Confidentiality & Trade Secrets

Table of Contents

Overview

Apart from patent and copyright protection, there exists common-law protection for confidential information and trade secrets. No registration is required. As with copyright, it arises by falling inside the criteria.

There is no hard and fast distinction between a trade secret and confidential information. A trade secret is a subset of confidential information. Not all confidential information is protectable, but trade secrets and some other confidential information are protectable.

A trade secret is usually the label for confidential information that is the subject of investment and development and “definitely” qualifies for protection. A trade secret is more likely to be protected, even without a contract. Labelling something as a trade secret won’t make confidential information protectable, but it might be a factor at the margin.

The Intellectual Property Office of Ireland does not disclose or make public the invention until 18 months after the filing date or priority date – whichever is earlier. If an invention is revealed before applying for patent protection, it can cease to be patentable.

A discussion with a patent attorney or solicitor is confidential, so it does not count as revealing an invention early. However, one cannot assume conversations with advisors or others are automatically confidential. Before engaging in discussions with others, it is desirable to have them enter a confidentiality agreement.

Confidential Information

Common-law is based on principles set out in cases over time. In this area, the principles are especially fuzzy at the edges because they depend on different formulations reflected in various cases in an incoherent way. Information which is not secret will not be protected. If it is known to the trade and is generally available, it will not be confidential at all.

However, this is not to say there is any doubt that certain types of information are protected as confidential information. What is fuzzy is the border between confidential information that can be protected and non-protectable confidential information. The position can be altered by a contract or nondisclosure agreement declaring that particular information is valuable and proprietary and protectable.

The protection of confidential information arises either from a contract or the nature of a relationship between two parties, as well as the inherent nature of the information. It is nearly always preferable to strengthen the implied position that arises from a relationship by the terms of an agreement.

Protection

Enforcement of the protection of confidential information takes place through court litigation. This makes enforcement potentially expensive. The enforcement can only be against the named defendants. It is not like a property right that automatically binds the world. However, where the position is clear-cut, the potential, credibly to threaten and if necessary, take litigation is important.

It is necessary in the proceedings to prove the information is protectable confidential information and that has been a breach. This is not as black and white as with patents, where the existence of a registered patent is a very good starting point. Even a patent can be challenged in patent enforcement proceedings, but it is much more difficult to do than with copyright which depends on a judicial interpretation and common-law confidential information.

There is an overlap between various types of intellectual property law. The same subject matter can be protected by way of common-law confidential information/trade secret, copyright and potentially patent. In this case, there are alternative remedies for a breach. All would usually be claimed.

Criteria for Protection I

The duty of confidence can arise when confidential information comes to the knowledge the person circumstances have notice or agreed that the information is confidential with the effect that it would be just in all circumstances that he should be restrained from disclosing it to others. In many cases, such as with trade secrets. the duty of confidence arises because of the transactional dealings between the parties.

The principal criteria are that the secret, information or process must be

original
identifiable
have commercial value and
be sufficiently well-developed to be capable of realisation.

Criteria for Protection II

Confidential information can cover a wide variety of things. One of the principal criteria is that time and effort have been invested into it and that is not something obvious. The information must not be identifiable, trivial or unoriginal. The information must be secret and not in the public domain. Its creation and development through investment, human skill and creativity is an important marker.

Although it is not highlighted as a criterion, in effect, the courts often seem to look at the fairness of protecting the secret, etc with reference to the circumstances in which it is obtained. It is often unfair dealing which is protected against.

The courts are more likely to restrain disclosure and misuse where they are undertaken in breach of a contract, duty or a provision of law. Where an employee or other person uses confidential information in breach of duty, the courts will usually restrain the misuse. This will be so, irrespective of whether there is or is not a confidentiality or nondisclosure agreement.

Protectable without Contract

A nondisclosure agreement may set the parameters of nondisclosure and may arguably provide for a higher duty than the default position. In the private commercial context, the public interest is unlikely to prevail. The restriction is based on the principle that a person who receives valuable information in confidence should not be entitled to take unfair advantage of it.

It is possible for a duty of confidence to arise without a contract in some circumstances. This could arise where one party receives information in circumstances that imply a duty of confidence in relation to it. The courts imply duties not to disclose in circumstances of trust and confidence, which do not fall within copyright or patents, but where the information has been the subject of work and effort put into it.

Where information is disclosed in the context of a proposed venture which does not proceed which is confidential in nature, the courts may be willing to impose duties of confidentiality. This should not be assumed, and it is essential to put in place a confidentiality agreement in these circumstances.

Illegitimate Receipt

Where the information is obtained illegitimately, the courts may restrain its disclosure, notwithstanding that the technique or invention may be reversed and engineered easily. Information taken from a source that saves time and labour may be protected, notwithstanding that it may be obvious and capable of being produced from information in the public sphere. This will be more likely where there is a relationship of confidence or is taken in breach of confidence.

Where there is a breach of trust, the courts are more willing to prohibit its use, especially where the material provides helpful assistance to another’s business. The defendant is said to have a springboard which allows him to benefit unfairly.

Information obtained in breach of fiduciary duty may be restrained. Directors owe fiduciary duties to their company. Advisors owe duties to their clients. This is a higher duty than the duty of good faith owed by an employee under his duty of fidelity.

Employees

In the case of an employee, the information may belong to the employer, notwithstanding the employee’s participation in developing it. Materials such as a list of customers, design materials, samples, information regarding the business, recipes and innovative practices may constitute protectable and confidential information.

Confidentiality in this context comes in conflict with the presumed freedom of persons to freely exercise their trade or profession. The courts have been generous in permitting employees to compete where possible. Where there are specific non-compete clauses in an employment contract, they are upheld only to the extent, they are strictly necessary to protect the employer’s legitimate interests (e.g. trade secrets).

During the course of employment, the employee has a duty of good faith and fidelity to the employer. The scope of this duty during the course of employment is wider than that which may apply after employment. If, for example, an employee makes a list of customers or takes steps inconsistent with his duty of fidelity and good faith, he may readily be shown to be a breach of his duty.

Post -Employment

Steps undertaken after his resignation or dismissal are no longer subject to this extensive duty. Soliciting customers post-termination employment is not restricted in the absence of a restrictive covenant.

There is an influential line of UK cases which holds that after employment, an employee’s obligations are limited to the non-disclosure of specific trade secrets and other highly confidential information equivalent to a trade secret. The duty does not cover information which is only confidential in the sense that its release would be a breach of the duty of good faith only.

There is an alternative line of authority which allows for a higher duty of non-disclosure. Where a disclosure harms the legitimate interest of another business, it is more likely to be restrained.

The logic of the former position is that a non-compete clause in an employment contract makes no difference to the extent to which an injunction may issue to prevent restricted behaviour This is because there either is not protectable trade secrets. Notwithstanding this logic, the balance of opinion is that the existence of a non-compete clause allows an employer to obtain a greater degree of protection and greater scope for restraining competitive acts.