The USMCA has led to the enactment of new Criminal Code provisions strengthening the protection of trade secret rights in Canada. This is a major development in protecting intellectual property in Canada. It comes at a time when businesses and employees are adjusting to new working environments in the midst of the global COVID-19 pandemic. Manufacturers and other businesses and their employees are finding ways to do what they did before in new, faster, more efficient and creative ways. That is the hallmark of a trade secret: a formula, pattern, device, process or information that is not known and provides an advantage to those who do not know or use it.
Consideration of trade secret rights is now more important than ever in the face of shrinking IP business budgets since unlike patent rights, trade secret protection requires no registration or associated legal fees for their recognition.
The previous limits on trade secret protection in CanadaPrior to the passage of the USMCA, trade secret rights in Canada were difficult to enforce and limited largely to monetary and injunctive relief. Unlike in the United States, there is no statute or regulation directed solely to protecting trade secrets. Instead, the owner of a trade secret was limited to civil remedies associated with common law causes of action – think breach of contract for the theft of a confidential customer list taken by a departing employee or breach of confidence for the misuse of that list by that departing employee's new employer.
Those actions faced major legal hurdles. In the employment context, they often entailed enforcement of restrictive covenants in employment contracts, which courts have considered presumptively unlawful since they threaten the ability of an individual to earn a livelihood. Actions for breach of confidence posed a significant burden on the trade secret owner who is required to prove misuse and damage by the defendant in circumstances where the defendant has been intentionally deceptive and left no trace of having taken that customer list he or she had kept on a home computer.
Worse, in instances where employees admitted or were found to have downloaded confidential information from their work computers after their termination, liability was not found where the employer was unable to prove that the activity harmed it.
New criminal remedies available
The new Criminal Code provisions are aimed at the
intentional theft of trade secrets. Trade secrets are defined as
any information that: (a) is not generally known in the trade or
business that uses or may use that information; (b) has economic
value from not being generally known; and (c) is the subject of
efforts that are reasonable under the circumstances to maintain its
secrecy (Article 391(5)).
Article 391 of the Criminal Code provides that:
- Everyone commits an offence who, by deceit, falsehood or other fraudulent means, knowingly obtains a trade secret or communicates or makes available a trade secret (see ss.391(1)).
- Everyone who commits an offence who knowingly obtains a trade secret or communicates or makes available a trade secret knowing that it was obtained by the commission of an offence under subsection (1) (see ss. 391(2)) .
Anyone convicted of these new offences (or related offences of
conspiracy or attempt to commit or being an accessory after the
fact in relation to the theft of a trade secret) can be punished
either by way of an indictable offence (with imprisonment for a
term not exceeding 14 years), or by way of summary conviction
Consistent with past law on trade secrets, ss. 391(4) provides a defence of independent development or reverse engineering.
Criminal liability for fraudulent acts
These new offences for the theft of trade secrets are grounded in fraud. Traditionally, fraud requires a dishonest, deceitful, underhanded or unscrupulous act that puts at risk the deprivation of something belonging to someone else. Neither negligence nor the taking advantage of an opportunity to someone else's detriment are enough. While it is unclear whether the wrongful downloading of a customer list by a departing employee will meet this threshold, nevertheless these new offences should act as a powerful deterrent to the theft of trade secrets.
Protecting trade secrets
Companies who rely on trade secret protection should take steps
to identify the information that they wish to protect as a trade
secret and ensure that all reasonable steps are taken to maintain
the secrecy of that information. While the metes and bounds of
"reasonable" efforts is not prescribed in the Criminal
Code, existing case law is informative – restricted access,
password protection and written acknowledgements that the
information is confidential.
Employers should take the opportunity to ensure that employment agreements and confidentiality policies make clear what employees are permitted and not permitted to do with confidential information belonging to the employer and ensure that employees are able to identify confidential information in the workplace that those restrictions apply to.
About Norton Rose Fulbright Canada LLP
Norton Rose Fulbright is a global law firm. We provide the world's preeminent corporations and financial institutions with a full business law service. We have 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.
Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.
Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.
For more information about Norton Rose Fulbright, see nortonrosefulbright.com/legal-notices.
Law around the world
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.