MaRS Library Confidential information strategy
In Canada, the terms “confidential information,” “trade secrets” and “know-how” are used interchangeably. For the purposes of this article, we will avoid using the term “trade-secret” because it holds a specific meaning in the United States.
Confidential information can be broadly defined as a form of intellectual property that has commercial value, is not in the public domain, is reasonably protected and is communicated to others in confidence. Most importantly, confidential information has the potential to last indefinitely. One of the most famous examples of valuable confidential information is Coca-Cola®’s recipe.
Realistically, anything that your company wants to keep private and would not like to see posted on a website is confidential information.
Protecting confidential information
The owner of confidential information should take deliberate and proactive steps to protect it. Failure to do so could result not only in the information being leaked but in the owner being unable to sue for its misuse.
A common but less-than-ideal strategy to protect confidential information is the use of confidentiality agreements, also known as non-disclosure agreements (NDAs). Unfortunately, like most agreements they are only useful if they can be enforced. This enforcement can be very costly. The primary reason for start-ups not enforcing their NDAs is that it requires expensive legal action. Another problem with relying on NDAs is that most third parties will not sign them. As a practical matter, startups themselves should generally not sign other companies’ NDAs as that might limit what projects the start-up could pursue in the future.
Startups should evaluate their confidential information to see if a patent or copyright might better protect it. Using confidential information as a means to protect the property has several disadvantages, including:
- if the information is embedded in a product, others can use reverse engineering to discover it
- confidential information does not provide the right to exclude third parties who develop it independently from making commercial use of it
- once the information is made public, its inherent value is lost and others can use it
For these reasons, most companies will still opt for a patent when one is available. Confidential information is best suited for information that does not fall under any other category of intellectual property.
Follow these suggestions when dealing with confidential information:
- Treat it as valuable property.
- Consider whether patenting it is a viable option.
- Set up internal procedures for dealing with it (for example, physically mark it).
- Tell the receiving party, in writing, that something is confidential information and what they can and cannot do with it.
- Have others sign NDAs if they are willing.
- Do not share it with more people than absolutely necessary.
- Do not mark useless information as confidential information.
- Do not mark information that is in the public domain as confidential information.
- Do not use the same NDA for everything—it must be specifically tailored.
- Do not assume that marking something as confidential information will prevent someone else from developing it independently.
Note: The information in this article is for general information purposes only. It is not legal advice.
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
- Provisional patent applications in the US: A tool to protect your invention.
- Patents for inventions or innovations: Factors for startups to consider.
- Borderless Investments.
- Trademarks and startups: Using Canadian trademark law to protect company value.
- Shareholders’ equity, or net worth (definition).