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6 August 2018 0 Comments
Posted in Dispute Resolution, Employment, Opinion

What’s the secret? New protection for company trade secrets comes in to force

Author headshot image Posted by , Partner
Contributing authors: Nicola Radcliffe

One of a company’s biggest assets is its knowledge, including secret formulas, bespoke selling methods, customer lists, software algorithms and designs.

trade secrets data royds withy king

Confidential information and trade secrets have real commercial value to a business and appropriate steps should be taken to ensure that they are protected. Equally, when trade secrets have been unlawfully passed on to competitors, it is important that you are aware of what practical steps you can take to minimise the damage.

Companies in the UK have historically benefited from confidential information protections, developed largely through case law. However, last month these protections were formalised through the implementation of the Trade Secrets (Enforcement, etc.) Regulations 2018 (“the Regulations”). So what does this mean for your business?

What is a trade secret?

Trade secrets provide a commercial advantage to a business as the information is not generally known or readily accessible to competitors. Well-known examples include the recipe for Coca Cola or Google’s search algorithm, but could also include a company’s business or marketing plan.

Under the Regulations, a trade secret is information that is defined as:

  • a secret, in 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
  • has commercial value because it is a secret, and

has been subject to reasonable steps by the holder of the information to keep it a secret.

What should your business do?

There are a range of steps a company should take to ensure trade secrets are given adequate protection within a business.

  • Update employment contracts to include confidentiality clauses which reflect the new legislation and ensure post-employment restrictions adequately cover the non-disclosure of trade secrets and confidential information
  • Review employee handbooks and policies to ensure staff are aware of their obligations relating to trade secrets and that they should keep certain information confidential
  • Organise regular training for staff so that they fully understand what constitutes a trade secret and to make them aware of the competitive importance of keeping certain information strictly within the business
  • Inform your staff of the steps a company can take if confidential information or trade secrets are passed on to a third party – this will need to be done sensitively and with care to act as a deterrent
  • Conduct exit interviews for leaving staff and remind them of their post-employment restrictions relating to the disclosure of confidential information
  • Implement IT controls so that important information within the business is kept on a need to know basis, and
  • Ensure that when a colleague is brought in on a confidential project, they are aware at the outset that the project information and materials should not be disclosed to anyone inside or outside the business.

What if a secret gets out?

However well an employment contract is drafted or company staff are trained, there is always a risk that a director, business partner or employee leaving the business may still disclose important trade secrets or confidential information to a third party.

It is in a company’s interest to seek advice as soon as it becomes aware that a current or former individual within the business discloses a trade secret to a third party. The Regulations provide a number of remedies in situations where a breach is threatened or has occurred:

  1. Injunction

If there is a threat that confidential information or a trade secret will be disclosed to a third party, but the disclosure hasn’t yet occurred, the company can apply to the court for an injunction to prevent the information from being disclosed. It is important that you act quickly to prevent the disclosure and minimise the risk of harm to your business.

  1. Damages

In the event that a breach has already occurred, a company can claim for damages to compensate for any losses arising from the breach.

  1. Account of profits

As an alternative to damages, a court may order that the defendant must pay the profits generated from the unlawful use of the confidential information.

  1. Delivery up or destruction

Where confidential information is contained within physical or electronic materials, the company may request the court that these are returned to the company or, in the alternative, destroyed.

Comment

Whilst the protection of confidential information and trade secrets was already largely in place for UK companies, it is welcome that these protections are now formalised within the Trade Secrets (Enforcement, etc.) Regulations 2018.

However, it is important that companies do not become complacent and trust that the Regulations and confidentiality clauses within employment contracts will provide sufficient protection on their own. Other practical steps should be taken on the ground to minimise the risk that trade secrets could be disclosed and companies should act quickly in the event that any confidential information does fall in to the wrong hands.


Our Employment team can assist in reviewing company employment contracts and employee policies and handbooks to maximise the protection of trade secrets and confidential information within your company; as well as training your staff on the importance of maintaining confidentiality and the associated risks of failing to do so.


If you are concerned that important company information has already been disclosed to a third party, or the disclosure of any information is threatened, our Dispute Resolution team can help you act quickly to ensure that any risk to the company is minimised and that you are adequately compensated for a breach.


 

If you have an enquiry, please contact us on:

0800 923 2073     Email usenquiries@roydswityking.com

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