Intellectual Property and Confidentiality
Protecting the Assets of your Business

Intellectual property and confidential information are valuable assets of any business.

Many businesses may not understand or fully appreciate the value of that intellectual property and confidential information. They may also not become aware of the detriment to their business if this is not protected and/or becomes available to their competitors, until it happens. A business' "competitive edge" may depend upon practical and legal measures taken to protect those assets.

Businesses which adopt practical preventative strategies to protect their intellectual property and confidential information, minimise the risk of problems which necessitate litigation. Litigation imposes considerable burdens on a business (in terms of executive time and legal costs), particularly in a breach of confidence action, because of the complexity of the evidence to be provided.

WHAT IS INTELLECTUAL PROPERTY?

The term Intellectual Property refers to a range of items including products, designs, packaging, processes, artwork and procedures and includes confidential information.

It should be identified, documented and protected.

Protection can be through common law rights (through useage) and/or legislation.

 

Categories of Intellectual Property

	Copyright The person who creates works (literary, artistic, dramatic, graphic etc) is the owner of the copyright in those works unless: (a) When the work was created, he was employed by another party. In which case the works belong to the employer. (b) There is a specific arrangement between him (as the creator) and the party for whom he is creating the work that the copyright should vest in that latter party. Copyright does not protect concepts and ideas. However, it provides protection for creative expressions of such concepts and ideas. For example, drawings, photographs, plans, advertising layouts etc.
	Trade Marks Trade Marks are signs (words and/or logos) used by a business. They may identify a company or a business, goods or services etc and distinguish them from those of other traders. Registration of Trade Marks is divided into different classes depending upon the intended use of the Trade Mark. Registration is Australia-wide and you can also seek registration in other countries. Readily recognised examples are brand names like Coca Cola and the "golden arches" McDonald's Logo.
	Patents New products and processes may be able to be patented if they are novel, involve an inventive step and are industrially applicable. Registration of patents is Australia-wide and patents can also be registered in other countries. Patents generally give the holder a 20 year monopoly.
	Designs This can allow registration of a new or an original visual appearance of an article or product. It can be in respect to both 2 and 3 dimensional objects.
	Moral Rights You should be aware that the author/designer of intellectual property retains moral rights therein which can enable him/her to exercise some control over the use of the item. For example if Leonardo Da Vinci had painted the Mona Lisa now, he as the author could influence how it was used even if he had sold the original painting to the Louvre. He could, for example, object to its use to advertise cigarettes on the basis that this was not in keeping with his creation. The author/designer should be acknowledged on the item. This is a potentially difficult area which you may need to take specific advice upon.

Strategies for Protecting Intellectual Property

Firstly, you should be aware of the intellectual property which exists in your business and is created by or for it.

If an employee or contractor is engaged by your business, ensure your contractual documentation specifically provides that all intellectual property created by them is the property of your business.

Ensure that the intellectual property is properly identified and documented.

Then consider whether the intellectual property should be specifically protected as a trade mark, patent, design etc.

Sometimes, you can choose to protect it by keeping it confidential. The formula for making Coca Cola is an example of protection by secrecy/confidentiality.

WHAT IS CONFIDENTIAL INFORMATION?

Confidential information can be a wide range of information. It may be commercial or technical ("trade secrets"); literary or artistic, know-how; and is information not in the public domain. This could include customer lists, price lists, product lists, procedures (marketing, accounting, administration, manufacturing) by which your business is operated.

The essential element of confidential information is that the information must be secret. This means that the information must not be known to persons who have no obligation of confidentiality to the owner of the information. Obligations of confidentiality are protected by common law.

Strategies for Protecting Confidential Information

Some practical measures which may be adopted to protect confidential information (including, where appropriate, intellectual property) include:

Internal Security Procedures

Clearly marking documents as Aconfidential@ and securing them (for instance, in a safe or a locked filing cabinet). Your computer systems should be set up with Apasswords@ to limit and deter unauthorised access.

Reinforce with your personnel the confidential nature of documentation and the need to keep it secure.

Employees

Confidentiality problems can arise both during employment and when employees cease employment.

During the period of employment, an employee has a duty of good faith and a duty of confidentiality to the employer. The employee must not act in a way that is damaging to the employer's business.

After employment ceases, the employee retains the right to use any general skill, experience and knowledge he has acquired in the course of performing his normal duties, in order that he can continue to earn a living. This has to be balanced against the employer's right to protect its confidential information. If the employee has retained any confidential information, he is not entitled to use that information without the employer's authority.

Employment or Confidentiality Agreement

Employees should sign Employment Agreements to generally detail the terms of their employment. These should also include appropriate clauses which restrain the employee from making any unauthorised use or disclosure to third parties of confidential information during their employment and after their employment has ceased. Agreements should be signed before the employee commences employment. Existing employees should be encouraged to sign confidentiality agreements. However, usually they cannot be forced to do so.

Need to Know

Confidential information should only be disclosed to employees who need to know that confidential information to carry out their duties.

Reiteration

Employees should be regularly instructed about their duty of confidentiality. Employees should also be encouraged to adopt a 'clean desk' policy requiring that all papers be locked away at the end of the day. Familiarity can lead to people forgetting that a document is confidential.

Cessation of Employment

When employees cease employment, the employer should give them a letter confirming this, any monies being paid to them and reminding them of their confidentiality obligations. The employee should also be requested to return all property belonging to the employer and to sign an appropriate acknowledgement confirming that he has done so and will keep information confidential.

Independent Contractors/Consultants

If your business engages independent contractors to perform work, then your agreement with the independent contractor should include:

-	An obligation of confidentiality on the part of the contractor.
-	An acknowledgement that the confidential information disclosed to and/or developed by, the contractor will be treated as such.
-	If the contractor's services for your business are to be performed by its employees or subcontractors, you should also have those employees or subcontractors sign a confidentiality agreement.

Other Disclosures

Your business may need to disclose their confidential information in many other circumstances, for example;

-	Disclosure of financial information to your bank.
-	Disclosure of a new product or idea to your advertising agency.
-	Negotiations on new business opportunities. At the discussion stage before parties know whether they will deal with each other, disclosure of confidential information about one or both party's business can occur.
-	Negotiations to sell your business or where a party wishes to take equity in your business - that party will usually require to conduct a due diligence of your business.

When deciding whether to disclose confidential information in business dealings, assess the risk depending upon the context and take appropriate preventive action including signing a confidentiality agreement.

Confidentiality Agreements

If confidential information is to be divulged, a confidentiality agreement should be signed before the disclosure is made.

The type of agreement will vary depending upon the nature and context of the disclosure. A simple exchange of letters may be sufficient or a formal confidentiality agreement may be required. In some cases, a confidentiality agreement must be made as a Deed in order to be legally enforceable. This is where there is no consideration expressed for the agreement to keep information confidential.

A confidentiality agreement should include the following acknowledgements:

-	the information is secret;
-	the disclosure is made to the recipient in confidence;
-	the recipient will not disclose the information to others or use the information for their own advantage, without the prior authority of the owner of the information; and
-	the unauthorised disclosure of the information could cause loss and damage to the owner of the information and the recipient will be liable for this.

ACTION FOR BREACH OF CONFIDENCE

The common law action for a breach of confidence is used to protect confidential information. There is no registration system for confidential information (as is the case with other forms of intellectual property, such as Trade Marks, patents and designs).

The Courts may provide remedies (eg. injunctions) to prevent the unauthorised use or disclosure of confidential information. If the disclosure or misuse has already occurred, the Courts may award appropriate compensation in the form of an account of profits or damages.

To succeed in an action for breach of confidence, you must establish that;

-	the information is confidential;
-	the information was disclosed in circumstances demonstrating an obligation of confidence; and
-	an unauthorised use of the information to the detriment of the owner has been made.

It may be difficult to successfully prove a breach of confidence action if you do not have a confidentiality agreement.

Awareness, documentation, procedures and (if possible) registration are the best forms of protection of intellectual property and confidential information.

 

DISCLAIMER
This article is general in nature and for information only. It should not be acted upon without obtaining specific legal advice.

 

©Anne Hodgson & Co Lawyers,
Tel: 03 9578 7444 Fax: 03 8677 2962 Email: info@hodgsonco.com.au