Confidential information is any formula, device or compilation of information which is used in a business and which gives the proprietor of the business an opportunity to obtain an advantage over competitors who do not know or use it.
The owner of confidential information must take measures to prevent it from becoming available to persons other than those selected by the owner to have access for limited purposes.
Examples of confidential information, trade secrets and know-how, include salary information, formulas, specifications, patterns, inventions, customer and vendor lists, unpublished works of authorship, software, industrial methods, techniques and processes, marketing and sales plans, and marketing forecasts and pricing information.
Confidential information is information that is the result of work done by the maker upon materials which may be available for the use of anybody, so as to achieve a result which can only be produced by somebody who goes through the same process.
All of its separate features may have been published, or capable of being ascertained by actual inspection by any member of the public, but if the whole has not been achieved, and could not be achieved except by someone going through the same kind of process as the owner it will despite the publication of the information separately, qualify as being confidential information: (see Gowan J, Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37 at 49).
For instance, all though the names of people are known the work done in collating a client or customer list can result in making the compiled list confidential information. Customer lists and information have been held to be confidential information (see Robb v Green [1895] 2 QB 1; and Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472).
However, just because a party claims that information is confidential is not sufficient at law to elevate the claimed information to be “Confidential Information”. For example: assume you and a third party enter into a confidentiality agreement.
The third party under the protection of the Confidentiality Agreement gives you a copy of the front page of today’s Financial Review. The information disclosed on the front page of the Financial Review is by its publication generally known to the public.
The Confidentiality Agreement between you and the third party does not alter the nature of the information the third party is claiming to be confidential. The information on the front page of today’s Financial Review is public information.
No confidentiality agreement can alter this fact. As such despite any confidentiality agreement any information disclosed on the front page of today’s Financial Review can be used by you without any fear of your breaching the terms of the Confidentiality agreement.
Why must confidential information be protected?
Unlike other forms of intellectual property (copyright, and patents), confidential information can be of unlimited duration. By definition, confidential information must be kept "secret" or the trade secret becomes public information and anyone is free to use it.
The key to keeping and guarding confidential information is secrecy. For instance, the formula for Coca Cola has been kept secret and for so however long the secret can be kept. Coca Cola has the ability to market and sell Coca Cola without fear of anyone selling exactly the same product.
As long as the secret is guarded by the company, the courts will protect the secret from misappropriation by others. A court will penalise one who seals or wrongfully appropriates a secret.
However, a person cannot protect a competitor who has independently developed the same confidential information, nor against one who has lawfully gained access to it. As long as loss of confidential information could mean loss of a competitive edge in the industry, the confidential information must be guarded.
Employees are in a special class when it comes to dealing with confidential information. The reason for this is that employees invariably receive or create confidential information during the course of their employment.
However, the rights of the employer must be balanced against the rights of the employee, especially after the employment terminates, to enable the employee to earn a living using his or her knowledge and skills. Usually the employment contract will contain a non-disclosure or confidentiality clause requiring the employees to keep confidential any information they learn during the course of their employment which, if disclosed to third parties, may be detrimental to the employer.
Under common law principles, in the absence of an employment agreement, an employee during the term of his or her employment will be considered to be under an implied contractual "duty of fidelity" consisting of three main duties:
• A duty to maintain the employer’s information in confidence;
• A duty to disclose relevant information to the employer which was developed or learned during employment; and
• A duty not to compete with the employer’s business.
A former employee may freely work for the former employer’s competitors and engage in activities which directly compete with the former employer, subject to an important restriction that the employee may not utilise the former employer’s confidential information for example, chemical formulae or manufacturing processes that the employer has taken steps to keep secret.
If there is a contract of employment, this freedom would be subject also to any other obligations or restrictions contained in the contract, so long as those restrictions are valid and enforceable.
For example, the contract may stipulate a certain restraint of trade clause prohibiting the former employee from working in the same area or in the same industry or for a competitor of the employer for a certain period of time. These restraint of trade clauses will not be enforceable if they are too wide and unreasonable than is necessary to protect the employer’s interests.
An employee however, is not prevented from using his or her recollection of commercial information that has not been kept secret such as names of customers, to compete with his or her original employer. * Steve Brown is principal solicitor at Etienne Lawyers at Parramatta. Visit www.etiennelaw.com.
