Software/High Technology Practice Group Newsletter
Spring/Summer 2004
Keeping Secrets: The Importance of Confidentiality for High Technology Companies
Every great idea starts off as a secret. One person or a small group comes up with the idea and at the outset it is known only to them. Moving an idea from development, to prototype building, market analysis and commercialization usually involves other people. When working with potential investors, researchers, engineers, collaborators, consultants, customers and others, it is important that the idea not slip into the public domain.
Confidential Information
High technology inventions are particularly susceptible to accidental or malicious public
disclosure. Software is easily and undetectably duplicated. Hardware devices can be tested and analyzed to determine how they function. Even integrated circuits and multi-layer circuit boards can be reverse engineered with sufficient effort.
Other types of information proprietary to a company including trade secrets, know-how, data, business practices and customer lists, may also be protected as confidential information.
Generally speaking, confidential information is any commercially valuable information that is known to a company, not generally known to the public and which the company treats as confidential. Information may be considered confidential to a company, even if it is known to others as long as it is not generally known. For example, two companies may have independently developed (or purchased) and own almost identical confidential information. The law of confidential information enables a company (or person) to commercially benefit from confidential knowledge while maintaining control over disclosure. If the information is in fact confidential, and if the owner of the information treats it as confidential, then the law of confidential information may protect against disclosure or wrongful use of the information.
Internal Procedures
At a minimum, all company documents, products, software and other materials that contain confidential information should be marked “CONFIDENTIAL”.
One common leak of confidential information is through employees and consultants. Disclosure of confidential information within the company should be carefully limited. All employees who may have access should be required to sign a confidentiality agreement, regardless of seniority or role. The agreement should provide that all company information is confidential and proprietary and that the employee may not discuss it without permission. All non-employees (e.g. consultants) should be hired under a written agreement that protects the company’s confidential information from misuse.
These obligations may be part of a more comprehensive employment or consulting agreement, that also covers non-competition, assignment of intellectual property rights and other issues. Employees should be reminded of their obligations regularly. One way is to require each employee to sign a copy of the company’s confidentiality policy annually. Departing employees should be briefed and reminded of their obligations and that these obligations continue after termination of employment.
In start-ups and small organizations, the biggest leaks can come from company founders and inventors. In early stages, it is important to disclose confidential information only on a “need-to-know” basis.
Confidentiality in Third Party Relationships
When secret information is disclosed to another party (“recipient”), they must be obligated to maintain the secret. Typically, the recipient is required to sign a non disclosure agreement (“NDA”) providing:
i. The purpose for disclosing secret information to the recipient and limitations on how the recipient may use the information.
ii. The time period during which the recipient may make that limited use of the information.
iii. The recipient’s obligations to return any documents or other materials that include any part of the confidential information.
iv. The term of the confidentiality obligation. In some cases, the term may be indefinite.
An NDA may be part of a larger agreement that deals with other issues such as non competition, ownership of inventions made during collaboration, joint venture arrangements and other matters.
Confidentiality and Patent Protection
Many inventions are best protected by patent. However, since patent applications are published 18 months after they are filed, an invention will become publicly disclosed if a patent application is filed.
Confidentiality is still important even when an invention is being patented. Patents are issued on a country-by-country basis and most require that an invention have “absolute novelty” at the time of filing, that is, that the invention has not been publicly disclosed anywhere in the world prior to filing. There is a so-called “grace period” in Canada and the United States that allows a patent application to be filed within one year of public disclosure.
Any disclosure of an invention prior to the filing of a patent application should only occur under an NDA. Confidentiality should be maintained even after an application is filed to take maximum advantage of the 18 month period before publication. Related information that has not been included in a patent application should be kept confidential even after the application is published.
Edited by Isis E. Caulder. Please send feedback and suggestions to Isis at icaulder@bereskinparr.com.
The contents of this update are informational only, and do not constitute legal or other professional advice. To obtain such advice, please contact one of our group members.
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