Protection of technical trade secrets

December 2014

In November 2013, following consultations, the European Commission published a draft directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful use and disclosure.  One of the aims is said to be to ensure a sufficient and consistent level of redress across the EU.

Technology based companies often seek to protect their technical confidential information by keeping it secret, in addition to filing patent applications.  With certain innovations, this may have been considered the preferred way. Proving infringement of a patent for an improved process, for example, may not be straightforward in certain jurisdictions.  Yet the details of the improvement will have been published for all to see.

So where does the Law presently stand, prior to the proposed Directive?  Contractual restrictions are routinely used in non-disclosure agreements.  In our piece "To use or not to use", we discussed some of the practical issues that can arise when negotiating such agreements and in particular the care that is required over restrictions as to use of confidential information.

But English Law already goes beyond that.  It has long been recognised that, quite apart from contractual obligations, an obligation of confidence can arise from the circumstances of the disclosure.  These obligations can likewise be enforced in legal proceedings.  A recipient of confidential information will be subject to such an obligation if the circumstances were such that the court considers it was reasonable for the recipient to appreciate the information was being provided in confidence.

Legal proceedings for breach of confidence, though, give rise to their own complexities.

Over the years, many cases have arisen from the common scenario in which an employed researcher or scientist has left an employer to set up on his or her own or with others, in competition. During their employment, it will normally be an express term and is in any event an implied term of their contract of employment that they may not use or disclose that information for any purpose other than the proper performance of their duties.  The position is, however, more complex after their employment has ceased.

people in suits crossing the streetEmployers can in principle, like anyone else, rely on the law of breach of confidence to protect unjustified use of their technical trade secrets by former employees.  They must first of all establish, however, that the type of confidential information they are concerned about is protected and the nature of the use they object to is prohibited under the employee's contract of employment.  Such protection is normally conferred by means of an express term in the contract – a restrictive covenant.  Such covenants, however, must be no further than is necessary to protect the employee's legitimate business interests – or they will be held to be void and unenforceable, as unreasonable "restraints on trade". The courts have proceeded with care when assessing the enforceability of post termination restrictions on the use of confidential information, being astute to ensure that whilst on the one hand trade secrets should be protected, and on the other, recognising that it is important for ex employees to earn a living: in particular, by not being prevented from making use of what may fairly be regarded as his or her skill and knowledge gained as a result of previous employment.

Difficult questions can arise in cases, however, as to where the line should be drawn to distinguish information that is properly regarded as part of the employee's acquired skill and knowledge from trade secrets that the ex-employee should not use – either pursuant to an express covenant or because of an implied term.  It is very fact sensitive.    One key question the court asks in these circumstances is whether the information which the employer is seeking to protect can fairly be regarded as a separate part of the employee's stock of knowledge which someone of ordinary honesty and intelligence would recognise to be the property of the employee's employer and not theirs to do with as they wished (as explained for example in the 1997 case of Occular Sciences v Aspect Vision Care Ltd).

Breach of confidence actions are characterised by factual complexity.  They are thus potentially very expensive and time consuming to defend.  Whilst the courts will of course allow legitimate cases to proceed, they will tend to scrutinise carefully cases that appear to be without merit.  If the court forms the view that a case is being brought to harass, rather than bona fide to protect rights, the case is liable to be struck out at an early stage.

We will be reporting in due course on the progress of the Directive.

Please also see "Keeping your confidential information and staff safe from competitors".

If you have any questions on this article or would like to propose a subject to be addressed by Synapse please contact us.

colourful connections

James Marshall

James is a partner in the Patents group based in our London office.

Andrew Granger

Andrew is a partner in the Employment & Pensions group based in our London office.

"Many cases have arisen from the common scenario in which an employed researcher or scientist has left an employer to set up in competition."