A trade secret may generally be described as information which is known only by employees of a specific business and can include formulas, ideas, processes or a compilation of information. Trade secrets are used by a business to obtain an advantage over its competitors in the market. In short, the “know-how” that businesses keep a secret to prevent the public or competitors from learning about it.
Protection in terms of legislation?
South Africa does not have specific legislation governing trade secrets or know-how. Unlike other forms of intellectual property such as patents, copyrights and trademarks, trade secrets are often described as a do-it-yourself form of protection. There is no registration with a government or regulatory authority and the basis of protection relies on your ability to keep the information confidential.
A good example of a properly protected trade secret, and probably also the world’s most famous trade secret, is the formula for Coca-Cola. Until fairly recently, this formula was locked in a bank vault that could only be opened upon a resolution being taken by the Coca-Cola Company’s Board of Directors. Only two Coca-Cola employees ever know the formula at the same time and their identities are never disclosed to the public. This protection extends to such a degree that these employees are not even allowed to fly on the same airplane.
So, how can you protect your trade secrets?
The protection of a trade secret only lasts for as long as the secret is kept confidential; once it is made available to the public, the protection ends, and the business loses its legal recourse.
- Employees or Contractors/Suppliers
One way of protecting trade secrets from misappropriation, is by incorporating confidentiality and restraint of trade clauses in all in employment contracts and service contracts for contractors or suppliers.
A confidentially or restraint of trade clause should incorporate the duty not to disclose trade secrets and confidential information belonging to the business and this would prevent a person from using any confidential information gained through the course of employment or providing services to the detriment of the business.
An employee who breaches this duty while still employed may be dismissed for breach of an express or implied term of his employment contract or a fiduciary duty.
If the disclosure is made by a former employee or a contractor/supplier, you can take legal action in the form of applying for an interdict and claiming damages.
The unauthorized acquisition, use or publication of a competitor’s trade secret would be seen as a form of unlawful competition under South African law. Should this be the case, you will be entitled to apply for an interdict and claim damages.
To be successful in an interdict application or a claim for damages, you need to prove that:
- you have an interest in the information (does not always have to be ownership);
- the information is confidential in nature;
- there is a relationship between the parties from which a duty arose to preserve the information (employee/supplier) or the information was obtained improperly (competitor);
- improper use is being made of the information;
- you suffered damages as a result.
Practical tips to protect your trade secrets:
- Mark documents containing trade secrets as “Confidential”;
- Restrict access to trade secret materials after business hours;
- Only provide access to secret information to people with a reasonable need to know;
- Document and keep a record of trade secrets;
- Have policies in place dealing with trade secrets in the business environment;
- Monitor use of electronic resources or networks by employees or suppliers;
- Ensure employees understand the importance of confidential information and add appropriate clauses to employment contracts;
- Put security measures in place on computer networks and maintain information security with password protection;
- Have suppliers, contractors and other third parties sign non-disclosure agreements or include confidentiality/restraints in contracts;
- Dispose of confidential information by shredding or other means.
All business owners know that trade secrets are an important part of a business and protecting it is essential.
If you need assistance with enforcing the protection of your trade secrets, do not hesitate to contact us.
This article should not be used or relied upon as professional advice and is for information and marketing purposes. Please consult with one of our attorneys should you need legal assistance relating to this area of law.