The ‘Law' On Trade Secrets

When Colonel Harland Sanders opened the first Kentucky Fried Chicken outlet in 1952, neither he nor anyone else could have foreseen that it would grow into 18,875 locations generating US$23 billion in revenue a year, and all due to one trade secret, the "Original Recipe".

Coca-Cola, the world's most valuable brand for 13 consecutive years1 at US$80 billion and based on a sugared beverage served 1.8 billion times a day, was built on a 140-year-old trade secret that the label of ingredients gives no hint of.

A multi-billion dollar business empire can be built on trade secrets.

Every business has its secrets

While the average business may not have a billion-dollar-generating secret, it may not realise the value in their existing information. A business may have more trade secrets than meets the eye (and these are not limited to industrial or manufacturing processes).2

While the name of the individual client is not confidential, the list or database of clients on which a business has expended time and effort to compile may be.3

Business information relating to cost prices, quoted prices (which may vary depending on the particular supplier and client), past transaction records, specific needs and requirements of certain customers — which the business has learned over time — may also be regarded as confidential to the business.4

In the same vein, ongoing negotiations between contracting parties have also been regarded as highly confidential.5 Contracts, too, can be confidential in nature.6 If such information were to fall into a competitor's hands, clients may be poached and prices undercut.7

Information publicly available is not confidential as such. However, it is perfectly possible to have confidential information based on publicly available material, if it can only be reproduced by a laborious compilation process.8 The fact that it consists partly of public information does not mean it cannot be information confidential to a business.9

The list of what may be considered confidential is not exhaustive.10

Protection

As important and valuable as trade secrets are, the protection afforded by the law is not always adequate. Protection of trade secrets may take the following forms:

(a) copyright;

(b) patent; and

(c) duty of confidence.

Copyright

Copyright is the exclusive right granted for the exploitation of an artistic works, literary works, musical works, films, sound recordings and broadcasts. A customer database, information on prices, contracts and individual preferences of customers may qualify for copyright protection as literary works.

However, copyright protection of trade secrets is inadequate and often not...