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Confidential information, trade secrets and "know-how"

Q - The protection given by the various types of IP right is all very well. But what if confidential information about my business falls into the wrong hands? This could do real damage.

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 example.

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 another.

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 circumstances.

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 authorised.

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.