Legislation will provide long-awaited protection for trade secrets ⋆ LegalMattersCanada

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Principal at Shift Law Professional Corporation

(647) 361-7533
jsimpson@shiftlaw.ca

‘Good development’

“This is a good development. The legal community has been advocating for trade secret legislation for years,” he tells LegalMattersCanada.ca. “There’s draft legislation among provinces that has been withering on the vine for decades, so Canada finally being put to the task of legislating protection for trade secrets is very welcome.

“Any form of legislation is going to make enforcing those rights easier. Criminal intervention can be especially effective because even if you can’t get monetary remedy from the infringer, you can get the government on your side with fines and imprisonment. That’s a very effective tool,” Simpson adds.

While considered intellectual property (IP), trade secrets and confidential information – which can include customer lists, processes, formulas, programs or methods that provide the owner with a competitive advantage in the marketplace – “can be much harder to define and to enforce rights in” than copyright, patents or trademarks, he says.

“An important distinction is that a copyright, patent or trademark is a property right. It’s like having land. But with confidential information and trade secrets one of the challenges is that it’s not, strictly speaking, something you can assert property rights in. It is mostly only protectable through an agreement with those who you share it with not to disclose it to others,” he explains. “And it is much harder to draw a fence around a trade secret or confidential information than it is to draw a fence around a trademark, patent or copyrighted work.”

Difficult to protect

He says the lack of legislation has made it difficult to protect trade secrets.

“For many businesses, confidential information and trade secrets can be their most valuable asset,” Simpson says, “Often, what is protectable as confidential information or a trade secret is an accumulation of know-how over many years.”

With no provincial or federal legislation protecting trade secrets, the only way to enforce the owner’s rights has been through common law civil suits which can be costly and time-consuming with unpredictable outcomes, he says.

“It’s an evolving thing that comes out of case law which makes it harder for parties to know what their rights are going to be and what’s going to happen,” says Simpson. “As an intellectual property lawyer, this has been a concern for my clients and myself for many years.”

Since trade secrets are not recognized as property they cannot be “stolen” in the legal sense, he notes.

Supreme Court decision

In 1988, the Supreme Court of Canada (SCC) acknowledged that fact in a case involving a man who was accused of trying to hire a hotel security guard to copy the personal information of hotel employees without authorization.

The man was acquitted at trial, but a conviction was entered on appeal.

The SCC reversed the decision, finding “treating confidential information as property simpliciter for the purposes of the law of theft would create a host of practical problems.”

Justice Antonio Lamer went on to say that “confidential information, and in some instances, information of a commercial value is in need of some protection through our criminal law. Be that as it may, in my opinion, the extent to which this should be done and the manner in which it should be done are best left to be determined by Parliament rather than by the courts.”

Simpson says thus far, trade secret holders could only look to a draft proposal developed among provinces.

“There have been proposals for uniform provincial legislation to help protect trade secrets kicking around since the 1970s, but nothing has really come of it.”

New legislation

Under the new federal criminal legislation, a trade secret will be defined as any information that is not generally known in the trade or business that uses or may use that information; has economic value from not being generally known, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Article 391 of the Criminal Code provides that everyone commits an offence who, by deceit, falsehood or other fraudulent means, knowingly obtains a trade secret, or communicates or makes available a trade secret; and that everyone commits an offence who knowingly obtains a trade secret, or communicates or makes available a trade secret knowing that it was obtained by the commission of an offence.

Offenders can be punished either by way of an indictable offence or summary conviction and face imprisonment for up to 14 years.

Breach of confidence

“When it comes into force you can expect to see plaintiffs not only suing someone for breach of confidence but also potentially seeking enforcement of this criminal provision,”

says Simpson. “It’s got some real teeth to it because the threat of criminal prosecution may well be more likely to motivate infringers to stop using your trade secrets than the threat of a civil lawsuit, which is going to take years. It’s a great thing for plaintiffs to have as a potential enforcement tool.”

Another aspect the new legislation will address is the issue of a third party using stolen trade secrets, he says. In the past, if a person took confidential information and it was used by someone else, the owner could only take civil action against the person who stole it, not the third party.

While Simpson calls the proposed legislation “a good development,” trade secret owners should still have robust measures in place to safeguard their confidential information.

“Just because there’s this new enforcement tool doesn’t mean that companies with valuable trade secrets or confidential information should be any less vigilant in protecting them,” he says.