A trade secret can be as complex as Google’s proprietary search algorithm, as straightforward as the data contained in a client list, or as exciting as the Coca-Cola formula. This confidential business information is valuable precisely because it is kept secret and not made public. Trade secrets can include a wide range of proprietary information, including manufacturing processes, formulas, recipes, customer lists, marketing strategies, business plans, and technical know-how. To qualify as a trade secret, the business must take reasonable steps to guarantee that the information is confidential and stays confidential, such as Non-Disclosure Agreements (NDAs), employment contracts, employee training, and physical and cyber security measures. In addition, the business must show that the information has commercial value and derives its commercial value from being kept confidential.
Unlike other forms of intellectual property, trade secrets do not require registration. In Canada, common law principles govern the protection of trade secrets and civil law in the province of Quebec.
The need for trade secret protection arises from the competitive business environment where unauthorized use or disclosure of confidential information can result in significant economic harm to the business, hindering a company’s market position and innovation efforts. Trade secrets can also protect your IP rights before you decide to go through the patenting process, protect information that cannot be patented, and serve as an alternative to patents when enforcing a patent would be impractical because it’s too expensive.
MBM helps clients protect their trade secrets. We assist in identifying what type of information can be considered a trade secret and help implement programs to keep that information confidential and protected as a trade secret. This includes drafting and reviewing NDAs, confidentiality agreements, and internal policies and programs that safeguard sensitive information. Additionally, we offer strategic guidance on whether trade secret protection is the best route for a business or patent protection is more appropriate, considering factors like the type of business information at hand, costs to protect it, and the commercial damage if the information is made public. In cases of trade secret misappropriation, we represent businesses in litigation to recover damages and secure injunctions against further unauthorized use or disclosure. By providing these services, MBM ensures that businesses can focus on innovation and growth without the constant fear of losing their competitive advantage due to trade secret theft or misappropriation.
What do we provide as part of MBM’s trade secret services?
- Trade Secret Identification and Audit: We can help identify what constitutes a trade secret within a business, ensuring that valuable information is recognized and appropriately protected. This includes conducting audits to identify potential trade secrets and assessing existing protections.
- Due Diligence Review During Transfer or Licensing of Trade Secrets: Conducting due diligence in transactions involving the transfer or licensing of trade secrets. This can include evaluating the strength and enforceability of trade secret protection clauses in transfer or licensing agreements and advising on the valuation of trade secrets.
- Conducting Risk Management and Compliance Review: Advising on best practices to minimize the risk of trade secret theft and ensuring compliance with relevant laws and regulations. This includes assessing and mitigating risks associated with employee departures, mergers and acquisitions, and collaborations with third parties.
- Developing a Trade Secrets Internal Policy: Assisting in the development of internal policies and procedures to protect trade secrets. This can include creating protocols for handling confidential information, training employees, and establishing security measures.
- Drafting and Reviewing Confidentiality Agreements and Non-Disclosure Agreements (NDAs): Ensuring they effectively protect trade secrets. This includes agreements for employees, contractors, partners, and other third parties.
- Drafting and Reviewing Contracts: Ensuring that all contracts and agreements with vendors, partners, and clients include appropriate trade secret protection clauses.
- Trade Secret Enforcement: Assisting in the enforcement of trade secret rights, including sending cease-and-desist letters, negotiating settlements, participating in dispute resolution, initiating litigation proceedings or defending claims of misappropriation of trade secrets, and obtaining court orders to prevent further misuse of trade secrets and damages.
- International Protection: Advising on the protection and enforcement of trade secrets in multiple jurisdictions. This is especially important for businesses operating internationally. This includes navigating the varying legal frameworks and requirements for trade secret protection in different countries.
- Employee Training and Awareness Programs: Providing training programs to educate employees about the importance of protecting trade secrets and the measures they need to take to ensure confidentiality.
How to get started?
MBM is happy to provide the initial consultation free of charge to help you first identify your specific intellectual property needs.
Book a Consultation
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What is a trade secret?
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Trade secrets are considered to be valuable and confidential business information that provides a competitive advantage to a business or individual. They can include a wide range of confidential and proprietary information, such as manufacturing processes, formulas, recipes, customer lists, marketing strategies, business plans, and technical know-how. The key element of a trade secret is that it is not known to the public and is kept confidential by the owner. Some business information, like customer lists, cannot be patented or protected by copyrights but can be protected as a trade secret.
The owner of a trade secret must make sure that:
- the information is confidential
- it has commercial value, and that it derives its commercial value from being kept confidential
- the business has taken reasonable steps to guarantee that the information stays confidential
Some of the most famous examples of trade secrets:
- Coca-Cola Formula
- Google Search Algorithm
- KFC’s Original Recipe
- New York Times Best-Seller List Algorithm
- WD-40 Formula
- Krispy Kreme Doughnut Recipe
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How are trade secrets protected in Canada?
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Trade secrets are protected under the common law in Canada and civil law in Quebec.
Unlike other intellectual property rights, trade secrets are not registerable with the Canadian Intellectual Property Office. Instead, trade secret protection must rely on people, systems, processes, and contracts (confidentiality agreements or non-disclosure agreements (NDA)) to keep the information confidential. The protection afforded to a trade secret is lost if the information becomes public. At the same time, trade secrets can be protected indefinitely so long as they remain confidential.
A strong internal trade secret program, if successful, results in information secrecy being maintained. In addition, its secondary role is to provide a track record and compile evidence of the employer’s efforts to keep the information secret in case you need to enforce your trade secret rights in court for unauthorized acquisition, use or disclosure of such secret information.
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Trade Secret Protection vs. Patent Protection
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Unlike patents, trade secrets have an indefinite protection term, which can be longer than that of a patent as long as the information is kept confidential. The protection afforded by trade secrets is also immediately effective, with no need to prepare and file a formal application.
Of course, maintaining secrecy with respect to an invention prior to filing for a patent is crucial, especially for countries for which no “grace period” for public disclosure prior to filing is provided. A proper trade secret program can, therefore, be a valuable complement to a patent protection program as it will help protect the confidentiality of the invention before a patent is filed. On the other hand, however, eventual public disclosure is the essence of the patenting system, which will result in a loss of a trade secret.
In some instances, it may be preferable to protect patentable information simply through a trade secret program rather than by applying for a patent. For example, if the value of the information will dissipate before a patent is issued, then maintaining the information as a trade secret would be more appropriate and cost-effective. Sometimes, the risks of public disclosure may outweigh the benefits of patenting, making trade secrets a better choice for IP protection.
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What are the elements of a good trade secrecy program?
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- Commit secret information to print.
- Store the secret information in a secure place (both hard and electronic copies), making appropriate use of locks and passwords.
- Restrict employees’ access to secret information on a need-to-know basis.
- Emphasize to employees the value of trade secrets and the importance of maintaining them as secrets.
- Enlist employees’ support in developing and recognizing trade secrets and preventing their disclosure.
- Make non-disclosure of trade secrets a term of employment contracts, with the term surviving termination of employment.
- Ensure that as good employment relations as possible are maintained with employees, including guarding against individuals with employment problems or grievances or who are likely to commit fraud against the employer for money.
- Prevent inadvertent disclosure of trade secrets by previewing all publications, press releases, presentations, etc.
- Restrict access to areas where trade secrets may be observed, taken, or copied to minimize the risk of theft by third parties.
- Scrutinize licensing arrangements carefully to ensure that trade secrets are not being given away or, if trade secrets are part of the information being licensed, that obligations to maintain secrecy are imposed on the licensee.
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What constitutes trade secret infringement?
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In Canada, trade secret infringement involves the unauthorized use, disclosure, or acquisition of trade secrets. To establish trade secret infringement, the following elements typically need to be demonstrated:
- Existence of a Trade Secret: The information must qualify as a trade secret. This means it is confidential and has commercial value because it is secret and reasonable steps have been taken to keep it secret.
- Misappropriation: There must be unauthorized use or disclosure of the trade secret. Misappropriation can occur through:
- Breach of Contract: When an individual or entity bound by a confidentiality agreement or non-disclosure agreement (NDA) discloses or uses the trade secret without authorization.
- Breach of Confidence: When a person who has obtained the trade secret in a confidential relationship (e.g., an employee) uses or discloses the information without permission.
- Improper Means: When the trade secret is obtained through theft, industrial espionage, or other improper methods.
- Knowledge or Intent: The party accused of infringement knew or should have known that the information was a trade secret and that its use or disclosure was unauthorized.
Damages: The unauthorized use or disclosure of a trade secret has caused harm to the owner of the trade secret. This harm can be in the form of lost profits, competitive disadvantage, or other economic impacts.
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How are Trade Secrets enforced in Canada?
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Trade secrets can be enforced on several grounds, such as breach of contract, misappropriation (theft), breach of fiduciary duty and breach of confidence.
In Quebec, civil law principles enforce torts such as breach of contract and breach of confidence.
There is also relevant legislation under Canada’s Criminal Code for enforcement if trade secrets have been stolen or misappropriated.
If someone misappropriates or unlawfully discloses a trade secret, the owner can start litigation proceedings and seek legal remedies to protect their rights. In Canada, legal remedies for trade secret infringement may include:
- Injunctive Relief: A court order to prevent further misuse or disclosure of the trade secret.
- Damages: Monetary compensation for the loss suffered due to the infringement.
- Account of Profits: The infringer may be required to account for and hand over any profits made from the misuse of the trade secret.
- Delivery Up: The infringer may be ordered to “deliver up” any documents or materials containing the trade secret.
A trade secret owner, however, cannot stop others from using the same technical or commercial information if they acquired or developed such information independently through their own R&D, reverse engineering, marketing analysis, etc.
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