Trade secrets and confidential information

In Canada, as in the United States, trade secrets and confidential information are recognised as valuable forms of intellectual property which provide an indefinite term of protection with no formal registration requirements. But in Canada, the options available to in-house counsel in the case of misappropriation of trade secrets and confidential information are very different than those in the United States. This is because in Canada there is no statute which either defines or provides any remedy for the misappropriation of trade secrets and confidential information.
In Canada, trade secrets are considered a sub-category of confidential information reserved for more technical information such as formulae, recipes, patterns, processes and devices.
Confidential information, on the other hand, tends to be used to refer to compilations of information such as customer and supplier lists or unknown concepts or business opportunities. 
A further distinction is recognised in employment cases where trade secrets are considered to be distinguishable from "know-how", which refers to the "subjective" skill and knowledge which employees learn as part of their trade and which, barring a reasonable restrictive covenant, employees may continue to use after their employment.
Whatever nomenclature is used, in Canada there is no exhaustive list of what can or cannot constitute a trade secret or confidential information. Courts have compensated parties for the misappropriation of the name of a bank radio programme and the concept for a candy store.
Breach of confidence
While there is no statutory cause of action for the misappropriation of trade secrets or confidential information in Canada, the misuse of a company's confidential information can give rise to a cause of action for breach of confidence at common law. The test for whether there has been a breach of confidence requires the owner of the confidential information to show the following:

  • The information has a quality of confidence about it. In considering whether information should be recognised as confidential information or a trade secret, a court will consider a number of factors, including whether the information is generally known to others; known to others in the industry; unique and novel; and subject to measures to ensure its secrecy. As in the United States, in Canada the ability to prevent the unauthorised use of a trade secret is dependent upon the owner's ability to demonstrate that it has been maintained as confidential through the use of physical or contractual means.
  • The information was communicated in circumstances in which an obligation of confidence arises. Obligations of confidence can arise through contract or relationships of confidence, whether they be fiduciary or that of a master and servant. However, even in the absence of an express agreement regarding confidentiality, a Canadian court will consider the conduct of the parties. Parties working towards a joint venture or some other business arrangement will generally be found to have communicated in circumstances giving rise to an obligation of confidence.
  • The information was misused or used without authorisation to the detriment of its owner. In Canada, where a party has autonomously developed information, similarities with the trade secrets alleged to have been stolen are not sufficient to ground an action for the misappropriation of trade secrets. However, striking similarities in content, or the timing of a party's use of the information in relation to the disclosure, could lead to an inference of misappropriation. Under the "springboard" doctrine, the use of another's confidential information to develop a competing system can also give rise to damages.

Canadian courts will not grant interlocutory injunctions unless the harm that the applicant faces is "irreparable", in that it either cannot be compensated for in damages or is uncollectible. Injunctions have been granted in connection with the misappropriation of confidential information and the breach of a non-disclosure agreement, based on the unique nature of the harm that is occasioned by their misuse.
Nevertheless, the Supreme Court of Canada has held that the remedial goal in a breach of confidence case is to restore the plaintiff to the position it would have been in but for the wrong committed by the defendant, which dictates in favour of an award of damages. Where the owner of the confidential information is in the business of selling the information, the market value of the confidential information will likely be considered the most appropriate measure of compensation. Anton Piller orders, akin to a civil search warrant, are available in Canada. These orders, obtained without notice, permit an applicant to enter a specific premises of the defendant and search for and retain specified classes of document in order to preserve evidence for trial.
An Anton Piller order is more difficult to obtain in Canada than an injunction, since there must be evidence that there is a threat of the destruction of evidence. Moreover, criminal remedies are not available in Canada. The misappropriation of confidential information is not considered theft under the Criminal Code.

This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight

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