Trade Secrets and Breach of Confidentiality

What are trade secrets?

Trade secrets (and undisclosed commercial information) are commercial confidential information, such as formulas, methods, technologies, designs, product specifications, business plans and client lists, that have commercial value.

Protections for trade secrets

Protection of trade secrets is important, especially when the IP is not registrable. Trade secret is not registrable thus it does not provide exclusive rights, whereas patent is registrable and enjoys a limited period of patent protection (20 years) with exclusive rights. Trade secret protection only lasts until the information is disclosed and becomes available as public knowledge. It is possible for competitors to freely exploit and independently come up with the same ideas or invent an identical product or process.

Breach of confidence & Remedy

Obligation of Confidence:

In Hong Kong, trade secrets are protected by common law of confidence. An obligation of confidence will arise whenever the information is communicated to or acquired by a person who knows or ought, as a reasonable person, to know that the other person wishes to keep that information confidential. An industry or trade custom or practice may also impose an obligation of confidence.

As a matter of good practice, it is advisable that business starters should require potential business partners, manufacturers and employees to sign a non disclosure agreement (NDA) or impose a confidentiality clause to protect any sensitive/confidential information from being disclosed to third parties. The terms of the agreement will provide protection and redress if the concerned information had been disclosed without authorization. The ‘confidential information’ shall be widely and specifically construed.

While trade secrets require no registration, whether it can be protected under breach of confidence will depend on a number of factors:

  • The extent to which the information is known outside the business
  • The extent to which the information is known by employees and others involved in the business (information that is common knowledge within a particular trade but not to the general public is not protectable)
  • The extent of measures taken by the owner of the information to preserve the secrecy of the information and the ease or difficulty with which the information can be properly acquired by others. Examples of such measures include:
    • Encryption of sensitive data and confidential information;
    • Setting access policy, i.e. restricting the access right of such information to sufficiently senior level of staff that are necessary to have access; and
    • Disallowing copying/moving/sending of such confidential information without special approval/notification procedures.
  • The value of the information to the owner and to its competitors
  • The amount of effort or money expended in developing the information[4]

How do trade secrets differ from patents or copyright?[5]

The application for a patent requires disclosure of details of invention. In other words, details of a patented invention cannot be kept confidential as trade secrets. As said above, patents enjoy a limited term of protection but trade secrets last for as long as the information remains confidential.

Copyright only protects the form in which ideas and information are expressed, but not ideas and information per se. The law of confidence protects the substance of ideas and information, no matter how they are expressed. There are statutory permitted acts for works protected by copyright but not works protected by confidence.

Remedy:

The release of trade secrets would be detrimental to the owner or advantageous to his or her competitors or others.

The remedies available for breach of confidence include injunctions, damages, account of profits and delivery up of materials containing confidential information.

Useful pointers for protecting the confidentiality of information:[6]

  • Limit the number of people who can access such confidential information;
  • Have employees sign NDAs, which provide that they have to maintain confidential specific information that is disclosed to them;
  • Ensure that any individuals who come into contact with the business or company, such as consultants and vendors, sign NDAs; and
  • Keep a clear record of all business deals that may contain any confidential information.
Checklist-
You should know that:
1)       Trade secret is in essence confidential information in a commercial setting.
2)       In Hong Kong, trade secrets are protected by common law of confidence. And various remedies for breach of confidence are available
3)       You can actively protect your trade secrets to avoid potential risks caused by any unlawful release of trade secrets.

[1] Intellectual Property Department, The Government of HKSAR, Trade Secrets (Undisclosed Commercial Information)

[2] Ibid

[3] Ibid

[4] Saltman Engineering Co. v. Campbell Engineering Co. Ltd [1948] 65 RPC

[5] Above n.1

[6] Intellectual Property Office of Singapore, “What is a trade secret, and how is it related to confidential information?” –For Case Study, HowStuffWorks, http://money.howstuffworks.com/question625.htm

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