information &
trade secrets

Confidential information and trade secrets

Confidential information, including know-how and secret information, can be the most valuable intellectual property in your business.

The ‘owner’ of confidential information may seek the exclusive right to determine who may use the information, and on what terms. Confidential information is not classified ‘property’ in Australia, as it is in the United States, but it can be sold or licensed.

The protection of company data is a growing problem because of outside threats from network attacks and inside threats from employees and contractors. It is often agreed in a contract that confidential information must not be used or disclosed other than for the reason it was communicated. This is common in employment contracts with employees, service agreements with independent contractors and licensing agreements with licensees.

We have extensive experience in confidentiality and trade secrets, and can advise you on:

  • identifying confidential information and trade secrets
  • developing a written protection policy, including the procedures to maintain confidentiality and computer security
  • drafting confidentiality and non-disclosure agreements
  • advice on, and preparation of, agreements which protect confidential information and trade secrets
  • remedial action to address unauthorised disclosure or use of confidential information
  • when the protection of manufacturing, industrial and commercial information as a trade secret may be more appropriate than patents.

Establishing a breach

The following must exist to establish a breach of confidence:

  • the information must be secret; and
  • it must have been communicated in circumstances importing an obligation of confidence; and
  • there must be an unauthorised use or disclosure of the information.

Types of confidential information

Commercial information

  • advertising or business strategy
  • business sales statistics
  • client and supplier lists
  • consumer profiles
  • customer requirements
  • distribution and sales strategies
  • feasibility studies
  • marketing concepts
  • procurement planning
  • research data

Financial information

  • business plan
  • marketing plans
  • overhead and operating costs
  • profit and loss data

Know-how (practical knowledge as to how to accomplish something)

  • technical designs and drawings
  • formulae
  • instructions
  • manufacturing methods
  • patterns
  • procedures
  • quality control
  • technical information
  • techniques

Trade secrets

  • algorithms
  • blueprints and plans
  • breeding programs
  • computer codes
  • formulas for producing products
  • genetics
  • program
  • recipes
  • test data

Negative information

  • failed research and development data
  • unsuccessful test results

Keeping it quiet

  • keep your ideas and concepts confidential, because patents and designs must be new and not publically disclosed in order to obtain registration
  • sign a non-disclosure agreement before entering into negotiations
  • enter into confidentiality agreements with employees and contractors to protect your information.

Reverse engineering to unravel the code

Computer programs are protected as ‘literary works’ under copyright law. The process of ‘reverse engineering’ (or ‘back engineering’) means to analyse, disassemble or decompile the software to find out its design and implementation information. This can amount to an infringement of the Copyright Act 1968 to the extent that it involves copying a substantial part of code and using it in contravention of the copyright owner’s exclusive rights.

The term ‘cleanroom’ or ‘chinese wall’ (by reference to the Great Wall of China) generally refers to a method of reverse engineering which is legal through using a separation method. Engineers analyse the software to identify how it executes, without referencing the source code, then programmers write new code on the basis of that functionality, but without access to the source code. This technique would not be effective as a defence against a patent, which grants a monopoly right based on functionality, but is likely to bypass copyright law.

Trade secrets can be effective for products or techniques that are difficult to reverse engineer, but they don’t always work well. In the absence of a patent, there may be no legal protection if a competitor discovers the code or invents the process independently. Phoenix Technologies used the cleanroom method to make a clone of IBM’s ROM BIOS and licensed it to their competitors. The legality of selling reverse engineered software on the international market would be subject to the copyright and patent law in the local jurisdiction.

Reverse engineering is an important issue which must be considering in drafting a software licensing agreement. A software licensing agreement gives permission to the licensee to use the software. It would be of the utmost concern to the licensor, who has made a substantial investment in developing the software, to not have a competitor copy the software by creating a version of it at a lower cost. Licensing agreements therefore commonly use terms to prohibit licensees from engaging in reverse engineering.

The Copyright Amendment (Computer Programs) Act 1999 provides for specific exemptions to copyright infringement for computer programs, since these are purchased for use and a reproduction might be required which under copyright law is the exclusive right of the copyright owner. These exemptions include reverse engineering of a program for the purpose of interoperability, error correction or security testing. The Digital Millennium Copyright Act 1998 (US) similarly provides an exemption to the anti-circumvention provision where reverse engineering is used for interoperability purposes.