Introduction

Confidential information is derived from the common law. It is a recognition by the Courts that information that takes time and effort to assemble or which is the result of much experimentation or which reflects an inventive insight has value and is accordingly entitled to be protected if it is appropriately treated by the owner of the information. Although the basis of the law is simple, the application of the law is not.

The Law

(a) Introduction

There are two basic requirements for the protection of confidential information:

1. the subject matter which is sought to be protected must be confidential; and,
2. the subject matter must have been communicated from the disclosing party to the receiving party in circumstances which impose an obligation of confidence on the receiving party.

(b) The Nature of the Subject Matter

For information to be capable of being protected as confidential information, the information must be secret, i.e. it must not be public property or comprise public knowledge. Protectable confidential information, which is known as "objective knowledge" is exemplified by trade secrets such as details of designs and specifications including drawings and plans. Information is not protected by the courts if the owner of the information does not treat the information as confidential. Thus, the owner of the information should only disclose the information to those who have a need to know the information.

Information may be protected as confidential even if the material from which it is developed is in the public domain. Thus, if an individual expends time, skill or money to enhance the value of public information, the resulting information may be considered as confidential.

The protection given to confidential information generally is lost if it can be shown that the information is well known in the trade and is freely available for use and disclosure by the trade.

(c) Communication in Circumstances of Confidence

The second basic requirement for the protection of confidential information is that the information must have been disclosed in circumstances which give rise to an obligation of confidence. If information is imparted during the course of confidential negotiations, then the information may well be protected in the absence of a written contract. Whether or not there exists a sufficient air of secrecy during the disclosure of information is a question of fact. One of the factors to be considered is the relationship between the disclosing party and the receiving party. The more intimate the relationship between the parties, the more likely it is that the court will hold there to be an air of confidence when the information is disclosed.

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Why Use a Contract

Often persons have valuable proprietary information which they are concerned about protecting. The information may arise from an invention which they have developed and which they wish to have patented. Alternately, they may have expended much time and effort in collecting information which is otherwise available to the public. Regardless of the source of the information, if a person has confidential information and it becomes necessary to disclose this information to another person, that confidential information is generally best protected by a confidential disclosure agreement. A signed formal contract can provide much of the proof which would be required in a court to prove that the subject matter is confidential and was communicated in circumstances which impose an obligation of confidence.

However, the practicalities of any particular situation must be kept in mind. The information may have already been disclosed. Alternately, the disclosee may be unwilling to sign a confidential disclosure agreement. In this type of case, it may be best to construct the disclosure and subsequent communications with the receiving party so that it would seem to an objective observer that the information was communicated in confidence.

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Confidential Disclosure Agreement

A confidential disclosure agreement is a contract. The wording of such an agreement is flexible. The final form of a signed agreement will reflect the terms and conditions which are important to the discloser and those which are acceptable to the disclosee. In addition, a confidential disclosure agreement should be executed prior to the disclosure of the confidential information to the disclosee.

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