What is the problem with confidential information?

For all kinds of business purposes, it is essential to disclose confidential information. Some common examples include providing specifications to suppliers, business proposals to financiers and customer lists to sales or marketing consultants. However, this is a process which needs to handled with great care. I will discuss some of the issues below, but here are the key issues in a nutshell:

  1. If it isn’t really a secret, you can’t protect it.
  2. If it isn’t your secret, then you have no right to protect it.
  3. If it isn’t something specific and identifiable, you can’t protect it.
  4. You need to make it clear to the receiving party in writing (even by email) that you are telling them something confidential. A signed agreement is preferable.
  5. You have to manage the information as if you think it is a secret and take steps to keep it that way – or the court will not assist you.
  6. You should consider other ways to protect the information, such as a patent where you can, because once the secret is gone you can’t get it back in your control.

Requirements for protecting confidential information

Generally, such disclosures are best covered by a clear, written confidentiality agreement. However, confidentiality can also be protected without a written agreement, where the basic requirements for confidential information being protected by the courts are met. These vary from country to country. In Australia, the three requirements for protection by the courts are:

  • can the information be identified with ‘specificity, and not merely in global terms’;
  • does the information have the necessary ‘quality of confidence’; and
  • has the information been imparted in circumstances where the party receiving the information would understand that there is an obligation of confidence?

What information can be protected?

The first requirement means that it is no good alleging that the confidential information was ‘all our future business plans’. It must be something much more specific. Typical protectable confidential information includes customer lists, financial records, specific written business proposals, detailed future marketing plans, confidential process parameters, designs that have not been made public, and in some cases, formulae and recipes.

What information can’t be protected?

It isn’t possible to protect negative information. What is negative information? It is knowledge of what a company can’t or won’t do, or that something doesn’t work. You don’t generally need to tell anyone else negative information, it is used in the background to assist in making decisions. For example, consider the situation where a researcher has considered 17 different ways to achieve a particular product outcome. There are only three possibilities left. The researcher leaves and works on the remaining three for a new employer. Assuming that those possibilities are not in themselves confidential, this is not a breach of confidence; the researcher just doesn’t go down blind alleys.

What does confidential mean?

In short, it has to be secret – not generally known. The information must be treated internally as something confidential and protected – taking steps such as control of copies and access, marking ‘confidential’, and not providing access to people who do not need access. You can’t leave a document, for example, on a generally accessible server in a large company system, and later allege that it is confidential.

You also can’t magically make something confidential which is known elsewhere – if the information is able to be ascertained without breaching confidence, then it does not have the quality of confidence. You can’t change that with an agreement.

This leads to one of the key weaknesses of confidential information. When the genie is out of the bottle, it can’t be put back in. The internet is forever. Even if the first breach is unlawful, other parties who come across the information in most cases will not be able to be effectively restrained from using the information.
Does the party receiving the information understand that there is an obligation of confidentiality?

This requirement is best met with a clear written agreement. It is really best if the agreement is specific as to what is going to be disclosed, not just a generally expressed ‘everything we disclose is confidential’. This is for two reasons. First, much of what you discuss will not objectively be a secret, and it leaves the task of sorting out what is really covered to the courts. Second, if the disclosures are ‘new product specifications for our cleaning liquid’, ideally with an annexed written disclosure, then no one is in any doubt what is covered.
It isn’t a good idea to try and fix this afterwards, with an agreement which purports to be backdated, or to confirm that the disclosure was confidential. Prevention is better than cure – especially when it isn’t difficult or expensive, as in this case.

Pitfalls for the unwary

A recent Australian case provides a good example of when failure to think through a disclosure of confidential information in advance, and then attempting to rectify it later, can lead to disaster. In Abrahams v. Biggs, [2011]FCA 1475, Mr Abrahams was a property manager who became aware of the problem of bed bugs. He came up with the idea of a device to be attached to the bed, to prevent the bugs crossing a barrier, formed from a sticky material. He filed a patent application for that idea.

Mr Abrahams then had a non-confidential discussion with Dr Doggett, an expert on bed bugs. In the course of that discussion, the idea of a device based not on glue, but on the need to traverse a surface that the bugs could not grip, was conceived. Dr Doggett suggested that a possible material was Teflon.

To halt the story at this point, Abrahams has already acted fairly unwisely. He has sought a solution from an expert, with no agreement in place. The best interpretation at this stage is that if there is any invention, it is jointly owned by Doggett and Abrahams, as they have both been necessary contributors. On another interpretation, Doggett alone owns the invention. A simple consulting agreement with Doggett could have created a confidential relationship, transferred any IP rights, and avoided this situation.

He then had a conversation, and subsequent email exchanges, with Ms Biggs, an acquaintance of his, about the product and the proposed improvements. The exact nature of the discussions, and who said what to whom, was the subject of some dispute.

However, the general thrust is that Abrahams initiated a discussion with a business acquaintance, and did not make it clear in writing or verbally that it was confidential – at least until after they talked. There was a degree of on-going interaction, but in the end no business arrangement went ahead.

Biggs then proceeded to produce her own design, using Teflon, and using Doggett as a consultant. She, perhaps unwisely, made what were held to be misleading statements comparing the effectiveness of her product and Abrahams. One wonders if this dispute would ever have got to court had this action not happened to inflame matters.

On the confidential information issue, however, Abrahams failed, on the basis that none of the key requirements for a breach of confidence action were made out. His Honour held that the information was conveyed to Biggs in general terms, that at that stage Abrahams had no idea what his design was, and so the information lacked sufficient specificity. He also held that on the basis that there was evidence that Teflon was known as a material for impeding the movement of insects already, and in any case the suggestion originated with Doggett, so the information did not have the necessary quality of confidence. Finally, it was not clear on the facts that Biggs ought to have understood that the information was received in confidence.

by Peter Franke

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