Confidential information
This guide is based on UK law. It was last updated in April
2005.
Overview
Confidential information can be the most valuable asset of a
business. A competitive edge in the marketplace may rely on a
business having certain information which its competitors do not.
However, unlike more tangible assets, the law may not automatically
prevent others from taking or using valuable information.
When will confidential information be protected?
Except where it qualifies for intellectual property rights
(IPRs) protection (e.g. copyright, database rights, patents etc),
information will usually only be protected as a business asset if
it is kept confidential. Confidential information can relate to any
subject matter and be stored in any form (whether hardcopy,
electronic or even stored in peoples' minds). Examples of
confidential information include a new product design, a marketing
strategy and software code.
Even if information does attract IPRs protection (by satisfying
certain legal criteria relating to its form and substance), it is
worth noting that IPRs have their limitations and, in particular,
may not always prevent competitors from using valuable ideas within
IPRs protected information. Consequently, it is often inappropriate
to solely rely on IPRs for protection and a better strategy may be
to maintain the secrecy of that information.
How can confidential information be used but still
protected?
Confidential information is often only valuable if it can be
used. Such use of information will invariably involve, (a) storage
of the information in an accessible form; and (b) its disclosure to
others. Storage and disclosure should be carried out in
circumstances which physically protects the information and allows
it to maintain its status as protected confidential
information.
Storing the secrets
Confidential information can be stored by businesses in a
variety of ways, e.g. filing cabinets, PC hard drives and in
peoples' minds. Security measures appropriate to the method of
storage and relative value of the information should be put in
place. There are particular problems associated with protecting
information stored on a computer network or accessible via an
internet link which should be addressed – see our guide on Security Aspects of E-business.
Sharing the secrets
Confidential information may be disclosed when discussing
business proposals with clients, using employees to carry out work,
engaging third party contractors and communicating business
information to suppliers. This disclosure may take place
face-to-face, over the telephone, by fax, by email or over the
internet. Again, you should consider the method of disclosure and
assess what measures you can take to ensure the information remains
confidential.
One way of maintaining the secrecy of information is by imposing
specific confidentiality obligations on its intended recipients.
These obligations can be set out in confidentiality
letters/agreements and notices (on documents, faxes, emails, etc.).
It is crucial that you impose these obligations before disclosing
the confidential information. Such obligations should be clear and
appropriate to the information concerned and the purposes for which
it is to be used. With respect to particularly valuable
information, express prior agreement to such obligations by the
intended recipient is essential (e.g. by the return of a signed
confidentiality letter).
Employees and confidential information
Employees automatically have duties to their employers to not
knowingly misuse or wrongfully disclose their employer's
confidential information. These obligations are also often
expressly confirmed in their employment contracts. If these
employees leave a business, the business is less well protected.
The courts will generally only protect the more important trade
secrets of a business and will be reluctant to restrict
ex-employees from subsequently using less critical information. To
increase the chances of being able to restrict use of confidential
information by ex-employees, it is important that a business can
show that, (a) the ex-employees knew that the information concerned
was highly confidential; and (b) appropriate measures were taken to
protect the information.
Over-reliance on confidentiality agreements
While confidentiality agreements and express confidentiality
obligations in employment contracts are useful tools in protecting
information, they should not be over-relied upon. Such agreements
may allow damages claims in the event of wrongful use or disclosure
of confidential information. However, such compensation may be too
little too late if the knowledge underpinning a competitive
advantage has been disclosed to competitors. Furthermore, it is
often difficult to trace the source of a confidential information
'leak'. The golden rule is that information should be kept secure
on a day to day basis and only be disclosed to employees,
contractors etc where it is necessary in the circumstances.
Safeguards
- Identify the confidential information within your business and
where possible mark it as such.
- Ensure that your company has a confidentiality policy and that
employees are made aware of it.
- Do not store confidential information where it is easily
accessible by unauthorised persons.
- Make sure communication of your confidential information is by
secure means.
- Ensure that recipients of confidential information know that it
should be treated as such and wherever possible impose express
confidentiality obligations.
- Only disclose confidential information to employees or third
parties where reasonably necessary.
You can download a "fill-in-the-blanks" style of confidentiality
letter from OUT-LAW. Seethe choice of letters in our Confidentiality section.
Contact: Lindsey Wrenn (Leeds, 0113 244 5000) or John Salmon (Glasgow, 0141 248 4858)
