Protecting your ideas: what you need to know about the law of confidence and NDAs

During the bit between Christmas and New Year, it is great to watch old movies and eat leftovers, but there is also plenty of time for the mind to wander. This may be your opportunity to get creative in terms of your work or business and come up with a new business idea or a better method for doing what you are already doing. Such ideas could be highly valuable to you or your business and give you a commercial advantage. So, before you rush off and tell everybody, it is worth thinking about how this could impact on the protection available to you, if someone steals your idea or misuses your sensitive business information.

The law of confidence is a common-law form of protection which has developed to prevent the recipient of confidential information from using it for their own advantage. It is one of the main forms of protection that applies to commercially sensitive information, which cannot qualify for protection as a patent or copyright, or which can only be so protected to a limited extent.

If the information has the necessary quality of confidence and it was disclosed in circumstances importing an obligation of confidence, the information should be protected from unauthorised use.

What is the necessary quality of confidence?

This will depend on the facts, but in most cases, it will encompass information which is not in the public domain and someone has had to apply skill and ingenuity to produce it (be it perspiration or inspiration.)

What are circumstances importing an obligation of confidence?

This is where the recipient of the information knew, or ought to have known, of the confidentiality and had an obligation to keep it confidential. This is therefore an objective test. It is also implied in some relationships, such as that of employer and employee. To avoid any doubt, though, the obligation is often imposed expressly in an agreement, marking documents “confidential” or by verbally explaining that something is confidential.

The Trade Secrets Regulations 2018

In addition to the common-law of confidence there is also a statutory regime for protecting “trade secrets”. Under the Regulations, test for what constitutes a trade secret is arguably different to the test that applies to determine whether information is confidential at common law. A ‘trade secret’ is defined as information which is “secret in a sense that it is not…generally known among, or readily accessible to, persons within the circles that normally deal with the kind of information in question”. The information must also have “commercial value” and there should have been “reasonable steps” taken to keep it secret.

As an example, perhaps the idea is for a new retail concept, which will reinvigorate the high street (please!) It may require input from others to refine, or perhaps you just want to sense-check the idea with someone else. Your friend knows someone who works for a large retailer and you agree to meet for a coffee in a cafe. Should you be getting her to sign something first? The “something” would be a non-disclosure agreement, but isn’t that overkill for a coffee?

Not necessarily. The coffee shop is an informal setting and the parties are meeting unofficially. The conversation could meander from the general, to the specific and back again. There is no special relationship between the parties.

This could make it difficult to argue that the information was imparted in circumstances that imported an obligation of confidence at common law, or that reasonable steps were taken to keep it secret under the Regulations. Once the conversation is in full flow, it may be clear to the retail expert that she is hearing something wonderfully novel, brilliant and that could be transformational for her industry.  It may exhibit the necessary quality of confidence, but there can be no guarantees that objectively viewed, the information should be treated as confidential, or that it qualifies as a “trade secret”; you are relying on the integrity and skill of the recipient to recognise the obligation, and she may be a rogue!

What precautionary steps should you take?

It would be prudent for businesses to assess the ways in which they deal with, and look to protect their sensitive information, with contractual clauses or specific non-disclosure agreements (NDA). An NDA will remove the uncertainty of relying on the common-law and provide evidence of steps taken to protect a trade secret under the Regulations. They are common-place in business and will set out exactly what the purpose of the discussion is, how the information is confidential and what the recipient can do with it. Further clauses can be added to protect you from solicitation of staff, customers or business relationships, if these are relevant. An NDA does not need to be one-sided, generally they are mutual.

Any documents under discussion should also be marked as confidential, and access restricted to only those that need to see it. It would be sensible to keep a record of exactly what information has been shared in confidence, so if action needs to be taken, you can prove what information the recipient has in their possession.

Consider the effectiveness of the confidentiality obligations in your employment contracts, and having policies and procedures for the use of your sensitive information. Think about your physical and electronic security systems, and whether an audit would be worthwhile.

How can businesses deal with a breach?

Businesses seeking court protection need to take action promptly to restrain any misuse of their confidential information or trade secrets. Delay is a bar to obtaining an immediate injunction, so acting as soon as you discover the problem is key.  A Cease and desist letter to secure suitable written assurances would normally be the first step, followed by court action if the situation is sufficiently serious.