Tuesday, 28 January 2020

My Talk to the Enterprise Hub -"What is a Trade Secret?"


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Jane Lambert

 I had a good day at M-SParc yesterday. I discussed trade secrets and non-disclosure agreements with the Enterprise Hub between 12:00 and 13:00. For the rest of the afternoon, I held pro bono one-to-one consultations with some of the individuals who had attended my talk as well as other business owners and entrepreneurs.

For the purpose of my talk, I defined "trade secrets" as  "secret business or commercial information the unlicensed use or disclosure of which could benefit a recipient of the information or harm the person who is entitled to prevent such use or disclosure."  A trade secret can be an invention before the filing of a patent application, the source code of a computer program, a customer list or a business plan.

Until the 9 June 2018, the unauthorized use or disclosure of trade secrets was prevented by the law of confidence which had been developed by the courts over many years.  In Coco v AN Clark (Engineers) Ltd [1968] F.S.R. 415, [1969] RPC 41 Mr Justice Megarry summarized that law as follows:
"I would regard the recipient as carrying a heavy burden if he seeks to repel a contention that he was bound by an obligation of confidence.’
‘First, the information must be of a confidential nature. As Lord Greene said in the Saltman case . . ‘something which is public property and public knowledge’ cannot per se provide any foundation for proceedings for breach of confidence. However confidential the circumstances of communication, there can be no breach of confidence in revealing to others something which is already common knowledge. But this must not be taken too far. Something that has been constructed solely from materials in the public domain may possess the necessary quality of confidentiality: for something new and confidential may have been brought into being by the application of the skill and ingenuity of the human brain . . Novelty depends on the thing itself, and not upon the quality of its constituent parts . . whether it is described as originality or novelty or ingenuity or otherwise, I think there must be some product of the human brain which suffices to confer a confidential nature upon the information.
The second requirement is that the information must have been communicated in circumstances importing an obligation of confidence. However secret and confidential the information, there can be no binding obligation of confidence if that information is blurted out in public or is communicated in other circumstances which negative any duty of holding it confidential. From the authorities cited to me, I have not been able to derive any very precise idea of what test is to be applied in determining whether the circumstances import an obligation of confidence. In the Argyll case, Ungoed-Thomas, J. concluded his discussion of the circumstances in which the publication of marital communications should be restrained as being confidential by saying ‘If this was a well-developed jurisdiction doubtless there would be guides and tests to aid in exercising it’. In the absence of such guides or tests he then in effect concluded that part of the communications there in question would on any reasonable test emerge as confidential. It may be that that hard-worked creature, the reasonable man, may be pressed into service once more; for I do not see why he should not labour in equity as well as at law. It seems to me that if the circumstances are such that any reasonable man standing in the shoes of the recipient of the information would have realised that upon reasonable grounds the information was being given to him in confidence, then this should suffice to impose upon him the equitable obligation of confidence. In particular, where information of commercial or industrial value is given on a business-like basis and with some avowed common object in mind, such as a joint venture or the manufacture of articles by one party for the other, I would regard the recipient as carrying a heavy burden if he seeks to repel a contention that he was bound by an obligation of confidence: see the Saltman case . . On that footing, for reasons that will appear, I do not think I need explore this head further. I merely add that I doubt whether equity would intervene unless the circumstances are of sufficient gravity; equity ought not to be invoked merely to protect trivial tittle-tattle, however confidential.
Thirdly, there must be an unauthorised use of the information to the detriment of the person communicating it. Some of the statements of principle in the cases omit any mention of detriment; others include it. At first sight, it seems that detriment ought to be present if equity is to be induced to intervene; but I can conceive of cases where a plaintiff might have substantial motives for seeking the aid of equity and yet suffer nothing which could fairly be called detriment to him, as when the confidential information shows him in a favourable light but gravely injures some relation or friend of his whom he wishes to protect. The point does not arise for decision in this case, for detriment to the plaintiff plainly exists. I need therefore say no more than that although for the purposes of this case I have stated the proposition in the stricter form, I wish to keep open the possibility of the true proposition being that in the wider firm."

Since 9 June 2018 European Union trade secrecy law has been harmonized by Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure (Text with EEA relevance) OJ L 157, 15.6.2016, p. 1–18 which I discussed in The Trade Secrets Directive on 7 July 2016 NIPC Law.  It would appear from The Trade Secrets (Enforcement, etc.) Regulations 2018 which implemented the Directive into the laws of the United Kingdom that the Directive did not repeal the old judge-made law but provided trade secret owners with new rights and remedies (see Jane Lambert Transposing the Trade Secrets Directive into English Law: The Trade Secrets (Enforcement etc) Regulations 6 June 2019 NIPC Law).

For the rest of my talk, I discussed confidentiality or non-disclosure agreements which is one of the "circumstances importing an obligation of confidence" that Mr Justice Megarry is likely to have had in mind in Coco v Clark.  Those agreements are easy enough to draft but much less easy to enforce in infringement proceedings.  Defendants tend to argue that the agreement was not intended to cover the information in question, that it was not really confidential or that the claimant is not entitled to rely on it for some other reason.  In There's more to the Law of Confidence than NDAs 14 Oct 2019 NIPC Inventors Club, I wrote:
"If you want to rely on the law of confidence, print a form in duplicate on no carbon required paper with boxes for:
  • The name and full postal address, job title, email, telephone and other contact details of the confidante and those of his or her employer if they are different.
  • Identify the information to be delivered and the way in which it is to be passed (that is to say, private conversation, whether it is is a document and if so what it contains).
  • An acknowledgement that the information has been disclosed in confidence.
  • A finite period in which the confidante can contentod that the information is not confidential at all and a rapid and cost-effective way of resolving such contentions such as expert determination or expedited arbitration.
  • The use to which the information may be put.
  • A deadline for the return of confidential documents and may have been made.
  • Submission to the jurisdiction of the English courts.
Every single confidential conversation and the delivery of every single document should be recorded and logged separately. If any of the conditions is breached, the confider should call the confidante at once. If it is still not put right the confider should consider legal action including possibly an interim injunction."
Trade secrets have a number of advantages over patents.  The right to prevent unauthorized use or disclosure arises automatically.  It costs nothing.  There is no need for registration. Theoretically, it can last for ever and some trade secrets like the recipes for Chartreuse or Coca Cola have been kept secret for centuries in the case of the liqueur and well over 100 years in the case of the fizzy drink. On the other hand, if a competitor discovers the secret through his own R & D or even by reverse engineering there is nothing to stop him from using it.  A patent, on the other hand, could stop such a competitor in his tracks if he makes or does something that is caught by one or more of the claims.

My next visit to the Enterprise Hub is scheduled for the end of April to join in the celebrations for World Intellectual Property Day. The theme this year is "Invest for a Green Future" which could not be more appropriate for the Menai Science Park. That has been the science park's theme from the day it opened on St David's Day 2018. 

While taking a break from my one-to-one's, Pryderi ap Rhisiart, M-SParc's managing director presented me with an ambassador's badge.  One of the reasons why M-SParc is so important is that it is helping to reverse a trend of relative economic decline and depopulation which has drained Northwest Wales of its best and brightest.  The businesses that are establishing themselves at M-SParc and other locations in the Menai area are attracting them back as well as highly skilled individuals from the rest of the world. I sense a real buzz whenever I step into the science park's atrium. For that reason, I shall wear my M-SParc badge with pride.

Much of the credit for the success of yesterday's meeting is due to Emily Roberts who runs the Enterprise Hub. She advertises the meetings and sets up the PowerPoint and refreshments.  I am very grateful to her for her work.

If anyone wants to discuss this article call me on 020 7404 5252 or send me a message through my contact form.

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