How not to steal a trade secret
It is not uncommon to see headlines or articles describing trade secrets or confidential information as a business’s crown jewels, but why are trade secrets so important? What is the difference between trade secrets and confidential information, why should a business care and, finally, how would one not steal a secret?
Legal basis for confidential information and trade secrets in the United Kingdom
The United Kingdom has two separate but parallel regimes for protecting trade secrets: the common law of confidentiality (breach of confidence), and legislation through the Trade Secrets Regulations. The latter came into force in the United Kingdom on 9 June 2018 and implemented the EU Trade Secrets Directive (2016/943). Applying only to breaches that occurred after 9June 2018, the regulations state that the use or disclosure of a trade secret will be unlawful where it constitutes a breach of confidence in confidential information.
In addition to these legal regimes, contracts are frequently used to protect confidential information, for example through non-disclosure agreements or confidentiality clauses in employment contracts.
In England and Wales, it is not possible to steal trade secrets because the misuse of confidential information does not fit the UK definition of theft. ‘Theft’ in England and Wales requires the thief to take the property of another with the “intention to permanently deprive” the other of it. Confidential information is not considered to be property and its misuse cannot permanently deprive an individual of it.
Trade secrets offer flexibility, immediacy and permanence
A recent report on the use of trade secrets for the UK Intellectual Property Office (UKIPO) concluded that bigger companies were heavy users of trade secrets, while innovative companies (ie, those filing more patent applications) relied on them more than less innovative companies.
What those innovative companies understand is that trade secrets can offer several benefits compared with traditional IP rights (including patents), such as the following:
- They do not have to be new. Unlike patents, there is no requirement for a trade secret to be novel.
- They can protect subject matter not covered by patents (eg, computer programs, scientific theories, minor or incremental improvements to a product or process and know-how related to the implementation of patented inventions, business methods and customer information). The Krispy Kreme recipe is an often-cited example of a highly valuable business asset that is protected by trade secret but there are others. The formula used for creating The New York Times Bestseller List is one example of a business method that is protected as confidential information, rather than as patent – and it is unclear that it could be protected by patent.
- They can last forever. Another benefit of this form of protection is that it does not have a time limit and can therefore be used indefinitely, so long as the information remains secret. Coca-Cola, for example, continues to benefit from its secret ingredient formula, which has been heavily guarded for over 125 years.
- They are immediate. Trade secrets and confidential information protection arises automatically and can, therefore, be obtained immediately. As a result, they can be particularly useful for protecting novelty before patent filing or for protecting fast-developing technology, where the patenting process may take too long. Trade secrets and confidential information will often be used to protect process-based innovations and regularly form a vital part of collaborative R&D agreements.
Confidentiality can be hard to maintain
There are downsides to relying on confidential information, rather than other forms of IP protection. The holder, for example, must maintain good processes for preserving the secrecy of the information, if it is to remain their trade secret. Further, trade secrets and confidential information can be reverse engineered. English law does not prevent a competitor from analysing or deconstructing a competitor’s product or process, determining how it works and then using that information to their own commercial advantage.
Trade secrets, confidential information and the difference between them
English common law has long established that confidential information is any information that has “the necessary quality of confidence … namely, it must not be something which is public property and public knowledge” (Lord Greene MR in Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203, 215). Subsequent case law has provided the following ingredients for misuse of confidential information:
- the information must have the “necessary quality of confidence” (as above);
- the information must have been imparted in circumstances importing an obligation of confidence; and
- an unauthorised use of the information has taken place, to the detriment of the right holder.
There are a number of ways in which an obligation of confidence may arise, for example, imposed by contract, implied because of the circumstances of the disclosure, or implied through a special relationship between the parties.
The requirements for protecting trade secrets under the Trade Secrets Regulations are analogous to those for protecting confidential information – the regulations define a ‘trade secret’ as information that:
- is secret in the sense that it is “not … generally known” among, or readily accessible to, persons within the circles that normally deal with the kind of information in question (ie, is not public property or public knowledge); and
- has commercial value because it is secret (that is, an unauthorised use of the information would be to the detriment of the holder of the trade secret); and
- has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret (ie, it has been shared only when the recipient is under an obligation of confidence).
Information that qualifies under common law as confidential information will, to a great degree, be the same as a trade secret under the Trade Secrets Regulations. However, there have been English common law cases that have drawn a distinction between trade secrets and mere confidential information. It can be difficult to draw a clear boundary around the subset of confidential information that would also qualify as a trade secret. In some cases, for example, customer lists have been considered to be trade secrets and in others not. However, it can be quite an important difference. For example, employees will owe a duty of confidence in respect of trade secrets after they leave that employment, even where there were no express duties of confidence in their employment contract. This would not necessarily be the case in respect of mere confidential information.
Trade secrets and confidential information are important tools for protecting competitive advantage and should be considered as part of a comprehensive IP strategy. Depending on the intellectual property at issue, they may offer more flexible and long-lasting protection than other IP rights.
In most cases, trade secrets and confidential information can be used as synonymous terms operating under separate legal regimes. However, common law cases have held that a trade secret is a more important secret than mere confidential information, and accordingly will attract a greater degree of implied protection from misuse.
This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight
Copyright © Law Business ResearchCompany Number: 03281866 VAT: GB 160 7529 10