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Trade Secrets

A trade secret is any formula, pattern, process, device or compilation of information used in a business that gives the trade secret owner an opportunity to obtain an advantage over competitors who do not know or use it. Trade secret protection begins upon the creation of a trade secret and exists for so long as the trade secret proves valuable and is held in confidence. Typical items that may be protected as trade secrets are - a technology that is not patentable, a formula for a chemical compound, a process of manufacturing, treating of materials, a pattern for a machine or other device, a list of customers, the company's financial information and marketing plans, new product or service plans, and technical know-how. It is important to understand that more than one company may hold the same protected trade secret, because independent creation of the information by another party is allowed.

As in the United States, there are a number of significant advantages to using trade secret law to protect intellectual property of a startup in Canada. For instance, copyright protects, for a limited time, only the expression of a work and not the underlying ideas and logic. Because trade secrets have no statutorily defined time limits, they can protect information indefinitely and trade secret protection can be achieved inexpensively. However, to be effective, a trade secret protection regime must involve both internal startup policies to ensure the confidentiality of the trade secret, including appropriate measures to limit access to the information, and external measures to limit the manner and extent of distribution. In summary, the startup must generally keep the information secret.

For many startups, customer lists, pricing information and marketing strategies may be subjects for trade secret protection. Trade secret law in Canada is granted at Common Law. Unlike the United States, there is no trade secret legislation. Under the Common Law, trade secret protection may be invoked against parties to a confidentiality agreement or against third parties by use of the tort of breach of confidence. This tort is founded on the equitable principle enunciated by Lord Denning of the British Court of Appeal in the case of Seager v. Copydex 'that he who has received information in confidence shall not take unfair advantage of it. He must not make use of it o the prejudice of him who gave it without obtaining his consent'. To be successful in an action for breach of confidence a startup has to establish several elements: (1) it must show that the information itself has the 'necessary quality of confidence about it', (2) ti must show that the information has been provided to the person against whom the action is brought in circumstances that create or imply an obligation of confidence and (3) it must show that there has been unauthorized use of the information to his detriment.

Startups potentially can protect anything of economic value as a trade secret anywhere in the world, but Common Law protection is unreliable. Even the startup who properly guards its proprietary and confidential information can lose its trade secrets. Someone may develop the same product or information independently or through reverse engineering. Resigning employees can use the trade secret information that became part of their general skills and knowledge. Finally, non-compete restrictions through the employment contract may not be enforced if they unreasonably restrict an employee's mobility.