November 9, 2021 [A former Broadcom, Inc. employee] “is charged with 18 counts of trade secret theft, according to an indictment filed Nov. 4 and unsealed Tuesday. If convicted, Kim faces up to 10 years in prison, a $250,000 fine and three years of supervised release for each count.”[i]
It is not uncommon to see headlines like this or articles describing trade secrets or confidential information as a business’s “crown jewels”, but why are trade secrets so important, what’s the difference between trade secrets and confidential information, why should a business care and finally, how not to “steal” a secret.
This is the first in a series of articles on trade secrets and confidential information. In future articles we will consider how best to protect trade secrets as well as how they are enforced in the English courts.
Legal basis for confidential information and trade secrets in the UK
The UK has two separate but parallel regimes for protecting trade secrets: the common law of confidentiality (breach of confidence), and legislation through the Trade Secrets Regulations.
- Common law: the English common law has developed requirements for the protection of confidential information and trade secrets through case law (see below);
- Trade Secrets Regulations: came into force in the UK on 9th June 2018 and implemented the EU’s Trade Secrets Directive (EU) 2016/943. Applying only to breaches that occurred after 9th June 2018, the Regulations state that the use or disclosure of a trade secret will be unlawful where it constitutes a breach of confidence in confidential information.
In addition to these legal regimes, contracts are frequently used to protect confidential information, for example, through non-disclosure agreements or confidentiality clauses in employment contracts. We will consider the use of contracts to protect confidential information as well as enforcement strategies later in this series of articles.
We will also dive more deeply into enforcement in a future article, but it is perhaps worth noting that in England and Wales it is not possible to “steal” trade secrets because the misuse of confidential information does not fit the UK definition of theft. Theft in England and Wales requires the thief to take the property of another with the “intention to permanently deprive” the other of that property. Confidential information is not considered to be “property” and the misuse of confidential information cannot permanently deprive an individual of that information.
Trade secrets offer flexibility, immediacy and permanence
A recent report on the use of trade secrets for the UK Intellectual Property Office concluded that bigger companies were heavier users of trade secrets and that innovative companies (i.e. those filing more patent applications) were also heavier users of trade secrets than less innovative companies.[ii]
What those innovative companies understand is that trade secrets can offer several benefits over traditional intellectual property rights, such as patents, such as:
- they don’t have to be new
Unlike patents, there is no requirement for a trade secret to be “novel”.
- they can protect subject matter not covered by patents
Trade secrets can protect a wide range of subject matter that may not be protected by patents including, for example, computer programs, scientific theories, minor or incremental improvements to a product or process, and know-how related to implementation of patented inventions, business methods, and customer information. The Krispy Kreme recipe is an oft-cited example of a highly valuable business asset which is protected by trade secret but there are others, for example, the formula used for creating The New York Times Bestseller List is one example of a business method which is protected as confidential information rather than patent (and it is unclear that it could be protected by patent).
- they can last forever
Another benefit of this form of protection is that it isn’t time limited and can therefore be used indefinitely so long as the information remains secret. Coca Cola, for example, continues to benefit from its secret ingredient formula which has been heavily guarded for over 125 years.
- they are immediate
Trade secrets and confidential information protection arises automatically and can, therefore, be obtained immediately. As a result they can be particularly useful for protecting novelty before patent filing or for protecting fast developing technology where the patenting process may take too long. Trade secrets and confidential information will often be used to protect process-based innovations and regularly form a vital part of collaborative R&D agreements.
Confidentiality can be hard to maintain
There are downsides to relying on confidential information rather than other forms of IP protection. For example, the holder must maintain good processes for maintaining the secrecy of the information if it is to remain their trade secret. Also, trade secrets and confidential information can be reverse engineered. There is nothing under English law which prevents a competitor from analysing or taking apart a competitor’s product or process, determining how it works and using that information to their own commercial advantage.
Trade secrets, confidential information and the difference between them
So far in this article, we have used trade secrets and confidential information interchangeably, but is there a difference under English law (and if so, what is it and does it matter)?
English common law has long established that confidential information is any information that has, “the necessary quality of confidence … namely, it must not be something which is public property and public knowledge” (Lord Greene MR in Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203, 215). Subsequent case law has provided the following ingredients for misuse of confidential information:
- the information must have the “necessary quality of confidence” (as above);
- the information must have been imparted in circumstances importing an “obligation of confidence”; and
- an unauthorised use of the information has taken place to the detriment of the rights holder.
There are a number of ways in which an obligation of confidence may arise, for example, imposed by contract, implied because of the circumstances of the disclosure, or implied because of a special relationship between the parties.
The requirements for protecting trade secrets under the Trade Secrets Regulations are analogous to those for protecting confidential information – the Regulations define a “trade secret” as information which:
- is secret in the sense that it is “not … generally known” among or readily accessible to persons within the circles that normally deal with the kind of information in question (i.e. is not public property or public knowledge); and
- has commercial value because it is secret (that is, an unauthorised use of the information would be to the detriment of the holder of the trade secret); and
- has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret (i.e. it has been shared only when the recipient is under an obligation of confidence).
Information which qualifies under the common law as confidential information will to a great degree be the same as a “trade secret” under the Trade Secrets Regulations. However, there have been English common law cases which have drawn a distinction between “trade secrets” and “mere confidential information”. It can be difficult to draw a bright line around the sub-set of confidential information that would also qualify as a “trade secret”. For example, in some cases customer lists have been considered to be trade secrets and in others not. However, it can be quite an important difference. For example, employees will owe a duty of confidence in respect of trade secrets after they leave that employment, even where there were no express duties of confidence in their employment contract. This would not necessarily be the case in respect of “mere confidential information”.
We will consider protection and enforcement of confidential information in more detail in future articles but for this article, we will leave you with some final thoughts…
Trade secrets and confidential information are important tools for protecting competitive advantage and should be considered as part of a comprehensive IP strategy. Depending on the IP in issue they may offer more flexible and long-lasting protection than other IP rights.
In most cases, trade secrets and confidential information can be used as synonymous terms operating under separate legal regimes. However, common law cases have held that a “trade secret” is a more important secret than “mere confidential information” and accordingly will attract a greater degree of implied protection from misuse.
In future articles we will dive deeper into protecting trade secrets and enforcing them effectively in the English courts.
So, how not to steal a trade secret? Why, “just” misuse mere confidential information, of course!
[i] “Ex-Broadcom engineer charged with stealing trade secrets”, Jason Green, The Mercury News, retrieved 10 November 2021 https://www.mercurynews.com/2021/11/09/ex-broadcom-engineer-charged-with-stealing-trade-secrets/