Shhhh… it’s a (trade) secret.

Confidential Information.

Most employees are privy to confidential information during the course of their employment. This information can vary greatly, from manufacturing processes to client lists to proprietary formulas or even source codes of computer programs.

Unlike patents or trade marks, trade secrets in Australia are not registered with IP Australia. Instead, they are protected through common law, contractual obligations (such as non-disclosure agreements), and equity.

Employers usually include provisions in employment contracts prohibiting an employee from disclosing or misusing information that is confidential or essential to the employer’s business. Without such clauses, an employer may be left to rely on the employee’s implied duty of good faith. This duty may end at the termination of employment however, for trade secrets, this duty continues to apply.

No confidentiality agreement?

Where an employee is entrusted with confidential information, but is not bound by a non-disclosure agreement and their employment ends, the employer may seek a court order restraining the former employee from misusing or disclosing the confidential information. In this situation an employer in Australia must establish that:

1. the information in question can be identified with specificity;
2. the information can establish the necessary quality of confidentiality; and
3. the information was given to the confidant in circumstances importing confidence.

Let’s look at each of those in more detail.

1. Specifically specific.

The identity of the information that is being claimed as confidential must be specific. The onus is generally on the employer to prove that such disclosure or misuse has caused detriment to their business.

2. Qualify quality.

If the information in a broad sense can be accessible in the public domain or is common knowledge, then the necessary quality of confidence cannot be established. Merely naming a document a ‘trade secret’ or ‘confidential information’ does not make it confidential and ultimately the courts will favour the content rather than the form the information is contained in.

3. Confidence in your confidant.

Confidential information passed onto the confidant must attract obligations of confidence or the confidant ought to have been reasonably aware that the information was imparted in confidence. The best possible way to achieve this is through express notification in the form of a non-disclosure agreement or relevant clauses in an employment contract. Otherwise, the knowledge of the confidant may have to be inferred by the nature and circumstances in which the information was passed. The upmost care should be taken by an organisation when handling confidential information and strict provisions should be used to ensure that any such information should only be disclosed on a ‘need to know’ basis.

Categories of confidential information.

The type of information considered to be inherently confidential is still determined on a case by case basis. However, over time, categories of confidential information have been recognised by law, including the following:

• Technical Information: proprietary processes, formulas, manufacturing methods, software source code and inventions.
• Business Information: business plans, marketing strategies, financial projections and client lists.
• Product Information: new product designs, product specifications and product development plans.
• Supplier Information: information about suppliers, such as pricing, contractual terms and supply chains.

When in doubt don’t leave it out.

Finding a competitive edge over a rival business is essential to any organisation’s success. The loss of sensitive information used to achieve that advantage can severely damage a business.

All confidential and commercially sensitive information should be protected by employment contracts, employment policy documents and separate non-disclosure agreements. At all times, the nature and scope of that information should be clearly defined. This is a straightforward way to implement enforceable restraints on the use and disclosure of information, and protecting trade secrets.