Canada: Can You Keep A Secret?

Last Updated: January 31 2001
Article by Andrew Loh

We’ve all been there…you’ve just been told a secret and you are dying to tell someone. It’s hot, no one will trace the leak back to you, and you won’t be personally affected by the consequences. As tempting as it may be to tell that secret to someone, if that secret has anything to do with biotechnology, you should think twice.

This is an industry where company secrets are the source of the company’s growth and survival. In law, the secrets are called "intellectual property" and are given legal protection. So, when a biotechnology company shares its intellectual property (which includes business information and trade secrets) with joint venturers, research collaborators, manufacturers, distributors, licensees, or employees, or with anyone to whom the information was communicated in confidence, that information should remain confidential and should not be used without the company’s authorization. The recent experience of a B.C. company may be a case in point.

The company entered into an exclusive joint-development and distribution agreement with an overseas partner with extensive distribution networks in the company’s target market. The company recently commenced arbitration proceedings against its partner claiming that during the joint development period, the partner used the company’s trade secrets to file several patents that could potentially restrict the company’s ability to develop its own core technologies. To preserve cash for a potentially lengthy legal process, the company has had to significantly restructure its business, including suspending most of its operations and laying off a majority of its employees.

So, what is the law with respect to protection of confidential information? How does the law stand on this issue? So, what is the law with respect to protection of confidential information ? For a company to get legal protection for information it considers confidential, the company must prove that the information is confidential, that it was communicated to the recipient in confidence, that the recipient has failed to keep it confidential and used it for an unauthorized purpose and that the company’s competitive position has been harmed as a result. Unless the company can prove all these elements, it may not have any legal recourse against the recipient.

Since the law only protects information that is confidential, it will be important for the company to know how the law determines whether the information is or is not confidential. In law, "confidential information" is information that is:

  • not trivial, general or abstract
  • developed after the expenditure of a reasonable amount of time, effort and/or money
  • not generally known by competitors
  • not easily obtained or duplicated
  • known only to select employees
  • economically valuable based on it remaining secret
  • protected by reasonable security measures

The first two elements of the definition focus on the information itself while the last five focus on how that information is protected.

Examples of some of the types of information that a biotechnology company may consider confidential are: details of the research and clinical trials undertaken or abandoned; laboratory notes; information about new or improved processes, biological materials, active ingredients or formulations; projected dates for regulatory filings and product launches; planned expenditures; and marketing strategies. As dissemination of these types of information will allow competitors to prioritize their projects and market against the company, the steps taken by the company to protect its information may well determine its success in the marketplace and whether the company can seek legal protection for that information.

The more steps the company takes to protect the information, the easier it will be to prove that the information has real value for its business and is deserving of protection under the law.

Once a company has identified what information should be kept confidential, it may want to take the following steps to protect the information:

  • make a written record of the information so that it will not be forgotten
  • mark the information "Confidential," store it in a safe place and limit physical access to it
  • make limited copies and keep a log of each copy’s whereabouts
  • avoid sending information electronically to prevent ease of dissemination
  • keep a log of visitors and escort the visitors while they are on the premises
  • do not allow visitors access to the room where the secret is practised [Helen – I have always used the British/Canadian version of verbs]
  • have prospective employees, consultants, manufacturers, distributors, partners in strategic alliances, investors, joint venturers, licensees and customers sign non-disclosure agreements prior to any discussions or delivery of the confidential information
  • allow access only to those employees who need to know the information in order to do their jobs
  • remind employees regularly of the confidential nature of the information
  • divide the technical process into steps so that each step is performed by different employees
  • encourage employees to disclose innovative ideas so that these too can be protected
  • conduct exit interviews with departing employees to remind them of their confidentiality obligations, to ask them for a return of all materials and to receive a written acknowledgement that all materials have been returned
  • review printed materials before dissemination to prevent inadvertent disclosure
  • be wary of recipients who are strangers or who may not have sufficient financial resources, because a company’s ability to collect on a judgment of the court will depend on the recipients’ ability to pay.

As the world becomes increasingly competitive, having information means having economic power. Information can bring great wealth to those who can exploit it while keeping it secret. For those who have taken reasonable steps to safeguard their confidential information, the law will protect their rights. For those who have not, the law will allow the rest of the world to use that information without any restrictions.

So, the next time we are asked to provide confidential information to others or to keep the information of others secret, we must ensure that we have taken, and will take, all steps that are necessary to maintain its secrecy.

Andrew Toc is a lawyer at the Vancouver office of Fasken Martineau DuMoulin, practising in the areas of intellectual property and regulatory compliance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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