October 29, 2014
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This post was authored by our former lawyer, June Wright. Copyright 2014 Nelligan O'Brien Payne.

Businesses invest substantial amounts of time and money in marketing campaigns to inform the public about their brand and the product or service with which it is associated. At the same time, many businesses also focus significant energies on carefully guarding certain secrets associated with their products or services. The profitability of a business depends to a great extent on the ability of its owners to properly guard and protect its sensitive information from disclosure to competitors. For example, nearly every person on the planet knows about the product, Coca-Cola. However, how many people actually know the exact recipe for this popular soft drink? Not many. This is a well-guarded secret and for good reason. So long as this information is kept secret, it is protected.

There may be times when a business will need to disclose sensitive information to other individuals or organizations in order to achieve its objectives. Examples include disclosing information to certain employees, consultants or to other third parties. How can a business balance the need to disclose sensitive information to others with ensuring that such information is kept confidential and retains its protected status?  One important step is to have confidentiality agreements with employees, consultants or other parties to whom sensitive information is provided that properly define the proprietary information that is covered. If the information is not properly defined in the confidentiality agreement, the consequences can be dire. In particular, confidentiality agreements should set out exactly what information is considered confidential and insist that this confidentiality be maintained.

It is important to note that a preliminary step to earning protection under a confidentiality agreement is that the information in question must not be publicly known (or easily found by the public) or known as general trade practices. This preliminary issue was highlighted in one recent case. In Plaza Consulting Inc. v. Grieve et al., the Superior Court of Justice was faced with a motion for an interlocutory judgment preventing the Defendants from “competing unfairly by appropriating its confidential information and wrongfully soliciting its clients and employees, contrary to their employment agreements and in breach of their fiduciary duties”.

The court ultimately determined that in order to successfully obtain an injunction, the Plaintiff had to show that it had a proprietary interest in its trade secrets that was entitled to protection. Given the fact that the information the Plaintiff sought to protect was widely available to the public and was not particularly unique, the Plaintiff could not establish any such proprietary interest. Consequently, this case failed at the first step: there was no confidential information worthy of protection.

Beyond the fact that there was no information worthy of protection in this case, it is important that confidentiality agreements are not overbroad, including information that is not confidential, as these may be struck out as a restraint of trade.

Additionally, businesses themselves must take steps to show their employees and others that they are treating the information that is the subject of the confidentiality agreement as ‘confidential’.

This can include:

  • Physical measures like locking the information up, marking it as ‘confidential’, or restricting access to certain areas of a workplace where secret information is kept;
  • Digital measures like encrypting information or requiring passwords to access it; and
  • Contractual measures such as the confidentiality agreements discussed above or having in place and circulating confidential information policies to ensure these are widely known.

The more steps a business can take to show it has treated its information as confidential, the more likely it is to retain protection.

Take special care to ensure that confidentiality agreements are carefully drafted, because once they are breached, it might be very difficult to undo any damage that is done. If the agreement is upheld by the court for being sufficiently specific and not overly broad, the business will at least be able to recoup some of its losses from the party who breached the confidentiality agreement.

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2017 Nelligan O’Brien Payne LLP.

Service: Business Law