Can you keep a secret?

2012-08-01


Most businesses make use of some form of trade secret/s in their daily operations.  Almost any confidential information which provides a company with a competitive advantage could be a trade secret. This includes business methods and/or systems, databases, formulae, designs, software, manufacturing processes, recipes, customer lists, etc. The potential value in this form of intellectual property becomes immediately apparent if one considers, for example, the secret COCA COLA formula which is reputed to be among the world’s best kept secrets.

One of the advantages of trade secret protection as opposed, for instance, to a patent is that the protection could potentially last for an indefinite amount of time, provided of-course that the information remains secret. By contrast, in South Africa a patent lasts for only 20 years. Once it expires everyone becomes entitled to copy the previously patented invention. On the other hand certain information simply is not patentable, and is therefore best kept secret.

Generally, most of the litigation in respect of alleged trade secret infringement seems to take place in the context of enforcement of restraint of trade agreements. As a result these distinct but complementary areas of law are easily confused with each other.  In reality the law of trade secrets originated in the common law from cases pertaining to the consequences of breach of trust or confidence by a person whose good faith is relied on by another[i]

Restraints of trade, on the other hand, are contractual arrangements aimed at delaying competitive activities that would otherwise be lawful.[ii] In order for a restraint of trade agreement to be enforceable it is required as a matter of public policy to be reasonable[iii], which in part means that it must be limited in its duration. If applied successfully the restraint prevents competition for a limited period of time, but it does not follow from this that secret information will fall into the public domain when the restraint expires. In principle the trade secret remains enforceable permanently.

In Hirt v Carter [2007] 4 ALL SA 1423 (D) it was held that in order to succeed in establishing that a trade secret or confidential information is an interest justifying protection by restraint it must be shown that the information in question is something which is unique and peculiar to the business, which is not public property or public knowledge, and is more than just trivial.

In Automotive Tooling Systems (Pty) Ltd v Wilkens & Others 2007(2) SA 271 (SCA), the court held that the interest must be one that might be properly described as belonging to the employer rather than to the employee. In that case, the applicant’s business related to the design and manufacture of special purpose machines and tooling. When the respondents, who had been employed as skilled toolmakers, resigned and took up employment doing the same work for another party the applicant sought to invoke a restraint of trade and confidentiality agreement. The court held that what had to be determined was whether the process in question by which the machines were built depended in the main for its success on the utility of the steps of the process or on the skill and discretion of the operator. If it depended on the latter for its success, it is likely that the employer had no secret processes but only a skilled employee whose skill he cannot restrain from utilising after the termination of employment.

As happened in Strike Productions (Pty) Ltd v Bon View Trading 131 (Pty) Ltd and others (10/21704) [2011] ZAGPJHC 1, nothing prevents litigants from enforcing trade secrets under circumstances where there is no restraint of trade agreement. In this case the applicant sought to interdict an ex-employee from joining a competitor on the basis that the respondent would unlawfully make use of the applicant’s trade secrets.

The respondent had been employed by Strike Productions as a lighting technician on the IDOLS television show. When he resigned and joined a competitor of Strike Productions it launched urgent interdict proceedings seeking to restrain the use of its “IDOLS intellectual property”. It argued that such intellectual property subsisted in that Strike Productions “[was] the developer and owner, inter alia, of the detail design, concepts of the staging, audio production and lighting production for the IDOLS show, together with all trade secrets, sources of supply, business methods, client information and costing as developed and executed by [it] from 2002 to 2009”.

The court held that the applicant had failed to prove that any of the information in question was confidential. The evidence revealed that two other entities provided the IDOLS rights holder, M-NET, with the same audio production and staging services for the show. There was a dispute regarding whether the IDOLS television show in South Africa was based on the British Pop IDOLS or the American IDOLS, but the court accepted the respondent’s contention that in any event the production required little original creative input since all the relevant information was already in the public domain.

This illustrates the point that in order to be enforceable the alleged secret information must as a matter of fact be secret, and that if the information is not necessarily secret a restraint of trade agreement should be executed, provided there is a legally recognisable interest sought to be protected.

Trade secret protection is, of-course, not only relevant under employment conditions. Some of the other transactions in which confidential information may be disseminated include joint ventures, franchises and licensing arrangements.  When engaging in these kinds of transactions it is therefore advisable that the flow of information should be monitored carefully, documenting the nature of the trade secrets exposed and the specific limited use to which they may be put.[iv]

Since the enforcement of trade secrets is typically carried out through interdict proceedings this can be a challenging endeavour. Generally the matter would commence as an urgent application for interim relief pending the determination of the final action. In order to obtain interim relief an applicant must show: (a) that the right which he seeks to protect is clear or, if not clear, is prima facie established, though open to some doubt; (b) that, if the right is only prima facie established, there is a well-grounded apprehension of irreparable harm to the applicant if the interim relief is not granted and he ultimately succeeds in establishing his right; (c) that the balance of convenience favours the granting of interim relief; and (d) that the applicant has no other satisfactory remedy.[v]

In order to obtain final relief it must be shown that there are reasonable grounds for apprehending that the defendant will continue to infringe the plaintiff’s rights unless restrained by an order of court.[vi] If there is no risk that the infringement will continue the applicant will not be granted an interdict, but he could perhaps consider a claim for damages.

The challenges involved in maintaining trade secrets can be substantial and there are many potential pitfalls. Some of the following measures can be employed to protect trade secrets[vii]: keep a written statement of your trade secret policy; make employees and/or third parties aware of the confidentiality of the relevant information and their obligation to keep that information secure; restrict access to confidential information only to those who genuinely require it; maintain adequate information systems security, in appropriate circumstances screen speeches and publications, and obviously make sure that appropriate confidentiality documents are in place. 


Compiled by
Reggie Dlamini
Associate
Spoor & Fisher


[i] AE Turner, The Law of Trade Secrets (1962) p.3
[ii]
M von Seidel, Intellectual Property, The John & Kernick Guide (1998) p.63
[iii] Magna Alloys and Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 874 (SCA)
[iv] (http://www.managingip.com/Article/Make-trade-secrets-work-for-you.html) K Bundy and R Kahnke
[v] Webster & Page, service issue 14, p.12-90
[vi] Ibid p.12-87
[vii] Note 4 above
 
 



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