure of the protected information as well as punish the perpetrator whose conduct was unfair or who must have been aware, under the circumstances, of the illicit character of his/her act(s).
The perpetrator having committed acts constituting direct infringement of the trade secret shall be civilly liable according to the terms of Article L. 152-1 of the Bill and may be sentenced to pay damages if the infringement of the information occurred without the legitimate holder’s consent.
With regard to any person who imported, exported, produced or marketed products reproducing secret know-how, the reform provides stronger protection compared to the current regime since it makes it possible, in particular, to punish that person even if s/he did not personally participate in the misappropriation of the know-how, provided it can be proven that s/he knew, or ought to have known, of the fraudulent origin of the information. To that end, it will be possible to send a letter of warning to the perpetrator beforehand “informing of potential infringement”.
3. Additional exceptions to the protection
In view of the criticism targeting the European Directive, regarding the violation of the right to freedom of expression, the national legislator decided to extend the situations in which trade secrecy cannot be raised.
While, in accordance with the European Directive, Article L. 151-7 of the Bill provides that trade secrecy cannot be raised when “acquisition, use or disclosure of the secret is required or allowed by European Union or national law”, Article L. 151-8 of the Bill adds an additional exception for situations in which acquisition of the information took place “within the framework of the exercise by employees or their representatives of their right to information and consultation”.
Decision by the Social Chamber of the Court of Cassation dated May 3, 2018 (Cass. Soc. 3 mai 2018, n°17-11.048).
While it is customary for an employer to request certain personal documents for operational purposes, there is nevertheless sensitive information in an employee’s private life that an employer is not allowed to request.
Requesting documents pertaining to an employee’s personal life does not necessarily characterize infringement on the right to privacy in their private and family life. That is the conclusion that should be drawn further to a ruling by the Social Chamber of the Court of Cassation dated May 3, 2018 (Cass. Soc. 3 mai 2018, n°17-11.048).
To justify her claim for damages, an employee referred to a clause in her employment contract requiring that she informs her employer of any changes occurring to her name (marital status), family situation, or place of residence.
The question put to the Court of Cassation was therefore to know whether the employer could, based on that clause, lawfully collect such information.
The Court of Cassation judges answered in the affirmative, even though the laws on the matter are clearly established and protect employees from excessive interference by the employer in the employee’s private life (*). Indeed, the judges considered that the Court of Appeal had validly held that “the information requested was necessary in order for the employer to assure the employee’s rights” and that, as such, the litigious clause could not constitute a breach of the employee’s fundamental rights and freedoms.
By means of the present ruling, the Social Chamber reiterated the scope of the notion of ‘interference in an employee’s privacy’ and rejected such a condition when the request for personal information is in the employee’s interest.
(*) Article 9 of the French Civil Code, Article 8 of the European Convention on Human Rights, and Article L1121-1 of the French Labour Law.
In a ruling dated 13th June 2018 (CE plén. 13-6-2018 n° 395495), the Council of State has finally clarified the notion of an “active holding company,” which it defines as a company: “whose principal activity, in addition to managing a portfolio of investments, is to play an active role in the management of the group’s policy and the running of its subsidiaries and, where relevant and on a strictly internal basis, the provision of specific administrative, legal, accounting, financial and property services.”
Before the 13th June ruling, only the Cour of Cassation have issued a definition of active holding companies. The Council of State’s definition builds on the definition issued by the Cour of Cassation, adding that management must be the company’s “principal” activity.
As such, companies with non-controlling minority shares in businesses may qualify for “active holding company” status.
Furthermore, the Council of State mentions a certain number of factual elements to be used to prove “active holding” status, notably including:
– Minutes from meetings of the company’s board of directors attesting their involvement in the management of their subsidiaries’ policies; or else
– The existence of a contract for administrative and strategy and development support, specifying that the holding company will play an active role in the strategy and development of its subsidiaries, without compromising their respective autonomy as legal entities.
The Court of Justice of the European Union has decided on Tuesday 12 June and has sided with Christian Louboutin: a colour, when placed on a product or part of a product, may be registered as a trademark in the European Union insofar as it allows the consumer to identify the origin of the purchased product.
Court of Justice of the European Union, Grand Chamber, 12 June 2018, C-163/16, EU:C:2018:941, Mr. Louboutin and Christian Louboutin SAS vs. / Van Haren Schoenen B.V.
Christian Louboutin will therefore retain its trademarks in the European Union, consisting exclusively of colour 18-1663 TP of the Pantone colour chart, placed on the sole of its high-heeled shoes.
Among its numerous trademarks, the Benelux trademark was registered in 2010 in the “shoes” class and, as of 2013, in the “high-heeled shoes” class. This trademark is described as consisting of “the colour red (Pantone 18-1663 TP) applied on the sole of a shoe as represented (the contour of the shoe does not form part of the trademark but is used to show the placement of the mark)”.
In 2013, Mr. Louboutin and his company filed a lawsuit for trademark infringement against a Dutch company named Van Haren, which had marketed high-heeled shoes with red soles in 2012.
In its defence, Van Haren argued that the trademark invoked was invalid due to the fact that this trademark was solely constituted of the shape of the product in question (in this case, the sole of a high-heeled shoe).
Having been called upon by the Hague Tribunal, the Court of Justice of the European Union (CJEU) responded to its interlocutory question regarding the validity of the colour trademark (Pantone red 18-1663TP) invoked by Christian Louboutin.
According to its decision of 12 June 2018, the Court decided that the term ”shape” mentioned in the law must be construed according to its common meaning. However, a colour in itself, when not delineated in space, does not constitute a shape.
This applies even if the shape of the product (or part of the product) plays a role in delineating the colour in its space: the sign for which trademark protection was sought cannot be considered to consist of its shape, for which no registration was requested, but rather only as the application of a colour on a specific area of the product, in this case, a positional mark.
While this decision is a legal decision, the work and investments of Mr. Louboutin to ensure the monopoly of Pantone 18-1663 TP red soles have also ensured this favourable decision. Indeed, the impact of the considerable investments made by Mr. Louboutin and his Company to promote his “colour trademark” and their communication efforts on their red-soled shoes should not be downplayed. They have largely contributed to giving a strongly distinctive characteristic to the red-coloured soles as a result of constant use.
In addition, given the numerous decisions of the European Union Intellectual Property Office (EUIPO) refusing to register positional marks for “lack of distinctive character”, we can only temper the future enforcement of the general rule set by the CJEU.
Order n°2016-1635 dated 1 December 2016 required companies, other than those whose securities are admitted to trading on a regulated market, to declare their beneficial owners with the registry of the Commercial Court where their head office is located.
Decree n° 2018-284 dated 18 April 2018 was created to clarify the system for declaring beneficial owners. These clarifications came into effect on 21 April 2018.
The two following provisions of the decree should be highlighted:
1. The definition of the “supervisory power” exercised by the beneficial owner
Before 21 April 2018, article R. 561-1 of the French Monetary and Financial Code indicated that the beneficial owner of a company was the natural person:
– Either directly or indirectly holding more than 25% capital or voting rights in the company;
– Or exercising, via any other means, a supervisory power over managing, administrative or executive bodies of the company or over the general meeting of shareholders.
The new decree specifies the notion of “supervisory power” and amends article R. 561-1 of the French Monetary and Financial code to this end.
As of 21 April 2018, the supervisory power is now defined “within parts 3 and 4 of section I of article L. 233-3 of the French Commercial Code”.
The notion of “supervisory power” is thus clarified and a natural person shall be considered as fulfilling the review criterion in the two following cases:
– Either, he/she determines, via the voting rights in his/her possession, the decisions in the company’s general meeting (article L. 233-3, I, part 3);
– Or, he/she is a member or shareholder of the company and holds the power to appoint or to remove a majority of members of the administrative, executive or supervisory bodies of this company (article L. 233-3, I, part 4).
2. The default beneficiary owner
Before 21 April 2018, the texts did not indicate how to process a case where it is impossible to identify a natural person as a beneficial owner on the basis of criteria established in the first paragraph of article R. 561-1 of the French Monetary and Financial Code.
From 21 April 2018, the registry practice has been enshrined in the new decree. Article R. 561-1 now specifies that, when no natural person can be identified, the beneficial owner is the natural person or persons or, if the company is not registered in France their equivalent under foreign law, who legally represents the company, namely;
a) The manager or managers of partnerships, limited partnerships, limited liability companies, limited stock partnerships and civil societies;
b) The managing director of limited companies with a board of directors;
c) The sole managing director or the chairman of the board of limited companies with a board of directors and a supervisory board;
d) The President and, if needed, the managing director of simplified joint stock companies.
If the legal representatives mentioned in letter a) or letter d) are legal persons, the beneficial owner is the natural person or persons who legally represent these legal persons.
Even if the companies concerned by this obligation are presumed to have submitted their declaration by 1 April 2018 at the latest, the new aforementioned rules shall apply for the filing of any corrective statement required in the event of amendment to the initially declared beneficial owners resulting in a change to the shareholding or control of the company.
In order to promote the use of telework, Article L.1222-9 of the French Labour Law from the “Ordonnance Macron” n°2017-1387 dated September 22, 2017 and modified by the Bill of ratification on March 29, 2018 simplifies the means for implementing telework.
From now on, an employment contract no longer needs to be modified to allow an employee to “telework” (work remotely).
A telework situation can be implemented on the basis of one of the following 3 means:
– a charter drawn up by the employer,
– a collective labour agreement,
– a simple agreement with the employee (verbal, postal or email agreement, etc.).
Article L.1222-9 of the French Labour Law does indeed foresee that, in the absence of a charter or collective labour agreement implementing the telework situation, the employee and employer may officialise their agreement to use this type of work arrangement by any means whatsoever.
The third means of implementation, previously only possible in the event of “temporary” use of telework provided for in the initial Law, has been extended by the Bill of ratification to all types of use of telework, whether temporary or permanent.
Although a verbal agreement may suffice, a detailed, written one is nevertheless preferable, in particular for the sake of proof in case of a dispute.
Moreover, and when telework is organised on the basis of the collective agreement or charter, the Law requires that the conditions for switching to telework be specified, in particular in the event of an air pollution episode.
That specification made in the Bill of ratification actually echoes the Bill, proposed by the senators in January 2018, aimed at promoting telework in the event of an air pollution episode.
Lastly, whatever the means for implementing telework, the Law specifies that the rights of teleworkers remain identical to those of employees performing their work on the company premises.
In the terms of article 219, I-a quinquies of the French Tax Code (CGI), the quasi-exemption regime for long-term capital gains is applicable to shares held for at least two years, which:
– Have, in accounting terms, the nature of equity securities, whether they are entitled, or not, to the parent companies’ tax regime; and
– Are entitled to the regime of the parent companies and subsidiaries (CGI, article 145) without having, on the accounting level, the nature of equity securities subject to the shares being recorded in a special subdivision of a balance sheet and subject to representing at least 5% of the distributing company’s capital.
In accounting terms, equity securities are those whose lasting ownership is considered useful to the activities of the company, notably because they enable the company to exercise control or influence over the company issuing the shares.
In principle, the usefulness of lasting ownership of transferred shares can be characterized by the existence of a shareholders’ agreement.
In the case judged by the Council of State, it was considered, quite to the contrary, that such was plainly not the case as the agreement established that the shareholders were solely pursuing the objective of financial returns. In this instance, neither the intent to exercise influence over the issuing company nor the intent to ensure its control was therefore characterized by this agreement.
Moreover, regarding the condition of holding at least 5%, the Council of State specified that the percentage had to be assessed based on the date of the event having generated the tax, i.e. regarding capital gain on transfer, on the date of that transfer, and not in a continuous manner over a 2-year period.