Trade Secrets FAQ
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| Vintage Moped
Author: Mohylek
Creative Commons Licence
Source Wikipedia
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24 Aug 2016
What is a Trade Secret?
A trade secret is technical or commercial information that is not generally known the use or further disclosure of which could benefit the person who obtains it or disadvantage the person who had wishes to keep it secret. Designs for the components of a moped engine as in Coco v AN Clark (Engineers) Ltd. [1968] F.S.R. 415 [1969] R.P.C. 41 [1968] F.S.R. 415 [1969] R.P.C. 41 is an example of such a trade secret.
How does the Law prevent Unauthorized Use or Disclosure of Trade Secrets?
In England and Wales a doctrine has been developed by the judges over many years that imposes a duty upon a person who acquires a trade secret or other sensitive secret information expressly or implicitly in confidence ("the confidante") never to use or disclose the information otherwise than in accordance with the directions of the person imparting the information ("the confider") or some other lawful excuse.
Other EU member states prevent unauthorized use or disclosure of trade secrets in differences ways. Those differences are believed to impede or distort trade within the single market. To mitigate those differences the Council and European Parliament adopted Directive 2016/943 on 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure. That Directive has to be implemented by 9 June 2018 which is likely to be before the UK leaves the EU. I have written about that Directive in The Trade Secrets Directive 7 July 2016.
How does an Obligation of Confidence arise?
Usually by getting a confidante to acknowledge in an instrument known as a confidentiality or non-discloure agreement that the information he or she is about to receive is confidential and that he or she is obliged neither to use that information nor disclose it otherwise than in accordance with the terms of the agreement.
However, an obligation of confidence can arise in other circumstances. You do not need a confidentiality agreement when consulting a lawyer, doctor or minister of religion because it is obvious that the topic you want to discuss is sensitive. Members of those professions are governed by codes of conduct that require them to respect the confidence of those who consult them.
Sometimes it is clear from the nature of the information that it must be confidential and that it could not have been intended to fall into your hands. If you find a folder marked "top secret" or "confidential" it is obvious that it was not intended for you. Even without those labels, a document that contains a business plan, chemical formulations, employees' records, legal advice, market research, negotiations, results of experiments is also likely to be confidential.
The circumstances in which an obligation of confidence is likely to arise are not limited. Everything will depend on the nature of the information, the relationship between the parties and the context in which the information is communicated.
How long does the Obligation of Confidence last?
For as long as the information is not generally known and that can be a very long time indeed. The recipes for different types of Coca Cola have been kept out of the public domain for well over a century. The recipe for Chatreuse has been kept secret for very much longer. The reason why those recipes have remained secret for so long is that it is not possible to ascertain a recipe by chemical analysis. The ingredients may be identified perhaps but not the order in which they are added or the temperatures to which they are heated or whether or not they are stirred or allowed to infuse.
Other products are easier to dismantle or analyse once they are placed on the market and can be purchased lawfully. Learning how a product is made or how it works by dismantling or analysing it is called "reverse engineering" and is perfectly lawful, Once a product has been reverse engineered its design, method of construction or manufacture or similar information ceases to be secret and thus no longer confidential. The obligation of confidence falls away and the confidante is as free to use that information as anyone else.
Another way information may cease to be confidential is where a research team ascertains the secret by parallel research. That again may be perfectly lawful. Sometimes it is possible to estimate when the secret will enter the public domain or become generally known. That is why some confidentiality agreements specify the obligation of confidence will last for a finite period of time.
On the other hand if information enters the public domain through unauthorized disclosure the person who made that disclosure will not be allowed to take advantage of his or her breach.
In order to keep information confidential for as long as possible, it is the interests of the confider to keep his or her documents under lock and key or in an encrypted state in a secure part of his or her computer when not in use, to train his or her staff in the importance of confidentiality and to enforce confidentiality agreements strictly.
Are there any Exceptions to the Obligation of Confidentiality?
The obligation of confidence is one of a number of rules that were developed by the judges over many centuries that are known collectively as "equity". A maxim or saying developed that "he or she who seeks equity must come with clean hands." What that means in practice is that you cannot rely on an obligation of confidence to prevent disclosure of a crime or or impropriety. Thus a confidante would be perfectly entitled (indeed required) to report wrongdoing to the authorities even if he promised to keep it secret. That would be one of the circumstances in which a confidante would have a "lawful excuse" for disclosing confidential information.
What is the Relationship between Confidentiality and Patents?
The first thing to say is that all patentable inventions start life as trade secrets. You will recall from Patents FAQ that an invention must be new at the time you file your application. Clearly it cannot be new if it is in the public domain so you must keep it under wraps until after that application.
The second thing to note is that a patent is the diametric opposite of a trade secret. The condition for granting a patent is that the owner of the invention tells everybody in the world how to make or use his or her invention in return for a monopoly of its manufacture, marketing, sale or use for up to 20 years. By contrast a trade secret lasts only so long as you can keep it secret.
As it costs many thousands of pounds and can take several years to obtain a patent there are many inventions that are just not worth patenting. There are also some such as software or methods of doing business that cannot be patented as such. As it is usually difficult to reverse engineer the source code of a computer program many software developers rely on the law of confidence to protect software implemented inventions, large accumulations of data and similar technologies.
What about Database Rights and Data Protection?
The Copyright and Rights in Databases Regulations 1997 created a new intellectual property right in the contents as opposed to the construction of a database. The right is infringed by unlicensed extraction or re-utilization of the contents of a database. This could cover customer and employee records, market research, customer feedback, maintenance records and other data that night be subject to an obligation of confidence. A departing employee who walks away with his employer's customer's list can now be sued for database right infringement as well as breaches of confidence.
The Data Protection Act 1998 requires data controllers to prevent unauthorized access to or use of personal data particularly sensitive personal data such as racial or ethnic origins, his or her political opinions, religious beliefs or other beliefs of a similar nature, whether he or she is a member of a trade union or otherwise and so on. Much of that information would also be confidential so a data subject whose rights under the Act are infringed might have a claim for breach of confidence as well as breach of statutory duty,
How is an Obligation of Confidence breached?
In Coco v Coco v AN Clark (Engineers) Ltd. Mr Justice Megarry set out the requirements for an action for breach of confidence. First, the information must be of a confidential nature. Secondly, the information must have been communicated in circumstances importing an obligation of confidence. Thirdly, there must be an unauthorised use of the information to the detriment of the person communicating it.
What happens if such Obligation is breached?
A claim for an injunction (order of the court), damages (compensation) or account of profits (calculation of the wrongdoer's profits from his or her wrongdoing and their surrender to the injured party) and other relief such as costs (a contribution to the successful party's legal fees and other expenses) can be brought in the High Court sitting in London or other major cities or a hearing centre of the County Court where there is also a Chancery District Registry. Claims for under £500,000 that can be heard in no more than 2 days may be suitable for the Intellectual Property Enterprise Court including the small claims track if the claim is for £10,000 or less.
As there may be at least several months delay between the issue of the claim form and trial the court may be prepared to grant a temporary injunction to restrain a breach of confidence until after trial if it believes that the claimant can win, that he or she will suffer irrevocable loss or damage by the time the action gets to trial and the claimant is willing and able to compensate the defendant in damages should it transpire that the injunction should not have been granted. In practice applications for such injunctions dispose of the vast majority of trade secrets cases because the parties enter negotiations which settle the litigation.
Where can I find more Information?
