Confidential information and know-how: IP strategy for startups

In Canada, the terms “confidential information,” “trade secrets” and “know-how” are used interchangeably in reference to intellectual property (IP). For the purposes of this article, we will avoid using the term “trade secret” because it holds a specific meaning in the U.S.

What is confidential information?

Confidential information, or know-how, can be broadly defined as a form of intellectual property (IP) that meets the following criteria:

• Has commercial value
• Is not in the public domain
• Is reasonably protected
• Is communicated to others in confidence

Unlike patents, trademarks and copyright, confidential information has the potential to last indefinitely.

Confidential information and Canadian law

In Canada, the majority of laws governing confidential information have developed over time from judicial decisions (common law).

There is other legislation that governs privacy and the disclosure of personal information collected by the government, public bodies and private companies.

In practical terms, this means there is no legislation to look at for guidance on the subject and, beyond the generic information presented here, a lawyer should be consulted. However, this is in direct contrast to the United States, which has enacted specific legislation governing trade secrets.

Examples of confidential information include:

• Ideas
• Data
• Customer and supplier lists
• Business operations
• Recipes (such as food and chemical recipes)
• Blueprints and designs
• Internal business processes and methods
• Financial information
• Business plans

What is not confidential information?

To become confidential information, something must first have commercial value. Typically, if neither you nor anyone else can generate profits from the information, then it has no commercial value.

In the absence of a confidentiality agreement stating the contrary, information in the public domain is not confidential.

Note that the owner of any information that he or she wishes to protect must take reasonable steps to keep the information secret, otherwise it is not confidential. For example, a startup who explains their business model in front of a large audience cannot later claim it is confidential information.

Why is confidentiality important?

1. For many startups, the only business advantage they have is a better way of doing something. In most cases the method cannot be patented and even if it could be, the time and expense required is outweighed by the need to immediately deliver their product or service to the market.
2. For other startups, typically biotechnology companies, a great deal of time and money is invested in developing a particular procedure or set of procedures to accomplish a specific goal. Since the process itself can not be copyrighted (and likely not be patented) it is usually kept secret until, and sometimes after, the product is on the market. This type of know-how is potentially licensable.
3. Internet startups and professional service providers need to protect their customer list and other strategically significant business information. Identifying serious buyers for your services is not an easy task. Not surprisingly, there have been a number of lawsuits in Canada over the issue of contacting a previous employer’s customers and suppliers.

What is breach of confidence?

Breach of confidence is the release or misuse of confidential information. It creates a legal cause of action, which means that the harmed party can sue. When an owner of confidential information believes there has been a breach of confidence they must generally prove the following in court:

1. The information was worthy of protection—the court will consider these factors:^{1, 2}
   1. the extent to which the information is publicly available
   2. the extent to which it is known within the owner’s business
   3. measures taken to maintain secrecy
   4. the value of the information, both to the proprietor and to others
   5. the outlay of money or labour involved in acquiring or developing the information
   6. the ease with which the information could be acquired or developed by others
   7. the degree to which the owner regards and treats the information as confidential
   8. the degree to which the recipient regards and treats the information as confidential
2. The recipient ought to have known that the information was confidential.
3. The information was misused to the detriment of the owner.

Note: The content in this article is for purposes of general information only. It is not legal advice.

References

¹Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574. Retrieved December 8, 2009, from http://scc.lexum.umontreal.ca/en/1989/1989scr2-574/1989scr2-574.html
²Cadbury Schwepps Inc. et al. v. FBI Foods Ltd. et al, [1999] 1 S.C.R. 142. Retrieved December 8, 2009, from
Access to Information Act, R.S., 1985, c. A-1. Retrieved December 8, 2009, from http://laws.justice.gc.ca/en/A-1/index.html
Competition Act, R.S., 1985, c. C-34. Retrieved December 8, 2009, from http://laws.justice..gc.ca/eng/C-34/index.html
Kokonis, J. (1994). Confidential Information. In G. Henderson et al (Eds.). Copyright and Confidential Information Law of Canada(pp. 325-327). Toronto: Carswell.