Trade secrets in Canada

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According to s.2 of the proposed Uniform Trade Secrets Act, adopted by the 1989 Uniform Law Conference of Canada,[1] the definition of trade secret in Canada includes information set out, contained or embodied in, but not limited to, a formula, pattern, plan, compilation, computer program, method, technique, process, product, device or mechanism; it may be information of any sort; an idea of a scientific nature, or of a literary nature, as long as they grant an economical advantage to the business and improve its value.[2] Additionally, there must be some element of secrecy. Matters of public knowledge or of general knowledge in an industry cannot be the subject-matter of a trade secret.[3]

Purpose[edit]

Trade Secrets are a type of Intellectual Property that consist on certain information, expertise or knowhow that has been developed or acquired by firms. This knowledge frequently gives firms their competitive edge in the market and it has to be kept as a secret.

In Canada any information that a firm or its employees produces or acquires for the purpose of the firm’s business can constitute confidential information that courts are willing to protect. All that is required is that the creator of the information “has used his brain and thus produced a result which can be produced by somebody who goes through the same process”.[4]

According to Seager v. Copydex Ltd case, courts will even act to protect a comparatively underdeveloped idea from misappropriation. However, information may stop being confidential and confident may be released from its obligations of confidence if the information subject to confidence is later publicly disclosed by the confider or a third party.

Trade Secrets vs. Confidential Information[edit]

With one exception in the field of employer-employee relations, there is no recognized distinction in Canada between the rights and remedies afforded to trade secrets as opposed to mere confidential information. In the field of employer-employee relationships, the British case Faccenda Chicken Ltd. v. Fowler, which has been cited with approval by several Canadian courts have drawn a distinction between the two.[5]

Regulatory Framework[edit]

According to the Canadian Constitution, Constitution Act 1867, the exclusive Legislative Authority of the Parliament of Canada extends to most areas of intellectual property such as patents, trademarks and copyrights;[6] whereas the provincial government has exclusive authority to legislate on matters related to property and civil rights.

In Canada, federal courts initially based their intervention in trade secret cases on s.7(e ) of the Canadian Trade-marks Act.[7] However, the Supreme Court of Canada ruled in MacDonald v. Vapor Canada Ltd. that the federal government did not have to enact in its Trade-marks Act provisions prohibiting acts or business practices “contrary to honest industrial or commercial usage in Canada”. Therefore, legislative power over trade secrets is of exclusive provincial jurisdiction.

The Canadian definition of trade secret is based on the proposed Uniform Trade Secrets Act, adopted by the 1989 Uniform Law Conference of Canada, and on the definition that arises from Canadian cases law and doctrine and finds its origin in American and English case law.[8]

Uniform Trade Secrets Act[edit]

The Uniform Trade Secrets Act, adopted by the 1989 Uniform Law Conference of Canada, states that:

S. 1(1) Trade secret means any information that: a) is, or may be, used in a trade or business, b) is not generally known in that trade or business, c) has economic value because it is not generally known, and d) is the subject of efforts that are reasonable under the circumstances to prevent it from becoming generally know.

S. (2) For the purposes of the definition trade secret, information includes information set out, contained or embodied in, but not limited to, a formula, pattern, plan, compilation, computer program, method, technique, process, product, device or mechanism.

Remedial Relief[edit]

In Lac Minerals Ltd. v. International Corona Resources Ltd., the Supreme Court of Canada held that a breach of confidence action is sui generis and the courts may rely on all three traditional jurisdictional bases for action (contract, equity and property) to enforce the policy of the law that confidences are to be respected.[9]

Nevertheless, in Cadbury Schweppes Inc. v. FBI Foods Ltd. Justice Binnie concluded that the form of relief for breach of confidence was “dictated by the facts of the case rather than strict jurisdictional or doctrinal considerations”.[10] He also stated that “whether a breach of contract in a particular case has a contractual, tortuous, proprietary or trust flavour goes to the appropriateness of particular equitable remedy but does not limit the court’s jurisdiction to grant it”.[11]

Criminal Sanctions[edit]

In R. v. Stewart, the Supreme Court of Canada held that the taking of confidential information cannot form the basis of a charge of theft under the Canadian Criminal Code. The Supreme Court found that intangible confidential information is not legal property for the purpose of criminal law.[12]

Civil Sanctions[edit]

In common law, there are essentially five types of civil action that a trade secret holder can rely on to seek protection of its trade secrets before a court of justice: (i) breach of contract (expressed or implied provision), (ii) breach of confidence, (iii) breach of fiduciary duty, (iv) unjust enrichment and (v) wrongful interference with the contractual relations of others.[13] The Supreme Court of Canada stated in Cadbury Schweppes Inc. v. FBI Foods Ltd. that all these types of actions coexist in the Canadian judicial system and remain available to the trade secret holder.[14]

Contractual Sanctions (Non-Disclosure and Non-Competition Agreements)[edit]

Two important forms of contract used by employers in Canada to protect their trade secrets and confidential information are non-disclosure agreements and non-competition agreements. These agreements are also known as confidentiality agreements and restrictive covenants.[15]

Enforcing non-disclosure agreements: According to Faccenda Chicken Ltd. v. Fowler, post-termination, ex-employees may use their general skills and knowledge anywhere but they may not use or divulge their former employer’s trade secrets. Exceptionally, ex-employers may also be able to enjoin a former employee’s use of non-trade secret information where that information has been obtained from records which qualify as trade secrets.[16]

Permanent Injunction[edit]

According to International Tools Ltd. v. Kollar, in Canada the length of a permanent injunction to force a defendant to cease using the plaintiff’s information should not normally extend beyond the time that the plaintiff’s trade secrets remains a secret which is exclusively known to the plaintiff and its confidants.[17]

Regulatory Framework in Quebec[edit]

The Civil Code of Quebec deals specifically with trade secrets in two articles (1472 and 1612); however, none of its provisions define the concept of trade secret.

Article 1472 : A person may free himself from his liability for injury caused to another as a result of the disclosure of a trade secret by proving that considerations of general interest prevailed over keeping the secret and, particularly, that its disclosure was justified for reasons of public health or safety.

Article 1612 : The loss sustained by the owner of a trade secret includes the investment expenses incurred for its acquisition, perfection and use; the profit of which he is deprived may be compensated for through payment of royalties.

According to Continental Casualty Company v. Combined Insurance Company (1967), the Quebec Court of Appeal decided that those who owned trade secrets (secrets de commerce) are entitled to seek protection and that Quebec courts are competent to grant remedies in the case the plaintiff can evidence its ownership of such trade secrets.[18]

Remedies[edit]

According to the Civil Code of Quebec, an action for breach of trade secrets or confidential business information generally arises either from a contractual liability action (article 1458) or, in the absence of a contract, from a civil liability action (article 1457).

References[edit]

  1. ^ "Uniform Law Conference of Canada(1989)". s.2. 
  2. ^ A. E. Turner, The Law of Trade Secrets,(London, Sweet & Maxwell, 1962) at 4.
  3. ^ David Vaver, Civil Liability for Taking or Using Trade Secrets in Canada,(The Canadian Business Law Journal, June 1981) at 255.
  4. ^ Salman Engineering Co. Ltd v. Campbell Engineering Co. Ltd. (1948), [1963] 3 All E.R. 413 at 415 (C.A.).
  5. ^ N. R. Belmore and K. Sartorio, Trade Secret Law in Canada and the United States, 2000, at 10.
  6. ^ Constitution Act, 1867, ss. 91(2), 91(22) and 91(23).
  7. ^ David Vaver, Civil Liability for Taking or Using Trade Secrets in Canada,(The Canadian Business Law Journal, June 1981) at 265.
  8. ^ J.A. Fairbairn and K.G. Thorburn, Law of Confidential Business Information, Aurora (Ontario), Canada Law Book, 2008, at para. 3:1200 and 3:2100.
  9. ^ Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574(1967) B.R. 814 at p.819.
  10. ^ Cadbury Schweppes Inc. v. FBI Foods Ltd., [1999] 1 S.C.R. 142 at 160.
  11. ^ Cadbury Schweppes Inc. v. FBI Foods Ltd., [1999] 1 S.C.R. 142 at 161.
  12. ^ R. v. Stewart, [1988] 1 S.C.R. 963.
  13. ^ J.A. Fairbairn and K.G. Thorburn, Law of Confidential Business Information, Aurora (Ontario), Canada Law Book, 2008, at para. 5:1100.
  14. ^ Cadbury Schweppes Inc. v. FBI Foods Ltd., [1999] 1 S.C.R. 142 at 40-48.
  15. ^ N. R. Belmore and K. Sartorio, Trade Secret Law in Canada and the United States, 2000, at 10.
  16. ^ Faccenda Chicken Ltd. v. Flower, [1986] 1 All E.R. 617 (CA).
  17. ^ International Tools Ltd. v. Kollar (1968), 67 D.L.R. (2d) 386 at 393 (Ont. C.A.).
  18. ^ Continental Casualty Company v. Combined Insurance Company(1967) B.R. 814 at p.819.