The Right to the Trade Secret
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THE RIGHT TO THE TRADE SECRET by JOHANN CLAUDIUS KNOBEL submitted in accordance with the requirements for the degree of DOCTOR OF LAWS in the subject PRIVATE LAW at the UNIVERSITY OF SOUTH AFRICA PROMOTER: PROFESSOR J NEETHLING JUNE 1996 FOREWORD I wish to express my deepest gratitude to: my promoter, Professor Johann Neethling, for his guidance and inspiration; many colleagues at the Law Faculty of the University of South Africa, for sharing their knowledge, insights and personal libraries with me; my mother, for assistance with proofreading and linguistic matters; Loma Steynberg, for typographical editing; Constant and Elna Hughes-Treherne, for logistical support during a stint of comparative research in Washington, DC; and the Centre for Science Development (HSRC South Africa), for financial assistance. Opinions expressed and conclusions arrived at, are my own and are not to be attributed to the Centre for Science Development. This work is dedicated to my parents with my love. Johann Knobel Pretoria June 1996 , ~ s:~ !' --n; ~ .,; ~ i C!E:,;~3 ~ i\i,;::; 346.48 KNOB ? i•.:;c:r:::; t.:2:Ei!:~~· ~ 111 ~II~ Ill/Ill/II Ill~ /Ill ~11111 1661976 ii SUMMARY A legally protectable trade secret is secret information which is applicable in trade or industry, in respect of which the owner has the will to keep it secret, which has economic value, and which is concrete enough to be embodied in a tangible form and to exist separately form its owner. A comparative study reveals that while trade secrets can be infringed in three ways - namely unauthorized acquisition, use and disclosure - contemporary legal systems differ in respect of both the ambit and juridical bases of protection against such infringing conduct. The legal protection of trade secrets is promoted by the recognition of a subjective right to the trade secret. This right is an intellectual property right independent of statutory intellectual property rights like patent rights and copyright, the common law intellectual property right to goodwill, and the personality right to privacy. In South African private law, trade secrets can be adequately protected by the application of general delictual and contractual principles. Delictual wrongfulness of trade secret misappropriation is constituted by an infringement of the right to the trade secret. Thus any act that interferes with the powers of use, enjoyment and disposal exercised by someone with a subjective right to that trade secret, is, in the absence of legal grounds justifying such interference, wrongful. Patrim·onial loss caused by both intentional and negligent infringement of trade secrets should be actionable under the actio legis Aquiliae. Wrongful trade secret infringements can - also in the absence of fault on the part of the infringer - be prevented by an interdict. Protection of trade secrets is not restricted to the contexts of either unlawful competition, or fiduciary relationships. Trade secret protection is on a sound footing in South African law, compares favourably with the position in other legal systems, and is in step with the international agreement on Trade-Related Aspects of Intellectual Property Rights to which South Africa is a signatory nation. KEY TERMS: Trade secrets; Confidential information; Legal protection; Private law; Contract; Delict; Intellectual property; Subjective rights; Unlawful competition; Fiduciary relationships. iii TABLE OF CONTENTS FOREWORD ........................................................... SUMMARY .............................................................. ii CHAPTER 1 INTRODUCTION .......................................... 1.1 TRADE SECRETS AND TRADE SECRET MISAPPROPRIATION TODAY ........ 1 1.2 PARAMETERS AND METHODOLOGY ................................. 6 1.3 STRUCTURE . 8 CHAPTER 2 ENGLISH LAW ........................................... 10 2.1 INTRODUCTION . 10 2.2 REQUIREMENTS FOR THE PROTECTION OF TRADE SECRETS . 11 2.2.1 NATURE AND CHARACTERISTICS OF TRADE SECRETS ................. 12 2.2.1.1 TERMINOLOGY ................................................. 12 2.2.1.1.1 Confidential information . 12 2.2.1.1.2 Trade secrets . 12 2.2.1.1.3 Know-how . 13 2.2.1.1.4 Conclusion . 14 2.2.1.2 ELEMENTS OF A TRADE SECRET . 14 2.2.1.2.1 Information . 14 2.2.1.2.2 Commercial or industrial applicability . 15 2.2.1.2.3 Secrecy/confidentiality . 15 2.2.1.2.4 The owner's/possessor's will to preserve secrecy . 24 2.2.1.2.5 Economic value . 25 2.2.2 ORIGIN AND BREACH OF AN OBLIGATION OF CONFIDENCE .............. 25 2.2.2.1 ORIGIN OF AN OBLIGATION OF CONFIDENCE . 25 2.2.2.1.1 Contract . 26 2.2.2, 1.1.1 Express contractual obligation of confidence . 26 iv 2.2.2.1.1.2 Implied contractual obligation of confidence . 28 2.2.2.1.2 Non-contractual confidence . 29 2.2.2.1.3 Situations in which an obligation of confidence will arise . 31 2.2.2.2 BREACH OF AN OBLIGATION OF CONFIDENCE ........................ 32 2.3 REMEDIES . 33 2.3.1 DAMAGES . 33 2.3.2 ACCOUNT OF PROFITS . 34 2.3.3 INJUNCTIONS . 35 2.3.3.1 INTERLOCUTORY INJUNCTIONS . 35 2.3.3.2 FINAL INJUNCTIONS . 36 2.3.4 ORDERS FOR DELIVERY UP OR DESTRUCTION . 37 2.3.5 ANTON PILLER ORDERS . 38 2.4 SPECIAL PROBLEM AREAS . 39 2.4.1 EMPLOYERS AND EMPLOYEES . 40 2.4.2 ACQUISITION OF TRADE SECRETS BY INDUSTRIAL ESPIONAGE AND OTHER REPREHENSIBLE MEANS . 45 2.4.3 THIRD PARTIES . 49 2.4.4 DURATION OF PROTECTION ...................................... 52 2.5 LEGAL BASE OF TRADE SECRET PROTECTION IN ENGLISH LAW . 54 2.5.1 CONTRACT . 54 2.5.2 EQUITY . 55 2.5.3 PROPERTY . 55 2.5.4 TORT . 57 2.5.5 SYNTHESIS . 59 CHAPTER 3 AMERICAN LAW ........ , . 60 3.1 INTRODUCTION . 60 3.2 REQUIREMENTS FOR THE PROTECTION OF TRADE SECRETS . 61 3.2.1 NATURE AND CHARACTERISTICS OF TRADE SECRETS ................. 61 3.2.1.1 TERMINOLOGY . 61 v 3.2.1.1.1 Defining trade secrets . 61 3.2.1.1.2 Know-how . 64 3.2.1.2 ELEMENTS OF A TRADE SECRET . 65 3.2.1.2.1 Information . 65 3.2.1.2.2 Commercial or industrial applicability . 66 3.2.1.2.3 Secrecy . 66 3.2.1.2.4 Use of reasonable efforts to maintain secrecy . 70 3.2.1.2.5 Economic value . 72 3.2.1.2.6 Concreteness . 74 3.2.2 MISAPPROPRIATION ............................................ 75 3.3 REMEDIES AND PRESERVATION OF SECRECY DURING LITIGATION ....... 78 3.3.1 DAMAGES . 79 3.3.2 ACCOUNT OF PROFITS .......................................... 81 3.3.3 INJUNCTIONS . 81 3.3.4 ORDERS FOR DELIVERY UP . 85 3.3.5 PRESERVATION OF SECRECY DURING LITIGATION .................... 85 3.4 SPECIAL PROBLEM AREAS . 86 3.4.1 EMPLOYERS AND EMPLOYEES . 86 3.4.2 INDUSTRIAL ESPIONAGE . 89 3.4.3 INNOCENT RECIPIENTS . 90 3.4.4 DURATION OF PROTECTION ...................................... 91 3.4.5 CONFLICT BETWEEN TRADE SECRETS LAW AND FEDERAL INTELLECTUAL PROPERTY LAWS . 95 3.4.6 FREEDOM OF INFORMATION ACT ................................. 100 3.5 LEGAL BASE OF TRADE SECRET PROTECTION IN AMERICAN LAW . 100 3.5.1 CONTRACT . 101 3.5.2 TORT . 102 3.5.3 PROPERTY . 104 3.5.4 UNJUST ENRICHMENT . 108 3.5.5 PRIVACY OF A BUSINESS ORGANISATION .......................... 109 vi 3.5.6 SYNTHESIS 110 CHAPTER 4 GERMAN LAW .......................................... 111 4.1 INTRODUCTION . ..