Trade Secrets: The Value in Enforcement

A trade secret or confidential information can be enforced against a third party which has made or is likely to make unauthorised use of the information to the detriment of the holder, if the holder has taken certain measures to protect the information. The UK Courts have wide discretion to order an injunction, damages or other remedies.

For example, in Derma Med Limited v Ally¹the Court of Appeal considered that an interim injunction should be granted against the defendant, Dr Ally.

Dr Ally a leading aesthetics practitioner sold his business in relation to cosmetic fillers to Derma Med. The share purchase agreement contained restrictions on Dr Ally not to compete with Derma Med and not to misuse its confidential information. Dr Ally agreed to remain as an employee at Derma Med following completion.

Derma Med alleged that Dr Ally had taken cash payments from patients following completion, and had been soliciting other employees to leave Derma Med. There was prima facie evidence that Dr Ally had breached his obligations and acted dishonestly by diverting business from Derma Med to himself and was using Derma Med’s confidential information in order to do so. Further, he had taken extensive steps to conceal his wrongdoing. After Dr Ally resigned from Derma Med, they applied for an injunction to enforce Dr Ally’s non-compete and confidentiality obligations. The injunction was granted and then discharged by Justice Bourne.

The Court of Appeal considered the evidence of Dr Ally’s breaches and his attempts to conceal his acts and granted an interim injunction restraining him from competing and using Derma Med’s confidential information until trial. 

This judgment is a useful reminder to businesses as it indicates that an injunction is likely to be the most appropriate effective remedy in certain cases where there is a clear breach of non-compete agreements and misuse of confidential information.

However, in order to be granted an injunction in relation to misuse of trade secrets or confidential information, it is very important that the information which is claimed to have been taken is kept secret.

What is a trade secret?

The Trade Secrets Directive in the UK was implemented in June 2018 by the Trade Secrets (Enforcement etc) Regulations (the ‘Regulation’) which defined a trade secret as information which is:

(a) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;

(b) has commercial value because it is secret; and

(c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.”

In addition, UK jurisprudence has a well-developed equitable doctrine to protect confidential information which pre-dates the Regulation.

Information designated as a Trade Secret or confidential information may include formulas, practices, processes, designs, instruments, patterns, or databases of information.

Impact of unlawful disclosure of a trade secret or breach confidence

If trade secrets or confidential information of a business has or is likely to be misused by a third-party competitor, this could have a detrimental impact on the business. Therefore, in certain cases, the value of an injunction to restrain unauthorised use is immensely valuable.

However, the court will only grant remedies in relation to the unauthorised use of trade secrets or confidential information if the information has been kept confidential.

Therefore, it is important that businesses protect their trade secrets/confidential information such that they can be relied upon in the unfortunate circumstance where there is or threatened unlawful use of this information.

How could a business keep its trade secrets, secret?

The requirement that the information is kept secret within the business, whilst also allowing legitimate access to business employees who need access to carry out commercial activities, poses a challenge to businesses.

We set out below, some practical measures which could be taken by businesses to protect sensitive commercial information.

Employment contract

• Include specific robust clauses in relation to the treatment of trade secrets/confidential information by employees or consultants in their agreements.

Internal Policies

• Provide employees with details on business policies in relation to treatment of confidential information and provide regular training.
• In addition to access to confidential information by employees and consultants, if access is required by others, ensure that they do so under a well-drafted Non-Disclosure Agreement.
• Identify the Trade Secrets and limit the number of persons who have access to the information.
• Define a minimum level of care required by those who have access to the Trade Secret.
• Upgrade of IT systems and information tracking processes. For example, require encrypted USBs and password protected documents to track the users, and any metadata.

Audit

• Perform ongoing audits to ensure that the relevant information is kept confidential.
• Continue to discuss with the relevant parties whether the Trade Secret/confidential information is still a Trade Secret.
• Maintain a log of those who access the information.

Futureproofing

• Disgruntled employees pose a risk to the business. If there is a reason to believe they may have unlawfully taken trade secrets upon exiting the business, it is prudent to investigate their hard copy and electronic files without delay in order to investigate whether further action, including restraining the misuse of trade secrets by a court ordered remedy such as an injunction is worth pursuing.