Businesses that rely on confidential information as part of their operations are understandably reluctant to risk divulging that information to employees and other stakeholders. Does the law protect such information? What kind of remedies are available to businesses that face the prospect of having their valuable confidential information made public? These questions involve consideration of the law applicable to trade secrets.

What is a Trade Secret?

Common law has historically addressed trade secrets as a subset of confidential information more generally, whereas the Criminal Code contains an offence specific to trade secrets.

Section 391(1) of the Criminal Code makes it an offence for anyone to “by deceit, falsehood or other fraudulent means” knowingly obtain a trade secret or communicate or make a trade secret “available.” In turn, section 391(5) defines a trade secret as meaning information that:

“(a) is not generally known in the trade or business that uses or may use that information;

(b) has economic value from not being generally known; and

(c) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

Committing an offence under section 391(1) may result in an accused being imprisoned for up to 14 years or punishment on summary conviction.

Conversely, as mentioned, the terms “trade secrets” and “confidential information” have been recognized by the common law as being relatively synonymous (see GasTOPS Ltd v. Forsyth).

As the Court of Appeal indicated in Areva NP GmbH v. Atomic Energy of Canada Ltd., a trade secret is generally defined as:

• A “property right” other than a patent that, once discovered by others, can be used by them;
• “a plan or process, tool mechanism, or compound is known only to its owner and those of his employees to whom it is necessary to confide it;”
• “a secret formula or process” that is not patented is known only to specific individuals and is “used in compounding some article of trade having a commercial value;”
• any secret “formula, pattern, device or compilation of information which is used in one’s business, and which allows him to obtain an advantage over competitors who do not know or use it.”

In CPC International Inc. v. Seaforth Creamery Inc., the Ontario Supreme Court indicated that information will only constitute a trade secret if it is “specific,” is not generally known to the public but could be ascertainable “from materials available to the public with the expenditure of time and effort” and is not “of a general nature.” Further, the owner of the information must maintain its secrecy and treat it confidentially.

How Does the Common Law Protect Trade Secrets?

A cause of action exists in common law for a “breach of confidence.” This cause of action protects trade secrets and confidential information, more generally.

The test for breach of confidence was set out in Lac Minerals Ltd. v. International Corona Resources Ltd. In that case, the Supreme Court of Canada indicated three elements: the information must have been confidential, communicated in confidence, and “misused by the party to whom it was communicated.”

When Will Information Be Found Confidential?

Concerning the first criterion, in Shaver-Kudell Manufacturing Inc. v. Knight Manufacturing Inc. et al., the Superior Court of Justice reiterated the law surrounding determining whether information has the “necessary quality of confidence.” It referenced the GasTOPS case and set out the seven criteria a court should consider in this regard:

– The “extent to which the information is known outside the business;”

• The extent to which the information is known by those “involved in the business,” such as employees;
• The measures taken to safeguard the information’s confidentiality;
• The “value of the information” to its owner and to competitors;
• The investment made (in effort or money) to develop the information;
• The extent to which the information “can be properly acquired or duplicated by others;” and
• Whether the owner and its recipient or “taker” treat the information “as secret.”

The Court in Shaver-Kudell also referenced the older case of Saltman Engineering Co. v. Campbell Engineering Co., in which the Court held that the “necessary quality of confidence” means that “the information is not public property or public knowledge and that the author of the trade secret used his brain to produce a result.”

When Will Information be Found to be Communicated in Confidence?

The purpose of the second criterion is to ensure that the person receiving the confidential information knew or reasonably ought to have known that it was being disclosed to them in confidence. In Sabre Inc. v. International Air Transport Association, the Superior Court of Justice noted, referring to earlier case law, that the objective “reasonable person” test will be applied for this analysis aspect. The question is whether the circumstances are such “that any reasonable man standing in the shoes of the recipient of the information would have realized that … the information was being given to him in confidence.”

When Will Information Be Found to be Misused?

Lastly, it is clear from the Lac Minerals case that “the receipt of confidential information in circumstances of confidence establishes a duty not to use that information for any purpose other than that for which it was conveyed.” Any other use will constitute a “misuse” for the purpose of the third criterion. The relevant question to ask is what the recipient of the confidential information is “entitled to do with the information?” and not “to what use [is he] prohibited from putting it?”

Contact the Litigation Lawyers at Milosevic & Associates For Advice on Data Breaches and Other Breaches of Confidentiality

The legal team at Milosevic & Associates in Toronto is available to provide strategic and effective representation about many kinds of business disputes, including breaches of confidence involving trade secrets, personal data and other confidential information. Contact us online or by phone at (416) 916-1387 for a consultation.