Is your confidential information really confidential?

The term confidential information is often bandied about in commercial transactions, however it is often inaccurately described.  Because of this, we are often asked to consider whether information that a party is considering disclosing as part of a commercial transaction is actually capable of being kept confidential.

What is confidential information?

Information is conveyed in confidence when a party (Discloser) communicates the information to another (Recipient), in circumstances importing an obligation of confidence.  There are two (2) elements that must be satisfied for information to be considered confidential information, namely, it must have:

• the necessary quality of confidence; and
• been communicated in circumstances importing an obligation of confidence.

What is the necessary quality of confidence?

For information to be confidential, it must not be public property or in the public domain or common knowledge.^[1]  Ultimately, there are no formal standards in which information must adhere to in order to be confidential as different types of information may be subject to different requirements.^[2]  In regard to information disclosed in person, whether a court will protect personal confidences depends on:

• the nature of the communication;
• the relationship between the confider and the confidant; and
• prevailing notions of public policy.

However, when referring to commercial or technical information in a business environment, or ‘trade secrets’, only the surrounding facts will determine if information is deemed a trade secret.^[3]  Rather than perceived as elements that must be satisfied, Gowans J in Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd^[4] outlined six (6) factors that can act a guide to assist in determining whether the information is confidential in the circumstances:

• the extent to which the information is known outside the business;
• the extent to which the information was known by employees and others involved in the plaintiff’s business;
• the extent of measures taken by the plaintiff to guard the secrecy of the information;
• the value of the information to the plaintiff and to its competitors;
• the amount of effort or money expended by the plaintiff in developing the information; and
• the ease or difficulty with which the information could be properly acquired or duplicated by others.

It is common to view a trade secret as an innovative product or process that offers a competitive advantage.  However, a trade secret can also include highly confidential commercial information, such as customer names that, if disclosed to a competitor, would cause real or significant harm to the owner.^[5]  Essentially, an idea or concept is capable of being a trade secret if it exhibits a significant element of originality or novelty not already in the realm of public knowledge.^[6]

If a trade secret is in the form of a product or process, breaching confidentiality usually results in the defendant gaining a ‘head start’; that is, through the misuse of confidential information, they have gained an unfair start that saves time and money.  Therefore, as identified in Saltman Engineering Co Ltd v Campbell Engineering Co Ltd^[7] and applied in Dart Industries Inc v David Bryar & Associates Pty Ltd^[8] if a person wishes to design a product without it being alleged that the person has used confidential information, they must design the product using a different sequence and not use confidential information as a ‘springboard’ to jump through that sequence.  In other words, what makes a process confidential is that the confider has used their brain, thus producing a result that can only be replicated by someone who goes through the same process.^[9]

What circumstances imply an obligation of confidence?

In plain terms, the information must have been given in confidential circumstances.  To determine this, McInerney J in Mense v Milenkovic^[10] stated:

“If the circumstances are such that any reasonable man standing in the shoes of the recipient of the information would have realised that upon reasonable grounds the information was being given to him in confidence, then this should suffice to impose upon him the equitable obligation of confidence.”

Therefore, the obligation to keep the information confidential is determined not only by what the Recipient knew, but what he or she ought to have known.^[11]  For example, if a person receives an examination paper before the examination, that person is expected to have known that both its contents are confidential and that he or she must not inform others of the contents except for the purposes for which the paper was received.^[12] Similarly by extension, if a person obtains a username and password to an electronic system and is permitted to access that system for a particular purpose, it does not mean that they can access all parts of that system and use the information for whatever purpose they alone determine.

Links and further references

Cases

Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VicRp 7
Dart Industries Inc & Anor v David Bryar & Associates Pty Ltd & Ors [1997] FCA 481 (10 April 1997)
Maggbury Pty Ltd v Hafele Aust Pty Ltd [2001] HCA 70; 210 CLR 181; 185 ALR 152
Mense and Ampere Electric Manufacturing Co Pty Ltd v Milenkovic [1973] VicRp 78

Further information about confidential information

If you need advice on keeping confidential information confidential, or enforcing your rights in this regard, contact us for a confidential and obligation-free discussion:  

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

[1] Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203 at 215 per Lord Green MR.
[2] Cf Cadbury Scweppes Inc v FBI Foods Ltd (1999) 167 DLR (4th) 577 at 609-610 per Binnie J.
[3] Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 714 per Lord Shaw.
[4] [1967] VR 37 at 50.
[5] Lansing Linde Ltd v Kerr [1991] 1 All ER 418 at 425-426 per Staughton LJ.
[6] Fractionated Cane Technology Ltd v Ruiz-Avila [1988] 1 Qd R 51 at 62-63.
[7] (1948) 65 RPC 203.
[8] (1997) 38 IPR 389 at 408 per Goldberg J.
[9] Saltman Enginerring Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203 at 215 per Lord Greene MR.
[10] [1973] VR 784 at 801.
[11] Mainbridge Industries Pty Ltd v Whitehood (1984) 73 FLR 117 at 122.
[12] National Education Advancement Programs (NEAP) Pty Ltd v Ashton (1995) 128 FLR 334 at 344.

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