A - Most businesses rely on confidential material to give them
their competitive edge. It might be an industrial process or
formula, business contacts, or pricing structures. Any manager will
be able to think of some form of confidential information or
business know-how which, in the hands of a competitor, could be
used to erode that competitive edge.
It is a fact of business life that key employees will move on
taking their knowledge and expertise with them. Similarly, in
developing any business, confidential information or know how is
likely to be disclosed to people who are not employed by you. These
could be business partners, suppliers or contractors, for
The law recognises and enforces obligations of confidentiality.
For example, there is an implied duty of mutual trust and
confidence between an employer and its employees. However, without
taking appropriate measures, it can be difficult to establish that
any obligation of confidentiality is owed by one party to
For this reason, any business with valuable confidential
information or know-how must take steps to ensure that confidential
material is properly protected. In practical terms, this means
assessing who amongst your employees, business partners,
contractors etc. has access to your business's confidential
information and know-how.
Once you have done this, you can take steps to ensure that
everyone with access to confidential material is bound by an
obligation of confidentiality.
As far as employees are concerned, all key employees with access
to know-how and confidential information should have a
confidentiality obligation as a key element of their employment
contract. Although you cannot stop them using the skills they
acquire during the course of their employment, you can stop them
from using material such as formulae, industrial processes and
customer lists for any purpose other than in the course of their
employment with you. This is particularly effective when used in
conjunction with a well-drafted restrictive covenant which can help
prevent an employee working in competition with your business for a
period after they have left your employment.
As for third parties who may have access to confidential
information and know-how are concerned, any contract you enter into
with them must provide adequately for maintaining confidentiality.
If you do not have a written contract with them, it must be made
clear that information is being disclosed under an obligation of
confidence. A specific confidentiality agreement (which need only
be in relatively short letter form) will help in these
Once you have ensured that those with access to confidential
information are tied into an obligation of confidence, you are in a
position to take court action to stop that information from being
disclosed to others or from being used in a manner which is not
Of course, taking court action is something which is best
avoided. Taking practical steps to keep your know-how confidential
are very important. For example, make sure that there is not
general employee access to computer files which contain
confidential information and highlight to employees what
information must not be disclosed to others.
Finally, there are two areas where confidentiality is of utmost
importance. The first is in relation to patents. Any invention
which may be capable of being patented (see earlier bulletin) must
not be disclosed to anyone prior to a patent application being
lodged unless there is a confidentiality agreement in place.
The second is if you are entering into negotiations with someone
who intends to purchase or invest in your business, it is vital to
get a good confidentiality agreement in place before the purchaser
or investor commences their due diligence exercise. Otherwise, they
may simply take all the information you have disclosed to them and
use it in competition with you. If they have backed out of the deal
and you do not have a confidentiality agreement in place, it may be
difficult to do anything to prevent this.
Clark, Partner - Tel: 01382 229 222
Associate - Tel: 01382 229 222