confidential information & trade secrets law

BPP Professional DevelopmentBPP Professional Development

Confidential Information & Trade Secrets Law- A Comprehensive Introduction

Niall TierneyContego IP LLP

[email protected]

BPP Professional Development

Topics

1. Doctrine of Duty of Confidence.

2. Implied obligations of confidence.

3. Confidentiality – Employer/Employee relationship.

4. Definition of a Trade Secret.

5. Contractual obligations of non disclosure.

6. Drafting and interpretation of non compete clauses.

7. Remedies.

8. Human Rights dimension.

9. International provisions.


• Not all information is confidential, e.g. tittle-tattle.

• Not exhaustive but can include:

• Know How;

• Customer/Vendor lists;

• Marketing plans;

• Technical information;

• Business processes;

• Chemical and/or pharmaceutical formulae;

What is Confidential Information?


• Previously accepted view is that Confidential Information is not an Intellectual Property right. However, this must now be doubted.

• Gray & Coogan v Newsgroup Newspapers & Mulcaire - privilege against self incrimination is not available in cases involving Intellectual Property.

• There is an overlap between protection afforded to Confidential Information and that granted to the holders of traditional IP rights.

• Unlike many IPRs, Confidential Information can be indefinite in its duration.

• Can be a useful pre-cursor to Patent Protection.

Is Confidential Information an IP Right?


Historical Development & ‘Springboard’ doctrine• Historical development – Prince Albert v Strange.

• Confidential information in the context of contractual relationships - Seager v Copydex.

• Conditions for a claim of Breach of Confidence – Coco v AN Clark (Eng) Ltd.

• Circumstances importing a duty of confidentiality – Duchess of Argyll v Duke of Argyll and Anthony Bailey, Sylvester Williams and Keith Graham v Levi Root’s Reggae Reggae Foods Limited & Levi Root’s Reggae Sauce Limited.

• The ‘Springboard’ doctrine – Terrapin Ltd v Builders Supply Co (Hayes) Ltd.1


• In this case Queen Victoria and Prince Albert had created etched plates and had sent them to a printer to manufacture further etchings for their personal use.

• The plates then came into the possession of the Respondent, who then arranged to publish a catalogue exhibiting the plates.

• Lord Cottenham injuncted the Defendant on the grounds that he had dealt in the works in breach of trust, confidence or contract.

• This case was of vital importance because it showed that the equitable remedy of an injunction could be used to prevent the unauthorised dissemination of confidential material.

Prince Albert v Strange


• A duty of confidence may also arise outside contract.

• The law on this subject does not depend on any implied contract. • It depends upon the broad principle of equity that he who has received

information in confidence shall not take unfair advantage of it. • He must not make use of it to the prejudice of him who gives it without

obtaining his consent.

Seager v Copydex


• Set down criteria for Breach of Confidence

• The information itself must have the necessary quality of confidence about it.

• The information must have been imparted in circumstances

importing an obligation of confidence.

• There must be unauthorised use of that information to the detriment of the party communicating it.

• Something which is of public knowledge cannot per se provide any foundation for Breach of Confidence.

• Regardless of the circumstances of communication, there will be no

breach if what was imparted was already common knowledge.

Coco v AN Clark (ENG) Ltd (1969)


• Circumstances importing an obligation of confidentiality

• Information must be information the release of which the owner believes would be injurious to him or of advantage to his rivals or others.

• The owner must believe that the information is confidential or secret, i.e. that it is not already in the public domain. It may be that some or all of his rivals already have the information; but as long as the owner believes it to be confidential I think he is entitled to try and protect it.

• The owner’s belief under the two previous heads must be reasonable

• The information must be judged in the light of that information which does not satisfy all these requirements may be entitled to protection as confidential information or trade secrets: but I think that any information which does satisfy them must be of a type which is entitled to protection.

Duchess of Argyll v Duke of Argyll (1967)


• Even if information is no longer confidential, the law generally does not allow it to be used as a springboard to damage the activities of the aggrieved party.

• In Terrapin Ltd v Builders Supply Co (Hayes) Ltd (1960) the Court stated:-

A person who has obtained information in confidence is not allowed to use it as a springboard for activities detrimental to the person who made the confidential communication, and springboard it remains even when all the features have been published or can be ascertained by actual inspection by any member of the public.

The ‘Springboard’ doctrine


Employer/Employee relationship

• Leading case on confidentiality in Employer/Employee relationship – Faccenda Chicken v Fowler (1986).

• Prohibition on employee on using employer’s time and facilities to use information for own ends – Rob v Green (1895)

• Solicitation of employer’s customers – Wessex Diaries v Smith (1935).

• Moonlighting – Hivac Ltd v Park Royal Scientific Instruments (1946).

• Ex-employee is not entitled to use Trade Secrets of his/her ex-employer - Force India Formula One Team Ltd v 1 Malaysia Racing Team SDN BHD and others (2012).


• Court of Appeal dealt with the disclosure of commercially viable information.

• Distinction is drawn between obligations while in employment and those post employment.• Where the employee remains in the employment of the employer.

• Here, there is an implied duty of good faith or fidelity on the employee. The extent of the duty of good faith will vary according to the nature of the contract and it will be broken if the employee makes or copies a list of customers of his/her employer for use after his employment or deliberately memorises such a list (It should be remembered that on the basis of the decision in Robb v Green, there is no general restriction on an ex-employee canvassing or doing business with customers of his former employer).

• An obligation on an employee after he or she leaves his/her

employment is more restrictive in scope. • Obigation will cover the disclosure of information which may involve secret

processes of manufacture, e.g. a chemical formula or designs. Other information which is of a sufficiently high degree of confidentiality as to amount to a trade secret will also be covered.

Faccenda Chicken v Fowler


Employer/Employee relationship – cont’d

• While employee remains in the employ of employer, there is an implied duty of good faith and fidelity to employer.

• Extent of duty of good faith will depend upon nature of contract.

• No general restriction on employee canvassing or doing business with ex-employer.

• Post employment obligations will cover un-authorised disclosure of information, e.g. secret processes, chemical formulae.


Force India Formula One Team Ltd v 1 Malaysia Racing Team SDN BHD and others (2012)• This case concerned a contractual obligation on one of the

defendants not to disclose information relating to the design of a wind tunnel.

• Defendant argued that it had left claimant’s employment and could not be prevented from putting their skill, knowledge and expertise to their new employer.

• Settled law that after a contract of employment finishes, a former employee is, in the absence of a specific contractual obligation, entitled to use for his/her own benefit or that of a third party, skill, knowledge and experience even if it was confidential and learnt during the course of employment.

• An employee is not however entitled to use the Trade Secrets of his/her former employer.


• Devon and Cornwall Autistic Community Trust v Pyrah and others (2012)• Rules relating to particularity of pleadings apply equally to

breach of confidence actions;• Claimant must give full and proper particulars of all

confidential information on which he intends to rely on in the proceedings;

• In the absence of proper particulars, court is entitled to infer that proceedings are being brought for the purposes of harassment rather than protection of claimant’s rights;

Duty of Servant

15


Caterpillar Logistics Services (UK) Ltd v Paula Huesca de Crean (2011)• Claimants sought a ‘barring out’ order to prevent the defendant (an

ex-employee) from undertaking any task with her new employer (customer of claimant) that touched on the commercial relationship with her ex-employer.

• The Appeal Court held that ‘barring out’ relief was not available to prevent an ex-employee from joining one of its competitors and/or customers as a means to prevent future misuse of confidential information in the absence of a reasonable post termination restrictive covenant.

• An ex-employee was not a fiduciary in the same way a solicitor is to a client.

• Case demonstrates the difficulties in obtaining injunctive relief against ex-employees.


Definition of a Trade Secret

• Trade Secret - a formula, process or design which should not be known or easily obtained.

• A business should be in a position to use Trade secret to gain an advantage over its competitors.

• Qualification for protection:• Not be generally known to the public;

• Confer some kind of economic benefit on its holder;

• Be subject to reasonable efforts to maintain its secrecy.


• Non Disclosure Agreements (NDAs) are a useful way of imposing obligation of confidentiality in absence of traditional forms of IP protection.

• Recommended duration of a NDA is two to five years.• Care should be taken that NDA does not unduly restrict

recipient’s commercial activities.• NDA’s can either be:

1. One Way Disclosure Agreement, or

2. Mutual Non Disclosure Agreement.

• Think of Freedom of Information requests when disclosing information to public bodies;

• See further Non-Disclosure Agreements produced by UK Intellectual Property Office

Contractual obligations of non disclosure - NDAs


• A non compete clause (NCC) is very often used in an Employer/Employee relationship.

• In the UK, NCC is better known as ‘Restraint of Trade’.

• NCC can cover:• Customer/Vendor lists;• New product information;• Marketing plans;

• A properly drafted clause should contain geographical and time limitations.

• Some EU Member States impose an obligation on an employer to financially compensate employee for complying with NCC.

• An agreement should set out how the recipient of a confidentiality obligation should adhere and carry out the obligation.

Non compete clauses


• In seeking to impose a non-compete clause on an employee in the context of preserving confidential information, an agreement should clearly set out what the parties agree is confidential.

• It is recommended that a list of subject matter should be included in the agreement that would be considered confidential, e.g.

• Unpublished patent applications;

• Know how;

• Marketing plans;

• Financial information that is not yet public knowledge;

• Customer and vendor lists.

Non compete agreements


• It is recommended that a list is provided in the agreement of what would be considered non confidential, e.g.

• The employee’s prior knowledge of materials or subject matter;

• Subject matter which the employee gained from another source;

• Materials or subject matter which is already public knowledge;

• Materials that may be subject to a subpoena – note here rules relating to Discovery.

• Any information which is not disclosed during the ‘non disclosure period’ is not confidential.



• The agreement should also set out the particular obligations of confidentiality,.

• To use the information only for specific purposes;

• To disclose it only to persons with a ‘need to know’;

• To use all reasonable efforts to make sure the information is kept secure;

• To ensure that the obligation of confidentiality is observed by parties to whom the information is lawfully passed.



Remedies

• As Breach of Confidence is a creature of equity, injunctions may be available as a remedy.

• If a respondent in a Breach of Confidence action pleads that disclosure was made in the public interest, it is unlikely that an injunction will be granted – Hubbard v Vosper (1972).

• An injunction may be granted where there has been a breach in the criminal law – Francome v Mirror Group Newspapers (1984).

• An injunction may be granted where damages would not be an adequate remedy – ECI European Chemical Industries Ltd v Bell (1981).


Quantam• The underlying issue in cases involving breach of confidence is

the quantum.

• Quantum should depend on the type of information.

• On the lower end of the scale, the consultant fee basis would be the quantum.

• On the higher end of the scale, one should look to the royalty that confidential information would have attracted, then capitalise the value of that royalty over the commercial life of the information – Seager v Copydex.

• If Complainant was prepared to allow others to use information for a fee on a non exclusive basis that fee should be quantum.

• If information is not to be licensed, then, a licensing measure is inappropriate in assessing quantum – Dowson and Mason Ltd v Potter (1986).


Account of Profits

• Account of Profits may be a useful alternative to damages.

• Election to choose Account of Profits over Damages can take place prior to conclusion of proceedings.

• Complainant is entitled to make an informed choice which means Defendant will provide details of accounts prior to decision – Island Records Ltd v Tring International plc (1996) .

• Courts may order Discovery or require affidavits to provide the Complainant with the likely extent of profits.

• Difficulties can arise in filtering the profits arising from the breach of confidence from those made as a result of the breach of confidence – Fortunity Property Ltd v Barcza.


Defences

• ‘Public Interest’ defence has its origins in the concept of ‘just cause for breaking confidence – Fraser v Evans (1968).

• The public interest in protecting confidential information can be outweighed by a countervailing public interest in favouring disclosure – Attorney General v Guardian Newspapers (Spycatcher) (1988)

• Identification of doctors who were being treated for AIDS was found not to be in the public interest. The desire to protect the confidential nature of medical records outweighed the public interest in publication – X v Y (1988).


The Human Rights Dimension

The law relating to the dissemination of Confidential Information has been modified following the ratification by the UK government of the European Convention on Human Rights by the enactment of the Human Rights Act, 1998.

The provisions of the European Convention on Human Rights which are of particular relevance to Confidential Information are Articles 8 and 10.


• Article 8 – Recognises the right of an individual to respect for his/her private/family life and correspondence.

• The article goes on to provide that no public authority can interfere with that right except if such interference is in accordance with the law and is necessary in a democratic society to protect:

• National security, • Public safety • Economic well being of the country • Prevention of disorder or crime • Protection of health or morals. The most recent case involving

this aspect was Max Mosley v News Group Newspapers (2008). Here the Court held that there was a reasonable expectation of privacy involving consensual sexual acts on private property whether or not payment was involved.

• Protection of the rights and freedoms of others.

Article 8 - ECHR


• Article 10 of the Convention is effectively a counterweight to Article 8. It stipulates that everyone has the right to freedom of expression. This right shall include the freedom to receive and impart information and ideas without interference by public authority and regardless of frontiers.

• Significantly the right of freedom of expression can be curtailed:-• To protect the reputation or rights of others;• To prevent the disclosure of information received in confidence.

• Articles 8 and 10 of the ECHR are of relevance to actions for Breach of Confidence and indeed courts do and have referred to the articles.

Article 10 - ECHR


• In HRH The Prince of Wales v Associated Newspapers Ltd (2006), a case involving the publication of the diaries and comments of the Prince of Wales on the handover of Hong Kong to China,

• The Court of Appeal stated that Breach of Confidence could extend to both misuse of personal information and confidential information. This means that the provisions of the European Convention on Human Rights could extend to cases involving breach of confidential information. Significantly, the Court stated that information can be either private or confidential or both.

• In Northern Rock Plc v The Financial (2007) - the Court had to consider the release of commercially sensitive information surrounding the collapse of the building society, Northern Rock.

• Court gave much more weight to obligations of confidence than to freedom of expression.

ECHR – Relevance to confidential information


The Human Rights dimension – cont’d

• No absolute right to privacy – Campbell v MGN Ltd (2004).

• Breach of Confidence could be used to deal with personal information – Campbell v MGN Ltd (2004).

• The monitoring of an employee’s phone calls and Internet use without prior notification was a breach of Article 8 – Copland v United Kingdom (2004).

• Article 10 only takes precedence in cases where the behaviour of public officials is in respect of their official duties - Von Hannover v Germany (2005).

• Breach of Confidence can extend to both misuse of private information and confidential information – HRH The Prince of Wales v Associated Newspapers Limited (2006).


International Provisions

• Article 39 (1) & (2) TRIPS (Trade Related Aspects of Intellectual Property. Provides that undisclosed information shall be protected in particular situations. Protection must apply to information that is:

• Secret

• That has commercial value because it is secret

• That has been subject to reasonable steps to keep it secret

• Article 10 bis of the Paris Convention (1883) – protection from acts of unfair competition, including acts contrary to honest practices in industrial and commercial matters.

• Article 39 (3) information submitted for the purposes of regulatory clearance is protected against unfair commercial use.


For more

CoursesPublications

Web sites

BPP | Commercial Contracts.

BPP | Data Protection – a comprehensive introduction.

BPP | Data Protection – practical problem solving.

BPP | Data Protection – the Bare Essentials.

Courses

W.I.P.O Academy

If you want to go into these subjects more deeply, …

Privacy Professionals group

Trade Secret Protection Group

Non Compete Lawyers


Quiz

• Is Confidential Information an Intellectual Property Right?

• The previously accepted view is that Confidential Information is not a separate Intellectual Property Right. This must now be doubted in view of Mulcaire decision.


Quiz

• In what circumstances can a duty of confidence arise?

• The most common situation where a duty of confidence can arise is under contract. However, law recognizes that there are situations where an implied duty of confidence arises.


Quiz

• What are the conditions for an action of Breach of Confidence?

• The conditions for an action of Breach of Confidence are:-• The information in question must have the necessary quality

of confidence about it. It is not necessary to show absolute novelty.

• The information must have been imparted in circumstances importing an obligation of confidence.

• There must be unauthorized use of the information to the detriment of the party communicating it.


Quiz

• In what circumstances can material in the public domain be said to possess the necessary quality of confidentiality?

• Information that is in the public domain would not be considered confidential. Confidential information derived from information in the public domain could however still be considered confidential if new information is brought into being. That new information may be treated as confidential.


Quiz

• What kind of information would be considered confidential?

• Political information may be considered confidential if the unauthorized use and dissemination of it would lead to national instability. Historical information would generally not be considered confidential if it is already in the public domain, e.g. has been released under the 30 year rule.


Quiz

What duty of confidentiality does a current employee owe to his/her employer?Current employees are under an implied duty of fidelity to their employers not to:-

Use employers time and facilities to make use of confidential information for their own interests.Solicit information relating to customers of his

employerNot to use confidential information to compete

with employer outside of office hours.


Quiz

• How are Trade Secrets protected?

• There is no formal system in place to register Trade Secrets. Protection of Trade Secrets is also recognised through International provisions.


Quiz

• In what situation can the ‘public interest’ defence be raised?

• A report to the Home Secretary about a person suffering schizophrenia

• Phone tapping by the police


Quiz

What International Conventions have provisions which protect Confidential Information?

Paris Convention 1883

TRIPPS


Quiz

What remedies are available for Breach of Confidence?

Injunction

Damages

Account of Profits

Destruction and Delivery Up


Any questions?

Thank you


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