Protecting "trade secrets" is of crucial importance to the success of many businesses. Examples of sensitive material include technical information or diagrams, recipes, formulae, processes, business or marketing plans or ideas, customer lists, or anything else which is of value to a business and can be kept confidential.
Trade secret protection is often seen as a valuable alternative to finite intellectual property rights (IPR) such as patent or copyright protection, as trade secrets can subsist as long as the business continues to trade, and even beyond. Also, patents are not always available, and where they are it is usually only for the finished working invention. Trade secret protection can protect ideas and work-in-progress from industrial espionage. Another disadvantage of patents is that applications and granted patents are publicised. This could allow a competitor to learn from the patent, without actually using it. Worse still, publication of an invention could even lead to others using and benefiting from it in secret, despite legal prohibitions on them doing so. Copyright suffers a disadvantage in that it only prevents copying of information. A current topical example of this downfall is where an individual transferring employments uses a database of his/her former employer's customers by committing certain key clients to memory without actually "putting pen to paper", and then approaching these customers in his/her new employment.
Some trade secrets could in actual fact be ascertained by "reverse engineering"; products available for a competitor to buy on the open market can be analysed by scientists or engineers. In such a case, traditional IPR may the best option to prevent others imitating the product. On the other hand, famous trade secrets such as the recipe for Coca-Cola are still kept confidential today, and attempts to imitate these products in the market using reverse engineering often do not manage to recreate "the real thing" in the eyes of the consumer. Trade secrets are also especially useful for protecting information which is used solely within a business to give an edge over competitors; by keeping the outside world unaware that the information even exists.
The main weapon in the protection of trade secrets is the law of Confidentiality. A victim of a "breach of confidence" may raise an action to prevent the information being used by another party, or a damages action for loss caused as a result of the unauthorised dissemination of the trade secret. In order to establish a breach of confidence it must first be shown that the unauthorised party received the information under an obligation of confidence.
In relation to employees, an implied obligation of confidence arises automatically as part of an implied duty of good faith and fidelity in all employment contracts. However, when the employment contract ends, the duty also becomes less stringent. Therefore, best practice is to include express duties of confidentiality in all employment contracts and to specify the duration of the protection. Express duties also allow the employer to specify exactly what information is to be kept confidential.
Other parties who may have access to trade secrets (for example, self-employed workers, customers, consultants, service providers, potential joint venture partners) should have contractual obligations of secrecy imposed upon them to make certain that an obligation of confidence arises.
Where there is doubt over what information is covered, or where there is not a specific contractual obligation of confidence, the courts will assess whether there has been a breach of confidence based on the circumstances surrounding the trade secret, and so the following practises should be considered:
- Marking all important documents as confidential
- Restricting access to valuable information among only those who have a genuine need to use it, including use of password protection on electronic documents
- Ensuring that information important to the business is not openly discussed and made available, and keeping it behind locked doors where possible or appropriate
- Training staff on the need for confidentiality and on what types of data are considered trade secrets and
- Using confidential attachments to agreements with third parties, including named individuals who are to have access to particular information, and regimes for recording, storing and destroying information.
"Restrictive Covenants" are contractual obligations imposed on employees to prevent them working for certain organisations or for any organisations within a sector for a specified length of time after ceasing to work for the employer. They are a useful tool in preventing information being acquired by competitors, but they must be used with care because the courts often strike down covenants as invalid if the restrictions are "too greedy". The duration of the restrictive covenant will be relevant in determining whether the obligation is enforceable. The seniority of the employee in question and the individual's role within the organisation will also be factors here.
Due to uncertainties in the use of restrictive covenants, specialist employment law advice should be sought before trying to impose these obligations on current or joining employees. However, both restrictive covenants and the law of confidentiality can play a vital role in protecting the value of trade secrets