In simple terms, a trade secret is any secret commercial information that provides one business with an advantage over another. For example, trade secrets have been used by Coco-Cola for decades to ensure that its formula remains secret.
Despite the lack of a settled, legal definition of a “trade secret”, their value is recognised at both law, and in equity. At law, restraints of trade can be legitimately used in order to prevent the disclosure of trade secrets, or to prevent the use of trade secrets by employees in any subsequent business or employment. Trade secrets are protected in equity by way of an action for breach of confidence even in the absence of contractual agreements restraining their use.
What are the characteristics of a trade secret?
Searle Australia Pty Ltd v Public Interest Advocacy Centre [1992] FCA 241 held that a “trade secret” is “a device, or technique used in a particular trade or occupation and giving an advantage not generally known”. This may include “formulae for products as well as information concerning customers provided, in each case that the information is in fact secret and would be to the advantage of trade rivals to obtain”. The Federal Court stated that a trade secret has three (3) characteristics:
- it must be information used in a trade or business;
- the owner must limit the dissemination of it or at least not encourage or permit widespread publication; and
- it is information, which if disclosed to a competitor, would be liable to cause real (or significant) harm to the owner of the secret.
When determining whether a trade secret has the necessary ‘quality of confidence’, there is no requirement that information be ‘novel’ or ‘inventive’, nor that the information be totally new or secret. It is usually sufficient that the information has not moved into the public domain. Relevant factors identified by Justice Gowans in Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37 at 50 included:
- the extent to which the information is known outside of [the] business;
- the extent to which it is known by employees and others involved in [the] business;
- the extent of measures taken … to guard the secrecy of the information;
- the value of the information to [the business] and to [its] competitors;
- the amount of effort or money expended… in developing the information; and
- the ease or difficulty with which the information could be properly acquired or duplicated by others.
Recognised trade secrets
- N P Generations Pty Ltd v Feneley No. SCCIV-00-242 [2001] SASC 185 at [19]-[20] – marketing or management information such as customer lists.
- Consolidated Paper Industries Pty Ltd v Matthews [2004] WASC 161 at [89] – pricing information, including the prices at which manufactures sell, and the nature of the products sold and purchased.
- Searle Australia Pty Ltd v Public Interest Advocacy Centre [1992] FCA 241 at 35 – formulae for the products in manufacturing.
- Digital Products Group v Opferkuch [2008] NSWSC 575 at [12] – costing information.
Information that is not a trade secret
- Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117 – general skill and knowledge that a person of ability necessarily acquires in his or her business or calling.
- Seager v Copydex Ltd [1967] 2 All ER 415 – information that is classified as iniquitous or infamous (due to the public interest in the disclosure of such information).
- Secton Pty Ltd v Delawood Pty Ltd (1991) 21 IPR 136 – simple goals, purposes or possibilities, as distinguished from some novel means of achieving such goals, purposes or possibilities.
Takeaways
The most important point to take from these cases is that a trade secret will only arise when a business takes active precautions to ensure the information in question remains confidential. If your business relies on sensitive information that you would consider to be a trade secret, we encourage you to consult with a legal practitioner for advice on maximising its protection.
Links and further references
Cases
Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37
Consolidated Paper Industries Pty Ltd v Matthews [2004] WASC 161
Digital Products Group v Opferkuch [2008] NSWSC 575
Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117
N P Generations Pty Ltd v Feneley No. SCCIV-00-242 [2001] SASC 185
Seager v Copydex Ltd [1967] 2 All ER 415
Searle Australia Pty Ltd v Public Interest Advocacy Centre [1992] FCA 241
Secton Pty Ltd v Delawood Pty Ltd (1991) 21 IPR 136
Further information about trade secrets
If you need advice on trade secrets or otherwise protecting the intellectual property of your business, please contact me for a confidential and obligation free discussion:
Malcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.
Legal Practice Director
T: +61 7 3221 0013 (preferred)
M: +61 419 726 535
E: mburrows@dundaslawyers.com.au
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.
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