Trade Secret Enforcement In Canada: How Rights Holders Can Secure Justice

Since the value of a company is increasingly made up of intangible assets, including intellectual property such as trade secrets, as opposed to tangible (e.g., bricks and mortar) assets,[1] protecting and securing those important assets is vital to a company's long-term success. To this end, understanding how trade secrets are enforced will enable companies to proactively prepare their business operations in the event - hopefully, unlikely - they need to engage the legal system to protect company value.

In simple terms, a trade secret is any information of commercial value that an organization or individual does not want revealed to another organization or individual, where reasonable measures have been put in place to keep it a secret. From a high level, trade secret infringement cases often start with the same story. An employer, Company X, operates in a niche market. Its employees have come to understand and retain confidential nuances of Company X's business and the market, whether technical (e.g., software source code) or otherwise (e.g., customer lists).

Some employees decide to leave Company X (or are terminated) and start their own business, Company Y, which competes against Company X. Company X notices this new market entrant that walks and talks likes Company X. Company X decides that it needs to take legal action against Company Y.

The next questions for Company X are, "What are my legal rights, and how do I enforce those rights against Company Y?" This article, which addresses those questions from a trade secret perspective, contrasts the Canadian approach with the new Defend Trade Secrets Act in the United States and then considers how the regime in Canada can potentially be improved.

Trade secret enforcement in Canada

Jurisdiction

There is no Trade Secrets Act or equivalent statute in Canada. Trade secret law is instead based on common-law principles enforced through common-law torts, such as of breach of confidence or breach of fiduciary duties. Additionally or alternatively, trade secrets may be enforced based on a breach of contract claim (e.g., breach of non-disclosure agreement).

An aggrieved trade secret owner can therefore seek relief only in provincial Superior Courts, for alleged misappropriation of trade secrets. Provincial Superior Courts have inherent jurisdiction to hear most civil claims, while Canada's Federal Courts have only statutory jurisdiction. Without a statute granting the Federal Court jurisdiction over breach of confidence or non-disclosure claims, the Federal Court has no jurisdiction to address such claims.

This jurisdictional divide raises strategic considerations before a proceeding is commenced. For example, assume Company X has source code that it believes was stolen by its former employees, now founders of Company Y. Company X may therefore have causes of action for copyright infringement in addition to causes of action for breach of confidence, breach of contract and/or breach of fiduciary duties. Pursuant to the Copyright Act, Company X can bring its copyright infringement claim in the Federal Court and perhaps take advantage of the judiciary's expertise in case managing and hearing intellectual property cases. Company X may also want to take advantage of the Federal Court's commitment to getting complex intellectual property cases to trial within two years. In trade secret cases, where market shares in niche markets can start to erode quickly without Court intervention and where getting a judgment quickly affects what remedies will be available, that two-year trial commitment can be crucial.

However, Company X has a problem. The Federal Court will not entertain the breach of confidence, breach of contract and / or breach of fiduciary duty claims. Its claim in the Federal Court would be limited to copyright infringement. This situation arose in Netbored,[2] where the Federal Court struck Netbored's claims for "breach of contract, breach of obligation of confidence and breach of fiduciary duty." The Court's analysis was brief and simple:

This is an action for infringement of the plaintiff's copyright. The plaintiff's allegations in the impugned paragraphs of the Statement of Claim relating to breach of contract and breach of fiduciary duty and the like are not advanced for the purpose of establishing infringement. Rather, they are advanced for the purpose of obtaining relief in respect of those breaches themselves. As such, this Court lacks jurisdiction to entertain...