Confidential information is that which is sensitive in nature and for which steps need to be taken in its protection. It often envelops material which cannot be protected under the registered or unregistered intellectual property rights of trade marks, designs, patents, copyrights, but still warrants a degree of protection.
However, merely deeming something confidential is not necessarily sufficient to render it so. There must be some degree of confidential quality and nature, and it must be treated as confidential. So not only in everyday actions, but also when being disclosed to a third party, where the method of disclosure must confer an obligation of confidence. Take a look at Ailsa Pemberton’s thoughts on keeping things confidential.
In some circles, it is considered that some information is more confidential than others; this information tends to be classed as “trade secrets”. However, not everyone buys into this classification and they simply believe that information is either confidential or not and cannot be graded. In practice we see high profile examples of trade secrets whose existence and the publicity surrounding them is as much about the branding as it is about secret technology. Coca-Cola’s “famous” secret ingredient has been the mainstay of its apparent uniqueness for over 120 years. KFC’s secret “blend of 11 herbs and spices” is a key element of its marketing message. The recipe for Irn Bru is a closely guarded secret.
Trade secrets are the most neglected form of intellectual property with no formal protection and no real definition. Despite appeals to provide for a more unified recognition and protection, at present trade secret disputes are dealt with via contract law or an action for breach of confidence. Contractual obligations can be imposed in a wide variety of circumstances: stand alone confidentiality agreements or non-disclosure agreements (NDAs); confidentiality clauses; terms of business; employment contracts; etc..
There are certain actions which can be taken to maintain a trade secret:
Confidentiality agreements/NDAs can be used where one or more parties will be disclosing confidential information for a defined purpose. That purpose will usually be a project that the parties are considering undertaking together. When negotiating with partners or potential partners, or when securing manufacturing or distribution agreements, there needs to be a formal agreement in place to oblige the third party to keep the information secret and only use it for the identified purpose. It is important to provide only what is required to support the purpose.
Confidentiality agreements/NDAs aim to ensure the following:
Contracts of employment
- Preservation of confidentiality. Confidential information disclosed under the agreement remains confidential and kept secret.
- Use for defined purpose only. The recipient of confidential information agrees that it will not use the information for any purpose that is not set out in the confidentiality agreement.
can also be used to preserve trade secrets. Specific confidentiality clauses can be added and/or restrictive covenants to prevent certain key employees with access to special information from taking up equivalent posts with competitors. All such clauses must be reasonable and proportionate.
Documenting the trade secret
can provide important evidence that something is a trade secret. Some countries actually require a trade secret to be documented before it can be categorised as a trade secret and action taken.
Security provisions and policies
are a further sensible precaution. Limit access to a need-to-know basis. Optionally, ensure that the numbers of people who know the secret in its entirety are limited. Control distribution. Use encryption and computer passwords.
Be seen to take swift enforcement action
against breaches and former employees. This will give the clear signal highlighting the importance your organisation places in trade secret information and may deter others from doing the same.
In an employment context, some information cannot be counted as confidential (such as information about the business or industry in which employees were or are employed), if it is also available to the public in general or on request, as well as information representing common business practice. Other information is seen as confidential during the course of employment but not once the employee has left. This included knowledge which an employee “carries in his head”. The third category is genuine trade secrets which remain confidential after the termination of an employment contract. But the actual division can be blurred and each case rests on its own facts. A simple clause in a contract cannot necessarily be relied upon. Confidential information in the possession of an employee should best be recorded and categorised as confidential or a trade secret if it is deemed valuable and the duty of confidence the employee has in relation to that information should be clarified.
Where confidentiality agreements/NDAs are used, the discloser should be aware that the agreement cannot provide an absolute guarantee that the disclosed information will be protected. A confidentiality agreement has limitations, particularly where the recipient has little intention of complying with its obligations under the agreement. If a recipient uses or discloses confidential information in breach of the confidentiality agreement, it may be too late, or at the very least, prohibitively expensive, for the discloser to seek a meaningful remedy:
An injunction (to stop any unauthorised disclosure or use of the information) is the first choice of remedy if the discloser discovers the recipient’s intentions before it breaches the confidentiality agreement. After the breach, an injunction may be of little or no use. Once the information has entered the public domain, there is no legal remedy that will make it secret again.
Damages for breach of contract (or a claim for an account of profits where the recipient has made use of the information) may not be an adequate remedy, especially where the confidential information has potential future value rather than value today.
Proving that there has been a breach of a confidentiality agreement can often be difficult.
Even where the recipient is honest and acting in good faith, it will inevitably be influenced by the disclosed confidential information, whatever the terms of the confidentiality agreement.
Given these limitations, a discloser should, in addition to entering into the agreement, put practical measures in place to protect the information. For example, disclosing only what is absolutely necessary, providing hard copies of information only, or limiting the number of individuals who may receive the information.
For any further information about trade secrets or confidentiality in general, please contact me on email@example.com.