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B LAW402 (43)

Protection of Information.doc

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Business Law
B LAW402
Elaine Geddes

PROTECTION OF INFORMATION The ability to obtain, use and control information has become a vital component of modern life. The older forms of protection of information, patents, copyright, trademarks etc. still have their uses where information has been published or has resulted in the creation of some thing or process or has otherwise come to public knowledge. The law seeks to encourage and protect those who bring their ideas and inventions into the public eye by allowing them exclusive rights to profit and to use. This serves the public good by disseminating new ideas and inventions as widely as possible. Nonetheless, there are many forms of information which do not qualify for statutory protection, or which the possessor wishes to keep so quiet that he or she will not risk disclosure even where statutory protection does exist. There are common law protections that exist to protect the possessor of information, permitting him or her remedies against those who use or disclose the information in an unauthorized way. The criminal law is of little assistance in most cases, as information is not considered property for the purposes of the theft sections. There is no general offence of "stealing information". The only sections that provide some help are those dealing with passing off, and unauthorized entry into computer systems. However, the criminal law concerns itself mainly with deterrence and punishment and not with compensation. Where information has been wrongfully appropriated, the holder will be much more interested in preventing continued use and receiving some compensation. There are various ways in which the civil law will accomplish this depending on the facts of the case. CONTRACT The main way to prevent any person from using or disclosing information is through a contract. This requires the parties to be in a contractual relationship with each other as the rules of privity of contract prevent any obligations being imposed on third parties or enforced by third parties. Contract law is of no assistance where some contractual relationship does not exist between the parties. A. Employer-employee confidentiality agreements. Agreements by employees to respect the confidential nature of information obtained on the job are common. These agreements can survive the employment relationship itself so that a former employee can be sued for disclosure as much as a current one. These agreements are similar, but not identical, to agreements that prevent employees from working for competitors or setting up their own businesses following their departure from the employer. Often the employment agreement will contain both a ban on the disclosure of confidential information and a prohibition on post-employment activity. All of these agreements are subject to review by courts as there is a recognition that the employer and the employee are not in equal bargaining positions and the employee rarely has any personal choice in the terms and conditions of the agreement. Where an employee is prevented from working for a competitor or setting up business for him or herself, it is partly due to the recognition that information about the former employer's business or business practices will then be used to create an unfair competitive advantage. This can happen even unconsciously as the former employee cannot divorce him or herself from what they already know. These types of agreements are time limited to a certain geographical area, as the employer is not permitted to protect him or herself from competition for all time everywhere. In addition they may be scrutinized to ensure that they do not violate the public interest or unduly restrict a former employee from earning a livelihood. However, bans on the use of confidential information can be absolute so that disclosure is never permitted. Some information can be considered so vital that an employer is entitled to protect it forever. Some general guidelines on employment related information is as follows: (All the following taken from Faccenda Chicken Ltd. v. Fowler [1985] English Court of Appeal) 1. Where parties are, or have been linked by a contract of employment, the obligations of the employee are determined by the contract. 2. In the absence of express terms, obligations with respect to use and disclosure of information are subject to implied terms. 3. While employment continues, an employee is subject to the implied term of good faith or fidelity. This may vary depending on the contract. 4. When employment is over, the implied term with respect to conduct is more restricted. There is an obligation not to use or disclose information of sufficiently high degree of confidentiality as to amount to a trade secret. This does not extend to all information acquired during employment. But for some information there may be still an equitable obligation to keep the information confidential. 5. To decide what information may fall into the category of trade secret, the following factors are taken into account: a. The nature of the employment. Where a person is employed in a confidential capacity where confidential material is often handled, the employee can be expected to realize its sensitive nature. b. The nature of the information itself. Information is only protected if it can be properly described as a trade secret or of such a highly confidential nature that it deserves equivalent protection. Many things are capable of being trade secrets depending on the circumstances. Relevant circumstances include: i. The extent to which the information is known outside the business. ii. The extent to which it is known by employees and others inside the business. iii. The extent of measures taken to guard its secrecy. iv. The value of the information to its holder or to competitors. v. The amount of money or effort expended in developing the information. vi. The ease or difficulty with which the information can be properly acquired or duplicated. vii. Whether the holder and the taker of the secret treat the information as secret. c. Whether the employer stressed the confidentiality of the information. The attitude of the employer may be enlightening to determine whether the information could be thought of as a trade secret. d. Whether the information can be easily isolated from other non-confidential material. e. Whether the information has been publicly disclosed in any forum including trade journals or patent applications. Trade knowledge is not protected in the same way as trade secrets. Trade secrets are objective things; they do not include a person's aptitudes, skills, dexterity, manual or mental ability. These latter things, called trade knowledge, belong to the employee. They form part of what the employee is once he or she has been experienced in a trade or field or occupation. Information which simply adds to an employee's store of knowledge in an area may not be protected. B. Confidentiality Agreements in other cases. There are numerous standard situations where parties enter into confidentiality agreements with each other apart from employment. Parties engaging in joint ventures, in consulting work, those contemplating buying or investing in a business or merging may all be given confidential information subject to a contract prohibiting them from various uses of the information. See Cadbury Schweppes Inc. v. FBI Foods Ltd. for an example of such an agreement (albeit one which didn't work) in the context of a licensing arrangement. In that case, the makers of “Clamato” juice had licensed its manufacture to Caesar Canning. They had disclosed information about the recipe and manufacturing process. Caesar had been required to sign an agreement whereby they agreed they would not manufacture or distribute any product containing tomato juice and clam broth for a period of five years following the termination of the license. Following the termination of the license, Caesar did market a copycat version of “Clamato” but it did not contain any clam broth, and thus Caesar were not in violation of the agreement. Where the information is clearly of the type contemplated by the agreement, then any disclosure of that information or unauthorized use will be subject to sanction. It is important that these agreements be written carefully to ensure that the parties have covered exactly what they need to cover. Unlike agreements in the employment area, there is no prima facie assumption of inequality of bargaining position. The parties are assumed to be capable of negotiating freely and fairly with each other to obtain what they want. Courts are inclined to enforce limitations that parties freely agree to. Where the information disclosed does not fall within the terms of the agreement, then it is necessary to resort to the action of breach of confidence. BREACH OF CONFIDENCE ACTIONS A. Breach of Confidence in Employment related cases. In the Contract section A. above, it can be seen that employees are subject to implied duties to respect the confidentiality that can survive the employment contract. Equally, these duties can exist in the absence of any contract whatsoever. The court will consider any disclosure of trade secrets as being a breach of confidence in the appropriate circumstances. The same factors are at work as those used to determine breach of confidence where there is an employment contract. It is important to stress that the absence of a contract dealing with the issue of confidential information is not in any way determinative of the verdict. In one highly celebrated British case, Attorney General v. Guardian Newspapers Ltd. (No. 2) (1990) House of Lords, the so-called “Spycatcher” case, the obligation of secrecy came about as a result of the nature of the discloser’s occupation. He was a former member of MI5, the British Security Service. He had signed the Official Secrets Act which prohibited him from disclosing information learned in the course of his government position. But it was not that the convinced the court. The House of Lords held that it is enough for a breach of confidence if confidential information comes to the knowledge of a person in circumstances where he knows or ought to know, or is held to have agreed that the information is confidential. In a case such as “Spycatcher” there will never be permitted to be disclosure even of the most trivial of things because “… what may appear trivial may in fact be the one missing piece in the jigsaw sought by some hostile intelligence agency.” Ordinary people come into possession of information of a much less dramatic nature, but nonetheless the logic of “Spycatcher” still holds. Small, apparently trivial pieces of information have the potential to cause serious damage to the business interests or private lives of others, and in some cases can be restrained from publication forever. As the House of Lords said “[It is] a sufficient detriment to the confider that information given in confidence is to be disclosed to persons whom he would prefer not to know of it, even though the disclosure may not be harmful to him in any positive way.” This statement was adopted with approval by the Canadian Supreme Court in Cadbury Schweppes. B. Fiduciary Relationships. A fiduciary relationship is one where one party has placed confidence in the other so that the other has a high duty of good faith and fidelity towards the other. This will involve some degree of vulnerability. “There are some relationships which are generally recognized to give rise to fiduciary obligations: director-corporation, trustee-beneficiary, solicitor-client, partners, principal-agent… The categories are not closed, nor do the traditional relationships invariably give rise to fiduciary obligations.” Lac Minerals v. International Corona Resources (1990) Supreme Court of Canada The “Spycatcher” case added employees of a state security service. The client in such cases is highly vulnerable to any act of malfeasance or wrongdoing and reposes a high degree of confidence in the other party. The other is privy to large amounts of confidential information in order to allow them to do their job. A breach of confidence by a fiduciary can have devastating consequences on the client. Any relationship can take on the flavour of a fiduciary relationship where there is a high level of confidence and vulnerability. Information obtained in the course of such a relationship can never be disclosed without the explicit permission of the vulnerable party. The law considers that such information is for all times the property of the vulnerable party and reserves the most severe of penalties for its disclosure, particularly when a profit has been made from it. “Relationships in which a fiduciary obligation have been imposed seem to possess three general characteristics: (1) The fiduciary has scope for the exercise of some discretion or power. (2) The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests. (3) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.” Frame v. Smith (1987) Supreme Court of Canada “The one feature, however, which is considered to be indispensable to the existence of the relationship, … is that of dependency or vulnerability.” Lac Minerals v. International Corona Resources (1990) Supreme Court of Canada In the Lac Minerals case, the majority of the court found that there was no fiduciary relationship. In that case a junior mining company (Corona Resources) had shared information with another much larger company (Lac Minerals) on a potential gold find. The information sharing was done with an eye to a possible future joint venture. When the other company used the information to outbid Corona and acquire the property which contained the gold, they were found to have committed a breach of confidence. But they breached no fiduciary duty to Corona as businesses dealing with each other at arm’s length rarely have such a duty imposed. “…any vulnerability could have bee
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