10 Things all businesses should know about Trade Secrets
A trade secret has been broadly defined as any information that derives its economic value, actual or potential, from the fact that it is not generally known and cannot be easily accessible to those who could otherwise obtain economic value from its disclosure or use.
The English Courts have suggested that the following four elements are important when testing the confidential quality of information:
(a) The information must be such that the owner believes that its release would be injurious to him, or would be advantageous to his rivals or to others;
(b) The owner of the information must believe it to be confidential or secret and not already in the public domain;
(c) The owner’s belief in (a) and (b) must be reasonable; and
(d) The information must be judged in the light of usages and practices of the particular trade or industry concerned.
Every business has information that it needs to keep secret from its competitors. This will include formulae, customer lists, supplier contracts, processes, pricing models, recipes, blueprints, new business ideas and computer source code. These classes of information are critical to the success of any business, and have all been deemed to be confidential information by the English Courts. If such information is leaked or misused by employees that leave the business, then it can have a substantial detrimental effect upon the business.
Relying on a duty of confidentiality is the polar opposite to seeking patent protection. Whilst a patent application must disclose in full, the idea or invention, reliance on a duty of confidentiality means that the idea or invention is never disclosed to the public. Patent protection will expire after 20 years, whilst information will remain confidential for as long as the information remains secret.
If the idea or invention cannot be easily reverse engineered, then it may be more advantageous to maintain it as a trade secret as opposed to seeking patent protection.
If the information has been published or disclosed to any third party in the absence of an obligation of confidence (contractual or otherwise), it falls into the public domain and the law of confidence cannot prevent its subsequent use or further disclosure.
An obligation to keep information secret can:
Arise by prior notice (i.e. marking a document “Strictly Confidential”;
Be implied by law e.g. in a doctor/patient or solicitor/client relationship; or
By express agreement. If you are planning to disclose information that you consider to be confidential, then always and only disclose the same under the terms of a written confidentiality agreement signed by all parties.
For a breach of confidence to be actionable:
The information itself must have the necessary quality of confidence about it:
That information must have been imparted in circumstances importing an obligation of confidence; and
There must be an unauthorised use of that information possibly to the detriment of the party communicating it.
The law governing breach of confidence continues to develop to reflect changes in society, technology and business practice. Further, Art.8 of the European Convention for the Protection of Human Rights (dealing with the right to privacy) has reshaped the action for breach of confidence so that it now protects the misuse of private information.
If a person deliberately extracts confidential information and gains an advantage from it, the conduct is not theft within the Theft Act 1968. Although, confidential information is treated as property in certain circumstances, (i.e. technical know-how being assigned or licensed) this is not enough, as there must also be an intention to permanently deprive the person entitled, and that cannot occur unless the only record of the information is taken for good.