Can you keep a secret?
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
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