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Breach of Confidence: Improper Use of Business Information Including Trade Secrets
Question: What constitutes a breach of confidence in the misuse of business secrets?
Answer: A breach of confidence occurs when confidential information is misused by someone to whom it was shared, and the key elements include that the information is confidential, it was communicated with an understanding of confidentiality, and it was misused. Protect your business’s secrets and ensure compliance with legal standards to avoid potential harm.
Misused Business Secrets
The success of a business may rely heavily upon secret recipes, proprietary software, unique systems, and customized processes; and accordingly, information relating to these key aspects may be highly valued with misuse of such confidential information quite harmful. The field of tort law includes a cause of action, meaning right to bring a lawsuit, known as breach of confidence which relates to the improper use of information by a person or other business with whom the confidential information was previously shared. Interestingly, where breach of confidence involves information that was previously shared, the wrongfulness arises from improper use of the information rather than theft of the information.
The Law
Per the Supreme Court in the case of Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574, the elements requiring proof so to constitute a breach of confidence case are:
- The information conveyed was confidential;
- The information was communicated in confidence; and
- The information was misused by the party to whom it was communicated.
Specifically, per Lac Minerals Ltd., the Supreme Court said:
I can deal quite briefly with the breach of confidence issue. I have already indicated that Lac breached a duty of confidence owed to Corona. The test for whether there has been a breach of confidence is not seriously disputed by the parties. It consists in establishing three elements: that the information conveyed was confidential, that it was communicated in confidence, and that it was misused by the party to whom it was communicated. In Coco v. A. N. Clark (Engineers) Ltd., [1969] R.P.C. 41 (Ch.), Megarry J. (as he then was) put it as follows at p. 47:
In my judgment, three elements are normally required if, apart from contract, a case of breach of confidence is to succeed. First, the information itself, in the words of Lord Greene, M.R. in the Saltman case on page 215, must "have the necessary quality of confidence about it." Secondly, that information must have been imparted in circumstances importing an obligation of confidence. Thirdly, there must be an unauthorized use of that information to the detriment of the party communicating it . . .
As a particularly interesting example case, Cadbury Schweppes Inc. v. FBI Foods Ltd., [1999] 1 S.C.R. 142 involved the licensing of the recipe for Clamato juice by Duffy-Mott (a company later acquired by Cadbury Schweppes Inc.) to Caesar Canning who then contracted production to FBI Foods Ltd. After Cadbury Schweppes acquired Duffy-Mott, Caesar Canning was notified of termination of the licensing agreement; however, FBI, who later acquired assets of Caesar Canning, made use of the recipe despite a lack of authorization to do so.
Conclusion
Improper use of secretive information may constitute as the tort of breach of confidence where information was confidential, information was communicated within a confidential context, and the information was then misused by the party that received the communication.