trade secrets: highly confidential information (and protecting business secrets)

What is a Trade Secret?

A trade secret is a special type of confidential information. It is highly confidential information.

The starting point is that employers can’t protect the skill, experience, know-how and general knowledge acquired by an employee as part of their job during employment.

An employee can lawfully recall materials using their memory and skills, which were confidential while an employee. They can use the materials after the employment contract ends.

If information qualifies as a trade secret, employees aren’t allowed to use the information for their future employment. It doesn’t matter whether they were involved in creating it or not.

 

When is it a trade secret?

Whether confidential information qualifies as a trade secret depends on a series of factors.

To show that information is highly confidential information a business must:

1. state precisely what the highly confidential information is
2. show the information used in the business has had restricted and limited distribution and dissemination, and certainly not widely published
3. demonstrate the information can be fairly regarded as the property of the business.
   That means separate to the skill, experience, know-how and general knowledge of employees
4. not mix the highly confidential information with non-confidential material. 

If these criteria are satisfied, it is usually considered unfair to allow an employee to use it for their own purposes in subsequent employment.

It must be possible to identify and isolate the information used in the relevant business. They include:

• secret formulae for the manufacture of products
• names or lists of customers
• Detailed information about customers’ buying preferences of goods or services
• Business affairs and plans of the protected business
• source code of software

The Employee Environment

This means that the factors that come into play include:

• the nature of the employment. Were they a senior employee, director or junior employee?
• the character of the information sought to be protected
• the restrictions imposed on distribution of the information
• the extent of use of the information in the public domain
• the damage likely to be caused by its use and disclosure by rivals in competition to the employer.

 

Use of Trade Secrets 

If information is part of a trade secret, an ex-employee is prevented from using it for their own purposes, in the absence of a restrictive covenant (ie an express contractual promise) by the employee to keep information secret after their employment contract comes to an end.

These are the sorts of clauses that read along the lines of:

"for the term of your employment and for 12 months thereafter you shall not:

• • [solicit the customers of the Employer]”
  • [entice or attempt to entice away any person to cease doing business with the Employer]”
  • [work with a rival trader within the area of [specialist skill set]] within the M25".

The more senior employee, the more important they are. That’s because senior employees are exposed to more business sensitive information.

For business, protection of confidential information is a legitimate interest (which is part of the assessment of a restrictive covenant to determine whether it is valid and enforceable). The restrictive covenant however can’t be so wide that it goes further than protecting the legitimate business interests of the employer. Otherwise, it will be void and of no legal effect.

 

Assessment of Trade Secrets

The factors which are taken into account to assess whether information falls into Class 1 and protected as a trade secret include:

• the nature of the engagement of the confidant
  What are the terms of the engagement, and are they an employee or a consultant? Are they senior executive a junior or at trainee level?
• the character or nature of the information itself
  The material must be a trade secret or information of such a highly confidential nature as to require the same protection.
  Sometimes the "secrecy" of the process or component is obvious from its very nature.
• commercial value
  If the information was disclosed to a competitor, would it cause real or significant harm to the Protected Business
• distribution
  Has the Protected Business disseminated or published the information widely, or has it been limited, and not encouraged?
• treatment by the business
  Did the Protected Business impress upon the Leaver the confidentiality of the information?
  The attitude of the Protected Business towards the information provides evidence assists to decide whether the information is a trade secret.
• definable
  Is the information to be protected particularised sufficiently to enable the impression that the employer has a legitimate interest to protect
  Lack of precision identifying precisely what the trade secret is, and shortfalls in evidence of proof of trade secrets are frequently fatal to enforcement of restrictive covenants and protection of highly confidential information.
• storage isolated:
  Can the relevant information can be easily isolated from information which the employee is free to use; and is it mixed up with non-confidential information?

 

Trade Secrets: Solicitors

We're business intellectual property solicitors and trade secret solicitors advising on on use of trade secrets and confidential information in the business environment, the legal remedies available for misuse, and unauthorised disclosure of trade secrets.

For legal advice on what can be done to address the situation your business finds itself in, call us on +44 20 7036 9282 or emails at contact@hallellis.co.uk.