2nd February 2021
2nd February 2021
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5 - 1 vote
Whether your business is a well established one or a startup, it is likely you have a variety of information that you may want to protect.
You might have customer and supplier lists, sensitive financial information, or information about business opportunities. You might have secret formulae, processes or recipes, or resources, analytical material or data that you have painstakingly compiled.
Whatever form your business secrets may take, it is important to think carefully, and implement a strategy that ensures you are able to protect them.
There are a number of ways to protect your business secrets, so we will go ahead and discuss your options.
A business's contracts may involve various clauses designed to protect sensitive information. For example, protections might be included in an Employment Agreement, Service Agreement, Partnership Agreement, Joint Venture Agreement or a Shareholders Agreement.
In order to protect the business's information, a confidentiality clause is often included.
However, if there are particularly important trade secrets or confidential information, or if your contracts do not include the necessary protections, you may want to consider a separate Confidentiality Agreement. A Confidentiality Agreement is also often called a Non-Disclosure Agreement.
Under a confidentiality clause or a Confidentiality Agreement, a person receiving certain information is obliged to keep it confidential.
Another clause that often appears in business contracts such as Employment Agreements is a non-compete clause. This may also be called a restraint of trade. Or if it does not appear in the existing employment contract, then the business might choose to use a Non-Compete Agreement.
Non-compete clauses or Non-Compete Agreements may be used to limit the employee's ability to directly or indirectly compete with the employer or to join a competing company during the period of employment or after cessation of employment for a set period of time.
Be careful using a Non-Compete Agreement though. Under the Competition and Consumer Act 2010 (Cth) ("CCA") if several businesses that operate in the same market come to some kind of agreement about how they will do business (for example, if they sign a Non-Compete Agreement to confirm that they will refrain from competing with each other), there is a risk that this agreement could constitute conduct which is considered "anti competitive" or "cartel conduct". We provide further information about this matter on the main page for our Non-Compete Agreement.
Many business contracts also include clauses that deal with the ownership rights of intellectual property. For example, if an employee's work involves the creation of intellectual property (for example, by writing articles, graphic design, or coding) then it may be necessary to clarify who actually owns the intellectual property that they create.
Therefore, it is important to check the relevant business contracts to ensure that intellectual property ownership rights are clearly dealt with. Many of our business contracts, such as our Employment Agreement, Service Agreement, or our Joint Venture Agreement provide this option.
It is also important to consider post-termination obligations - the obligations that will survive the end of the contract. For example, in an employment contract, the confidentiality obligation or non-compete obligations of the employee may survive the end of his or her employment for some time. However, it is important to ensure that all terms are reasonable and do not amount to an unreasonable restriction on trade or future employment. If a court finds that the restriction is unreasonable, then the restriction may be unenforceable.
There are a number of things a prudent business can do to better protect itself from the misuse of confidential information and trade secrets.
Identify each piece of information that you wish to protect and create a system of identifying newly created material that requires secrecy. When selecting, try not to be too inclusive because this might trivialise protection of trade secrets.
Documents that contain or reflect trade secret information should be labeled "confidential." This will remove all doubt that an employee was not aware that the information was confidential.
Limit copies and circulation of these documents and, when necessary, number copies and require the documents be checked in and out.
Include a confidentiality clause in Employment Agreements of all employees, not simply senior or key employees.
During the negotiation phase, whether it is with a potential partner or a potential service provider, consider entering into a Confidentiality Agreement.
In contracts with outside entities, include a strict confidentiality provision regarding the trade secrets in contracts such as a Service Agreement. When outsourcing production of any of your products, try to choose different vendors for different parts. Do not disclose the final product or the relationship between the pieces.
Conduct an information audit to determine where vital information is stored and who has access to it. Include all hard copies, desktop and laptop computers, and diskettes. Look for potential weak spots.
Require passwords for access to computers containing sensitive information. For example, Visa International had a desktop computer stolen that contained confidential information on thousands of credit card accounts. Passwords ensure that nobody can access confidential information and trade secrets on a stolen computer.
Follow security procedures that are routinely updated and monitored.
For a smaller business, perhaps a locked filing cabinet is enough security. Bigger companies might need security officers, secure zones and badges.
There are a number of formal legal protections that businesses may consider, such as patents or registered trademarks.
Patents deal with inventions, designs and processes (such as a new software design or a new process for creating a waterproof fabric). These sorts of inventions, designs or processes may be protected by registering a patent.
A trademark is a way of identifying a unique product or service - such as a 'brand', a logo, letter, number, phrase, word, sound, smell, shape, picture, movement, type of packaging, or some combination of these.
If a business is working on some highly valuable information, and wants to ensure that it is protected even if it is leaked to the public, then the business may consider these sorts of legal protections. We discuss these matters further in our guide "Someone has Stolen my Intellectual Property, what should I do?"
If you are concerned that your business's secret information may be released, you have a few remedies available. In any case, you should act quickly.
You have the best chance of success if you have business contracts in effect that provide you with the relevant protections - so this is why it pays to get these things right in the first place.
As a simple first step, you may consider sending the offender a General Cease and Desist Notice. If you are dealing with an infringement of your intellectual property rights then you may consider using a Trademark Infringement Cease and Desist Notice or a Copyright Infringement Cease and Desist Notice instead. These notices may be used to notify the offender that you are aware of their infringement, and are ready to take further action if they do not immediately stop what they are doing.
If the offender has breached a legal obligation towards you (for example, if they have actually breached a clause of a relevant contract) then you may consider taking legal action to seek an injunction.
An injunction is an order from a court, preventing the person from sharing the relevant information. Seek legal advice for assistance with this.
If the information has already been released, or if an injunction is otherwise not appropriate, then you may consider taking legal action to seek compensation from the offender. Seek legal advice for assistance with compensation claims.
There are many different kinds of business information that you may want to keep secret, and many steps that you can take to achieve this.
It is important to plan ahead, and to make sure that you have the correct documentation in place from the beginning. These should be combined with sensible practical steps in your day to day operations, to ensure that the information is managed carefully.
Finally, if there is a breach of secrecy or a leak of information, then it is important to act quickly. And as always, if in doubt at any stage, then seek legal advice.