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Trade Secrets and Confidential Information What are trade secrets? A trade secret is both a type of intellectual property (“IP”) and a strategy for protecting.

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Presentation on theme: "Trade Secrets and Confidential Information What are trade secrets? A trade secret is both a type of intellectual property (“IP”) and a strategy for protecting."— Presentation transcript:

1 Trade Secrets and Confidential Information What are trade secrets? A trade secret is both a type of intellectual property (“IP”) and a strategy for protecting the IP. Can be formulas, patterns, methods, programs, techniques, processes or compilations of information that provide one's business with a competitive advantage. P

2 The information: can be connected with another IP right e.g. relevant know-how for working a patent; can be material existing before the other IP right has come into being e.g. details of the invention for which a patent has not yet been sought; or it can be material that is already protected by IP e.g. where copyright exists in material that is to be shown under a confidentiality agreement to a potential partner for its exploitation.

3 Trade Secrets and Confidential Information What is confidential information? Generally information which is the object of an obligation of confidence and is used to cover all information of a confidential character. May consist of information such as client lists and information relating to areas such as:-

4  production processes;  research & development;  new business projects;  business finances;  etc

5 Trade Secrets and Confidential Information Whether a given body of information is confidential … An action for breach of confidence will lie where there is a breach of an obligation of confidence. The Law of Intellectual Property by Staniforth Ricketson sets out a useful summary at p. 822 of the factors relevant to determining whether a given body of information is confidential. They are:

6 The extent to which the information is known outside the owner's business; The extent to which it is known by employees and others involved in his business;

7 Trade Secrets and Confidential Information Whether a given body of information is confidential …  The extent of measures taken by him to guard the secrecy of the information;

8 The value of the information to him and his competitors; The amount of effort or money expended by him in developing the information; The ease or difficulty with which the information could be properly acquired or duplicated by others (i.e. by their independent endeavours).

9 Trade Secrets and Confidential Information Requirements for obtaining trade secret protection Some of the factors commonly considered include:

10  the extent to which the information is known outside of the business;  the extent to which the information is known by employees and others involved in the trade secret owner's business;  the extent of the measures taken to guard the trade secrets;

11 Trade Secrets and Confidential Information Requirements for obtaining trade secret protection  the value of the information to the owner and his competitors;

12  the amount of money or effort expended by the trade secret owner in developing the secret; and  the effort required by others to acquire or duplicate (through reverse engineering) the information.

13 Trade Secrets and Confidential Information How Is a Trade Secret Protected? In order to maintain business information as a trade secret, you must take reasonable precautions to prevent the information from becoming generally known to competitors. Reasonable precautions could include:

14  Revealing business information to employees on a "need to know" basis.  Keeping sensitive documents under lock and key.  Requiring passwords to access computer files.  Restricting access to certain areas of production facilities.  Requiring visitors to the facilities to sign in upon arrival and sign out upon departure.

15 Trade Secrets and Confidential Information What if someone infringes my trade secret? In Malaysia at present, the protection of trade secrets and confidential information are based on common law which are independent of statute. Registration is not required under common law of confidentiality.

16 Beware! Proving a breach of confidentiality under common law can be complex and is potentially more costly than defending registered rights.

17 Ask contractors and employees to provide written undertakings not to compete with your business after they leave in addition to signing a confidentiality agreement. It is often much easier to prove this than to prove breach of confidentiality. These undertakings, however, are difficult to enforce and need to be prepared by your legal adviser, as you need to be careful that the undertaking does not restrict the contractor's or employee's right to earn a living.

18 Trade Secrets and Confidential Information Implied obligations of confidentiality There are a number of specific relationships or situations where the courts will imply situations of confidence e.g. the relationship between solicitor and client, director and relevant company and employer and employee.

19 Although there may be an implied obligation of confidentiality placed on an employee, prudent employers recognise that certain individuals within their business will have access to very confidential information. Accordingly, employers often provide explicit provisions in individual contracts of employment regarding an employee's responsibilities in this area. The expressed terms of such employment contracts are usually drawn much wider than the terms of any implied duty of confidence and they often also cover the situation when the contract of the employment has terminated.

20 Trade Secrets and Confidential Information Schmidt Scientific Sdn Bhd v Ong Han Suan [1997] 5 MLJ 632 Court held: The duty of good faith or fidelity on an employee does not only require that the employee refrain from misuse or disclosure of information while under employment, but that there is also an implied duty that prohibits the employee from using any confidential information obtained during his employment, without the employer’s consent, after the employment contract ends.

21 Haw Par Brothers International Ltd & Anor v. Jack Chiarapurk & Ors [1991] 4 CLJ 833 (Rep) Court held: A partner to a joint venture as owing a fiduciary duty to the other partner of the joint venture as well as the joint venture company, by virtue of his act of launching another similar product after having obtained information imparted under an obligation of confidence with regard to the manufacturing process of the plaintiff's product.

22 Trade Secrets and Confidential Information Confidentiality Agreement A confidentiality agreement is often used to stop employees from revealing your secret or proprietary knowledge during and after their employment or association with your business.

23 Note:- Make sure you back up your trade secret with signed confidentiality agreements with every person who has knowledge of the secret. If an agreement is breached, you will have evidence of what was agreed and protection through the law.

24 Trade Secrets and Confidential Information Main issues to look out for in relation to confidentiality agreements Is the agreement on a mutual or a one way basis - i.e. is only one party disclosing confidential information or is more than one party making such a disclosure?

25 Most agreements will provide a definition of what information is to be regarded as confidential - ensure that this is appropriate. Usually these agreements will provide that certain information is not to be regarded as confidential. For example, most agreements will provide that any information that the receiving party can prove was known to it before receipt from the disclosing party will not be regarded as confidential. Another standard exclusion clause provides that any information that is the public domain will not be regarded as confidential - again care must be taken to ensure that these "exceptions" are appropriate.

26 Trade Secrets and Confidential Information Main issues to look out for in relation to confidentiality Agreements :

27 Most confidentiality agreements will include a time limit. Accordingly, once the time limit has passed the confidentiality obligations will expire. If a time limit is to be included in the confidentiality agreement, it is essential to make sure it is appropriate. This will depend on the circumstances. For example, in the software industry, given the short shelf live of some products, confidentiality agreements that only extend for a period of two years may be appropriate. However, in other sectors such as the manufacturing industry, longer periods will be more realistic.

28 Trade Secrets and Confidential Information Contract restraining trade Under Malaysian contract law, there may be a need to balance trade secrets and confidential information on the one hand against the possibility of a restraint of trade should such secrecy or confidentiality provision be imposed on the other hand.

29 Section 28 of the Contracts Act 1950 provides that every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind is to that extent void unless the restraint falls within one of three stipulated exceptions. Polygram Records Sdn Bhd v The Search Court held: Section 28 of the Contracts Act only applied to restraints in the post-contract period i.e.that restrictive provisions which are applicable during the currency of the contract would not be a covenant in restraint of trade and would be valid. Any restrictive provisions enforced post contract could be construed as a covenant in restraint of trade and therefore void.

30 Polygram Records Sdn Bhd v The Search Court held: Section 28 of the Contracts Act only applied to restraints in the post-contract period i.e.that restrictive provisions which are applicable during the currency of the contract would not be a covenant in restraint of trade and would be valid. Any restrictive provisions enforced post contract could be construed as a covenant in restraint of trade and therefore void.

31 Trade Secrets and Confidential Information REMEDIES AVAILABLE FOR INFRINGEMENT 1)Damages; 2)Injunction.

32 The End


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