M+A: Confidentiality & the need for an NDA

Introduction

If you disclose commercially sensitive information to someone in the course of negotiating a business deal are you in jeopardy of losing control of that information if you don’t have a confidentiality agreement (also called a non-disclosure agreement) in place?

The answer is no, not necessarily. This is because the law of equity (which is a branch of the general law of Australia) will protect your confidential information without the need for such an agreement.

Confidential information protected by the law of Equity

Under Australian law a person who receives information:

  • of a confidential nature (which means the information is not in the public domain),
  • in circumstances importing an obligation of confidence,
  • must not use that information to the detriment of the party communicating it.

Equity will (in circumstances where the information can be identified with specificity) restrain any threatened abuse and otherwise will hold the person to whom the information has been disclosed (the confidee) accountable for any profits acquired by such improper use.

The claimant (i.e. the confider), must show that the information was of a confidential nature (it’s a good idea to mark such information “Private & Confidential” although this alone does not determine the character of the information) and not a matter of common knowledge. Determining whether information is confidential involves a question of fact in each case – which means that there is always room for argument.  In the modern context it is generally regarded as information which is key to a profitable business in the industry in which the business operates, and it is material which has been amassed by the business so that it can run a competitive business in that industry.

Information may have the necessary quality of confidence if one or more of the following applies:

  • it is inaccessible information – in that it is not in the public domain
  • measures are taken to protect its secrecy
  • it is only accessible by certain categories of people within the organisation eg senior employees
  • it has a demonstrable value to the business and its competitors
  • effort and money was/is spent on developing and protecting the information
  • it is plainly known that the information is considered confidential (nevertheless substance prevails over form – merely calling information confidential does not make it confidential in the eyes of the law)
  •  it would be difficult to acquire or duplicate the information.

Trade secrets

The best example of confidential information is the trade secret because it will be protected under all circumstances.

There is no universally accepted definition of trade secret: Straughton LJ in Lansing Linde Ltd v Kerr described a trade secret as:

”… information which if disclosed to a competitor would be liable to cause real (or significant) harm to the owner of the information.  It must be information used in trade or business and the owner must limit the dissemination of it, or at least not encourage or permit widespread publication.”

The information must be in the nature of a secret, but need not be completely secret.

Examples of information that have been held to constitute trade secrets include:

  • marketing strategy & trends
  • pricing methodology
  • detailed business data (one case that came to court involved the significance of weather patterns and storm damage analysis relating to various agricultural regions of Australia. The business provided crop insurance policies for businesses engaged in agriculture and the information was held to be a trade secret)
  • new technological development
  • unpatented invention
  • detailed customer profiles – but this is a grey area.
Page: 1 2Full Article