Trade Secrets and Confidential Information

Prior to 2016, the UK had no statutory protection for trade secrets and confidential information. They were protected by equitable common law principles, until the EU enacted the Trade Secrets Directive – Directive 2016/943/EU (Later implemented into the UK in June 2018 by the Trade Secrets (Enforcement, etc.) Regulations 2018, SI 2018/597).

There is clearly an overlap between trade secrets, confidential information ad Know How. It is important to understand the difference when considering taking action for a breach of this duty.

Confidential information

Despite over a year of enforcement, the definition of Confidential Information remains an enigma. Under the common law, information may be protected if it:

  1. Has the necessary ‘quality of confidence’; and
  2. Be imparted in a situation imposing an obligation of confidence.

The recipient of this ‘confidential information will then owe a duty of confidence to the party disclosing the information. Any unauthorised use of this information may give rise to an action.

Trade Secrets

A trade secret is highly sensitive information, that in an employment law context, an employer may continue to enforce its secrecy after the termination of the employee’s contract.

Regulation 2 of Trade Secrets Regulation defines a Trade Secret as being

  • 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
  • has commercial value because it is secret; and
  • has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

Know How

A further noteworthy definition regarding information is Know How. This does not have a statutory definition, however is defined under Article 1 of Regulation (EU) 316/2014, the Technology Transfer Block Exemption Regulation:

‘“Know-how” means a package of practical information, resulting from experience and testing, which is:

  • secret, that is to say, not generally known or easily accessible,
  • substantial, that is to say, significant and useful for the production of the contract products, and
  • identified, that is to say, described in a sufficiently comprehensive manner so as to make it possible to verify that it fulfils the criteria of secrecy and substantiality’

The Necessity Quality of Confidence

It will be obvious in some situations identifying information with the necessary quality of confidence. For example; personal information, client information, contact details unavailable online, details about an individual’s salary etc. Generally, it can be regarded as information that isn’t available in the public domain. Conversely, when the information is in the public domain but access to it is limited, it may still be regarded as confidential by the courts – The Racing Partnership Limited v Done Brothers (Cash Betting) Limited [2019] EWHC 1156 (Ch).

For a trade secret to be enforceable, it has the additional requirements to be of commercial value, and the owner must take reasonable steps to maintain its secrecy. However, protecting the information does not always mean it will have the necessary quality of confidence required to give rise to a duty of confidence.

In the case of Mars v Teknowledge [2008] EWHC 226, it was found that public software did not possess the sufficient quality of confidence, even though the owners had taken steps to protect it by encrypting it. It was found that although steps had been taken, any member of the public with sufficient skills to un-encrypt the software could access the data and therefore it was not sufficiently confidential.

Regulation 3 of the Trade secrets Regulation suggests that to bring an action to enforce trade secrets or confidential information are one in the same, other than trade secrets having a higher threshold to reach.

Situations Imposing an Obligation of Confidence

On obligation of Confidence can arise by way of a Contract between the parties or through equity. There are also a number of presumed relationships that give rise to a duty of confidence between the parties such an employer / employee relationship. Otherwise, in order to establish a situation where confidence arises, the test from Coco v Clark [1969] RPC 41 must be used:

“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.”

Coco v Clark [1969] RPC 41

Essentially, if the (objective) person knows the information received was reasonably believed to be confidential, the duty of confidence will arise. Part of the test is also applicable to the enforcement of Trade Secrets, and it more likely the recipient is knowledgeable to the fact the information they are receiving should be kept confidential. If the party disclosing the trade secret made it sufficiently clear that the information was highly confidential, it may mitigate their duty to take reasonable steps to keep it a secret.

The Distinction between Knowledge and Information

It is essentially impossible to prevent someone from using knowledge to their advantage, regardless of where they derived that information from. In Force India v Aerolab [2013] EWCA Civ 780 the Court of Appeal approved of Terrapin v Builders’ Supply [1967] RPC 375, the judge held that information was derived from a particular source and was not completely merged into the mind of that person. On the other hand, knowledge has an unidentifiable source. It is more likely to be built up of information from an array of sources and experiences. It is an important distinction to make as knowledge cannot be prohibited from being used, whereas information can.

Breach

Once it has been established that the duty of confidence exists, either through contract or equity, and the recipient makes an unauthorised disclosure of the confidential information, the duty of confidence will be deemed to be breached.

Additionally, it must be shown that the unauthorised disclosure of information must be to the detriment of the party who provided it.

Remedy

  • Damages

May be awarded in respect of damage the claimant may have suffered caused by the breach. The court usually considers this in respect of as reasonable sum the licensor (claimant) would have charged the licence (defendant) to use the data – Segar v Copysex (No 2) [1969] 1 WLR 809.

  • Accounts for profit

As an alternative, the equitable remedy of Accounts for Profit forces all profits made from the breach of confidence be paid to the claimant. However, this is a case specific remedy, as it may be hard to quantify the benefits that are received from some breaches of confidence.

  • Injunction

An injunction generally would prevent any future breaches of confidence by the court restricting the actions of the defendant. However, if the breach has already occurred, it may be used to prevent the defendant from further disseminating the information in question.

  • Delivery up or Destruction

Where physical information has been disseminating which has amounted to a breach of confidence, the claimant may be awarded the delivery or destruction of the documents. As the remedy suggests, the defendant will have to deliver or destroy the copy(s) of the confidential information.

Woodrow Cox

(12 Posts)

I am a LPC student studying at the University of Law, with aspirations of qualifying as a Solicitor after completion of my legal education and training in London. I have a strong interest in Civil Litigation, Financial and Commercial law, and are currently in search of a Training Contract. It comes as no surprise that I will be mainly writing for the Legal Edition, in addition to my position as lead editor for any contributors who wish to write legal themed posts. I also have a strong interest in Economics, Business, Psychology, Self Help and Mental Health Awareness which I may also write about from time to time.
View all posts

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.