Whether based in Canada, or involved in cross-border Canadian transactions, the safekeeping of confidential information and trade secrets is always a concern. Therefore, it’s important for businesses to understand how such intellectual property is treated under Canadian law and how it is best protected.
This overview will introduce you to the protections and remedies available and will offer some practical tips for the preservation of confidential information and trade secrets in Canada.
In Canada, corporate trade secrets and confidential information are recognized as valuable forms of intellectual property which provide an indefinite term of protection with no formal registration requirements. There are no major differences in the law on this topic across Canada. There is no statute which either defines or provides any remedy for the misappropriation of confidential information.
Sources of protection in Canada include contractual provisions, the common law obligation of employees to not disclose confidential information and the related action for breach of confidence.
In Canada, trade secrets are considered to be a subset of confidential information and are typically reserved for more technical information such as formulae, recipes, patterns, processes and devices. Confidential information, on the other hand, tends to be used to refer to compilations of information such as customer and supplier lists, unknown concepts or business opportunities.
A further distinction is recognized in employment cases where trade secrets are distinguishable from “know-how”. Know-how is the “subjective” skill and knowledge which an employee learns as part of his or her trade and which, barring a reasonable contractual restrictive covenant, the employee may continue to use after his or her employment ends. Whatever term is used, it should be emphasized that in Canada there is no exhaustive list of what does or does not constitute a trade secret or confidential information.
In order for an employer to protect confidential information and trade secrets, employment contracts often include confidentiality provisions. If there are particularly important trade secrets, it may be advisable to obtain a separate non-disclosure agreement. Post-termination obligations should also be considered; however, it is important to ensure that all terms are reasonable and do not amount to an unreasonable restriction on trade or future employment. Non-competition agreements may also be employed.
Common Law Protections
All employees owe a duty of good faith, loyalty and fidelity to their employers. This means that all employees must maintain confidentiality of trade secrets and other confidential information. However, employees are free to use “know how” or general skills obtained in employment. Senior or other key employees have additional fiduciary duties to maintain confidentiality. These are duties that go beyond normal contractual obligations between employer and employee, and require that these individuals act with the utmost of good faith towards their employer. These obligations may continue after employment ends.
Breach of Confidence
While there is no statutory cause of action for the misappropriation of trade secrets or confidential information in Canada, the misuse of company confidential information can give rise to an action for breach of confidence. The test for whether there has been a breach of confidence was laid out by the Supreme Court of Canada in Lac Minerals Ltd. v International Corona Resources Ltd. It requires the owner of the confidential information to show that:
a. The information has a quality of confidence about it
In determining whether information should be recognized as confidential information or a trade secret, a court will consider a number of factors including whether the information is:
- generally known to others;
- known to others in the industry;
- unique and novel; and
- subject to measures to ensure its secrecy.
In Canada, the ability to prevent the unauthorized use of a trade secret is dependent upon the owner’s ability to demonstrate that it has been maintained as confidential through the use of physical or contractual means.
b. The information was communicated in circumstances in which an obligation of confidence arises
Obligations of confidence can arise through contract or relationships of confidence, whether they are fiduciary in nature or a more typical employer-employee situation. However, even in the absence of an express agreement regarding confidentiality, Canadian courts will still consider the conduct of the parties to determine whether an obligation of confidence arises. For example, parties working towards a joint venture or some other business arrangement will generally be found to have communicated in circumstances giving rise to an obligation of confidence.
c. The information was misused or used without authorization to the detriment of its owner
Where a party has autonomously developed certain information, similarities with the trade secrets that are alleged to have been stolen are usually not sufficient for an action for misappropriation. However, striking similarities in content, or the timing of a party’s use of the information in relation to the disclosure, may lead to an inference of misappropriation. Under the “spring board” doctrine, the use of another’s confidential information to develop a competing system can also give rise to damages. As with the other aspects of the Lac Minerals test, the specific facts of each case are analyzed by Canadian courts in determining whether the information was misused.
One of the most common forms of relief is an injunction prohibiting the use of confidential information by the offending party, usually a former employee. Often the company will want to obtain an injunction immediately, before the case is heard. Canadian courts will typically not grant such interlocutory injunctions unless the harm the applicant faces is “irreparable” in that it cannot be adequately compensated by monetary damages. However, in some cases injunctions have been granted in connection with the misappropriation of confidential information and the breach of a non-disclosure agreement.
Nevertheless, the Supreme Court of Canada has held that the remedial goal in a breach of confidence case is to restore the plaintiff to the position it would have been in if the breach did not occur, which often results in an award of monetary damages. Where the owner of the confidential information is in the business of selling the information, the market value of the confidential information is often considered the most appropriate measure of compensation.
Anton Piller Orders are also available in Canada. These orders, typically obtained without notice, permit the applicant to enter a specific premises of the defendant and search for and retain specified classes of documents or information in order to preserve evidence for trial. An Anton Piller Order is generally more difficult to obtain in Canada than an injunction, since there must be evidence that there is a threat of the destruction of evidence.
It is also important to note that criminal remedies are generally not available in Canada. The misappropriation of confidential information is not normally considered theft under the Criminal Code of Canada.
There are a number of things a prudent company can do to better protect itself from the misuse of confidential information and trade secrets:
- Obtain contractual protections for all employees, not simply senior or key employees.
- Develop security and confidentiality policies and ensure all employees are aware of and follow them.
- Engender a culture of protection of company information with your entire team.
- Require passwords and follow security procedures that are routinely updated and monitored.
- Limit disclosure of confidential information to those who need to know.
- Clearly mark confidential materials. This removes all doubt that an employee was not aware that the information was confidential.
- Remind employees of post-termination obligations on termination or resignation and confirm this with them in writing.
- Take steps quickly if former employees misuse confidential information and be consistent with all employees.
- Consider whether the former employee’s new employer has any liability for the misuse of that confidential information and act quickly to seek protection of it.