How To Protect Your Confidential Information And Trade Secrets

Last updated on March 9, 2016

What is a Trade Secret?

Every business, small or large, is in possession of trade secrets. A trade secret, or confidential information, is information that is of high value to its owner- normally a company or a business; for example, the Coca-Cola recipe. Trade secrets are subsumed under the laws on the protection of confidential information. This article will briefly examine the legal background of trade secrets, explain what constitutes confidential information, and provide several tips regarding the protection of your company’s trade secrets.

What Makes a Piece of Information Protected by Law?

There are no official registration procedures for trade secrets or confidential information, nor are there time limits covering the protection of the secret. However, not all types of information fall under the ambit of the laws of confidential information. Courts will consider several factors in determining if a piece of information qualifies for protection:

  1. The information must have the necessary quality of confidence about it;
  2. The information must have been imparted in circumstances importing an obligation of confidence; and
  3. There must be an unauthorised use of the information to the detriment of the party communicating it.

Gossip or information of a scandalous nature is not protected. The owner must also make it clear to the recipient of the information that it is meant to be confidential. If the recipient is unaware of the confidential nature of the information, he will not be liable for a lawsuit.

There is no need for an owner to intentionally communicate the information to the recipient. If, for example, the recipient finds the information in a rubbish dump and proceeds to utilise it to his own advantage, he can still be legally liable for breach of confidence.

Courts will also consider the type of relationship between the owner of the information and the recipient. For example, between a banker and his customer, or a lawyer and his client, there exists a presumption of confidence, and the lawyer or banker would be under an obligation not to disclose information even if the owner does not specify that it is meant to be confidential.

Finally, an ex-employee is generally permitted to utilise the information learned during his tenure, with the exception of trade secrets and information covered by his employment contract.

How to Protect Trade Secrets

Here are several recommendations for the protection of trade secrets and confidential information:

Employees

  • Have employment contracts that contain confidentiality clauses.
  • Educate employees on the importance of safeguarding the company’s confidential information, by not discussing confidential information in public places, and disposing of written records properly.
  • Have a clear record of employees privy to confidential information.
  • Conduct exit interviews with employees leaving the company for the return of confidential information.

Structure

  • Label all confidential documents as such, and minimise access.
  • IT system should be designed to prevent unauthorised access.
  • Have a data protection policy in place.

External parties

  • When dealing with external parties, ensure that all parties interacting with the company sign carefully-worded non-disclosure agreements.
  • Segregate strategic confidential information. For example, the manufacturing process of your product can be split into multiple parts with different manufacturers, so that only your business has the overall know-how.

Confidential Information and Intellectual Property Strategy

Many business entities apply a multifaceted intellectual property (IP) strategy, consisting of multiple registrable IP rights- such as patents and trademarks- and non-registrable IP rights- such as copyright and trade secrets- to their products.

For example, a new laptop company might trademark its brand, patent its electronic components, and keep an unpatented manufacturing process as a trade secret. An effective IP strategy would include a multitude of IP tools, and must be constantly reviewed to keep up to date with current market conditions. Seek the advice of an IP lawyer prior to the execution of the strategy to ensure it is watertight.

The damage caused by the disclosure of confidential information is long-lasting and almost irreparable. There is little you can do apart from suing for damages and getting a court order to halt further disclosure. The maxim “prevention is better than a cure” is especially applicable with regard to confidential information, especially in the current day and age where information can be disseminated easily.