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Breach of Confidence: Improper Use of Business Information Including Trade Secrets
Question: What are the legal implications of misusing business secrets in Canada?
Answer: Breaching the confidentiality of business secrets can lead to serious legal consequences under Canadian law. The tort of breach of confidence, as established in the Supreme Court ruling Lac Minerals v. International Corona, [1989] 2 S.C.R. 574, requires proving that the information was confidential, shared in confidence, and misused by the recipient. Businesses must take care to maintain confidentiality to protect proprietary information and avoid unauthorized use, which can lead to legal disputes. For comprehensive guidance, contact Forseti Legal Services.
Misused Business Secrets
In business, the product recipes, proprietary software, systems and processes, among many other things, may be highly valuable and the misuse of such confidential information may result in considerable harm. Generally, breach of confidence involves the wrongful use of information that was openly shared with the party that subsequently misuses the secretive information; and in this respect, breach of confidence differs from theft of trade secrets which would involve an element of misappropriation.
The Law
As per the case of Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574, a Supreme Court decision, the elements that must be proven within 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.
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