Confidential Informaton

Duty of Confidence

A duty of confidence arises when confidential information comes to a person’s knowledge in circumstances where he knows or has agreed that the information is confidential and that it would be just in all the circumstances that he should be precluded from disclosing it.  This may arise from a transaction,  a relationship or other circumstances.

The courts will apply equitable principles to protect confidential information.    The application of equitable remedies in the context of intellectual property is undertaken by analogy with its traditional application to property rights generally. Equitable remedies are discretionary and flexible in nature.

Confidentiality typically protects the financial interests of a person who has made an investment or has a legitimate interest in the confidentiality of information. It may also protect sensitive private information.

Personal v Public

This will include highly personal matters.  The courts have tentatively recognised rights to restrict the disclosure of highly sensitive information without fully embracing or articulating a comprehensive right to privacy.

In cases of personal, private information, the courts balance freedom of expression concerns against privacy.  Where there is a public interest in disclosure, the courts have usually given precedence to the freedom of the press.

The court is less likely to restrain confidential information in relation to somebody in the public arena than a person with no public profile.  In the cases of persons with a public profile, the courts appear to intervene where there is a serious risk of real harm, or the disclosure is egregious/in breach of standards such as the press code of practice.

Where employees and public servants have sought to place confidential information in the public domain for their own profit, the courts have been willing to impose a constructive trust to prevent them from benefiting from their misuse of information.  They have also been prepared to grant injunctions to prevent the dissemination of confidential information and breach of the duty of confidence.

Commercial Confidence

The courts are more likely to restrain publications 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.

A nondisclosure agreement may set the parameters of nondisclosure and may arguably provide for a higher duty than the default position.  In a private commercial context, the public interest is unlikely to prevail.

The restriction is not, however based on contract.  It is based on the principle that a person who receives valuable information in confidence should not be entitled to take unfair advantage of it.

Prior Relationship

In order to qualify for protection, there should usually be a relationship between the parties.  The information must be such that it has value, having regard to the skill, time and labour involved in compiling it.

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

Employees

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 in breach of his duty. 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 a line influential UK authority which holds that after employment, an employee’s obligations are limited to 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 non-disclosure. Where a disclosure harms the legitimate interest of another business, it is more likely to be restrained.

Effect of Contract

In principle, 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 al

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 or is not, a protectable trade secret. 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.

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-complete 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).

Breach of Fiduciary Duty

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

Where information is disclosed in the context of a proposed venture which does not proceed and is confidential in nature, the courts are more willing to impose duties of confidentiality.  The courts may imply duties not to disclose in circumstances of trust and confidence, which do not fall within copyright or patents, but which are protectable on account of the work and effort put into it.

Where the information is obtained illegitimately, the courts may restrain its disclosure, notwithstanding that the technique or invention may be reversed engineered easily. Information taken from a source which 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.

Public Interest

Exceptionally, disclosure of information may be justified on the basis of the public interest.  The disclosure in the public interest must be based on some compelling objective ground relating to the public good and welfare.  The extent of the disclosure must be proportionate.

It may, for example, relate to alleged wrongdoing or the supply of unsafe products. Limited disclosure to the authorities may be justifiable, rather than unilateral publication in the newspaper.  The court may weigh the public interest against the interest in the protection of the underlying material.

The courts are prepared to make equitable remedies available for breach of confidence.  An injunction may be granted to restrain the breach of confidence.  The courts are reluctant to grant injunctions pre-disclosure (prior restraint), particularly if there may be a justification or basis for the release.

Damages

Damages may be awarded by way of compensation for breach of confidence.  The method of measurement may be difficult to formulate, but courts will generally find some appropriate mechanism to measure loss.  In some cases, there may be a measurable loss of business.

In other cases, there may be the loss of a license fee that might otherwise be obtained,  where the confidential information could have been licensed.  The value will depend on the nature of the information.

The broad principle is that the claimant should be put in the position that he would have been in, but for the breach. If the misuse did not make any difference to his profitability, then limited damages may be granted.  There is no civil wrong of breach of privacy or confidence as such.  It is arguable that there are court’s inherent statutory power to grant damages in lieu of an injunction may allow damages where there have been limited demonstrable pecuniary loss.

There may be a right to damages for breach of confidence based on contractual restrictions. The usual rules for damages for breach of contract apply. Damages for injured feelings et cetera, are not generally recoverable.  There must be an actual diagnosable medical condition. There are some cases in which awards for loss of enjoyment have been made, where this is the very thing promised.

Equitable Remedies

As with other intellectual property rights, search orders and third-party discovery orders may be available to uncover proof of wrongdoing.  A pre-trial injunction may be granted on the usual basis.

Commonly, the release of information would be prejudicial so the balance of convenience lies in granting the injunction. A permanent injunction may be granted after a full hearing to protect the rights.  Parties may be ordered to deliver up material that constitutes a breach of confidentiality.

Where a wrongdoer benefits from a breach of fiduciary duty or misappropriation of confidential information, an award of an account of profits may be ordered against him.  The person who has been wronged has the option of seeking damages or an account of profits.  In this case, he would be entitled to a greater measure than his or her loss.  The claimant may choose to seek an award of profits once he has full information and need not do so at the outset of proceedings.