Protecting Commercial Secrets



Protecting Commercial SecretsIn order to have a breach of a commercial secret must have a breach in the first place.STEP 1 – Is information of confidential nature?Elements of a BreachIs the Information of a confidential Nature?Coco v A N Clark Ltd Information must be of a confidential or secret nature. i.e is/does the information:? secret in the sense of not being ‘public property or public knowledge’;? have some commercial importance or value;? the plaintiff must have treated the information as confidential;? the information must go beyond what the law regards as employee know-rmation may be in written form or it may be merely oral: see Fraser v Thames Television [3.13C].Has the information become part of public property or knowledge?Key question is whether the information is known within the relevant trade or industry.The relevant trade or industry includes all those persons from whom the plaintiff is most likely to wish to restrict access to the information.If the information is known to the relevant trade or industry then it is publicly known even if the public at large remains in ignorance.If the information is not known within the relevant trade or industry then it may be confidential even though it is known to other persons within the community.Note: confidentiality lies not in the raw data but in the selection and compilation of information. This means that information may still be confidential even though the information is available from public sources provided that a person wishing to duplicate the information would have to expend considerable time and expense in locating, selecting and collating the raw data: see Saltman Engineering vCampbell EngineeringDoes the information have commercial value?The information must have some commercial value.courts will not grant an injunction to protect trivial mattersthe value does not have to be greatHas the information been treated as confidential?The plaintiff must be able to demonstrate that the confidentiality of the information was important to the plaintiff.A plaintiff will be more likely to convince a court that the information is of a confidential nature if:the information is marked ‘confidential’;access to the information is restricted; andemployees and others dealing with the information have been warned that the information must be kept secret.Failure to Act: If the firm fails to take steps to protect information, a court may conclude that the information was not confidential because the firm did not appear to treat it as important or confidential: see Faccenda Chicken v Fowler Does the information go beyond employee know-how?It is necessary to distinguish between information which forms part of the employee’s stock of general information, skill and experienceFROMinformation which an employee of ordinary honesty and intelligence would regard as the property of the employerEx-employee’s can use subjective knowledge but objective knowledge remains the ‘property’ of the employer.Examples of Trade SecretsResearch Ideas very nature research and development will generate new ideas, new solutions, and new ways of utilising data.This information is valuable and the courts will protect its secrecy provided it goes beyond an employee’s subjective knowledge.Industrial Process’ and ProductsSaltman Engineering Co Ltd v Campbell Engineering Co Ltd Outline: Saltman was the owner of certain drawings. Campbell was a manufacturing company. Campbell saw drawings - no contract eventuated.Campbell retained the drawings and used them to make tools for the manufacture of punches. Saltman sued for a breach of confidence.Decision: Campbell ‘knew that those drawings had been placed in their possession for a limited purpose, namely, the purpose only of making certain tools in accordance with them, the tools being tools required for the purpose of manufacturing leather punches’. The court granted an injunction.New Product Idea’sUntil a new product actually appears in the market there is value in keeping it a secret.The courts will protect new product ideas even though the idea is still at an evolutionary stage.Fraser v Thames TelevisionOutline:Three actors and their manager Fraser, came up with an idea for a new television show.Took it to Thames Television to get a deal. Got one and then Thames used contract term to kick them out and put new actors inDecision:Oral idea may qualify as a trade secret provided the plaintiff can establish that the occasion of communication was confidential and the content of the idea was identifiableThames was in breachMarketing informationInformation concerning new product releases, product prices, product performance, details of contractual negotiations and even details of suppliers, are capable of amounting to confidential information in appropriate circumstances.In Faccenda Chicken Ltd v Fowler [3.20C2], the court refused to stop the plaintiff’s former manager from utilising the plaintiff’s successful marketing strategy for selling fresh chickens or from approaching the plaintiff’s customers.Customer ListsCustomer lists fall into the category of employee know-how and can only be protected by a valid restraint of trade clause: Metrans Pty Ltd v Courtney-Smith (1983) 1 IPR 185. if the customer list lies at the heart of the business and was difficult to acquire, or the list of potential customers is very small, it may amount to a trade secret. To do this the list has to be more than just a list of names and addresses. It must contain some special element so that a reasonable person would recognise that it belonged to the employer.Step 2 - Was there an obligation of confidence?Was there an obligation of confidence?The information must be revealed or learnt in circumstances which impose a duty upon the recipient not to disclose or otherwise use the information.Is the person a reasonable person of ordinary intelligence? If a reasonable person standing in the shoes of the recipient would have realised that the information was being given in confidence, then the recipient is under a duty not to disclose or use that information without permission. A reasonable person is a person of ordinary intelligence and honesty: see Deta Nominees v Viscount Plastic ProductsCase details: design a plug for furniture software that it wanted to patent. Deta Nominees copied it and took out a patentDecision: Patent owned by Deta as Viscount was employed to produce product, it was Deta’s original involvement that allowed it to happen.Was there a duty of Confidence?i.e. “Employee-employer” relationshipMense v MilenKovic Case Details: Milenkovic produced an electric plug for the plaintiff after being shown how to do it and then left company and started producing his own in a better way.Decision: Injunction granted as the Milenkovic had been provided the necessary level of confidentiality and implied term of confidentiality.Was the person who breached an Ex-employee who had a duty of confidence?Ex-employee is not permitted to:Divulge or utilise the employer’s confidential information (trade secrets);Exploit know-how which is protected by a valid restraint of trade clauseFaccenda Chicken v FowlerClient list was not taken and Fowler (defendant) used common knowledge to solicit customers.Employee Agreements: A former employee can be prevented from soliciting the ex-employer’s customers by requiring the employee, at the time of hiring, to sign a non-solicitation agreement.the nature of the information. The courts have shown a willingness to protect certain types of information imparted to employees, such as details of inventions (Ansell Rubber; Cranleigh Engineering, and a reluctance to protect other types, such as customer lists Faccenda Chicken)Seager v Copydex – no agreement the commercial importance of the informationthe extent to which the employer seeks to keep the information secret i.e. did the employer restrict access to files or mark files ‘confidential’did they restricting access to machinery (Ansell Rubber) did they require employees to sign acknowledgments of confidentiality.Step 3 - Has there been unauthorised use of the information?Has there been unauthorised use of the information?To satisfy the third element of the test laid down in Coco v A N Clark (Engineers)Ltd there must be an unauthorised disclosure or use of the information to the detriment of the ‘owner’.It is irrelevant that the particular person disclosing or using the information was not aware that he or she was not permitted to use the information: Seager v Copydex LtdIs the defendant copying the material?Note: A person obtaining confidential information is not allowed to use it as a springboard or head-start for activities detrimental to the owner of such information.An example of the defendant subconsciously copying the plaintiff’s secrets and thus obtaining a ‘springboard’,Seager v Copydex LtdStep 4 - Remedies for Breach of ConfidenceRemedies for Breach of ConfidenceIn the majority of cases where disclosure of a trade secret is threatened the plaintiff must move quickly to seek an injunction. This is the main remedy for breach of confidence, unless the information has become public knowledge. Other orders include:damages, delivery up or destruction of documents (where appropriate); anddestruction of products (extreme case)Orders for entry and seizureNote: Where the plaintiff is not really in a position to exploit the secret and would probably have licensed it anyway, the court will normally refuse an injunction. Coco v A N Clark Seager v Copydex Restraint of Trade ClausesStep 1 – Is it valid?A restraint of trade clause is a term in a contract by which a person agrees to refrain from some activity which he or she would otherwise be free to engage in.Nordenfelt v Maxim-Nordenfelt Gun CoRentokil Pty Ltd v Lee When is a restraint clause valid?Nordenfelt v Maxim-Nordenfelt Gun CoHeld that a restraint of trade clause was only lawful if it was reasonable in all circumstances.The courts have been prepared to accept clauses in restraint of trade provided that the restraint is, in all the circumstances of the case, no more than is reasonably necessary to protect a legitimate interest of the person benefiting from the restraint.Normally this means that a restraint of trade clause must be strictly limited in time, in geographical area and in the range of activities restrained.ExamplesSales of business agreementsTherefore, it is quite common to find restraint clauses in a sale of business agreement. The clauses must be no wider than is reasonably necessary to protect the goodwill sold.Nordenfelt v Maxim Nordenfelt Guns & Ammunition CoOutline:Nordenfelt was an arms manufactuer. Sold business to Maxim for large sum of moneyRestraint of trade clause restricted Nordenfelt from engaging in a similar business for 25 years.After a time, Nordenfelt opened a business trading arms.Maxim claimed breach.Decision:Restriction of trade was valid because of huge sum paid Restriction was also deemed “no wider than what was reasonably necessary to protect the legitimate interests of the covenantee and the interests of the public.”Employment agreementsEmployers must be careful not to make the restraint any wider than is strictly necessary to protect the employer’s legitimate interests.a clause that prevents the employee from using or disclosing the employer’s trade secrets is normally valid.Know-How and Ex-Employees Most cases an ex-employee be entitled to use information regarding his or her ex-employer’s customers because that sort of information is normally regarded as know-how:Digital Pulse Pty Limited v Christopher HarrisCase stated:An employee has a duty to act in the interests of the employer with good faith and fidelity. That duty is implied in every contract of employment if it is not otherwise imposed by an express term.The obligations imposed cover all obligations which are within the sphere of the employer’s business operations and which could materially affect the employer’s business interests. The duty of loyalty requires that an employee not place himself or herself in a position in which the employee’s own interest in a transaction within the sphere of the employer’s business operations conflicts with the employee’s duty to act solely in the employer’s interest in relation to that transaction. When the employment ceases, the employee is free to compete with the employer unless subject to a valid contractual restraint on competition.The employee may not, however, use for his or her own benefit confidential information of the former employer, whether to solicit business from the former employer’s customers or to carry out work for such customers even if unsolicited.Restraint of Trade cannot be too wide – Lindner v Murdock’s GarageDetails:Linder, a mechanic, work at Murdocs garage and signed restraint clause that prevented him from working at any other garage in the same town or surrounding area.After period of time, he left Murdocs and worked for 1 of the only other 3 garages in area.Outcome:Ruled restraint of trade was too wide and that Linder could not make a living without working.Was also of the opinion that the clause was unreasonable in that it did not seek to protect any legitimate interest, but rather, was imposed solely to protect Murdock from competition.Consequences of an invalid restraint clauseIf a restraint of trade clause is invalid it will be severed from the agreement.If the restraint clause is invalid in part only, the court will sever the invalid part, and, if the remainder is reasonable, the court will enforce itThe court has no power to write a new clauseBest way to handle restraint clauses is via a “Waterfall clause”Start very wide, then if invalid go smaller, then smaller etc ................
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