Businesses can prevent third parties from misusing their valuable and commercially sensitive business information and trade secrets through contracts and the common law within Canada.
This type of legal protection is critically important for companies with intellectual property (IP) assets that are not protectable through traditional forms of registrable intellectual property (such as patents), or when the business has a commercial strategy that favours secrecy.
What are trade secrets?
Trade secrets (or confidential business information) generally include information that provides a business with independent economic or commercial value and is the subject of business efforts to maintain its secrecy.
Confidential business information may include a formula, recipe, source code, program, method or technique that is not the subject of a patent or patent application and is maintained as confidential by the company. There are various reasons why a business may elect to maintain secrecy over such information rather than pursue a patent application in Canada. A patent provides a limited term monopoly for 20 years from the filing date of the application in exchange for disclosure of the invention to the public. On the other hand, a trade secret can, in theory, be maintained indefinitely and therefore may provide a commercial advantage over competitors for much longer than a patent in the appropriate circumstances.
Confidential business information can also include information that cannot be the subject of a patent such as customer lists or future research and development ideas.
Businesses should take various steps to maintain confidentiality over all such information, including limiting the disclosure of information to designated employees and limiting the use of this information, prohibiting further disclosure of said information, marking information as confidential as well as storing in a secure area and employing non-disclosure (or confidentiality) agreements.
Learning about non-disclosure agreements
Non-disclosure agreements (or confidentiality agreements) are contracts that protect the confidentiality of valuable information. In the context of protecting trade secrets, confidentiality agreements may be required in various circumstances such as between an employer and an employee who will receive confidential business information as part of their duties, or between a company and its external business partner before engaging in a joint research and development project or some other joint venture.
A typical confidentiality agreement will set out the scope of the engagement between the two parties and the terms and conditions under which limited disclosure of valuable confidential business information may be made to each other. Examples of terms and conditions that are commonly included in confidentiality agreements include:
if the receiving party is a business, requiring that the receiving party protect confidential information with the same degree of care as applied to its own confidential information;
requiring that the receiving party take immediate action to mitigate any potential unauthorized disclosures of confidential information;
prohibiting the receiving party from copying, making a derivative, or reverse engineering confidential information; and
requiring that the receiving party return or destroy confidential information on request or upon termination of the relationship.
What is a common law breach of confidence?
In Canada, a party may also be liable for the misuse of confidential information under the common law tort of breach of confidence.
To be successful in an action for breach of confidence in Canada, the plaintiff must prove the following:
the information must have the necessary character of confidentiality;
communication of the information must have occurred in circumstances giving rise to an obligation of confidence and
there must be a misuse or unauthorized use of the information.
A party may be liable for breach of confidence even in circumstances where there was no confidentiality agreement between the parties. In those cases, the Court will consider whether the receiving party should have been aware that the information was being communicated confidentially.
While a confidentiality agreement is not strictly required to succeed in a breach of confidence action in Canada, it remains best practice to prepare and execute such an agreement to protect any valuable confidential information.
If you have any questions on Trade Secrets, Confidential Agreements or Non-disclosure agreements schedule a free 15-minute consultation with Froese Law here -https://www.froeselaw.com/contact
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