Monday, 1 April 2019

Trade secrets and Non-Disclosure Agreements

Glass of Chartreuse
Author Ospalh 

Jane Lambert

If you have acquired business or technical information that is either secret or not generally known the unauthorized use or disclosure of which would either harm you or benefit a competitor, you have what is known as a "trade secret".

For many years, the common law (that is to say, law made by judges and not by Parliament) has obliged those who receive trade secrets in confidence ("confidantes") to use such information only for the purpose for which it was imparted and not to make further use of it or disclosure it further.  Such obligation is known as "the obligation of confidence" and the law that imposes it is known as "the law of confidence,"

Since 9 June 2018, the law of confidence has been supplemented by Directive 2016/943 ("the Trade Secrets Directive") which has harmonized trade secrecy law across the European Union.  Art 2 (1) of that Directive defines a trade secret as:
"'......... information which meets all of the following requirements:
(a) it is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
(b) it has commercial value because it is secret;
(c) it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret,"
Both the law of confidence and the Directive require those who own or control such information to keep it secret.  Once it enters the public domain otherwise than through an unauthorized disclosure the obligation of confidence and the Directive cease to apply.

Although there are other circumstances in which an obligation of confidence can arise, the usual way is to require the confidante to sign a confidentiality or non-disclosure agreement ("NDA") before you give him or her the information.  NDA can be stand-alone agreements or they can form part of some other agreement such as a contract of employment or a consultancy, distribution, franchise, joint venture, licence, technical transfer or other commercial agreement. Lawyers and patent and trade mark attorneys are often asked to draft general purpose agreements but that is very hard to do and sometimes dangerous as an agreement that is drawn too broadly may not be enforceable.

The best sort of confidentiality agreements specify the information to be disclosed very precisely.  They will state whether the information is to be disclosed in writing, in which case the agreement will identify the document or data file, or orally, in which case it will state the date, time and place of the conversation, the persons present and so on.  The confidante will acknowledge that the information is secret and that he or she will receive it in confidence.  Should there be any possibility that the information may already be known to the confidante there should be a procedure for him or her to say so within a limited time and for some method of expert determination, arbitration or other ADR to resolve disputes.  The reason for, and purpose of, the disclosure should be made clear.  If the confidante can copy a file or document or consult another person his or her permission to do so and any conditions, such as obtaining further confidentiality undertakings, should appear in the agreement.  The confidante must promise to make no further use or disclosure of the information and to hand back any documents, files or copies by a certain date and time.  Finally, the confidante should agree to submit to the courts of Wales and agree that any disputes will be determined in accordance with Welsh and English law.

The agreement must be policed rigorously.  If documents have to be returned by a certain day you should chase them as soon as the deadline arrives.  If third parties are to receive the information in confidence you must make sure that they have signed confidentiality agreements.   If you have any reason to fear that your agreement has been breached you should raise it with the confidante at once. If you are not satisfied with his or her explanation then you must consult solicitors.  If the confidante still does not satisfy you then your solicitors must apply to the court for an order known as an "injunction" requiring the confidante to honour his or her promises with the threat of a fine or imprisonment if he or she disobeys.

All inventions start off life as trade secrets otherwise they will have ceased to be "new" by the time the inventor applies for a patent.   There are, however, many technical advances that remain trade secrets forever.   That may be because the law makes it difficult to patent them such as the source code for computer software which is specifically excluded from the definition of patentable invention as such or because the law of confidence provides better protection than patents for the asset in question.   A good example would be beverages since recipes cannot easily be reverse engineered.  The recipe for Chartreuse, for instance, has been kept secret for hundreds of years because it is known only to two monks at any one time. Many attempts have been made to replicate the liqueur but none has come close.

Should you wish to discuss this article or trade secrecy in general, call me on 020 7404 5252 during office hours or send me a message through my contact form.

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