23 July 2016

Understanding Trade Secrecy and Confidentiality

Jane Lambert

The right to bring an action to restrain, or recover damages for, the unauthorized disclosure or use of a trade secret is probably the most widely held intellectual property right but it is also one of the least understood. This article attempts to shed some light on the issue.

1. What is a trade secret?

As good a definition as any would be technical or commercial information that is secret or not generally known the unauthorized use or disclosure of which would benefit the person who receives it or harm the person who wants to keep it secret. That could include an algorithm, business plan, chemical formula or customer list.

2. How does one acquire a trade secret?

You can create it by data analysis, design, experiment, market research, R & D or other work or you can license it in from a third party. The important thing is that the information has to have some intrinsic technical or commercial value and it is kept secret.

3.  Do I need a confidentiality or non-disclosure agreement?

Not necessarily. The right to sue to restrain, or recover damages for, unauthorized use or disclosure arises from a set of judge made rules that imposes a duty upon a person who receives a trade secret in confidence not to use or disclose the information without the owner's consent or other lawful excuse. Sometimes it is obvious that information has been disclosed in confidence. Other times you have to put the recipient of the information on notice. That is done by getting him or her to sign a confidentiality or non-disclosure agreement.

4.  Give me an example of when a duty of confidence is obvious

When you seek legal advice from a lawyer or a patent agent is one example. Our professional codes of conduct impose an automatic duty of confidence which can be enforced by our regulators as well as the courts. Another example is where you spot on envelope marked "TOP SECRET" or "PRIVATE AND CONFIDENTIAL" on a bus or train. You should contact the owner or authorities and hand it in to them immediately.

5. Where can I find a reliable all purpose confidentiality agreement?

Such an agreement does not really exist because the obligation not to use or disclose varies according to the circumstances. The Intellectual Property Office gives some useful guidance in Non-Disclosure Agreements and it offers examples of a one-way and mutual non-disclosure agreements but these are just examples and cannot be used in every single case.

6.  What do you suggest?

if you ever have to enforce a confidentiality or non-disclosure agreement in court you have to:
  • identify the information precisely as well as the date, time, place and circumstances in which it was given;
  • prove that it was communicated expressly in confidence or in circumstances giving rise to an obligation of confidence;
  • persuade a judge that it has technical or commercial value in that its unauthorized use or disclosure would benefit the person receiving it or harm you;
  • satisfy the judge that it has been kept secret at all times; and
  • explain the purpose of the disclosure, state who us entitled to see it and for what purpose and when documents containing the information are to be returned.

The best way to do that is to set it out in an acknowledgement and undertaking by the recipient of the information  and I have prepared a form for that purpose (see Confidentiality Agreement 21 Sept 2010 JD Supra). Particulars of the agreement should be entered into a ledger and strictly monitored.

7.  What happens if the recipient breaches his or her promise?

You contact them immediately, remind them courteously of the terms of their undertaking and ask them to comply with their promises immediately.  If they won't do that immediately then you must take legal advce immediately because you may have to apply to a judge of the Chancery Division for an interim injunction to restrain the disclosure. If you are advised to make such an application you must not hesitate. Once information enters the public domain it ceases to be confidential. A delay of a few days - sometimes of a few hours - can be critical.
NB Don't bring an interim injunction application in the IPEC small claims track as the judge has no jurisdiction to give such relief. You can always transfer your case to IPEC or some other court after you have made your your application.

8.   Are there any get-outs to the duty not to use or disclose?

Loads. Let me give you just a few examples.  As I said above, information ceased to be confidential once it reaches the public domain so long as that is not the fault of the recipient of the information. If the trade secret is a formula or mechanism it is quite lawful to buy a product made to the formula or embodying other technical information to find out how it is made or how it works once it has been placed on the market. You may discover the information yourself by independent, parallel research. You can't rely on the obligation of confidence to break the law or do anything that is regarded as improper.

9.   Say Something about the Trade Secrets Directive

The Council and European Parliament adopted Directive (EU) 2016/943 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure (OJ 15.6.2016 L 157/1)  on 8 June 2016 which harmonizes the trade secrets laws of the 28 EU member states. Governments have to implement that directive by the 9 June 2018 which is likely to be before we leave the EU. Although we will cease to be bound by the directive when we leave the EU it will probably be in our interests to transpose it into our law because the directive offers an opportunity to codify our law of trade secrets. I discussed this directive in The Trade Secrets Directive 7 July 2016.

10.   Further Information

If you want to discuss any part of this article call me on 020 7404 5252 during office hours or use my contact form.  Meanwhile, here are some other materials that you may like to read.

Jane Lambert    All You Need to Know About Confidentiality   Leeds Inventors Club 14 June 2006

Jane Lambert    Confidential Information  NIPC Inventors Club, 12 Nov 2005

Intellectual Property Office Guidance Non-Disclosure Agreements 12 March 2015

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