The recipe for Coca-Cola is one of the most famous trade secrets in history, safeguarded for over 130 years. This example illustrates the critical role trade secrets play in protecting valuable business information.
In Australia, while trade secrets are crucial to maintaining a business’s competitive edge, they lack a specific statutory framework, unlike patents or trademarks. Instead, their protection relies on contractual obligations, equitable doctrines, and various legislative measures.
Defining Trade Secrets
A trade secret refers to confidential business information that gives a company a commercial advantage because it remains unknown to the public. This can include manufacturing processes, client lists, or proprietary formulas.
Australia does not offer a clear statutory definition for ‘trade secrets’. In Searle Australia Pty Ltd v Public Interest Advocacy Centre & Anor [1992] FCA 241, the court understood trade secrets as part of the broader category of confidential information rather than defining them distinctly. World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which provides guidance on what constitutes “undisclosed information.” TRIPS defines such information as:
- Secret: The information must not be generally known or readily accessible.
- Commercial Value: Its value must stem from its secrecy.
- Reasonable Steps to Protect: The owner must have taken reasonable measures to keep it secret
In Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VicRp 7 at [44] stated that ‘an exact definition of a trade secret is not possible.’ The Victorian Court outlined six key factors for determining whether information qualifies as a trade secret:
- The extent to which the information is known outside the business.
- The extent to which it is known by employees and others involved in the business.
- The measures taken by the owner to guard the secrecy of the information.
- The value of the information to the business and its competitors.
- The amount of effort or money spent developing the information.
- The ease or difficulty with which the information could be properly acquired or duplicated by others.
Further, in Del Casale & Ors v Artedomus Pty Ltd [2007] NSWCA 172, the court examined factors that impose an obligation of confidentiality on employees, including the degree of seniority and responsibility of the employee and the industry norms that support confidentiality claims.
Legal Tools for Protecting Trade Secrets
In Australia, protecting trade secrets relies heavily on contractual and equitable principles:
- Confidentiality Clauses: These clauses are a fundamental tool used in employment and business contracts to ensure sensitive information remains protected. Employers should make it explicitly clear that certain materials are confidential.
- Non-Compete Clauses: These clauses, typically in employment contracts, limit former employees from engaging in competitive activities using the company’s trade secrets. Such clauses, while sometimes controversial, remain a powerful tool when used reasonably. For a more detailed exploration of this topic, we recommend reading our article: Restraint of Trade in Settlement Deeds and Employment Contracts.
- Exclusivity Clauses: By restricting the sharing of certain information or products, these clauses help ensure that trade secrets are safeguarded from external competitors.
- Non-Disclosure Agreements (NDAs): NDAs are vital for protecting sensitive information. They create a contractual obligation for recipients of confidential information to maintain secrecy, with legal recourse available in the event of a breach.
What Cannot Be Protected?
Certain types of information, particularly those widely known or easily replicated, cannot be protected as trade secrets. For instance, generic formulas in industries such as cosmetics cannot be classified as trade secrets. This underpins why duping of products is a common occurrence in such types of industries. Additionally, any information that lacks commercial value due to its accessibility is outside the scope of trade secret protection.
Legal Recourse for Breach
Australian law offers several remedies for breaches of trade secrets, with the most prominent being equitable actions for breach of confidence. In Smith Kline & French Laboratories (Aust) Ltd v Secretary, Department of Community Services and Health [1991] HCA 13, the court established four essential elements of an equitable obligation of confidence:
- The plaintiff must identify the information specifically, not in global terms.
- The information must have the necessary quality of confidentiality (i.e., it is not public knowledge).
- The information must have been received in circumstances that imply an obligation of confidence.
- There must be actual or threatened misuse of the information.
Multiple cases have affirmed this principle, showing that a breach of confidence can exist purely under equitable obligations without needing an express contractual term.
Legislative Protections
Although businesses primarily protect trade secrets through contractual and equitable means, statutory protections also exist. For example:
- Corporations Act 2001 (Cth), section 183, imposes a duty on directors and employees to not improperly use confidential information for personal gain or cause detriment to the company, even after employment ends.
- Other laws, such as the Australian Consumer Law (ACL) and Privacy Act 1988 (Cth), also provide ancillary protections in specific contexts.
Remedies
When a breach of trade secrets occurs, courts can provide several remedies, including:
- Injunctions: A court may issue an injunction to prevent the further use or disclosure of the trade secret.
- Damages: Financial compensation for losses incurred due to the breach.
- Account of Profits: In cases where the misuse has generated profit, the court may order the defendant to hand over these profits.
Additionally, remedies such as ‘Anton Piller’ orders allow for the seizure of evidence to prevent the destruction of key materials in a trade secret dispute.
Conclusion
Trade secrets are an invaluable asset to businesses in Australia. While the law does not offer specific statutory protection, the combination of contractual clauses, equitable principles, and legislative measures ensures businesses can protect their confidential information effectively. By using tools such as NDAs, confidentiality clauses, and non-compete agreements, businesses can safeguard their competitive edge. Courts offer a range of remedies, from injunctions to damages, to enforce these protections.
To protect trade secrets effectively, businesses must adopt strong protective measures and take swift legal action when breaches occur, ensuring that their confidential information remains secure and valuable in a competitive marketplace.
If you require qualified legal advice, our experienced team of solicitors at Jake McKinley are here assist. Please get in touch with us here
