There are numerous cases involving the misuse of confidential information by employees or independent contractors, some of which have taken confidential information and set up in competition to their employer. By taking this information, it enables the ex-employees/contractors to short-cut the investment made by the employer and gain a springboard for their new business.
Also, by not taking adequate measures to protect confidential information, it can lead to that information entering the public domain which allows competitors and third parties to use it without any restrictions.
Therefore, it is critical that all practical and legal steps are taken to prevent the misuse of confidential information and firm action is taken against employees or contractors for not complying with any policies or contractual obligations.
The starting point is to ensure that there are adequate and enforceable provisions in the relevant contracts of employment or services to protect the business.
If there are no express confidentiality provisions, then the equitable duty of confidence will apply automatically as a fall-back position if the information has the necessary quality of confidence and is disclosed in circumstances importing an obligation of confidence.
However, express provisions in the relevant contract are better than relying on the fall-back position because they:
- set out clearly what the employer deems to be confidential information and often this is broader than what can be protected under the fall-back position;
- ensure that employees are aware of their obligations in relation to the handling of confidential information both during and after the termination of their employment. They also avoid the difficulty of having to ensure that employees have been told of their duty to keep certain information confidential (which is a requirement under the fall-back position) as it is set out in writing and agreed between the parties;
- can protect a wider class of information post-termination, as the fall-back position only prevents departing employees from revealing information categorised as "trade secrets" (which is quite a high bar). This is because the obligation to protect mere "confidential information" which does not satisfy the requirements of a "trade secret" does not extend beyond the termination of employment. Whereas, an express term allows an employer to supplement the information which is protected post-termination of employment to include mere "confidential information"; and
- can avoid the need for the parties to go to court in order to define their obligations as these will be clearly set out in writing between the parties and there will be less scope for disputes.
So, the key points are to have express contractual provisions and ensure that they are enforceable in court.
In a recent case, the Court considered the latter point, namely were the express terms enforceable and held they were not because the clause was drafted too widely.
In Invista Textiles Anor v Botes & Ors  EWHC 1086, the Court was tasked with determining if three former employees of Invista (one of the largest international textile and polymer group and famous for owning the Lycra trade mark) had breached their contractual and/or equitable duty of confidence in relation to the misuse of confidential information.
In this case, the defendants were three leading biotechnology scientists who had set up a biotechnology venture whilst they were still under the employment of Invista. After they had left their employment, Invista discovered that one of the departing employees had retained company property which included a memory stick containing confidential presentation slides. The memory stick had been found in a bag from a scientific conference in a barn at the ex-employee's home.
Invista contended that this was used as a basis for producing another presentation for the new business.
The Court reviewed the confidentiality clause and recognised that Invista had trade secrets and other classes of confidential information which were theoretically capable of protection. However, the loose drafting of the relevant clause meant that it was far wider than was reasonably necessary and was not capable of severance. For example, the clause covered ideas and techniques which reasonably formed part of the employee's experience, and documents marked confidential on the face of it, which were, in fact, not confidential and in the public domain. Accordingly, the judge found that the clause was an unreasonable restraint of trade as it went too far.
As the contractual clause failed, the Court had to decide if Invista could rely on the law of confidence. It held that it was not disputed that the individual defendants owed a non-contractual duty of confidence not to disclose or misuse what he termed "trade secret type information". However, Invista were unable to rely on this as it was held that the employees had not used information which fell under this description because the Court ultimately accepted that the departing employee's evidence that she had forgotten about the memory stick and had recreated the presentation from memory. Further, the information used related to system metabolic engineering which the judge noted that "the right kind of biotechnologists" were aware of, and which numerous scientific articles had been written about. The inference being that the information/knowledge of these systems formed part of the employee's general knowledge, skill and expertise as biotechnologists as opposed to any specific experiments which could be said to be trade secret type information belonging to Invista.
Accordingly, the Court concluded that the claim for confidential information failed "in contract and in equity" and that the "defendants did not misuse any confidential information which Invista had any right to protect after their employment ended."
The moral of the story?
Whilst the Court found that confidential information had not been misused in this case, it does serve to highlight that express confidentiality clauses can be unenforceable if drafted too broadly (which often they are).
A well-drafted clause has many advantages over and above relying on the common law remedy for breach of confidence as explained above.
The key steps for drafting effective confidentiality clauses include:
- Identifying the key and genuinely confidential information that needs protecting;
- Taking internal steps to mark such information as confidential (although taking care to only mark documents as such where they are genuinely confidential);
- Ensuring all employees understand which information is confidential and perhaps having policies or training in place and ensuring employee's sign an acknowledgement;
- Ensuring any clause drafted does not go too far i.e. taking steps to carve out information which is in the public domain or can reasonably be said to form part of the employee's knowledge or experience;
- And finally, if in doubt, seek independent legal advice to ensure the business has effective legal mechanisms in place to protect confidential information.
On top of this, take practical steps to restrict access to confidential information to those who need it and ensure that employees or contractors sign a suitable letter on their exit from the business that they have returned all confidential information and have no such information in their possession, custody or control.
This case serves as a useful reminder that when it comes to drafting enforceable confidential information clauses, less is usually more. Contract drafters should err on the side of caution and only seek to protect that information which is genuinely confidential to the business.Paul Cox, Partner and Head of the Intellectual Property team