THE IMPACT OF TRADE SECRETS LAW ON EMPLOYEES AND SOCIETY: IN SEARCH OF A BALANCED THEORETICAL AND LEGAL APPROACH WITH SPECIAL REFERENCE TO AUSTRALIA AND SRI LANKA
Darshana Sumanadasa LL.B. (Hons), LL.M. (Colombo) Attorney-at-Law of the Supreme Court of Sri Lanka
Submitted in fulfilment of the requirements for the degree of Doctor of Philosophy.
School of Law
Faculty of Law
Queensland University of Technology 2019
Keywords
Trade secrets, human rights, employers, employees, public interest, proportionality, legislation, Australia, Sri Lanka
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Abstract
Trade secrets are increasingly important information assets in modern innovation and business contexts. However, the theoretical irregularity of trade secrets leads to their identification as neither a fully-fledged IP right nor as a right sitting completely outside of intellectual property law. A major default of the present trade secrets theories is that they are highly concentrated on protecting the rights of trade secrets holders, ignoring the fact that the protection of trade secrets is a polycentric issue that represents many rights including employees’ and wider societal rights. Against this backdrop, this thesis proposes that a human rights based approach may be a promising way to establish a more balanced theory of protecting trade secrets. This research proposes to utilise human rights based theory for two purposes: first, to evaluate the trade secrets laws of Australia and Sri Lanka in order to identify how well they respond to the social and economic needs of employees; and secondly to provide a guide to creating a more balanced trade secrets legal framework in the employment setting. In evaluating laws, a human rights approach shows how legal uncertainties and related practical issues with trades secrets law impact on the successful realisation of employees’ right to work. Moreover, it demonstrates that excessive use of trade secrets may impede societal rights to information and knowledge, and have a negative impact on follow-on inventions. Having evaluated trade secrets laws, this research proposes a legislative framework informed by human rights theory, so that trade secrets law moves beyond merely preserving economic rights to facilitating more fair and robust connections between employers and employees.
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Table of Contents
Keywords ...... i Abstract ...... ii Table of Contents ...... iii List of Figures, Charts and Tables ...... vi List of Abbreviations ...... vii Statement of Original Authorship ...... viii Acknowledgements ...... ix Publications Arising From This Thesis ...... x Chapter 1: INTRODUCTION ...... 1 1.1 Overview of the Research ...... 1 1.1.1 Significance of Trade Secrets ...... 1 1.1.2 The Need of a Robust Protection ...... 3 1.1.3 Implications of Protection ...... 5 1.1.4 Fragile Normative Foundations ...... 10 1.2 Objective and Research Questions ...... 11 1.3 Methodology ...... 11 1.3.1 Doctrinal Method ...... 12 1.3.2 Case Study and Comparative Methods ...... 12 1.3.3 Selection of Jurisdictions ...... 14 1.4 Scope and Limitations ...... 15 1.5 Significance of the research ...... 17 1.6 Terminology ...... 18 1.6.1 Trade Secrets ...... 19 1.6.2 Employees and Employers ...... 21 1.7 Thesis Structure ...... 26 Chapter 2: THEORETICAL PERSPECTIVES ...... 30 2.1 Introduction ...... 30 2.2 The Nature of Trade Secrets (Compared to other Types of Intellectual Propery) ...... 32 2.3 Existing Doctrinal Foundations of Protecting Trade Secrets ...... 42 2.3.1 Property Rights Justification ...... 44 2.3.2 Relational Justification ...... 54 2.3.3 Trade Secrets Nihilism ...... 62 2.4 Towards a Human-Centric Theoretical Framework ...... 63 2.5 Human Rights Framework of Trade Secrecy ...... 65 2.5.1 Theoretical Underpinnings ...... 65 2.5.2 Application of Human Rights in a Private Law Phenomenon ...... 67 2.5.3 Human Rights, IP Law and Trade Secrets ...... 69 2.5.4 Competing Rights of Employers, Employees and Society ...... 73 2.5.5 Towards Human Rights-Based Criteria ...... 82 2.5.6 Evaluation: Limitations of Human Rights Framework of Trade Secrecy ...... 91
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2.6 Conclusion ...... 92 Chapter 3: AUSTRALIAN LAW ...... 94 3.1 Introduction ...... 94 3.2 Significance of Trade Secrets in Australia ...... 94 3.3 Definitional Uncertainties ...... 101 3.4 Legal Framework ...... 106 3.4.1 Introduction ...... 106 3.4.2 Contract Law: Express Terms and Restrictive Covenants ...... 108 3.4.3 Contract Law: Implied Terms and Duty of Fidelity ...... 122 3.4.4 Breach of Confidence ...... 124 3.4.5 Contract and/or Breach of Confidence ...... 135 3.4.6 Statutory Laws ...... 136 3.5 Defences: Private Interest v Public Interest ...... 139 3.5.1 Public Interest Defence under Breach of Confidence ...... 139 3.5.2 Public Policy Considerations under Contract Law ...... 144 3.5.3 Other Defences ...... 147 3.6 Remedies ...... 149 3.6.1 Injunctions ...... 150 3.6.2 Monetary Remedies ...... 153 3.6.3 Other Remedies and Orders ...... 154 3.7 Procedural Issues ...... 155 3.8 Conclusion ...... 157 Chapter 4: SRI LANKAN LAW ...... 159 4.1 Introduction ...... 159 4.2 Significance of Trade Secrets in Sri Lanka ...... 159 4.3 Legal Framework ...... 165 4.3.1 Sri Lanka as a Mixed System of Law ...... 165 4.3.2 Intellectual Property Act ...... 166 4.3.3 Contract Law ...... 173 4.3.4 Breach of Confidence ...... 184 4.3.5 Other Statutory Laws ...... 186 4.4 Defences: Private Interest v Public Interest ...... 188 4.5 Remedies ...... 191 4.5.1 Injunctions ...... 191 4.5.2 Monetary Remedies ...... 194 4.5.3 Criminal Remedies ...... 194 4.5.4 Other Remedies ...... 195 4.6 Procedural Issues ...... 195 4.7 Conclusion ...... 197 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW ...... 199 5.1 Introduction ...... 199 5.2 Impact of Law on the Rights of Employees ...... 200 5.2.1 Right to Enter into Employment Contracts Freely and Voluntarily ...... 201 5.2.2 Right to Choose and Change Employment or Employee Mobility ...... 204 5.2.3 Factors Affected the Overall Implementation of Rights ...... 215
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5.3 Impact of Law on Public Interest or Societal Rights ...... 227 5.3.1 Impact on Right to Knowledge and Information ...... 227 5.3.2 Economic and Social Implications ...... 236 5.4 Conclusion ...... 242 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS ...... 243 6.1 Introduction ...... 243 6.2 Findings and Summary of Main Arguments ...... 243 6.3 Implementing a Human Rights Framework of Trade Secrecy ...... 250 6.3.1 Principle of Proportionality as a Fulcrum Point to Strike a Balance between Competing Rights ...... 250 6.3.2 A Preferred Approach of Implementation ...... 256 6.4 Implications For Future Research ...... 284 6.5 Conclusion ...... 286 Bibliography ...... 288 A. Articles/Books/Reports ...... 288 B. Cases ...... 311 C. Legislation ...... 320 D. International Treaties and Declarations ...... 322 E. Other ...... 323
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List of Figures, Charts and Tables
Figure 1: Innovators’ uses of patents and secrecy Figure 2: Confidential information and trade secrets Figure 3: Firm size and use of trade secrets Chart 1: Secrecy and confidentiality uses in Australia 2014–2015 Chart 2: Patent applications and registration in Sri Lanka 2012–2017 Table 1: Differences between employees and independent contractors Table 2: Comparison of trade secrets and other intellectual properties Table 3: Innovation-active business: Intellectual property protection methods by employment size, 2014-15 and 2012–13
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List of Abbreviations
ABS : Australian Bureau of Statistics AIPPI : Association Internationale pour la Protection de la Propriété Intellectuelle (The International Association for the Protection of Intellectual Property) APEC : Asia-Pacific Economic Cooperation BRDIS : Business Research, Development and Innovation Survey EU : European Union FDI : Foreign Direct Investment GDP : Gross Domestic Product GERD : Gross Domestic Expenditure on Research and Development ICCPR : International Covenant on Civil and Political Rights ICESCR : International Covenant on Economic, Social and Cultural Rights ILO : International Labour Organisation IP : Intellectual Property IPR : Intellectual Property Rights NSF : National Science Foundation R&D : Research and Development SMEs : Small and Medium Enterprises TK : Traditional Knowledge TRIMS : The Agreement on Trade-Related Investment Measures TRIPS : The Agreement on Trade-Related Aspects of Intellectual Property Rights UDHR : Universal Declaration of Human Rights UK : The United Kingdom UN : United Nations USA : United States of America WIPO : World Intellectual Property Organisation WTO : World Trade Organisation
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Statement of Original Authorship
Under the Copyright Act 1968, this thesis must be used only under the normal conditions of scholarly fair dealing. In particular no results or conclusions should be extracted from it, nor should it be copied or closely paraphrased in whole or in part without the written consent of the author. Proper written acknowledgement should be made for any assistance obtained from this thesis.
I certify that I have made all reasonable efforts to secure copyright permissions for third-party content included in this thesis and have not knowingly added copyright content to my work without the owner's permission.
This thesis contains no material which has been accepted for the award of any other degree or diploma in any university or other institution. To the best of my knowledge, the thesis contains no material previously published or written by another person, except where due reference is made in the text of the thesis.
Signature: QUT Verified Signature
Date: March 2019
viii
Acknowledgements
The culmination of this research was made possible by the forbearance, sacrifices and support of many people.
First and foremost, I express my deepest gratitude to my supervisors, Professor Des Butler and Dr Kylie Pappalardo for investing their valuable time in guiding me. I am greatly indebted to them for being a continuing source of information, critique and intellectual prescience. Their persistent emotional support to help me overcome the academic and personal vicissitudes during this period of study is greatly appreciated. Moreover, with much gratitude, I acknowledge the external panellist of my final seminar, Professor William van Caenegem, Bond University, for his valuable comments which contributed to improving the quality of this research.
Particular thanks are due to the Queensland University of Technology (QUT) and the National Centre for Advanced Studies in Humanities and Social Sciences, Sri Lanka for providing financial assistance throughout my doctoral studies at QUT. I would like to thank the Faculty of Law, University of Colombo, my employer, for granting me study leave enabling the successful completion of my studies at QUT. I am sure that the knowledge and experience I have gleaned through my PhD research will undoubtedly allow me to contribute to upgrade the knowledge and skills of future generations in my homeland.
I express my loving gratefulness to my wife, Niroda. I am indebted to her for her commitment, tolerance and continuous support. Lehan, my beloved son, I have no words to express how much I love you and how your arrival during my doctoral studies added value to my life. Niroda and Lehan, you are quite simply my reason for living. Moreover, I am deeply indebted to my mother, Rathna who directed me to become a successful academic, researcher and a humble human being. I thank my brother, Chathur and sister, Sarangi for their unwavering love and support throughout my life. I thank my in-laws, dearest friends and colleagues in Australia and Sri Lanka for believing in me and supporting me through and through.
Lastly, I would like to acknowledge and thank Ms. Ellie Gleeson for her excellent support in copyediting this research work.
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Publications Arising From This Thesis
. Book chapter on ‘Promoting and Protecting Clean Energy Innovations through the Trade Secrets Regime: Issues and Implications’ in Mathew Rimmer (eds), Intellectual Property and Clean Energy: The Paris Agreement and Climate Justice (Springer, 2019) . Article on Emerging and Enduring Issues of Trade Secrecy- A Sri Lankan Perspective, WIPO- WTO Colloquium Papers, Asian Edition 2017. (Won WTO-WIPO Scholarship to participate at the Colloquium) . Conference paper on ‘The Enticing New Allure of the Cinderella of IP Law- A Story of the Trade Secrets Law’, Works-in-Progress Conference “IPScholars Asia” (Singapore, 2017) Organised by the Singapore Management University. . Conference paper on ‘Protecting Trade Secrets versus Employee Mobility- In Search of a Equilibrium’, ALLA 8th Biennial Conference (Melbourne 2016) Organised by the Australia Labour Law Association, University of Melbourne. (Won ALLA Higher Degrees Students Scholarship) . Presentation on ‘Trans-Pacific Partnership proposals on trade secrecy: Is it just old wine in a new bottle?’, TPP: Intellectual Property and Trade Symposium (Brisbane, 2016) Organised by the Queensland University of Technology. . Presentation on ‘TPP on trade secrecy- a momentum of reflection: an Australian perspective’, Intellectual Property Academic Conference (Perth, 2016) Hosted by the University of Western Australia. . Presentation on ‘Viability of the trade secrets regime in protecting traditional knowledge in Asia with special reference to Sri Lanka’, Research Roundtable: Transacting with the Asia-Pacific: Theory and Practice (Brisbane, 2016) Organised by the Asia Pacific Legal Institute of Australia and the Queensland University of Technology. . Presentation on ‘Cinderella of IP Law joins the limelight: An appraisal of Laws in Australia and Sri Lanka’, QUT Intellectual Property and Innovation Law Symposium (Brisbane, 2015) Organised by the Queensland University of Technology.
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Chapter 1: INTRODUCTION
1.1 OVERVIEW OF THE RESEARCH
1.1.1 Significance of Trade Secrets ‘Trade secrets’, which is often referred to as the ‘ugly duckling’, ‘Cinderella’ or ‘stepchild’ of intellectual property,1 is a subject that has been largely neglected by academia and policy-makers.2 This is surprising given that trade secrets have a profound impact on business success in the 21st century, as the world has transformed into a knowledge-based economy3 from a material-based one. Trade secrets in this knowledge-based economy amount to capital, eclipsing other sources of competitive advantage.4 As such, trade secrets are often treated as the ‘crown jewels’ of a firm’s intellectual capital.5 Further, there is a positive correlation between the strength of the protection of trade secrets and its potential to attract investment and increase research and development (R&D) and technology transfer.6 Emphasising the comparative and timely importance of trade secrets, Jorda proclaims: ‘forget patent, trademarks and
1 Sharon K Sandeen, ‘The Cinderella of Intellectual Property Law: Trade Secrets’ in Peter K. Yu (eds), Information Welath: Issues and Practices in the Digital Age- Volume Two- Patents and Trade Secrets (Praeger, London,2007) 399-420, 399. See also Sousa e Silva, A practical guide to a fast- changing and increasingly popular subject (2016) 11 (4) Journal of Intellectual Property Law & Practice 310, 310. 2 Fabian Junge, The Necessity of European Harmonisation in the Area of Trade Secrets, Maastricht European Private Law Institute Working Paper No. 2016/04 (September 2016) Faculty of Law, Maastricht University.; See also Introduction, Rochelle C. Dreyfuss and Katherine J. Strandburg (eds), The Law and Theory of Trade Secrecy- A Handbook of Contemporary Research (Edward Elgar, UK, USA, 2011) xviii.: ‘The plethora of legal regimes, lack of theoretical clarify and paucity of scholarship and empirical data make it hard to for lawmakers to grapple with many of the central questions of trade secrecy law.’ 3 Knowledge-based economy can be defined as the ‘new economic environment in which the generation and management of knowledge play a predominant part in wealth creation, as compared with the traditional factors of production, namely land, labour and capital.’ : WIPO, ‘Intellectual Property (IP) Rights and Innovation in Small and Medium-sized Enterprises’ World Intellectual Property Organization
Chapter 1: INTRODUCTION 1
copyrights … trade secrets could be your company’s most important and valuable assets.’7
Even though it is rare to find empirical investigations into the value of trade secrets in modern economies because of the confidential nature of trade secrets,8 evidence of the utility of trade secrets in innovation-active businesses is found all over the world. Recent studies show that ‘trade secrets encompass some 70 per cent of the value of companies’ intellectual assets’.9 In the United States, the Business R&D and Innovation Survey (BRDIS) undertaken by the National Science Foundation (NSF) revealed that 57.2% of US-based firms rated trade secrets as the most important intellectual property.10 Similarly, in Australia, the Australian Bureau of Statistics (ABS) revealed in 2013 that ‘secrecy and confidential arrangements’ were the most common intellectual property protection method among innovation-active businesses.11 The same survey conducted by the ABS in 2015 found the same.12
A major reason for the popularity and significance of trade secrets may be their flexibility in attracting and protecting a wide array of information which is not generally known or readily ascertainable.13 It is not limited to protection of technical
7 Ibid. 8 David S. Almeling, ‘Seven Reasons Why Trade Secrets Are Increasingly Important’ (2012) 27.2 Berkeley Technology Law Journal 1091, 1093. 9 Jennifer Brant and Sebastian Lohse, Trade Secrets: Tools for Innovation and Collaboration - Research Paper 3, International Chamber of Commerce (2014) 11; Forrester Consulting, The Value Of Corporate Secrets: How Compliance And Collaboration Affect Enterprise Perceptions Of Risk, (2010): This study covered North American, European and Australian companies.
2 Chapter 1: INTRODUCTION
or scientific information, but covers mere commercial information as well; for example, formulas, know-how, contract terms, software, customer lists, engineering, marketing, finance or strategic information, and information about suppliers, competitors, and other industrial participants. Its reach now spreads to sectors such as food and beverages,14 sports,15 mass media,16 pharmaceuticals,17 chemicals,18 music,19 information technology and social media.20 Moreover, when compared to other intellectual property rights, trade secrets are ‘everlasting, apparently cheaper and faster to protect and do not (obviously) require disclosure’.21 As such, they are comparatively more attractive, easy to obtain, and more common.22
1.1.2 The Need of a Robust Protection Despite the increasing significance and utility of trade secrets, they are highly vulnerable due to the threats posed by employees, international corporate espionage and hackers.23 They are more vulnerable compared to other forms of intellectual property since the threshold requirement of protection-secrecy-can be lost at any time. In any event, employers or trade secrets owners24 have to reveal their trade secrets to
14 For example, the formula of Coca-Cola (Coca-Cola Bottling Co. v Coca-Cola Co., 107 F.R.D. 288, 289, 294 (D. Del. 1985)), ingredients of the original recipe of Kentucky Fried Chicken (KFC Corp. v Marion-Kay Co., 620 F. Supp. 1160, 1172 (S.D. Ind. 1985)) and the recipe of Nutella. 15 For example, Lena Blackburne’s baseball rubbing mud: this mud is used to dull the surface of a baseball enabling pitchers to get a good grip. The source of mud is a secret. 16 For example, the New York Times’s best seller list. 17 For example, Premarin: The manufacturer keeps confidential some information relating to the ingredients (using of horse urine and the process of extracting the equine estrogens) of the drug. See Mary Witzel, ‘Protecting Pharmaceutical Trade Secrets under the New Regulatory Sharing Programme’ (2013) 41 (4) AIPLA Quarterly Journal 737, 738-739. See further discussion in section 2.2 below. 18 For example, WD- 40. 19 For example, Antonio Stradivarius’s violins and Zildjian cymbals 20 For example, Google search algorithm and content moderation of social media such as Tweeter and Facebook. 21 Nuni Sousa e Silva, ‘What exactly is a trade secret under the proposed directive?’ (2014) 9.11 Journal of Intellectual Property Law and Practice 923. See 2.2 below for a detailed analysis. 22 See also below section 2.2. 23 Jennifer Brant and Sebastian Lohse, Trade Secrets: Tools for Innovation and Collaboration - Research Paper 3, International Chamber of Commerce (2014) 4. In fact, neither significance of trade secrets in trade nor industrial espionage is a new phenomenon. ‘Industrial spying goes back at least as far as 3000 B.C., when industrial and commercial secrets relating to silkworms and porcelain were stolen from China by Europeans. In the middle ages, it was so widespread that it led to patent laws. Bergier (1975, p. 15) claims that piracy by industrialists and governments was a significant factor in the spreading of the Industrial Revolution.’: See Frank E. Hagan, Introduction to Criminology: Theories, Methods, and Criminal Behavior (1st edi, SAGE Publications, UK) 332. 24 This thesis uses the word ‘employer’ to denote the ‘trade secrets owners/holders’.
Chapter 1: INTRODUCTION 3
their employees in the course of their employment while expecting that employees should not use trade secrets for their own benefit or for the benefit of a competitor of the employer, even after leaving employment. In reality, employees can become the biggest threat to the protection of trade secrets.25 This is mainly because employees can easily access and misappropriate a trade secret since they know how and where confidential information is stored. They may have even contributed to development of that information. Australian trade secrets scholar, Dean points out that 80 per cent of trade secret litigation concerns employers suing ex-employees.26 As stated by Caenegem, ‘the law surrounding the post-employment phase is perhaps the most significant part of the law of trade secrets and it certainly attracts a great proportion of the litigation in trade secrets cases’.27 Hull indicates that the misappropriation of trade secrets by employees is hardly a modern phenomenon and the only thing that has changed over the years is the mode in which it happens.28 He further explains that the use of mobile devices, information and communication technology –– and perhaps, social or professional networking such as LinkedIn –– may increase the risk of sharing and divulging confidential information.29 This becomes a common problem in the information age, where almost all business information of a company may be digitised and available through electronic modes.30
25 See Robert G. Bone, ‘A New Look at Trade Secret Law: Doctrine in Search of Justification’, (1998) 86 California Law Review 241: ‘The majority of trade secret cases involve disloyal employees who use or disclose their employers' secrets in violation of a duty of confidence stemming from the employer-employee relationship; See also Elizabeth Rowe, ‘Trade Secrets, Data Security and Employees’ (2010) 84 Chicago-Kent Law Review 749, 750, ‘…the reality is that the biggest threat comes not from outsiders, but internally from those who are the most trusted employees.’ See also Stephen McJohn, ‘Top Tens in 2011: Copyright and Trade Secret Cases’ (2012) 10(5) North western Journal of Technology and Intellectual Property 331, 345, ‘…Most trade secret cases involve employees.’; Talhiya Sheikh, Trade secrets and employee loyalty, SMEs Division, World Intellectual Property Organization (WIPO)
4 Chapter 1: INTRODUCTION
Therefore, it is clear that there should be adequate legal protection for trade secrets.31 First, providing legal protection may incentivise the creation of valuable information and reduce the cost of resources preserving secrecy.32 Second, it may prevent persons from reaping without sowing.33 In other words, from a moral perspective, robust legal protection for trade secrets may ‘prevent unjust enrichment of one person at the expense of another’.34 Based on these values, trade secrets laws have been developed all over the world depending on domestic needs and legal traditions. Such laws include breach of confidence (common law) and unfair competition (civil law). For instance, Article 39 of the TRIPS Agreement ties the protection of trade secrets with the protection against unfair competition by virtue of Article 10bis of the Paris Convention.35 It further allows member countries to have their own standards of protection, including breach of confidence, breach of contract, and unfair competition.36
1.1.3 Implications of Protection While these legal tools lead to the protection of trade secrets despite their difference of origins, they also bring negative impacts on the connected parties of trade secrets protection. For instance, in practice there is a large reliance on contractual measures,
cloud, which can create additional risks. It should be noted that not only persons with legitimate access but also hackers pose threats to digital trade secret information. What is more, the rise of social media, such as Facebook, LinkedIn, and Twitter, together with a different perception of secrecy in particular among the younger generation, has created new cultural challenges for the protection of trade secrets.’ : Jenniffer Brant and Sebastian Lohse, Trade Secrets: Tools for Innovation and Collaboration - Research Paper 3, International Chamber of Commerce (2014) 15. [citations omitted] 31 See section 2.3 for a theoretical analysis. 32 See section 2.3. Tanya Aplin, Lionel Bentley, Philip Johnson, Simon Malynicz, Gurry on Breach of Confidence (Oxford University Press, UK, 2nd ed, 2012) 77-83. 33 See section 2.3. Sam Ricketson, ‘“Reaping Without Sowing”: Unfair Competition and Intellectual Property Rights in Anglo-Australian Law’ (1984) 7 (1) University of New South Wales Law Journal 1. See also Rudolf Callman, ‘He Who Reaps Where He Has Not Sown: Unjust Enrichment in the Law of Unfair Competition’ (1942) 55 (4) Harvard Law Review 595. 34 Tanya Aplin, Lionel Bentley, Philip Johnson, Simon Malynicz, Gurry on Breach of Confidence (Oxford University Press, UK, 2nd ed, 2012) 84. 35 Paris Convention for the Protection of Industrial Property (March 20, 1883; effective July 7, 1884, and amended June 2, 1934 and July 14, 1967) (the Paris Convention) 36 There is no harmonised way of regulating trade secrets law in the world for two reasons. Firstly, Article 39 (1) the TRIPS Agreement requires WTO member countries to prevent acts ‘contrary to honest commercial practices’ allowing counties adopt their own criterion to define dishonest commercial practices although the Agreement provides for an inclusive list. Secondly, Article 1 (1) of the TRIPS Agreement provides that ‘…members shall be free to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice’.
Chapter 1: INTRODUCTION 5
such as non-disclosures, non-competes and non-solicitations to protect their trade secrets from current or former employees.37 These are commonly referred to as ‘restrictive covenants’. These restrictive covenants restrict employees from disclosing trade secrets, using trade secrets for their own benefit or the benefit of a rival of the employer, and from soliciting an ex-employer’s customers. These contractual restrictions are applicable even after the employment ends.38
One of the implications of these contractual measures may be their impact on employee rights and freedoms.39 Contractual restrictions, such as non-competes, may impede employees’ right to employment options or employee mobility.40 The right to employment or freedom to change employment is important from the employee perspective as it is a core human right.41 In a broader sense, free employability is a key factor in modern economies where high velocity of labour is emphasised. If an employee is tied up by employability restrictions, he or she may not have any other option other than to remain with their current employer or not work at all. Even though restrictive covenants, such as non-competes, are enforced to the extent they are reasonable,42 it is doubtful whether the judicial approaches are completely favourable towards employee rights and freedoms.43Also, if trade secrets related information is regarded as a proprietary right of an employer, employees may be denied owning their knowledge and skills gained through the employment. That is because trade secrets of an employer and general stock of knowledge of an employee are invariably combined
37 For eg, see Portal Software v Bodsworth [2005] NSWSC 1179. In this case defendant Mr. Bodsworth (employee) agreed ‘not to disclose any trade secret of confidential information concerning Portal’s [plaintiff] business and personnel, [non-disclosure] and that in the event that the contract was terminated, for a period of six months from his “departure date”, within Australia, not to enter the service of another form that could compete with Portal’s products and services, [non-competition], and not to visit or contact Portal’s clients [non-solicitation]. 38 The legal analysis of this thesis mainly focuses on the application of restrictive covenants in the trade secrets regime. See sections 1.4 and 5.2. 39 See sections 2.5.4 and 5.2. 40 See sections 2.5.4 and 5.2. 41 As enshrined by the Article 23 (1) of the Universal Declaration of Human Rights, ‘everyone has the right to work, to free choice of employment…’ Universal Declaration of Human Rights., GA Res 217A (III), UN GAOR, 3rd session, 183 plen mtg, UN Doc A/810 (10 December 1948) Hereinafter referred to as the UDHR. 42See for eg, English common law: Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535, 565; Herbert Morris Ltd v Saxelby [1916] 1 AC 688, 706, 707; Australia: Lindner v Murdock’s Garage (1950) 83 CLR 628, 653; Sri Lanka: Finlay Rentokil (Ceylon) Ltd. v A. Vivekananthan (1995) 2 Sri L R 346, 349. 43 This issue will be further analysed in Chapters 4-6. See for example the impact of cascading clauses and uncertainty of laws. See section 5.2.2 for a detailed analysis on how the enforcing of non- competition clauses impact on employee-right to earn a living.
6 Chapter 1: INTRODUCTION
and difficult to separate. In such a context, restricting the use of trade secrets by an employer in turn may impact on the right to own and use of the employment-related- knowledge and skills of an employee.44
In any case, these contractual restrictions implemented through the employment contract may not be interpreted as voluntarily assumed by an employee.45 That is because typically an employment contract is offered in a boilerplate format and employees are often asked to sign on the contract as a ‘take-it-or-leave’ condition.46 Moreover, the employment relationship is, in general, recognised as ‘the paradigmatic example of inequality of bargaining power in contract law’.47 The power asymmetry between an employer and an employee may heavily influence the existence and the character of restrictive covenants such non-disclosures and non-competes.48
Moreover, the law relating to the issue of protecting trade secrets is highly fragmented within and among jurisdictions. It is indeed ‘a hodgepodge of inconsistent doctrines, rules and practices’.49 For instance, restrictive covenants, which intend to protect trade secrets, have been described by Stone as ‘sea-vast and vacillating, overlapping and bewildering’.50 She asserts that ‘in this primal soup, one finds a murky intertwine of conflicting interests: employee interest in job mobility; employer interest in promoting their business secrets; society’s interest in a free and competitive labour market; and judicial interest in enforcing contracts’.51 Accordingly, legal principles fluctuate between these interests and may not provide the parties with certainty in
44 See below section 5.2.2. 45 See Rachel Arnow-Richman, ‘Cubewrap Contracts and Worker Mobility: The Dilution of Employee Bargaining Power via Standard From Noncompetes’ (2006) Michigan State Law Review, 963, 963.; See also Daniel D. Barnhizer, ‘Inequality of Bargaining Power’ (2005) 76 University of Colorado Law Review 139. 46 Orly Lobel, ‘Enforceability TBD: From Status to Contract in Intellectual Property Law’ (2016) 96 Boston University Law Review 869, 880. 47 Rachel Arnow-Richman, ‘Cubewrap Contracts and Worker Mobility: The Dilution of Employee Bargaining Power via Standard From Noncompetes’ (2006) Michigan State Law Review, 963, 963. 48 Viva R. Moffat, ‘The wrong Tool For the Job: The IP Problem with Noncompetition Agreements’ (2010) 52 William and Mary Law Review 873, 885. 49 Charles Tait Graves, ‘Trade secrecy and common law confidentiality: the problem of multiple regimes’ in Rochelle C. Dreyfuss and Katherine J. Strandburg (eds), The Law and Theory of Trade Secrecy- A Handbook of Contemporary Research (Edward Elgar, UK, USA, 2011) 77, 79. 50 Katherine V W Stone, ‘Knowledge at Work: Disputes over the Ownership of Human Capital in the Changing Workplace’ (2002) 34 Connecticut Law Review 721,723. 51 Ibid.
Chapter 1: INTRODUCTION 7
predicting the outcomes.52 Dean asks, ‘why is this area of law so confusing?’53 Overall, there is uncertainty of law since trade secrets law is, in general, an intersection of many laws across jurisdictions.54 For instance, it can be a combination of intellectual property law, unfair competition law, contract law, labour law, and equity –– all of which contribute to blurring the outcome of a case.55
Furthermore, the litigation stage of a trade secrets case may not be favourable to employees. That is mainly because employees may face difficulties in bringing their cases to the courts as they, in general, have less capability to affording the cost and stress of litigation compared to employers. 56 In other words, employees who are considered as ‘one-shotters’ (non-frequent litigators or ‘have-nots’)57 may not be aware of judicial approaches or applications of law. Legal uncertainties and intersections of laws may intensify this situation. As a result, employees may not be able to judge whether there is violation of law enabling them to go to court. Also, even if an affected employee reaches the courts, they may be vulnerable as they may have less ability to hire a specialised lawyer in an intersected trade secrets law. In contrast, employers as ‘repeat players’ (frequent litigators or ‘haves’) may have the means and methods of hiring a specialised lawyer and being aware of the application of the law.58 As such, it may be difficult to argue that there is a favourable trade secrets practice towards employees.
In addition to this, there is doubt as to whether trade secrets law serves the broader public interest.59 As a whole, the intellectual property (IP) system is based on
52 Christopher Arup, Chris Dent, John Howe and William Van Caenegem, ‘Restraint of Trade: The Legal Practice’ (2013) 36 (1) UNSW Law Journal 1, 4. See section 5.2.3 for a detailed analysis. 53 Robert Dean , Employers, Ex-employers and Trade Secrets (Lawbook Co, 2004) 1. Smith also states that the doctrine of restraint of trade is a ‘strange beast.’ S Smith, ‘Reconstructing Restraint of Trade’ (1995) 15 Oxford Journal of Legal Studies 591,595. 54 Same holds true with the selected jurisdictions to this study: Australia and Sri Lanka. 55 It is an intersection of laws, i.e., contract law, breach of confidence and some statutory provisions in Australia. Although there is an overarching legislation: Intellectual Property Act, No. 36 of 2003 in Sri Lanka still there is an application of the common law of the country and equity. 56 ‘The cost and stress of litigation will often prevent an employee from taking the matter to a court hearing, hence leaving the employer in a strong position to insist on a broad interpretation of the clause.’: David Cabrelli and Louise Floyd, ‘New Light through Old Windows: Restraint of Trade in English, Scottish and Australian Employment Laws (-) Emerging and enduring issues’ [2010] 26 (2) International Journal of Comparative Labour Law and Industrial Relations, 173. 57 See Marc Galanter, ‘Why the “Haves” come out Ahead: Speculations on the Limits of Legal Change’ (1974) 9 (1) Law and Society Review 95. 58 Ibid. 59 See sections 2.5.4 and 5.3.
8 Chapter 1: INTRODUCTION
the trade-off that protection is provided to an intellectual creation in return for the disclosure of technologies and knowledge behind such intellectual creations to the public. For example, patent law provides for the exclusive right to exploit an idea behind an invention for disclosing it, but that right typically expires after 20 years. Therefore, the IP system, in general, aims to promote the production of new knowledge through disseminating existing knowledge to the public, and thereby encourages follow-on innovations. On the contrary, disclosure and dissemination of knowledge is limited under trade secrets law. The ‘secret’ knowledge behind a trade secret may only be shared within a limited group, such as employees and business partners, and further divulgence is prohibited.60 Hence, there is a risk that, because of the law’s aim of preserving secrecy, that the public will never know of an invention and the related knowledge.61
As such, the trade secrets regime can be seen as a talisman for preventing access to information or technological know-how, rather than incentivising the next generation to further explore a particular invention or technology. As Bone points out, ‘trade secrets law runs the risk of undermining the socially beneficial incentives of the patent system’.62 The overreliance on trade secrets protection may, therefore, hinder technological growth, as some research and development may repeat previous but undisclosed work.63 This cannot be seen as a friendly environment for follow-on innovation and research and development of a particular sector. Moreover, in an economic perspective, knowledge spill-over and employee mobility are considered key factors of economic growth.64 In particular, ‘labour market trends toward shorter tenures, high mobility and strong formal and information ties among employees across
60 Trade secrets law supports ‘relative secrecy’ as against ‘absolute secrecy’. Therefore, it allows the sharing of protected information contained in trade secrets with a limited group of individuals and businesses. 61 Lionel Bentley, ‘Patents and Trade Secrets’ in Neil Wilkof and Shamand Basheer (eds) Overlapping Intellectual Property Rights (Oxford University Press, 2012) 82. 62 See section 2.2 for a detailed-comparative analysis of purpose of trade secrets protection and patent protection. Robert G Bone, ‘A New Look at Trade Secret Law: Doctrine in Search of Justification’ (1998) 86 California Law Review 241, 270; see also Robert G Bone, ‘The (still) Shaky Foundation of Trade Secret Law’ (2014) 92 (7) Texas Law Review 1803,1807–10 (2014) (reiterating the concerns raised in his original article). 63 Belay Seyoum, ‘Property rights versus public welfare in the protection of trade secrets in developing countries’ (1993) 7 (3) The International Trade Journal 349. 64 According to Endogenous growth theory – ‘non-rival nature of knowledge’ and ‘knowledge spill over’ as a key factor of economic growth: See Zoltan J Aces, Pontus Braunerhjelm, David B Audretsch and Bo Carlsson, ‘The knowledge spillover theory of entrepreneurship’ (2009) 32 Small Business Economic 15, 17.
Chapter 1: INTRODUCTION 9
firm lines –– ties that benefit society by transmitting information crucial to endogenous economic growth’.65 However, as noted above, implementing non-compete clauses may restrict employee mobility and subsequent knowledge spill-over. Therefore, far from serving the public or overall societal interests, trade secrets law may contribute to hinder such interests.
1.1.4 Fragile Normative Foundations Nonetheless, the existing legal instruments have failed to provide a proper normative basis in addressing these issues. Existing theories such as property and relational justifications for IP are fragile in providing rationales as to why and how trade secrets should be protected.66 As explained by Chally, ‘were the law to provide too little protection, information protected as a trade secret would not be created. Were the law to provide too much protection, competition would be unnecessarily stifled’.67 Chiappetta questions whether ‘the trade secret law is a chameleon with the ability to appear varying as an almost full-fledged property right, a quasi-property right or a duty of confidence depending on its environment’.68 Therefore, he suggests that the doctrinal foundation of trade secrets law offers no great certainty.69 Some other scholars recognise this area of law as an anomaly70 and as shaky.71 Therefore, the existing theories have not only failed to provide a sound normative foundation on how trade secrets should be protected, but also are highly inadequate in evaluating the effects of trade secrets protection on employees and society. There is a need to either introduce new theories or apply existing theories in a new way.
This research explores the issue of protecting trade secrets in order to evaluate whether and how it impacts on employees and the public. However, to adopt a more
65 Alan Hyde, Working in Silicon Valley: Economic and Legal Analysis of a High-Velocity Labor Market (Routledge, 2nd ed, 2015) 167. 66 See section 2.3. 67 Jonathan Chally, ‘The Law of Trade Secrets: Towards a More Efficient Approach’ (2004) 57.4 Vanderbilt Law Review 1269. 68 Vincent Chiappetta, ‘Myth, Chameleon, or Intellectual Property Olympian? A Normative Framework Supporting Trade Secret Law’ (1999) 8 George Mason Law Review 69, 70. 69 Ibid. 70 Mark A Lemley, 'The Surprising Virtues of Treating Trade Secrets as IP Rights' (2008) 61 (2) Stanford Law Review 311, 315. 71 Robert G Bone, ‘The (still) Shaky Foundation of Trade Secret Law’ (2014) 92.7 Texas Law Review 1803.
10 Chapter 1: INTRODUCTION
scientific approach, there is a need to choose a suitable theoretical framework to analyse the research issue. As such, after critically analysing the existing trade secrets theories, this study introduces its alternative theoretical framework: human rights theory. This thesis then comparatively analyses Australian and Sri Lankan trade secrets laws in light of human rights theory. Finally, conclusions will be drawn and alternative theoretical and legal instruments which are informed by human rights theory will be proposed.
1.2 OBJECTIVE AND RESEARCH QUESTIONS
The main objective of this research is to develop a human-centric theoretical framework for the protection of trade secrets and evaluate the trade secrets laws of Australia and Sri Lanka in order to discover whether and how the legal approaches of these two jurisdictions ensure the rights of employers, employees and the public.
This thesis addresses the following research questions:
1. What are the inadequacies of existing theoretical underpinnings of protecting trade secrets?
2. How could a new theoretical framework, namely human rights theory, be developed in order to safeguard the rights of employees and the public while protecting the trade secrets of employers?
3. What is the Australian legal approach to protect trade secrets?
4. What is the Sri Lankan legal approach to protect trade secrets?
5. To what extent are the trade secrets-legal frameworks in Australia and Sri Lanka concerned with rights of employees and the society at large?
6. How can theoretical and legal frameworks in Australia and Sri Lanka be developed in line with human rights theory?
1.3 METHODOLOGY
This research adopts a qualitative approach in achieving its research objectives. This mainly involves doctrinal, comparative, and case study methods. The doctrinal method is used throughout the research with regard to all the research questions,
Chapter 1: INTRODUCTION 11
comparative and case study methods are used in relation to the last two research questions.72
1.3.1 Doctrinal Method Doctrinal research, or ‘research in/into law’, is concerned with the formulation of legal doctrines through the analysis of existing legal provisions and rules. A doctrine can be defined as ‘a synthesis of various rules, principles, norms, interpretive guidelines and values’73 and doctrinal research, at its best, involves rigorous analysis and creative synthesis, the making of connections between seemingly disparate doctrinal strands, and the challenge of extracting general principles from an inchoate mass of primary materials.74 Doctrinal research, in general, is based on the existing legal materials or sources of law, such as legislation, case law, textbooks and journal articles.
Doctrinal method is adopted in this research for two purposes. First, it is used to analyse the perceived inadequacies of the existing theoretical foundations and to establish how human rights theory can be relevant to the research context. Second, doctrinal method along with comparative method is used to analyse the trade secrets laws of Australia and Sri Lanka and their impacts on the rights of employees and the public. These two objectives will be achieved through an in-depth analysis of authoritative texts that include primary and secondary sources of law, such as legislations, case law, textbooks and journal articles.
1.3.2 Case Study and Comparative Methods
This research also adopts a case study method in order to explore a developing mixed- law country (Sri Lanka) and a developed common law country (Australia) approaches to trade secrets protection and the impacts on employees and society. Gerring explains the rationale of the case study method as follows:
72 See section 1.2 above. 73 Trischa Mann (ed), Australian Law Dictionary (Oxford University Press, 2010) 197. 74 Council of Australian Law Deans, Statement on the Nature of Legal Research, 3, 2015.
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There are two ways to learn how to build a house. One might study the construction of many houses –– perhaps a large subdivision or even hundreds of thousands of houses. Or one might study the construction of a particular house. The first approach is cross-case method. The second is a within-case or case study method. While both are concerned with the same general subject –– the building of houses –– they follow different paths to this goal. The same could be said about social research. Researchers may choose to observe lots of cases superficially, or a few cases more intensively.75
The same holds true regarding legal research, since a case study allows a researcher to closely scrutinise a certain scenario in a particular context or jurisdiction. The purpose of the case study approach in this research is to explain the existing legal mechanisms and legal lacunas of the selected jurisdictions and to evaluate the extent to which these laws provide for the rights of employees and the public. In addition, the thesis will compare and contrast the selected jurisdictions to explore the similarities and differences of Australian and Sri Lankan legal approaches. As observed by Lepaulle:
To see things in their true light we must see them from a certain distance as strangers, which is impossible when we are studying phenomena of our own country. That is why comparative law should be one necessary element in the training of all those who are to shape society.76
Otto Kahn Freund attempts to explain what comparative law can add to English Law by using an analogy with the learning of foreign languages:
A man who knows no language except his own is far less able to appreciate its beauty and to understand its structure than he who can compare it with the languages of other nations … The achievements and the shortcomings of English Law can be better seen by those who know something about foreign law ... and can see what rules are essential for the purposes of the law and what rules are accidental and the products of history and tradition.77
75 John Gerring, Case Study Research: Principles and Practices (Cambridge University Press, 2006) 1. 76 Lepaulle, ‘The Function of Comparative Law’ (1922) 35 Harvard Law Review 838, 858. 77 Otto Kahn -Freund, Comparative Law as an Academic Subject (Clarendon Press, 1965) 2. See also H.C. Gutteridge, Comparative Law: an Introduction to the Comparative Method of Legal Study (1971) 1; Kiekbaev indicates that ‘…irrespective of how we perceive comparative law – as a method or as an
Chapter 1: INTRODUCTION 13
As such, Australian and Sri Lankan legal approaches on the issue will be comparatively analysed. The purpose of this analysis is two-fold:
i. to see whether Australia, as a developed common law country, adopts a special approach in protecting trade secrets compared to Sri Lanka, a developing country which possesses a mixed-legal system (a combination of civil law and common law characteristics); ii. to comparatively evaluate the extent to which these jurisdictions safeguard the rights of employees and society while providing protection for trade secrets.
1.3.3 Selection of Jurisdictions For the purpose of evaluating trade secrets laws, this thesis has selected Australia and Sri Lanka. First, the selection of these two jurisdictions can be regarded as the scope of this study. Second, it helps to comparatively analyse the legal approaches of these two countries and to see how human rights theory can be used to evaluate the research phenomenon. I have selected Sri Lanka and Australia not only because they are my home and host countries respectively, but also because they represent a global snapshot of trade secrets law. In other words, these two jurisdictions reflect common law, civil law, and TRIPS78-compliant legislation aspects of trade secrets law on which most of the global trade secrets laws are based. Moreover, comparing these two countries may indicate the extent to which global trade secret law is porous. Analysing laws of Australia and Sri Lanka clearly show that there are pervasive difficulties with regulating and managing trade secrets across common law, civil law and mixed-law traditions.
autonomous direction in legal research – today it has become a reality, it has acquired a solid standing and won universal application in other legal sciences and also comparative law is a relatively young science in the system of jurisprudence. It has not yet been sufficiently investigated and there are many unanswered questions as regards its theoretical and methodological basis.’ Djalil I. Kiekbaev, Comparative Law: Method, Science or Educational Discipline? (2003) 7 (3) Electronic Journal of Comparative Law
14 Chapter 1: INTRODUCTION
Although these two countries represent two worlds –– namely, developed (Australia) and developing (Sri Lanka) –– in terms of economic and intellectual property achievements,79 both countries increasingly rely on the trade secrets regime to protect their valuable technical and commercial information.80 There are slight legal variations between both jurisdictions. For instance, Australia’s legal framework is mainly based on the common law and equity, whereas Sri Lankan law consists of legislation plus common law and equity. However, in practice, the area of trade secrets protection is largely governed by the contract law regime. When it comes to contract law, the legal system of Sri Lanka provides a fascinating study for a comparative jurist.81 The main reason for this is that Sri Lanka has inherited a mixed jurisdiction, with substantial influence of Roman-Dutch law and English law principles.82 As such, with the potential application of these two legal traditions, Sri Lankan law presents an attractive case study for the civil and common law jurisprudence.83
1.4 SCOPE AND LIMITATIONS
There are five scopes and limitations of this research. First, this thesis proposes human rights theory as an alternative theoretical foundation to evaluate and guide trade secrets law. However, the main analysis in this thesis (see Chapter 5) confines to evaluate the implications of trade secrets law on employees and society at large. However, this thesis does not deny or undermine employers’ rights in respect of
79 See US Chamber of Commerce, The Roots of Innovation: GIPC International IP Index (5th ed, February 2017)- Australia ranks 12th in the index whereas Sri Lanka is not even in the spectrum.
Chapter 1: INTRODUCTION 15
protecting trade secrets. As such, Chapter 6, when proposing recommendations, considers the rights of employers, employees and the public.
Second, the central theoretical proposal of this thesis – human rights theory –– is not to argue that current trade secrets theories are completely false, but that they are incomplete.
Third, the legal analysis in this thesis (see section 5.2) focuses on the implications of applying restrictive covenants in the employment context, given the wide existence of these in the Australian and Sri Lankan legal landscapes.84 As such, this thesis does not intend to challenge the important role played by trade secrets law in general or breach of confidence law in particular in formalising and preserving honesty and trust in human and commercial interactions. Instead, it explains the difficulties that employees experience in negotiating and challenging restrictive covenants. Accordingly, section 5.2 focuses on the more contentious features of trade secrets law –– the application and implications of restrictive covenants –– without challenging the underlying reasons for trade secrets protection as a whole.
Fourth, although this study focuses on the legal framework of Sri Lanka and Australia, other jurisdictions such as South Africa85 and United States,86 and legal instruments such as the EU Trade Secrets Directive87 may be explored to the extent they bring an additional comparative point of view to the analysis on Australian and Sri Lankan laws.
Fifth, this thesis focuses on the private sector and thus, analysis on public laws and other issues relating to public sector employees will be excluded.
84 See sections 3.4, 4.3 and 6.3 85 South African law is mostly identical to Sri Lankan civil laws such as contracts as it is also a mixed legal system which was influenced by both Common Law and Civil Law traditions. 86 Both United States and European Union laws might represent most updated but different legal approaches in protecting trade secrets. For instance, see Uniform Trade Secrets Act (UTSA), published by the Uniform Law Commission (ULC) in 1979 and amended in 1985, Defend Trade Secrets Act 2016 and Economic Espionage Act 1996 of the United States. 87 Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure. Hereinafter referred to as the EU Trade Secrets Directive.
16 Chapter 1: INTRODUCTION
1.5 SIGNIFICANCE OF THE RESEARCH
The issue addressed through this study –– trade secrets law and its impact on employees and society –– is pivotal in light of the growing significance of trade secrets and the eminent threat posed by trade secrets misappropriations and commercial espionage.88 Indeed, the global trade secrets law can be recognised as a moving target,89 given the recent legal developments in the United States,90 Europe91 and the Pacific Region92 after two decades of the TRIPS Agreement. Nonetheless, the issue of protecting trade secrets has been relatively neglected by the both academia and policy- makers in Australia, despite trade secrets or secrecy arrangements being the most commonly used intellectual property protection method among Australian businesses.93 In particular, there is a dearth of academic exploration on the protection of trade secrets in general, and its impact on employees and the public in the Australian context.94 Moreover, in Sri Lanka, there has been no academic or empirical study of the trade secret regime, even though a study in another context points out that trade secrets are a common mode of protecting intellectual assets and business
88 See the analysis of above section 1.1. 89 Elizabeth A. Rowe and Sharon K. Sandeen, Trade Secrecy and International Transactions: Law and Practice (Edward Elgar, UK, USA, 2015) 8. 90 See for eg, Defend Trade Secrets Act of 2016, S. 1890, 114th Cong which introduced federal civil cause of action for trade secrets misappropriation for the first time in the US history. 91 See for eg, Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure. This Directive introduces more harmonised and effective trade secrets laws to the European Union countries. 92 See for eg, Article 18.78 of the Trans-Pacific Partnership Agreement (TPPA). TPPA requires signatories to provide a strong and cost-efficient protection for trade secrets, including criminal sanctions. 93 Australian Bureau of Statistics, Intellectual Property Protection Methods 2014-15 (28 July 2016)
Chapter 1: INTRODUCTION 17
information.95 Therefore, this research intends to shed a light on a grey area of legal scholarship in Australia and Sri Lanka.
In addition, this research takes a novel theoretical approach with its use of human rights theory. In particular, it fills the gap in existing trade secrets theory by proposing a human-centric approach. Even though the human rights approach has been used to analyse intellectual property-related issues in general,96 this is the first attempt to use human rights theory to evaluate and guide trade secrets law. While Madhavi Sunder has initiated such a discourse in her paper entitled, Trade Secrets and Human Freedom,97 she did not refer to the doctrinal basis of human rights theory in her analysis. In addition, her focus was solely limited to the trade secrets law of the United States.
Overall, this thesis contributes to knowledge by questioning the adequacy of existing or conventional trade secrets theories, such as ‘property theory’ and ‘relational theories’,98 and by introducing an alternative theoretical foundation based on human rights theory. Also, it comparatively evaluates Australian and Sri Lankan legal approaches in light of the human rights theory and introduces possible legal and theoretical instruments in line with the human rights theory. Therefore, it takes neo- native approaches of theoretical and legal analyses.
1.6 TERMINOLOGY
This thesis uses a number of terms that may be used differently by other scholars in other situations and jurisdictions. This section outlines the meaning of some of these
95 See N S Punchi Hewage, Promoting a Second-Tier Protection Regime for Innovation of Small and Medium-Sized Enterprises in South Asia: The Case of Sri Lanka (Nomos Verlagsges, Germany, 2015) 149. 96 Laurence R. Helfer, ‘Toward a Human Rights Framework for Intellectual Property’ (2007) 40 University of California Davis Law Review 971 -1020; Laurence R. Helfer, ‘Human Rights and Intellectual Property: Conflict or Coexistence? (2003) 5 (1) Minnesota Intellectual Property Review 47-61 and Peter Yu, ‘Reconceptualizing Intellectual Property Interests in a Human Rights Framework’ (2007) 40 University of California Davis Law Review 1039-1149. See also Madhavi Sunder, ‘IP3’ (2006) 56 Stanford Law Review 257-332 and Madhavi Sunder, From Goods to a Good Life (Yale University Press, 2012). 97 Madhavi Sunder, ‘Trade Secret and Human Freedom’ in Shyamkrishna Balganesh (eds) Intellectual Property and the Common Law (Cambridge University Press, 2013) 334-352. 98 See section 2.3 below.
18 Chapter 1: INTRODUCTION
terms. Some of other terms with less relevance are defined at the first place where those terms appear.
1.6.1 Trade Secrets Providing a precise definition for trade secrets is not an easy task, but, in general a trade secret is ‘… business information that is kept confidential to maintain an advantage over competitors’.99 It may include technical and commercial information. Whereas there are slight domestic variations on the definition, for the purpose of this research, the definition introduced by the TRIPS Agreement is used.100 The TRIPS Agreement specifies the prerequisites to be met by technical and commercial information to entail its protection as a trade secret. According to Article 39(2) of the TRIPS Agreement, such information should be secret; possess a commercial value; and be subject to reasonable steps, under the circumstances, to be kept secret.101 Although the TRIPS Agreement prefers the term ‘undisclosed information’, both expressions –– ‘trade secret’ and ‘undisclosed information’ –– are referred to interchangeably in labelling the same concept.102
With regard to the selected jurisdictions of this study, by virtue of section 160(6) of the Intellectual Property Act, No.36 of 2003, Sri Lanka adopts a provision which is
99 Black’s Law Dictionary (9th ed, 2009) 1633. 100 Since the TRIPS Agreement provides the minimum standards of protection, the corresponding national requirements may considerably differ: See Germany Bundesgerichtshof, Möbelwachspaste GRUR 57 (1955) 8/9, 424– 26; Bundesgerichtshof, Wurftaubenpresse, GRUR 63 (1961) 1, 40, 43; See for the US E.I. du Pont de Nemours & Co. Ltd. v Christopher, 431 F2d 1012 (5th Cir.); Technicon Data Systems v Curtis 1000 Inc., (1985) 224 USPQ 286, 290; Also recently enacted Defend Trade Secrets Act 2016 of the United States defines trade secrets as “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.” Therefore, this can be regarded as a broader definition than the TRIPS definition. See Peter-Tobias Stoll, Jan Busche and Katrin Arend (eds), WTO – Trade- Related Aspects of Intellectual Property Rights (Martinus Nijhoff Publishers, Leiden - Boston, 2009) 642. 101These requirements are nearly identical to the definition of a trade secret provided by the United State’s Uniform Trade Secrets Act (UTSA), published by the Uniform Law Commission (ULC) in 1979 and amended in 1985. 102 See the analysis of Peter-Tobias Stoll, Jan Busche and Katrin Arend (eds), WTO – Trade-Related Aspects of Intellectual Property Rights (Martinus Nijhoff Publishers, Leiden - Boston , 2009) 637- 638.
Chapter 1: INTRODUCTION 19
the same as the TRIPS Agreement.103 Therefore, Sri Lanka harmonises the definition of trade secrets with international law. It is noted that the basic standard for defining a trade secret globally has tended to converge on these three elements in the post-TRIPS era.104 However, in Australia, where there is no statutory intervention or specific harmonisation of trade secrets laws in light of the TRIPS Agreement, trade secrets are mainly protected under the common law relating to contracts and breach of confidence.105
It is worthwhile analysing the tri-partite test introduced by the TRIPS Agreement. First, it is clear that Article 39(2) considers information is undisclosed or secret if it is not generally known or readily accessible. As such, this wording establishes relative secrecy as against absolute secrecy.106 As provided by Tobias:
… the benchmark for general knowledge and the accessibility of the information is not the whole of the public domain, but rather the knowledge of people within the circles that normally deal with the kind of information in question.107
Thus, the mere fact that the information is known by a limited group of people, such as employees, does not negate the protection. Also, to reach the secrecy requirement, information should not be readily accessible –– meaning the holder of the information should take reasonable precautions to prevent the access to the information by others.
The second requirement is that information should have a commercial value because it is secret.108 Literal interpretation of this phrase suggests that commercial value of the information can be determined by its secrecy. However, since a mere
103 s 160(6)c: ‘for the purpose of this Act, information shall be considered ‘undisclosed information’: If, i) it is not, as a body or in the precise configuration and assembly of its components, generally known among, or readily accessible to, person within the circles that normally deal with the kind of information in question; ii) it has actual or potential commercial value because it is secret; and iii) it has been subject to reasonable steps under the circumstances by the rightful holder to keep it secret.’ 104 Mark F Schultz and Douglas C Lippoldt, ‘Approaches to Protection of Undisclosed Information (Trade Secrets)’ (Background Paper, OECD Trade Policy Paper No. 162, 2014)
20 Chapter 1: INTRODUCTION
secret does not carry a value, there should be an actual or potential value in the information. The TRIPS Agreement does not specify the extent of the value that the information should be. Nonetheless, in general, the value is that the extent to which the information brings an advantage to the holder of it over competitors who do not know it.109 Given that trade secrets are regulated under the unfair competition regime in the TRIPS framework, ‘competitive advantage has to constitute a considerable part of the commercial value’.110
Third, the information claimed to be protected as a trade secret needs to have been subject to reasonable steps under the circumstances to keep it secret.111 Reasonable steps mean that the rightful holder of the information should take adequate measures to maintain and protect the secrecy.112 It may include contractual measures such as non-disclosures, and technological measures such as restricted access to laboratories or certain areas of the workplace, encryption of data, and keys giving access to digitalised data.113 These measures are valid to the extent that they are reasonable. The TRIPS Agreement, however, does not provide what is reasonable and what it not. As such, that is open to be determined by domestic laws or courts.
1.6.2 Employees and Employers In simple terms, an employee is a person who works under a contract of employment irrespective of the nature of the employment, viz, casual, probationary, fixed-term or apprenticeships. The Sri Lankan Industrial Dispute Act, No. 43 of 1950 defines an ‘employee’, who is referred to as a ‘workman,’ as follows:
Workman means any person who has entered into or works under a contract with an employer in any capacity, whether the contract is expressed or implied, oral or in writing, and whether it is a contract of service or of apprenticeship, or a contract personally to execute any work or labour, and includes any person ordinarily employed under any such contract whether
109 Peter-Tobias Stoll, Jan Busche and Katrin Arend (eds), WTO – Trade-Related Aspects of Intellectual Property Rights (Martinus Nijhoff Publishers, Leiden - Boston, 2009) 641. UNCTAD- ICTSD, Resource Book on TRIPS and Development (Cambridge University Press, 2005) 529. 110 Ibid. 111 Article 39 (2)(c) of the TRIPS Agreement. 112 Peter-Tobias Stoll, Jan Busche and Katrin Arend (eds), WTO – Trade-Related Aspects of Intellectual Property Rights (Martinus Nijhoff Publishers, Leiden - Boston, 2009) 641 113 Ibid.
Chapter 1: INTRODUCTION 21
such person is or is not in employment at any particular time, and includes any person whose services have been terminated.114
The same legislation defines ‘employer’ as follows:
Employer means any person who employs or on whose behalf any other person employs any workman and includes a body of employers (whether such body is a firm, company, corporation or trade union) and any person who on behalf of any other person employs any workman.115
It can be noted that this definition is widely accepted by the courts in the Sri Lankan context.116 The Sri Lankan judiciary suggests that ‘this definition of workman read with the employer is or has been one of master and servant’.117
By contrast, while there is no overarching statutory definition of employee and employer in the Australian context, there have been some limited legislative attempts to define employees. For instance, s 5(1) of the Industrial Relations Act 1996 (NSW) defines ‘employees’ as follows:
In this Act, employee means: (1) A person employed in any industry, whether on salary or wages or piece- work rates; or (2) Any person taken to be an employee by section (3)118
Subsection 3 provides that the definition of employee includes deemed employees such as milk vendors, cleaners, carpenters, painters, etc.119 This legislation broadly defines employees.
In addition, the Workplace Relations Act 1996 (Cth) states that:
114 This definition has been endorsed by the s 19 of the Termination of Employment of Workmen (Special Provisions) Act, No. 45 of 1971 (as amended). 115 See also s 19 of the Termination of Employment of Workmen (Special Provisions) Act, No. 45 of 1971 (as amended) 116 De Silva v Associated Newspapers of Ceylon Ltd (1978/79) 2 Sri L R 173. 117 Ibid, 179. 118 s 5(2) further mentions that ‘A person is not prevented from being an employee only because: (a) the person is working under a contract for labour only, or substantially for labour only, or (b) the person works part-time or on a casual basis, or (c) the person is the lessee of any tools or other implements of production, or (d) the person is an outworker, or (e) the person is paid wholly or partly by commission (such as a person working in the capacity of salesperson, commercial traveller or insurance agent).’ 119 See Schedule 1 of the Industrial Relations Act 1996 (NSW).
22 Chapter 1: INTRODUCTION
Employee includes any person whose usual occupation is that of employee, but does not include a person who is undertaking a vocation placement. Employer includes: (A) A person who is usually an employer; and (B) An unincorporated club.
Apart from these definitions, statutes dealing with employee benefits and accident compensation,120 long service leave,121 and superannuation122 specify their own definitions. However, other legislation refers to the common law definition. For example, s 11 of the Fair Work Act 2009 (Cth) mentions that ‘in this part, employee and employer have their ordinary meanings’.
Both in Australia and Sri Lanka, the common law uses a number of tests in identifying employees by distinguishing independent contractors from employees.123 In general, an independent contractor has high level of control over how their work is done and other working conditions, such as hours of work, and utilisation of tools and equipment. In addition, he or she is not entitled to superannuation or paid leave and
120 See for eg, s 5(1) of the Accident Compensation Act 1985 (Vic) ‘Employer includes— (a) the legal personal representative of a deceased employer; (b) the Crown in right of the State; (c) any person deemed to be an employer by this Act; (d) any public, local or municipal body or authority; and (e) where the services of a worker are temporarily lent or let on hire to another person by the person with whom the worker has entered into a contract of service or apprenticeship or otherwise, that last- mentioned person while the worker is working for that other person.’ ‘Worker means— (a) a person (including a domestic servant or an outworker) who has entered into or works under a contract of service or apprenticeship or otherwise with an employer whether by way of manual labour, clerical work or otherwise and whether the contract is express or implied, is oral or is in writing b) a person who under this Act is deemed to be working under a contract of service; (c) a person who under this Act is deemed to be a worker; (d) if a student at a school within the meaning of Part 5.4 of the Education and Training Reform Act 2006 is employed under an arrangement under that Part—that student whilst so employed; or (e) if a student of a TAFE provider is employed under a practical placement agreement under Part 5.4 of the Education and Training Reform Act 2006 —that student whilst so employed’. 121 See for eg, s 4 of the Long Service Leave Act 1958 (WA): “employer” includes — (a) persons, firms, companies and corporations; and (b) the Crown and any Minister of the Crown, or any public authority, employing one or more employees. “employee” means, subject to subsection (3) — (a) any person employed by an employer to do work for hire or reward including an apprentice or industrial trainee; (b) any person whose usual status is that of an employee; (c) any person employed as a canvasser whose services are remunerated wholly or partly by commission or percentage reward; or (d) any person who is the lessee of any tools or other implements of production or of any vehicle used in the delivery of goods or who is the owner, whether wholly or partly, of any vehicle used in the transport of goods or passengers if the person is in all other respects an employee; 122 See for eg, s 12(1) of the Superannuation Guarantee (Administration) Act 1992 (Cth). 123 Breen Creighton and Andrew Stewart, Labour Law (The Federation Press, 5th ed, 2010) 181.
Chapter 1: INTRODUCTION 23
bears the sole responsibility and risk of the work.124 One criterion to distinguish employees from independent contractors is the control test, in which the courts are concerned with the ‘degree of control the employer has over the manner in which the employee performs the work’.125 The control test has been interpreted as the right to control, rather than having actual control over an employee.126 For instance, even though an employer has less control over small details in highly skilled jobs, it is assumed that the employer has control over the employee.127 In addition to the control test, both Australian128 and Sri Lankan129 courts consider multiple or mixed indicia in determining whether a particular person is an employee. This includes factors such as whether the alleged employee is part and parcel of the employer’s organisation130 and whether the alleged employee is economically reliant on the employer to earn a living or is self-reliant.131
The most important focus of these tests is distinguishing a contract of service (employment relationship) from a contract of services (independent contractor).132 The following table summarises the fundamental characteristics of an employee and how an employee can be distinguished from an independent contractor:
124 Fair Work Ombudsman: Australian Government, ‘Independent contractors and employees’
24 Chapter 1: INTRODUCTION
Indicator Employee Independent Contractor
Degree of Performs work, under the direction and Has a high level of control in how control over control of their employer, on an ongoing the work is done. how work is basis. performed
Hours of work Generally works standard or set hours Under agreement, decides what (note: a casual employee's hours may hours to work to complete the vary from week to week). specific task.
Expectation of Usually has an ongoing expectation of Usually engaged for a specific task. work work (note: some employees may be engaged for a specific task or specific period).
Risk Bears no financial risk (this is the Bears the risk for making a profit or responsibility of their employer). loss on each task. Usually bears responsibility and liability for poor work or injury sustained while performing the task. As such, contractors generally have their own insurance policy.
Superannuation Entitled to have superannuation Pays their own superannuation contributions paid into a nominated (note: in some circumstances superannuation fund by their employer. independent contractors may be entitled to be paid superannuation contributions).
Tools and Tools and equipment are generally Uses their own tools and equipment equipment provided by the employer, or a tool (note: alternative arrangements may allowance is provided. be made within a contract for services).
Tax Has income tax deducted by their Pays their own tax and GST to the employer. Australian Taxation Office.
Method of Paid regularly (for example, Has obtained an ABN and submits payment weekly/fortnightly/monthly). an invoice for work completed or is paid at the end of the contract or project.
Chapter 1: INTRODUCTION 25
Leave Entitled to receive paid leave (for Does not receive paid leave. example, annual leave, personal/carers' leave, long service leave) or receive a loading in lieu of leave entitlements in the case of casual employees.
Table 1: Differences between employees and independent contractors133
As seen, there is no unanimous definition of employee or employer in statutes or case law in both jurisdictions. However, both jurisdictions treat independent contractors as distinct from employees. Therefore, this thesis excludes the analyses relating to independent contractors and focuses solely upon employees. For the purpose of this research, ‘employee’ or ‘workman/women’ means a person who was recruited under the contract of service by an employer on salary, wages, piece-work rates or any other payment methods. This thesis considers an ‘employer’ as any person, company or unincorporated body who recruits and hires employees or workman/women on a contract of service on salary, wages or piece-work rates or any other payment methods.
1.7 THESIS STRUCTURE
As seen, this chapter (chapter 1) establishes a foundation for this research. It explains the importance as well as the vulnerability of trade secrets in the present business context despite the fact there is a different or ill-treatment for trade secrets compared to other IP rights. At the same time, this research observes the fact that there can be side-effects of protecting trade secrets as it may encroach the rights of employees who exposed to trade secrets and society at large. As such, it introduces an alternative theoretical foundation for trade secrets law which is equally concerned with rigths of employers, employees and public interest. In line with this central research objective, six research questions (see above section 1.2) will be addressed in this thesis, spanning Chapters 2 to 6.
133 Fair Work Ombudsman: Australian Government, ‘Independent contractors and employees’
26 Chapter 1: INTRODUCTION
Chapter 2 is dedicated to analysing the theoretical issues realting to the protection of trade secrets. It, first, focuses on evaluating the existing normative foundations of trade sececy, namely, property and relational foundations. It explains that neither of the mainstream trade secrets theories may be able to provide a solid or unshakable justification for protecting trade secrets, nor are they capable of analysing the impacts of law on stakeholders of protection such as employees and the public. They mainly focus on the commercial value of information and the rights of employers to protect them. After analysing the existing normative foundations of trade secrets protection, Chapter 2 outlines an alternative theoretical foundation –– human rights theory, which will be utilised in evaluating and guiding the trade secrets laws of Australia and Sri Lanka. Overall, Chapter 2 argues that existing theoretical foundations of trade secrecy are not only inadequate to explain how trade secrets should be protected, but they also fail to explain and mitigate the effects of trade secrets laws on employees and the public. The chapter further contends that human rights theory serves as a balanced theoretical framework or modus vivendi which can be utilised in evaluating trade secrets laws in order to see the impact of these laws on employees and the public. Finally, Chapter 2 proposes criteria to be utilised in evaluating the laws of Australia and Sri Lanka.
Chapters 3 and 4 examine how trade secrets are protected in Australia and Sri Lanka. The main purpose of these chapters is to explore the significance of trade secrets in both countries and to examine the trade secrets laws with special reference to employer-employee and employer-public interest contexts. Chapter 3 shows that Australia, based on relational theories, protects trade secrets through its common law. As such, Australian law invariably relies on contract law relating to restraint of trade and breach of confidence in protecting trade secrets as a sub-set of confidential information. In addition, there is a legal fragmentation within Australia since New South Wales adopts a statutory approach in respect of determining the legal validly of restrictive covenants. By contrast, Chapter 3 explains how trade secrets are protected in Sri Lanka. While Sri Lanka introduced TRIPS- complaint legislation in 2003, it does not curtail the rights of a party to rely on common law principles and remedies. As such, like Australia, Sri Lanka courts embrace the application of restraint of trade and breach of confidence. However, a complicating factor in Sri Lanka is that possible application of Roman-Dutch law relating to restraint of trade since the country is
Chapter 1: INTRODUCTION 27
recognised as a mixed jurisdiction. Overall, Chapters 3 and 4 can be regarded as exploratory chapters which facilitate the rights-based analysis of laws in Chapter 5.
Chapter 5 evaluates Australian and Sri Lankan trade secrets laws in light of the human rights-based criteria established in Chapter 2. Chapter 5 argues that current approaches to protection of trade secrets, especially restrictive covenants, may hamper employees’ right to work and freedom of mobility. In addition, employees may be prejudiced by uncertainty of laws. They may also be in a disadvantaged position at the litigation stage as they are unable to afford the cost and stress of litigation. Moreover, chapter 5 advances the argument that wider societal rights may be impacted by enforcing trade secrets rights. It shows that limited contribution of trade secrets to knowledge diffusion and follow-on invention may impact the public rights to information, knowledge and development. Chapter 5 further demonstrates that trade secrets exceptions, such reverse engineering and public interest exception in breach of confidence, may play a limited role in both Sri Lanka and Australia. In addition, this chapter explains how keeping valuable knowledge secret may prejudice the economic growth of a country by preventing the knowledge spill-over that may be essential for endogenous growth. Finally, this chapter also illustrates how trade secrets policy may be incompatible with the societal values, such as altruism and egalitarianism, which are important in the culture of Sri Lanka.
The final chapter, Chapter 6 synthesises the main arguments and proposes recommendations for a better trade secrets law which equally values the rights of employers, employees, and the public. First, it ties together the conclusions of each chapter and answers the research question posed by section 1.2. Secondly, Chapter 6 provides recommendations on how to use human rights to restore the balance in the trade secret regime and to ensure that the regime offers stronger protection to the human rights interests of employees and society at large. This chapter covers three types of reform proposals: (1) those for employers; (2) those for employees; and (3) those for society at large. It proposes the implementation of these reforms through a legislative framework which is informed by the human rights framework developed in Chapter 2. It considers the principle of proportionality as the fulcrum point of striking a balance between competing rights of employers, employees and society. Thirdly, it states how this research may inform future research in theoretical and practical contexts of trade secrets protection.
28 Chapter 1: INTRODUCTION
Chapter 1: INTRODUCTION 29
Chapter 2: THEORETICAL PERSPECTIVES
2.1 INTRODUCTION
Unlike other areas of intellectual property (IP), it is exceedingly difficult to establish a theoretical foundation for trade secrets law. Lemley has observed that ‘there is no agreement on where trade secret law comes from or how to fit it into the broader framework of legal doctrine.’1 Trade secrets can be considered as a different kind of species in the intellectual property pantheon, as they possess features dissimilar to other intellectual property rights. The lack of clear conceptual foundation may be why there are many non-homogenous approaches to the protection of trade secrets among and within countries. Such approaches come in the form of intellectual property, contracts, breach of confidence, unfair competition and tort. Chally remarks that ‘were the law to provide too little protection, information protected as a trade secret would not be created. Were the law to provide too much protection, competition would be unnecessarily stifled’.2 There is no unanimity in identifying trade secrets as a property right (providing much stronger protection) or identifying it with other legal regimes such as contracts or unfair competition (providing less protection compared to other forms of IP).
This chapter explores the many theoretical debates on the normative foundation of protecting trade secrets. Such discourses have mainly arisen in relation to the trade secrets law of the United States (US).3 Additionally, they are focussed on how and
1 Mark A Lemley, 'The Surprising Virtues of Treating Trade Secrets as IP Rights' (2008) 61 (2) Stanford Law Review 311, 315. 2 Jonathan Chally, ‘The Law of Trade Secrets: Towards a More Efficient Approach’ (2004) 57 (4) Vanderbilt Law Review 1269. 3 See for example the main US based scholars who contributed for theoretical debates: Robert G. Bone, ‘A New Look at Trade Secret Law: Doctrine in Search of Justification’, (1998) 86 California Law Review 241; Robert G Bone, ‘The (still) Shaky Foundation of Trade Secret Law ’(2014) 92 (7) Texas Law Review 1803; Mark A Lemley, 'The Surprising Virtues of Treating Trade Secrets as IP Rights' (2008) 61 (2) Stanford Law Review 311; Michael Risch, ‘Why do we have trade secrets ?’ (2007) 11 Marquette Intellectual Property Law Review 1;Vincent Chiappetta, ‘Myth, Chameleon, or Intellectual Property Olympian? A Normative Framework Supporting Trade Secret Law’ (1999) 8 George Mason Law Review 69; Todd M Sloan, ‘Trade Secrets: Real Toads in a Conceptual Garden’ (1972-73) 1 Western State University Law Review 113; Charles Tait Graves, ‘Trade secrets as property: Theory and Consequences’ (2007) 15 Journal of Intellectual Property Law 39; Eric R
30 Chapter 2: THEORETICAL PERSPECTIVES
why trade secrets are protected. Underexplored is the development of a theoretical foundation which can explain how trade secrets law impacts on employees and broader societal interests.4 In other words, there is a need to establish a modus vivendi5 which equally provides for not only the protection of employers’ interests in protecting their trade secrets, but also the interests of connected and affected parties such as employees and the public.
Therefore, this chapter provides a critique on the current status of the normative foundation of trade secrecy and proposes an alternative theoretical framework based on human rights theory. In doing so, the first part of this chapter deals with an exploration of the purpose and role of trade secrets in the intellectual property pantheon. It compares and contrasts the characteristics and role of trade secrets with other intellectual property rights in order to identify the anomalies of trade secrets rights. This chapter then briefly explores two main philosophical justifications of trade secrecy: the property justification, and the moral or duty-based justification to analyse whether they provide measures to address employees’ and societal interests while providing foundational reasons for protecting trade secrets. Last, this chapter outlines an alternative theoretical approach which is grounded on human rights theory. In doing so, it establishes human rights-based criteria which are used in analysing the laws of Australia and Sri Lanka in subsequent chapters.
Claeys, ‘Private Law Theory and Corrective Justice in Trade Secrecy’ (2011) 4 (2) Journal of Tort Law 1. 4 Introduction, Rochelle C. Dreyfuss and Katherine J. Strandburg (eds), The Law and Theory of Trade Secrecy- A Handbook of Contemporary Research (Edward Elgar, UK, USA, 2011) xix.: ‘The murkiness of trade secrecy doctrine also makes it difficult to balance the interest in trade secrecy against other societal values.’ 5 ‘An arrangement or agreement allowing conflicting parties to coexist peacefully, either indefinitely or until a final settlement is reached.’ Oxford University, Oxford Dictionary (10 May 2017)
Chapter 2: THEORETICAL PERSPECTIVES 31
2.2 THE NATURE OF TRADE SECRETS (COMPARED TO OTHER TYPES OF INTELLECTUAL PROPERY)
Intellectual property (IP), which has been called ‘the invisible gold’ of this century,6 embodies legal rights resulting from intellectual activity in the industrial, scientific, literary and artistic fields.7 IP refers to unique, value-adding creations of the human intellect that result from human ingenuity, creativity and inventiveness.8 As a whole, the system of IP is based on a trade-off that protection is given for a creation or invention in return for the disclosure of information or knowledge behind that creation or invention to the public.9 As a result, IP rights such as copyright and patents are respectively based on the notion of creativity and innovation and are rewarded by government legal protection for a limited period to facilitate recoupment of the costs of creation or invention.10 The quid pro quo for protection is public disclosure or sharing knowledge with the public. For instance, a patent applicant is required to provide a full description of the manner and process of making and using his or her invention.11 This has two effects. First, such a clear and concise disclosure stimulates follow-on innovations which may be an improvement on, or inspired by, the original invention. Second, such a disclosure permits society to freely apply the relevant knowledge after the expiration of the patent.12
Thus, the objective of the IP system, in general, is to encourage the production of new knowledge and the dissemination of it. Achieving this objective is important since overlapping generations of innovators rely on each other’s ideas for inspiration
6David Llewelyn, Invisible Gold in Asia: Creating Wealth Through Intellectual Property (Marshall Cavendish Business, 2010) 2: According to the writer ‘patents, trade secrets, trademarks, publicity rights, domain names, geographical indications, copyright, design rights … the list goes on. These IPRs are the “Invisible Gold” at the heart of most successful businesses in the 21st century. But it is shrouded in mystery and in jargon, even though it affects us all.’ 7 WIPO, Intellectual Property Handbook (WIPO, 2nd ed, 2004) 1.
32 Chapter 2: THEORETICAL PERSPECTIVES
and guidance.13 Isaac Newton once stated: ‘If I have ever seen further, it is by standing on the shoulders of giants.’14 Thus, access to prior knowledge and protection of existing knowledge play a major role in the production of new knowledge, which is the ultimate goal of IP policy.15 However, trade secrets bring an anomaly to this policy objective because a trade secrets-holder is granted rights over a trade secret for an unlimited period, keeping information away from the public. This is because it is the very secrecy of a trade secret that defines its protection. This fundamental diversion of trade secrecy from IP policy creates a conundrum in the theorising of its normative foundation.16
Apart from this major divergence, there are some other characteristics that trade secrets share with IP policy which define the role and place of trade secrecy in the IP system. The following table reflects the major similarities and differences between trade secrets and three other major forms of IP.17
13 Suzanne Scotchmer, ‘Standing on the Shoulders of Giants: Cumulative Research and the Patent Law’ (1991) 5 (1) Journal of Economic Perspectives 29, 31. 14 Isaac Newton, Letter from Sir Isaac Newton to Robert Hooke, Historical Society of Pennsylvania
Chapter 2: THEORETICAL PERSPECTIVES 33
Characteristic Trade Secrets Patent Copyright Trademarks
Threshold/requirements Secrecy Novelty Originality Distinctiveness for protection Value Inventive step because it is Industrial secret applicability Reasonable efforts made to maintain the secrecy Scope of coverage Technical and Inventions Expressions Identification of business embodied in a source information fixed medium Public disclosure Not required Required Required Required
Registration Not required Required Not required May require
Length of protection Unlimited or Statutory Statutory Indefinite so long while the limitation 20 limitation: (for as used and information is a years18 published work) registration is secret life of the creator renewed. plus 70 years19 Reverse engineering Not prohibited Prohibited N/A N/A
Independent Not prohibited Prohibited Permits so long as Prohibited development of the same there has not been copying
Table 2: Comparison of trade secrets and other intellectual properties20
18 This duration can be extended in some circumstances for pharmaceuticals. See for eg, Australian Intellectual Property Laws Amendment Act 1998 which amended the Patents Act 1990 (Cth). 19 See for eg, s 33 of Copyright Act 1968 (Cth). 20 The table and analysis are based on the general characteristics of intellectual properties and there can be slight variations depending on the laws of the countries. It includes three of the other major types of IPs. See IP Australia, Types of IP
34 Chapter 2: THEORETICAL PERSPECTIVES
As shown in Table 2, in addition to the non-disclosure requirement, there are two major legal differences between trade secrets and other IP rights: the scope of protection and the duration of protection.
The scope of the trade secrets regime is wider than that of patents as it may cover a wide range of information, not just information that is ‘novel’.21 The novelty and non-obviousness requirements are prerequisites for obtaining a patent; however, there are no such requirements for trade secrets protection.22 When compared to copyright, trade secrets need not be even original. For example, a customer list or a list of telephone numbers may qualify to be trade secrets as long as it is a secret with a commercial value, which is subject to reasonable steps to maintain the secrecy.23 In other words, the subject matter protected under the trade secrets regime does not have to satisfy requirements of novelty, creativity, non-obviousness or utility. Instead, a minimal ‘sweat of the brow’ is sufficient for protection.24 There are further flexibilities attached to trade secrets: even relative secrecy (compared to absolute secrecy) and potential commercial value (compared to actual commercial value) are enough for the protection.25 Consequently, a wide range of information and even ideas can be protected by the trade secrets regime compared to other areas of intellectual property. Thus, given its exceptionally wide scope, the existence of trade secrets in the IP pantheon might well be challenged.
However, enforcement of trade secrets rights is relatively weak in terms of defensibility and exclusivity when compared to other IP rights such as patents. Patent law generally grants the owner the right to exclude others from making, using or selling the invention.26 The same is certainly true for instances where parties have discovered the inventions independently or through reverse engineering. 27 However,
21 See for eg, Fractionated Cane Technology Ltd v Ruiz-Avila [1988] 1 Qd R 51, 63. 22 Michael Risch, ‘Why do we have trade secrets?’ (2007)11 Marquette Intellectual Property Law Review 1, 11-13. 23 See above section 1.6.1. See also for eg, Faccenda Chicken Ltd v Fowler [1987] Ch 117; Koops Martin v Dean Reeves [2006] NSWSC 449 and Casons Rent a Car (Pvt) Ltd. V W.A.W. Wijaysekara and two others Case No. CHC 23/2011/IP, 25.05.2012. 24 Michael Risch, ‘Why do we have trade secrets?’ (2007)11 Marquette Intellectual Property Law Review 1, 12. 25 See above description on terminology: Trade Secrets: 1.6.1. See also UNCTAD-ICTSD, Resource Book on TRIPS and Development (Cambridge University Press, 2005) 529. 26 Article 28 of the TRIPS Agreement. 27 See s 178 of Australian Patent Act (Cth) and s 84 of the Sri Lankan Intellectual Property Act, No. 36 of 2003. See also Pamela Samuelson and Suzanne Scotchmer, ‘The Law and Economics of Reverse Engineering’ (2002) 11 Yale Law Journal 1575, 1577.
Chapter 2: THEORETICAL PERSPECTIVES 35
in the case of trade secrets, if other parties have found the embodied subject matter or the secret of an invention through independent discovery or reverse engineering, they are entitled to use it. 28 Therefore, two or more firms can simultaneously own the same trade secret and attract legal protection.
However, the importance of having broad exceptions such as independent discovery and reverse engineering is that the trade secrets regime may still facilitate the dissemination of knowledge and stimulate innovation irrespective of the fact it promotes secrecy. Competitors are allowed to acquire through honest means information or knowledge behind a product protected as a trade secret.29 In other words, they are allowed through a process of study and testing to acquire the trade secrets of publicly available products or services by reverse engineering.30 Therefore, it may be argued that the trade secrets system still facilitates the policy goal of IP law –– knowledge diffusion and fostering innovation –– but in a different way. However, this may be open to doubt.31 First, reverse engineering on an existing technology is a wasteful investment as it may repeat previous but undisclosed work.32 Second, developing countries and technologically unsophisticated companies are not equally benefited by this exception since they do not have the financial and technological means to invest on reverse engineering of a product.
Another key legal distinction between trade secrets and other IP rights such as patents is the duration of protection provided. Whereas the statutory life of a patent lasts only up to 20 years in all jurisdictions, trade secrets law allows the holder to enjoy the rights for an unlimited time period. 33 Put another way, the protection of a trade
28 TRIPS Agreement is silent on the issue, but it does prohibit disclosure, acquisition or use of trade secrets in a manner contrary to honest commercial practices. Thus, it indirectly allows honest practices such as independent discovery or reverse engineering. Also, as provided by the ‘s 1: Comments’ of the Uniform Trade Secrets Act of the United States: ‘acquisition of the known product… by a fair and honest means, such as purchase of the item on the open market’ is accepted as a lawful way of acquiring a trade secret. The Uniform Trade Secrets Act (UTSA), published by the Uniform Law Commission (ULC) in 1979 and amended in 1985. 29 Elizabeth A. Rowe and Sharon K. Sandeen, Trade Secrecy and International Transactions: Law and Practice (Edward Elgar, UK, USA, 2015) 52. 30 Ibid. 31 This issue is further analysed in section 5.3 32 Belay Seyoum, ‘Property rights versus public welfare in the protection of trade secrets in developing countries’, (1993) 7 (3) The International Trade Journal 349. 33 See for eg, Article 33 of the TRIPS Agreement and s 83 of the IP Act of Sri Lanka, No. 36 of 2003. In Australia, a statutory life of a standard patent is 20 years from the date of application or up to 25 years for pharmaceutical substances. See s 67 and s 70 of the Patent Act 1990 (Cth). See also 40.35
36 Chapter 2: THEORETICAL PERSPECTIVES
secrets continues ad infinitum so long as the secrecy is maintained. Therefore, trade secrets become an attractive option for research-oriented businesses as they may maximise the profits for a long time by keeping their inventions secret. As an illustration, winners of early R&D races usually prefer to keep the results or invention a secret instead of patenting in order to get a head start in subsequent races.34 This may be highly relevant in incremental or cumulative innovations.
Moreover, there are practical differences when comparing trade secrets with other intellectual property rights. For instance, patent protection is relatively expensive, both in terms of obtaining and enforcing once it is granted; whereas trade secrets protection is self-implemented and there is no need for costly and time- consuming registration.35 To further elaborate, a patent application is a legal document that may be required to be drafted by a legal expert. A study has found that in the United States the legal cost of filing a patent may amount to US$10,000-30,000.36 A similar cost is incurred in other countries such as Australia.37 According to IP Australia, filing of a patent within Australia may cost approximately AU$2,000 and if that is an international patent the cost would reach nearly AU$5,000. However, what should be noted here is that this cost does not include the legal costs or fees of lawyers. According to some law firms, filing a local patent can range between AU$3,300 to $7,000.38 Obtaining an international patent or world patent under the Patent Cooperation Treaty39 is even more costly. It may range between AU$9,000 to $15,000.40
U.S.C. § 154(a) (2) (2012) which stipulates that the maximum term of patent protection is 20 years from the date of application. 34 Nisvan Erkal, ‘On the Interaction Between Patent and Trade Secret Policy’ (2004) 37 Australian Economic Review 427, 430. 35 For instance, in the United States the waiting time (traditional total pendency) is around 24 months. See United States Patent and Trademark Office, January 2018 Patents Data at a Glance (January 2018)
Chapter 2: THEORETICAL PERSPECTIVES 37
By comparison, trade secrecy does not involve a costly and time-consuming registration process. As such, it is a comparatively easy option for start-ups and small to medium sized enterprises (SMEs).41 That is because start-ups and SMEs often lack specialised human resources and financial strength to pursue, manage, enforce and defend their intellectual property rights.42 Trade secrecy therefore requires no legal formalities and is more popular among small businesses.43
Some inventors may choose trade secrets protection in preference to patenting since they do not want to transmit valuable private information to their rivals.44 They may believe that even a patent application itself may result in revealing some valuable information irrespective of whether the patent is granted or not.45 Even if the patent is granted, an inventor can enjoy the rights or monopoly for a limited statutory period after which the knowledge behind the patent will be in the public domain.46
Trade secrets can, as well, play a complementary role in the IP pantheon. For instance, even though the product is patented, all associated or collateral know-how not divulged can, and should prudently, be retained as a trade secret.47 For example, the pharmaceutical company Wyeth (now a part of Pfizer) obtained a patent on the manufacturing process for Premarin (a hormone therapy/menopausal drug) in 1942. However, the company kept secret some information relating to the ingredients (using horse urine and the process of extracting the equine estrogens) from the drug. As a
41 Nicola Searle and Gavin C. Reid ‘Firm size and trade secret intensity: evidence from the Economic Espionage Act’ (2012) CRIEFF discussion paper, School of Economics & Finance, University of St Andrews, No. 1203, 23. 38 Chapter 2: THEORETICAL PERSPECTIVES result, even though the patent expired decades ago, pharmaceutical giant Pfizer still enjoys a monopoly over this drug. This is a common drug used by 6 million people worldwide and in the 2016 financial year Pfizer earned $1071 million from the Premarin drug family.48 Thus, inventors or firms may prefer to keep some of their intellectual works as secrets in order to have a competitive advantage over other competitors.49 As well, given that there can be considerable delays associated with obtaining patents, fast-moving industries inevitably rely on trade secrets protection as a provisional measure for an invention subject to the granting of a pending patent.50 As stated by Lionel Bentley, ‘important inventive breakthroughs are preceded by very considerable levels of research and development, typically conducted in confidential environments’.51 Therefore, he argues that ‘most patentees will inevitably rely on secrecy some of the time’.52 As a result, these two systems are not mutually exclusive, but are actually highly complementary and mutually reinforcing.53 It can, thus, be argued that these two systems, in practice, co-exist reasonably well.54 As pointed out by Graham, schematically there can be four options for an inventor who is in a dilemma as to whether to progress with patenting or maintaining secrecy.55 Those options are represented in Figure 1: 48 Pfizer Inc. and Subsidiary Companies, Financial Report 2016, 136. Chapter 2: THEORETICAL PERSPECTIVES 39 Patenting Non-patenting (1) (2) Mixed: Pure Secrecy Secrecy Patent + Secrecy (3) (4) Non-secrecy Pure Patent Voluntary Disclosure (Public Domain) Figure 1: Innovators’ uses of patent and secrecy56 Innovators may either keep the invention secret or obtain a patent (option 2 and 3, respectively). This decision may rely on the nature of the invention and the likelihood of reverse engineering of the products. In the meantime, they may use both strategies (option 1).57 Alternatively, they may disclose the invention to the public, if it is of little commercial value or non-protectable or if they are philanthropic (option 4). Graham concludes that, instead of considering secrecy as a substitute for patenting, it should be considered as a complement to the act of patenting.58 In many cases, the starting point of creating IP rights may be a secretly-held idea. Trade secrets play a key role in protecting this embryonic idea, given no other types of IP can cover this stage. As stated in the explanatory memorandum of the EU trade secrets directive: … writers do not disclose the plot they are working on (a future copyright), car makers do not circulate the first sketches of new model (a future design), 56 Ibid. 57 Ibid, 9. For instance, although ‘patent applicants should disclose the best mode of carrying out the invention at the time the application was filed, all subsequent discoveries may be either held as trade secrets or pursued as additional patents’. See Elisabetta Ottoz and Franco Cugno, ‘Patent–Secret Mix in Complex Product Firms’ (2008) 10 (1) American Law and Economic Review 142, 146. 58 Stuart Graham, ‘Hiding in the Patent’s Shadow: Firms’ Uses of Secrecy to Capture Value from New Discoveries’ (GER Working Paper Series: T1, Georgia Institute of Technology, October 2004) 6. 40 Chapter 2: THEORETICAL PERSPECTIVES companies do not reveal the preliminary results of their technological experiments (a future patent), companies hold on to the information relating to the launch of a new branded product (a future trademark)59 If inventors and investors are unable to guard these embryonic ideas, their already heavy investment may easily come to nothing. If they are acquired by a competitor, this presents an opportunity for that competitor to offer technologies or products that erode the original inventors’ incentive to continue their research. Arguably, even ‘negative know-how’ –– that is, erroneous research approaches or results of failed experiments –– can have considerable hidden values that can be used for future R&D.60 The importance of trade secrets is that it can cover these initial R&D or embryonic stages which cannot be covered by other forms of IP. In addition, secrecy may be important even after creating IPs; for example, in the commercialisation stage. As pointed out by Jorda, trade secrets protection enables firms to share the collateral know-how required to implement and commercialise patented technologies.61 In the case of copyright, there may be secret plans relating to deciding the best strategic timing of releasing a movie, music or a book. This notion contributes to the view that all IP rights that a firm possesses can be seen as a whole or as a bundle. As a result, the role played by trade secrets in today’s IP pantheon cannot be underestimated, despite being different in both nature and legal principles to other forms of IP. However, dissimilar origins, diverse objectives and different characteristics of trade secrets give rise to questions about whether this area of law ought to belong in the IP pantheon. In fact, trade secrets are a maverick that do not fit into neat categories. As such, there is a proven difficulty in eliciting a scholarly agreement on the theoretical justification of trade secrecy and its place within the existing IP legal regime.62 The 59 European Commission, Explanatory Memorandum- Proposal for a Directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure (2013) Chapter 2: THEORETICAL PERSPECTIVES 41 main consequence of this scenario may be that, as outlined in the next section, it leads to theoretical and legal conundrums on how and why trade secrets should be protected. 2.3 EXISTING DOCTRINAL FOUNDATIONS OF PROTECTING TRADE SECRETS63 The theoretical foundation of trade secrets is regarded as an anomaly64 as there is no consensus on its rationale of protection. Lemley points out that trade secrets law is a theoretical puzzle as there is no agreement on where trade secret law comes from or how to fit it into the broader framework of legal doctrine.65 Bone states in his recent article: ‘I remain skeptical that there is a normative basis for freestanding trade secret law that is not parasitic on other legal norms.’66 Claeys, quoting Chippetta and Sloan, indicates that trade secrecy is known as a ‘chameleon’67 or a ‘real toad in a conceptual garden’68. These scholarly musings show that trade secrets law carries an amorphous conceptual foundation. This has produced highly fragmented approaches by different countries in protecting trade secrets. For instance, trade secrets mostly take the shape of property in the US,69 whereas they are mostly considered to be a matter of moral duties in the rest of the common law70 and civil law71 countries. There are autonomous and supplementary theoretical justifications for the protection of trade secrets. On the one hand, economic, utilitarian or labour value 63 This thesis mainly deals with property and relational theories of trade secrecy and their derivatives since they represent the mainstream trade secrets theories. 64Robert G. Bone, ‘A New Look at Trade Secret Law: Doctrine in Search of Justification’, (1998) 86 California Law Review 241, 243. 65 Mark A Lemley, 'The Surprising Virtues of Treating Trade Secrets as IP Rights' (2008) 61 (2) Stanford Law Review 311, 312. 66 Robert G Bone, ‘The (still) Shaky Foundation of Trade Secret Law ’(2014) 92 (7) Texas Law Review 1803. 67 Vincent Chiappetta, ‘Myth, Chameleon, or Intellectual Property Olympian? A Normative Framework Supporting Trade Secret Law’ (1999) 8 George Mason Law Review 69, 69. 68 Todd M Sloan, ‘Trade Secrets: Real Toads in a Conceptual Garden’ (1972-73) 1 Western State University Law Review 113. 69 See for eg, Lynn C. Tyler, ‘Trade Secrets in Indiana: Property vs. Relationship’ (1998) 31 Indiana Law Review 339. 70 In common law countries, trade secret protection in general is provided by the contracts and breach of confidence regimes. See Elizabeth A. Rowe and Sharon K. Sandeen, Trade Secrecy and International Transactions: Law and Practice (Edward Elgar, UK USA, 2015) 163. 71 In the civil law tradition, trade secrets are mainly considered as a sub-set of unfair competition law. In civil law countries ‘the wrong lies in unfair [commercially dishonest] competition using information rightfully belonging to another party’. William van Caenegem, Trade Secrets and Intellectual Property: Breach of confidence, Misappropriation and Unfair Competition (Walter Kluwer, Netherlands, 2014) 21. 42 Chapter 2: THEORETICAL PERSPECTIVES justifications of trade secrets are based on the recognition of trade secrets as a property, in consideration of its intrinsic proprietary nature. According to this view, the corpus of trade secrets is recognised as an autonomous body of law, as it identifies trade secrets as a property or an IP right. On the other hand, the moral or duty-based justification arising under the contract, equity or unfair competition theories suggests that trade secrets can be rationalised in terms of relationships. In this sense, trade secrets law is based on relational obligations, such as those arising in business or employment settings, together with the application of the law of contract, equity or law of tort or delict. Thus, trade secrets law is no more than something that enforces a moral duty to respect promises, trusts and confidence. However, Graves states that ‘[the] property justification and relational justification are not binary opposites but, instead, represent an overlapping mix of policy preferences that trade secret law has never resolved.’72 As such, there is an emergence of a third theory called ‘trade secrecy nihilism’, representing the view that trade secrets law lacks any unified theory, but rather consists of a collection of approaches.73 The following sub-sections analyse these three approaches as they represent the major theoretical debates of trade secrets.74 72 Charles Tait Graves, ‘Trade secrets as property: Theory and Consequences’ (2007) 15 Journal of Intellectual Property Law 39. [emphasis added] 73 Robert G. Bone, ‘A New Look at Trade Secret Law: Doctrine in Search of Justification’, (1998) 86 California Law Review 241; See also Eric R Claeys, ‘Private Law Theory and Corrective Justice in Trade Secrecy’ (2011) 4 (2) Journal of Tort Law 1, 13. 74 This thesis mainly addresses property views, relational views and trade secrets nihilism as they can be considered as mainstream trade secrets theories. To note some other views, Feldman, based on the data collected from a non-random multi-sourced sample of 260 high-tech employees in Silicon Valley, suggests an alignment of ‘law with people’s [employees’] intuitions’ or what people think is right or wrong. According to this view, social support is required for the long-term functionality, legitimacy and credibility of the law. See Yuval Feldman, ‘The Behavioral Foundations of Trade Secrets: Tangibility, Authorship and Legality’ (2006) 3 (2) Journal of Empirical Legal Studies 197, 231. Moreover, according to Hill, remedies of trade secrets litigations best explain the nature and rationale of the law. He claims that ‘legal remedies can reflect their underlying rationales, and thus the choice of the measure of recovery in a given case can in fact be normative’. See James Hill, ‘Trade Secrets, Unjust Enrichment, and the Classification of Obligations’ (1999) 4 (1) Virginia Journal of Law and Technology 1522-1687. Chapter 2: THEORETICAL PERSPECTIVES 43 2.3.1 Property Rights Justification (a) Theoretical Underpinnings In general, property rights are legal relationships between persons and things irrespective of whether those things are tangible or intangible.75 At a glance, there can be many property-like characteristics in trade secrets; for example, the right to acquire or benefit from intangible information, free from interferences of others, and the right to alienate. According to Hohfeld, all legal rights reflect actual rights between persons and, accordingly, all property rights must be actual rights between people.76 Thus, the proprietary rights of a trade secrets owner should be respected by others. Nevertheless, trade secrets should be understood as the most intangible property among other intangible properties. This is because, in general, secretly-held information can exist without any visibility or physical manifestation. From a utilitarian point of view,77 any law can be socially justified if it brings the greatest happiness, or benefit, to the greatest number of people. Upholding the view championed by Adam Smith and Jeremy Bentham, the role of a law is, then, to maximise the net welfare or productivity in society. Arguably, trade secret law serves this purpose as it encourages investment in creating valuable and proprietary information by prohibiting theft and misappropriation.78 As such, it may provide a means of internalising the benefits of innovation in society.79 In other words, promoting the creation of valuable intellectual works or information such as trade secrets requires that creators of information be granted property rights in those works without which the socially optimal output of intellectual products may not exist.80 75 John Tarrant, ‘Characteristics of property rights’ (2008) 16 Australian Property Law Journal 51, 52. 76 Wesley Hohfeld, ‘Fundamental Legal Conceptions as Applied in Judicial Reasoning’ (1917) 26 Yale Law Journal 710. 77 John Stuart Mill, Utilitarianism (Oskar Priest Ed., Bobbs-Merrill Co. 1957) 1863: ‘Utilitarianism is based on the notion that an action [a law] is morally right if its consequences lead to happiness of great number of people and wrong if it ends in unhappiness.’ 78 Edmund W. Kitch, The Law and Economics of Rights in Valuable Information (1980) 9 Journal of Legal Studies, 683; Mark A Lemley, 'The Surprising Virtues of Treating Trade Secrets as IP Rights' (2008) 61 (2) Stanford Law Review 311,320; Edwin Hettinger, ‘Justifying Intellectual Property’ (1989) 18 (1) Philosophy & Public Affairs 31, 47. 79 David D. Friedman, William M. Landes & Richard A. Posner, ‘Some Economics of Trade Secret Law’ (1991) 5 (1) Journal of Economic Perspectives 61, 64. 80 Edwin Hettinger, ‘Justifying intellectual property’ (1989) 18 (1) Philosophy & Public Affairs 31, 47-51. 44 Chapter 2: THEORETICAL PERSPECTIVES Friedman, Landes and Posner argue that the law of trade secrets may have surprising efficiency properties that warrant further research.81 Lemley claims that ‘[trade secrets law] gives the developer of new and valuable information the right to restrict others from using it, and therefore the prospect of deriving supra-competitive profits from information’.82 As explained in section 2.2 above, trade secrets protection is complementary to the patent regime since the patent law cannot be tailored finely enough to cover every case. Therefore, the trade secrets regime, arguably, promotes technological innovations that might not merit protection under the patent system.83 In consequence, in the broader context, establishing property rights in trade secrets may maximise the utilitarian benefit to society in terms of innovation. This argument can be further buttressed by economics literature which is based on the notion that law: [R]econciles incentives for producing IP [such as trade secrets] with concerns about restricting access to it by granting exclusive rights in intellectual goods — that is, by “propertising”84 them — thus enabling the owner to charge a price for access that exceeds marginal cost.85 From an economic point of view, first, propertising trade secrets may provide incentives to invent and invest on developing valuable information.86 Second, trade secrets law may prevent unnecessary investment on wasteful precautions or self- help.87 A robust trade secrets law, on the one hand, may obviate an owner’s investment on strategic precaution, and a (mis)appropriator’s investment on stealing the secret, on 81 David D. Friedman, William M. Landes & Richard A. Posner, ‘Some Economics of Trade Secret Law’ (1991) 5 (1) Journal of Economic Perspectives 61, 64. In their views trade secrets fine-tune patent incentives by filling gaps of the patent system. See above 2.2 (pp 32-37) of this thesis for a detailed analysis of this argument. 82 Mark A Lemley, ‘The Surprising Virtues of Treating Trade Secrets as IP Rights’ (2008) 61 (2) Stanford Law Review 311, 315, 329-332. [emphasis added] 83 Vincent Chiappetta, ‘Myth, Chameleon, or Intellectual Property Olympian? A Normative Framework Supporting Trade Secret Law’ (1999) 8 George Mason Law Review 69, 87. 84 This word will be utilised in the thesis to denote establishment of property rights over a subject matter. 85 Richard A. Posner, ‘Intellectual Property: The Law and Economics Approach’ [2005] (19-2) Journal of Economic Perspectives 57, 57. 86 Edmund W. Kitch, ‘The Law and Economics of Rights in Valuable Information’ (1980) 9 Journal of Legal Studies, 683; David D. Friedman, William M. Landes & Richard A. Posner, ‘Some Economics of Trade Secret Law’ (1991) 5 (1) Journal of Economic Perspectives 61. 87 Ibid. Chapter 2: THEORETICAL PERSPECTIVES 45 the other.88 Therefore, trade secrets law may prevent or greatly reduce wasteful expenditure on the ‘stealing arms race’.89 On these utilitarian and economics grounds, the property lobbyists contend that trade secrets should be recognised as a separate IP right which could stand on its own theoretical feet.90 Furthermore, labour rights theory can provide a moral foundation for the property justification through the principle that ‘those who create value through their labour ought to own the end product of their labour’.91 Accordingly, this theory holds that creators or owners of trade secrets should be granted exclusive property rights over their trade secrets in order for them to enjoy their rights to the fruits of their creative labour. The perception of trade secrets as property is, thus, consonant with a notion of property that extends beyond land and tangible goods and includes the products of an individual’s labour and invention.92 It follows the view that the labour used to innovate or create technical or commercial information should belong to the originator if that information is not generally known.93 Highlighting this notion, in Ruckelshaus v Monsanto,94 the United States Supreme Court recognised the proprietary nature of trade secrets. Justice Blackmun stated that: Trade secrets have many of the characteristics of more tangible forms of property. A trade secret is assignable. A trade secret can form the res of a trust, and it passes to a trustee in bankruptcy.95 As such, utilitarian, economic and labour rights theories suggest that trade secrets should be protected as property or intellectual property. Lemley strongly supports this view on the basis trade secrets still support the policy goals of IP 88 Michael Risch, ‘Why do we have trade secrets?’ (2007)11 Marquette Intellectual Property Law Review 1, 43-44. 89 Ibid. 90 Mark A Lemley, 'The Surprising Virtues of Treating Trade Secrets as IP Rights' (2008) 61 (2) Stanford Law Review 311, 315. 91 This proposition is based on Lockean property rights theory: ‘Every man has a property in his own person…the labour of his body, and the work of his hands, we may say, are properly his’, See John Locke, Second Treatise of Government: An Essay Concerning the True Original, Extent and End of Civil Government (1690) (Richard Cox ed., Harlan Davidson Inc. 1982) 18. 92 Ruckelshaus v. Monsanto 467 U.S. 986 (1984) 1003; Robert G Bone, ‘The (still) Shaky Foundation of Trade Secret Law’ (2014) 92 (7) Texas Law Review 1803, 1824. 93 Michael Risch, ‘Why do we have trade secrets?’ (2007)11 Marquette Intellectual Property Law Review 1, 29. 94 467 U.S. 986 (1984) 1003. 95 Ibid.; Peabody v. Norfolk 98 Mass. 452, 459–60 (1868) : ‘it is settled that a secret art is a legal subject of property; See also Kewanee Oil Co. v Bicron Corp 416 U.S. 470 (1974) where the court refers to trade secrets law as a state-established system of protection for intellectual property law. 46 Chapter 2: THEORETICAL PERSPECTIVES protection, despite its major divergences from IP’s mainstream forms.96 He justifies this contention citing Kewanee Oil Co. v Bicorn Corp,97 which states: Trade secret law will encourage invention in areas where patent law does not reach, and will prompt the independent innovator to proceed with discovery and exploitation of his invention. Competition is fostered and the public is not deprived of the use of valuable, if not quite patentable, invention.98 Accordingly, in addition to patents, trade secrets protection incentivises innovation which is a primary goal of IP law. Therefore, it is reasonable to recognise trade secrets as a form of IP. Chiappetta argues that there is nothing wrong in accepting the proprietary nature of trade secrets given that the other forms of IP do not always meet all definitions of strong property rights.99 In an additional point of view, Claeys posits that not all species of property come with rights of exclusive control and disposition.100 Claiming trade secrets as a different form of property right, Claeys calls it as a ‘usufruct’ which ‘confers rights to use a resource and to be free from interferences with use, but which do not confer the right to exclude those who derive benefits from the resource by their independent efforts’.101 Therefore, it can be argued that trade secrets can be justified as property even if they allow major exceptions, such as reverse engineering or independent discovery. (b) A Critique The fundamental problem of the property foundation of trade secrecy may be that it invariably focuses on the protection of economic rights of trade secrets owners or employers. Accordingly, the aim of property foundation is to encourage investment in creating valuable and proprietary information by prohibiting theft and misappropriation. As such, it may not concern how trade secrets rights of an employer may impact on other connected parties, such as employees or the public. In fact, 96 Mark A Lemley, ‘The Surprising Virtues of Treating Trade Secrets as IP Rights’ (2008) 61 (2) Stanford Law Review 311, 329. 97 416 U.S. 470 (1974). 98 Kewanee Oil Co v. Bicron Corp 416 US 470, 485 (1974) 99 Vincent Chiappetta, ‘Myth, Chameleon, or Intellectual Property Olympian? A Normative Framework Supporting Trade Secret Law’ (1999) 8 George Mason Law Review 69, 100 Eric R Claeys, ‘Private Law Theory and Corrective Justice in Trade Secrecy’ (2011) 4 (2) Journal of Tort Law 1, 13. 101 Ibid, 39. Chapter 2: THEORETICAL PERSPECTIVES 47 property recognition may adversely impact on the rights of employees and the public. For instance, exclusive property rights may allow trade secrets owners to completely expunge the rights of employees who have learnt or perhaps contributed to the development of a trade secret in the course of their employment. As stated by Chiappetta, ‘viewing trade secret as property leads holders to an extremely uncompromising sense of ownership: It is mine, stay off’.102 Consequently, trade secrets owners or employers may be in a position to prohibit employees from using related knowledge of trade secrets even in future employment. In other words, injunctions restraining (ex)-employees in future employment ‘might be more readily granted when there is a property interest at stake’.103 Property justification even lead to establishment of extreme doctrines such as ‘inevitable disclosure’. This doctrine holds that it is inevitable for employees to remember and use the former employer’s trade secrets in their next employment.104 That is because an employee might not be able to compartmentalise the general knowledge, experience and skills gleaned through the previous employment from their knowledge of the trade secrets of the previous employer. The consequence of applying the ‘inevitable disclosure doctrine’ is that employees may thereby be prohibited from joining a rival company of the ex- employer. This may adversely impact on employee’s right to earn a living. Overall, even in litigation, it is noted that ‘courtroom rhetoric about property rights — that belongs to me, that is mine — could harm the interests of departing employees’.105 Moreover, property recognition is frequently criticised due to public interest issues. These arguments logically flow from the doubt whether there are more benefits than detriments to society through the trade secrets regime –– namely, that it does not promote the public disclosure in stimulating new knowledge and innovation. Therefore, as noted in section 2.2, trade secrets protection may be contrary to the policy of protecting IP as it prohibits public disclosure. In any event, granting property rights to intangible ideas or even information may impede the free flow of knowledge and 102 Vincent Chiappetta, ‘Myth, Chameleon, or Intellectual Property Olympian? A Normative Framework Supporting Trade Secret Law’ (1999) 8 George Mason Law Review 69, 84. 103 Ibid, 151. 104 Eleanore R. Godfrey, ‘Inevitable Disclosure of Trade Secrets: Employee Mobility v. Employer's Rights’ (2004) 3 Journal of High Tech Law 161, 168. 105 Charles Tait Graves, ‘Trade secrets as property: Theory and Consequences’ (2007) 15 Journal of Intellectual Property Law 39, 59. This issue is further linked to the human rights theory in section 2.5 and further analysed in section 5.2. 48 Chapter 2: THEORETICAL PERSPECTIVES consequently the downstream inventions or creations. In the same vein, Bone points out that rather than incentivising the innovation, ‘trade secret protection impedes the diffusion of information and this retards further innovation’.106 Risch states that trade secrets policy provides ‘little or no marginal incentive to innovate because the owner obtains protection of the information by keeping it secret’.107 As such, granting exclusive property rights to the first person who comes up with an idea or compilation of information may not be considered a rational course of action. Therefore, it is argued, creating more stringent and exclusive rights over trade secrets would not bring overall societal benefits. Instead, rights merely serve the corporate world which is primarily focussed on maximising profits through the competitive advantages brought by trade secrets protection.108 Besides, as noted above, the utilitarianism or economic foundation for trade secrets is based on the notion that property rights can be justified ‘only if the marginal social cost of granting the right is smaller than the marginal social benefit generated by granting the right’.109 However, the social cost may be higher than the public benefit in the trade secrets regime since it promotes non-disclosure. Therefore, society and follow-on innovators may not be per se benefited by the trade secrets regime.110 This may be similarly true with the Lockean labour rights theory. Locke claims: For this labour being the unquestionable property of the labourer, no man but he can have a right to what that is once joined to, at least where there is enough and as good left in common for others.111 Hence, the Lockean property conception is conditional as property rights can only be justified if it leaves enough and as good in common for others. Nevertheless, it cannot be argued that trade secrets protection is leaving ‘enough good’ in common for society, since the trade secrets law allows an invention or information to be kept secret or concealed from the public. Indeed, this means that the public may never come to know 106 Robert G Bone, ‘The (still) Shaky Foundation of Trade Secret Law’ (2014) 92.7 Texas Law Review 1803, 1808. 107 Michael Risch, ‘Why do we have trade secrets?’ (2007) 11 Marquette Intellectual Property Law Review 1, 6. 108 This issue is further linked to the human rights theory in section 2.5 and further analysed in section 5.3. 109 Brian L. Frye, ‘IP as Metaphor’ (2015)18 (3) Chapman Law Review 735, 738. 110 See section 5.3 for a more detailed analysis. 111 John Locke, Two Treatises of Government (Butterworths, 5th ed, 1689) 161. [emphasis added] Chapter 2: THEORETICAL PERSPECTIVES 49 of the existence of a trade secret. Therefore, the mainstream economic, utilitarian or property theory may not be able to provide a solid ground for protecting trade secrets. Instead, they bring uncertainties. In any case, calling information assets such as trade secrets as ‘properties’ may be a misnomer given its non-proprietary characteristics. For instance, Bone contends that trade secrets cannot be a property as they do not provide possession rights which is a ‘prerequisite to ownership and ownership was necessary for common law rights’.112 This view is largely based on the fact that the ‘trade secrets regime does not prohibit copying of publicly available products; nor does it forbid reverse- engineering’.113 As such, if anyone learns information behind trade secrets, it is impossible to erase it and ‘therefore no means of excluding the person in fact’.114 In other words, there can be two or more owners to the same property relating to trade secrets which were developed through independent efforts or reverse engineering. Therefore, realistically, property characteristics such as exclusivity are not per se reflected by trade secrets. There is also a pragmatic question as to how a person can possess an intangible and non-materialistic thing such as information, including trade secrets, which may be not subject to physical control.115 Furthermore, the philosophical debate relating to the propertisation of trade secrecy is mostly confined to Anglo-American jurisprudence.116 In terms of international law, the TRIPS Agreement refrains from using terms relating to property in specifying the rights relating to trade secrets. First, Article 39(1) of the TRIPS Agreement (by cross-referencing Article 10bis of the Paris Convention) shows a preference for protecting trade secrets under the unfair competition regime instead of establishing separate proprietary rights over trade secrets.117 Secondly, Article 39, 112 Robert G. Bone, ‘A New Look at Trade Secret Law: Doctrine in Search of Justification’, (1998) 86 California Law Review 241, 254. 113 Gideon Parchomovsky and Peter Siegelman, ‘Towards an integrated theory of intellectual property’, (2002) 88 (7) Virginia Law Review 1455, 1495. See for opposite view Eric R Claeys, ‘Private Law Theory and Corrective Justice in Trade Secrecy’ (2011) 4 (2) Journal of Tort Law 1, 13. 114 Robert G. Bone, ‘A New Look at Trade Secret Law: Doctrine in Search of Justification’, (1998) 86 California Law Review 241, 254. 115 Ibid. 116 It is still debatable even in the US context whether trade secrets are properties. See for eg, Robert G Bone, ‘The (still) Shaky Foundation of Trade Secret Law’ (2014) 92.7 Texas Law Review 1803. 117 Paris Convention for the Protection of Industrial Property (March 20, 1883; effective July 7, 1884, and amended June 2, 1934 and July 14, 1967) (the Paris Convention): Article 10 bis - “any act of competition contrary to honest practices in industrial or commercial matters constitutes an act of unfair competition”. It does not contain any specific mention specifically relevant to trade secrets. Instead, it 50 Chapter 2: THEORETICAL PERSPECTIVES provides that ‘… persons shall have the possibility of preventing information lawfully within their control…’. The use of the word ‘persons’ instead of ‘owners’ denotes the non-proprietary nature of the rights recognised by the Article 39.118 The reasoning behind this approach lies in the twists and turns that occurred in the drafting stage of Article 39. Most of the negotiators for developing countries, led by India, were vehemently opposed to recognising the property nature of trade secrets proposed by the United States.119 According to the developing countries’ view: Trade Secrets cannot be considered to be intellectual property rights. The fundamental basis of an intellectual property right is its disclosure publication and registration, while the fundamental basis of a trade secret it its secrecy and confidentiality … The observance and enforcement of secrecy and confidentiality should be governed by contractual obligations and the provisions of appropriate Civil Law and not by intellectual property law.120 Therefore, these counties suggested that trade secrets are beyond the mandate of negotiating group of TRIPS Agreement.121 However, the TRIPS Agreement, adopting a middle path, identifies that the protection of trade secrets or undisclosed information can arise under pre-existing industrial property principles of unfair competition122 Therefore, there may be no basis for using the property justification in the international context. More importantly, in terms of this study, the property nature of trade secrets has less practical impact in relation to the selected case studies of Australia and Sri Lanka. In Federal Commissioner of Taxation v United Aircraft Corporation,123 the High states following three examples of unfair competition: (i) all acts of such a nature as to create confusion by any means whatever with the establishment, the goods, or the industrial or commercial activities, of a competitor; (ii) false allegations in the course of trade of such a nature as to discredit the establishment, the goods, or the industrial or commercial activities, of a competitor; (iii) indications or allegations the use of which in the course of trade is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose, or the quantity, of the goods. 118 Carlos M Correa, Trade Related Aspects of Intellectual Property Rights: A Commentary on the TRIPS Agreement (Oxford University Press, US, 2007) 368. 119 Standards and Principles Concerning the Availability, Scope and Use of Trade-Related Intellectual Property Rights-Communication from India-MTN.GNG/NG11/W/37 (10 July 1989) [46]. Chapter 2: THEORETICAL PERSPECTIVES 51 Court of Australia decided that confidential information communicated from a US- based company to an Australian company cannot be regarded as property for tax purposes. Further clarifying the underlying rationale of this decision, Latham CJ stated that: Knowledge is valuable, but knowledge is neither real nor personal property. A man with a richly stored mind is not for that reason a man of property. Authorities which relate to property in compositions etc. belong to the law of copyright and have no bearing upon the question whether knowledge or, information as such is property. It is only in a loose metaphorical sense that any knowledge as such can be said to be property. Either all knowledge is property, so that the teaching of, for example, mathematics, involves a transfer of property, or only some knowledge is property. If only some knowledge is property then it must be possible to state a criterion which will distinguish between that knowledge which is property and that knowledge which is not property. The only criterion which has been suggested is the secrecy of the knowledge — it is said that the fact that knowledge is secret in some way creates a proprietary right in that knowledge. I confess myself completely unable to appreciate this proposition as a legal statement. 124 In addition, in Dais Studio Pty Ltd v Bullet Creative Pty Ltd,125 a web-designing firm brought an action against an ex-employee for using its confidential information relating to a content management system. In construing the scope of the term ‘proprietary information’ included in the employment contract, Jeesup J stated that: Information as such, of course, is not property … When information is secret or truly confidential in fact, there is a sense in which the person by whom the information is known might be said to own the information. At times, the concept of property has been used metaphorically as I appreciate it to describe the position existing when information cannot be used or revealed without breach of the equitable obligation of confidence.126 Reaffirming this judicial stand-point, Caenegem states that ‘…in Australia (and the English common law tradition), trade secrets themselves as species of information do not exhibit the characteristics of physical property (articles or things) and, therefore, 124 Ibid, 534-535. [emphasis added] 125 [2007] FCA 2054. 126 Ibid, [96]. 52 Chapter 2: THEORETICAL PERSPECTIVES are not property’.127 In Smith Kline & French Laboratories (Australia) Ltd v Secretary, Department of Community Services and Health,128 Gummow J inter alia analysed the issue ‘whether the concept of property as understood in s 51(xxxi) [of the Australian Constitution]129 extends to information which is of sufficient substance to be the subject of an equitable obligation of confidence’.130 However, Gummow J’s main concern in this case was the proprietary rights of confidential information arising from equity or in relation to the action of breach of confidence. The judgement does not necessarily mean that the courts considered trade secrets or confidential information as a real property.131 By contrast, the Sri Lankan Intellectual Property Act, by following the TRIPS language, attempts to protect trade secrets under the unfair competition regime.132 As such, it refrains from using a proprietary language when referring to trade secrets rights. For example, s 160(6) uses phrases such as ‘person lawfully in the control of that information [trade secrets]’ or ‘rightful holder’ in establishing trade secrets rights. It refrains from using the words such as ‘owner’ or ‘ownership’. Further, whereas the Act criminalises wilful disclosures of trade secrets, it ensures that acquisitions or thefts are not criminalised in the sense that trade secrets are property.133 Thus, there is no concept of property underpinnings trade secrets law in the Sri Lankan context. Overall, the property justification is relatively weak in providing a rationale for protecting trade secrets for four reasons. First and most relevant to this research, the 127 William van Caenegem, Trade Secrets and Intellectual Property: Breach of confidence, Misappropriation and Unfair Competition (Walter Kluwer, Netherlands, 2014) 17. See Robert Dean, The Law of Trade Secrets (Lawbook Co, 1990) 83-84: ‘…a close analysis of the courts’ treatment of trade secrets reveals that it is doubtful that the courts have taken the step to include property as a basis for protecting confidential information … It is concluded therefore, that the burden of proof is on those maintaining property in trade secrets; and that this burden has not yet been discharged. ’ See also Robert Dean, The Law of Trade Secrets and Personal Secrets (Lawbook Co, 2nd ed, 2002) 4-6. 128 (1990) 22 FCR 73, 112. 129 The Constitution of the Commonwealth of Australian s 51(xxxi): ‘The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to:… the acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws’. 130 (1990) 22 FCR 73, 112, 119. 131 Ibid. 120-121: ‘It is clear in Australia that the equitable jurisdiction to grant relief against an actual or threatened abuse of confidential information, not involving any tort or breach of contract, fiduciary duty, copyright or trade mark, is based not in pre-existing proprietary right, but an obligation of conscience arising in the circumstances of the case: Moorgate Tobacco Co Ltd v Phillip Morris Ltd (No 2) [1984] HCA 73.’ 132 See s 160(6) of the Sri Lankan Intellectual Property Act, No. 36 of 2003. 133 See s 160(9) of the Intellectual Property Act, No. 36 of 2003. Chapter 2: THEORETICAL PERSPECTIVES 53 legal consequences of propertisation of trade secrets may prejudice the interests and freedoms of employees, mostly in the post-employment phase. In fact, this approach tends to focus only on the protection of trade secrets of employers, to the exclusion of the important issue of how such protections impact on employees or society. Second, creating stringent property rights over trade secrets further undermines the public or societal interests because trade secrets may undermine the public policy goal of intellectual property law: public disclosure. Third, trade secrets may bring an anomaly to the property foundations given the non-exclusivity of trade secrets rights and the chances of having simultaneously two or more owners to the same trade secret. Also, economic or utilitarian justifications of property may not be able to properly support trade secrets protection, since the law may not be able to produce social benefits that exceed the social cost of protecting trade secrets. Finally, property debates are largely confined to the United States context, whereas international law and laws of other countries, especially in Australia and Sri Lanka, do not rely on property foundations of trade secrecy. As such, there may be less practical application of property theorisation outside the United States. Therefore, property justification may not be able to provide for a practical and balanced rationale for the protection of trade secrets.134 2.3.2 Relational Justification (a) Theoretical Underpinnings Another theoretical justification for trade secrets is based on relational or duty- based principles. The duty or obligation to protect trade secrets arises from existing interactions based on contractual, commercial or confidential relationships. Duty- based theory emphasises the maintenance of basic moral obligations or duties to protect trade secrets. Thus, the aim of trade secrets law is to prevent illicit behaviour and to uphold reasonable standards of moral behaviour.135 In other words, by enforcing ordinary standards of morality in employment or commercial relationships, trade secrets law purportedly ensures a consistency with general social morality. As described by Lemley, the primary explanation for trade secrets law throughout the 20th 134 These issues will be further illuminated in section 2.5 when establishing the human rights framework of trade secrecy. 135 See Mark A Lemley, ‘The Surprising Virtues of Treating Trade Secrets as IP Rights’ (2008) 61(2) Stanford Law Review 311, 320. 54 Chapter 2: THEORETICAL PERSPECTIVES century is what might be described as a ‘duty-based’ theory or maintenance of commercial morality.136 Duty-based or relational theory has a historical genesis in English common law and equity, on which the present trade secrets law of common law countries is based. For example, contract law and the equitable action of breach of confidence covers a large area of trade secrets law in common law countries.137 Also, duty-based relational theory has a civil law origin, as most civil law countries rely on unfair competition to protect trade secrets.138 In reality, the moral obligation of trade secrets protection may be the most widely accepted justification in modern legal systems, particularly given the TRIPS Agreement endorses such an approach.139 For instance, in its reference to protection against unfair competition, the TRIPS Agreement stipulates that: Natural and legal persons shall have the possibility of preventing information lawfully within their control from being disclosed to, acquired by, or used by other without their consent in a manner contrary to honest commercial practices… 140 It further states that: For the purpose of this provisions [Article 39(1)] “manner contrary to honest commercial practices” shall mean at least practices such as breach of contract, breach of confidence and inducement to breach, and includes the acquisition of undisclosed information by third parties who knew, or were grossly negligent in failing to know, that such practices were involved in the acquisition.141 This TRIPS language is an indication that it bases its views on unfair competition, breach of contract, and breach of confidence and accepts the relational obligations of protecting trade secrets. 136 Ibid, 312. However, Lemely’s primary stance is that trade secrets should be considered as an intellectual property. 137 William B. Barton, ‘A Study in the Law of Trade Secrets’ (1939) 13.4 Cincinnati Law Review 507, 507-511. 138 See William van Caenegem, Trade Secrets and Intellectual Property: Breach of confidence, Misappropriation and Unfair Competition (Walter Kluwer, Netherlands, 2014) 21. 139 See Article 39 (2) of the TRIPS Agreement. 140 Ibid. 141 Footnote 10 of the TRIPS Agreement. Chapter 2: THEORETICAL PERSPECTIVES 55 Contract theory plays a central role when it comes to specifying the role of duty- based or relational obligation in protecting trade secrets. Contract theory holds that a duty exists when there is an enforceable contract between the rightful holder of trade secrets and the contracted parties such as employees. This theory is grounded on the doctrine of ‘sanctity of contract’ which provides that parties must honour their obligations once they have duly entered into a contract. As explained by Goodhart, the moral basis of a contract is that the promisors have, by their promise, created a reasonable expectation that it will be kept.142 Therefore, the paramount duty arising from a contract cannot be avoided by a party, as it has moral and legal consequences. Accordingly, contractual parties agree not to disclose or use a trade secret of an employer by agreeing to specific obligations stipulated in non-disclosure, non- competition, and non-solicitation clauses. In other words, use or disclosure of trade secrets is wrongful because that is a breach of a pre-existing contractual obligation arising explicitly or implicitly. Bone posits that contract may be the most convincing theory for protecting trade secrets and he expresses doubt that trade secrets law stands on any independent justification apart from contract.143 From a practical perspective, the contract theory is coextensive with the trade secrets law and applies regardless of other theories or laws available. Thus, including non-disclosure clauses to contracts may be useful in proving the relative secrecy and reasonable steps taken to protect a trade secrets, which are essential prerequisites to attracting trade secrets protection.144 Contract theory is also important given, in most cases, trade secrets commonly arise in the commercial and technological contexts which are mostly contractually regulated.145 It is a common practice for business firms to include restrictive covenants, such as non-disclosures and non-competes, to their contracts obligating counter-contractual parties to protect trade secrets.146 For instance, business firms increasingly rely on restrictive covenants to protect trade secrets from their employees. They treat such covenants as an effective instrument to prevent the disclosure and acquisition of trade secrets by the employees 142 Professor A L Goodhart, English Law and the Moral Law (Stevens & Sons, 1953) 1. 143 Robert G. Bone, ‘A New Look at Trade Secret Law: Doctrine in Search of Justification’, (1998) 86 California Law Review 241, 254. 144 See section 1.6.1 above. 145 J.J. Prescott, Norman D. Bishara and Evan Starr, ‘Understanding Noncompetition Agreements: The 2014 Noncompete Survey Project’ (2016) Michigan State Law Review 369, 374. 146 Ibid. 56 Chapter 2: THEORETICAL PERSPECTIVES in an unauthorised manner after their employment. This practice generally appears not only in employment contracts but also in business relationships, such as franchising, partnerships and joint-ventures.147 But even in the absence of written or express contracts, employees owe an implied duty of fidelity and good faith to their employers.148 In effect, contractual measures set a platform for a trade secrets-holder to efficiently share secret information with counterparts, such as employees or business partners, as they otherwise would not have any incentive to do so.149 The absence of non-disclosure or non-competition covenants may therefore actually deter employers from hiring employees and properly engaging with businesses due to the fear of trade secrets theft.150 In addition to the contractual foundations, relational or duty-based theories have deep roots in equity. The protection of confidential information, which includes trade secrets, is English in origin dating back to the 17th century.151 The equitable genesis of protecting trade secrets is based on the notion that ‘a person who has received information in confidence shall not take unfair advantage of it’.152 Thus, the obligation to protect trade secrets arises only in a setting where a confidential relationship exists. It requires confidants who acquire confidential information from or during their service with, or by virtue of his or her relationship with confiders, in circumstances importing a duty of confidence, not to divulge that information to a third party without 147 In business relationships such as franchises, partnerships and joint ventures, the reliance on contractual obligations is pivotal since those relationships may require the owner of a trade secret to reveal it to the counterpart, given the action is pivotal in fostering the relationship. If a franchisee, partner or a counterpart of a joint venture cannot protect business secrets such as business systems, methods, formats, product information, formulas or recipes, during and after the relationship, such business relationships would collapse. Presumably, a restraint of trade clause in the form of non- disclosure or non-compete serves this purpose. 148 See Andrew Frazer, ‘Employee’s Contractual Duty of Fidelity’ (2015) 131 (1) Law Quarterly Review 53. 149 Charles Tait Graves, ‘Trade secrecy and common law confidentiality: the problem of multiple regimes’ in Rochelle C. Dreyfuss and Katherine J. Strandburg (eds), The Law and Theory of Trade Secrecy- A Handbook of Contemporary Research (Edward Elgar, UK, USA, 2011) 86. 150 Ibid. 151 See for eg, Webb v Rose (1732) 98 ER 924 and Pope v Curl (1741) 26 ER 608; Morrison v Moat (1851) 9 Hare 241 and Price Albert v Strange (1849) 1 Mac & G 25. See also S.R. Epstein, Craft Guilds, Apprenticeship, and Technological Change in Preindustrial Europe (1998) 58 (3) The Journal of Economic History 684, 688- 691. 152 Lord Denning M.R. in Seager v Copydex Ltd (1967) 2 All E. R. 417 (CA). This notion is widely accepted in Australia; see Smith Kline & French Laboratories (Australia) Ltd v Secretary, Department of Community Services And Health (1990) 22 FCR 73. Chapter 2: THEORETICAL PERSPECTIVES 57 the consent or against the wishes of the confider.153 In simple terms, the equitable action of breach of confidence lies in the practice of equity to protect secrets confined by one party to another in recognising the relationships of trust, conscience and confidence.154 The main advantage of basing trade secrets protection on the equitable action of breach of confidence is that it can also cover the situation where there are no contractual obligations.155 In other words, the breach of confidence action provides the only basis for common law courts to intervene when the parties to a confidentiality obligation are not in a contractual relationship.156 As such, the application of the action of breach of confidence would resolve the issue of privity of contract157 by applying the obligation of confidentiality even outside the contractual circles. This would include competitors who have obtained trade secrets through employers or ex- employees of the trade secrets-holder.158 Furthermore, the equitable action of breach of confidence may even cover the situation where ‘strangers’ surreptitiously acquire confidential information or have actual or constructive knowledge that the information which has come into their possession is confidential.159 A further rationale for protecting trade secrets as a relational obligation is based on unfair competition theory which focuses on the prohibition of conduct that are inconsistent with honesty in fair competition. The underlying rationale is that unfair competition destroys trust in the development of markets and products and 153 Attorney-General v Guardian Newspapers [No. 2] [1998] 2 WLR 805 154 Mark Davidson, Ann Monotti and Leanne Wiseman, Australian Intellectual Property Law (Cambridge University Press, 3rd ed, 2016) 375. 155 As pointed out by Torremans ‘the basic duty of fidelity arises throughout the course of the employment relationship and can be far-reaching in its effect.’ Paul Torremans, Holyoak and Torremans Intellectual Property Law (Oxford University Press, 6th ed, 2010) 541. 156 Tanya Aplin, Lionel Bentley, Philip Johnson, Simon Malynicz, Gurry on Breach of Confidence (Oxford University Press, UK, 2nd ed, 2012) 110. 157 This theory denotes that the relation between the parties in a contract enables the enforcement the contractual obligation against each other through litigation but prevents third party from doing so: Wilson v Darling Island Stevedoring Co (1955) 95 CLR 43. 158 Tanya Aplin, Lionel Bentley, Philip Johnson, Simon Malynicz, Gurry on Breach of Confidence (Oxford University Press, UK, 2nd ed, 2012) 110; See also Lord Keith’s dictum in Attorney General v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109 (HL), 260: ‘It is general rule of law that a third party who comes into possession of confidential information which he knows to be such, may come under a duty not to pass it on to anyone else’. 159 Westpac Banking Corp v John Fairfax Group Pty Ltd (1991) 19 IPR 513; Creation Records Ltd v News Group Newspapers Ltd. [1997] EMLR 444; Shelley Films Ltd v Rex Features Ltd [1994] EMLR 134; and Douglas v Hello! (No. 8) [2007] UKHL 21. See also Tanya Aplin, Lionel Bentley, Philip Johnson, Simon Malynicz, Gurry on Breach of Confidence (Oxford University Press, UK, 2nd ed, 2012) 110-111. 58 Chapter 2: THEORETICAL PERSPECTIVES consequently prejudices competitors and customers.160 As noted above, this notion has been widely accepted in modern IP law. For example, the TRIPS Agreement recognises that disclosure, acquisition or use of trade secrets, without the consent of the person lawfully in control of such information through acts or practices contrary to honest commercial practices, are acts of unfair competition.161 As such, this theory suggests that trade secrets law represents a set of interdictions against unfair competition.162 Arguably, the unfair competition foundation of trade secrecy is relational since it merely establishes an obligation of a person not to acquire, disclose or use trade secrets in a manner contrary to honest commercial practices. As such, it does not prohibit the honest or bona fide acquisitions or uses of trade secrets which are not contrary to honest commercial practices. (b) A Critique As was the case in relation to property theory, relational or duty-based theory has some limitations and criticisms. First and most important to the research context, despite being called ‘relational’, it is highly doubtful that these theories are concerned with the rights of related parties other than the trade secrets owner. For instance, it may be argued that restrictive covenants made in the name of protecting trade secrets are merely stipulating one-sided obligations and duties. To be more explicit, contractual measures only expect employees’ fidelity without demanding any obligation from the employer in exchange.163 As Kenneth Shurtz remarks: ‘the relational duty theory has historically been portrayed from the viewpoint of the employer and fails to take into account the importance of employee mobility and the right of the public to rely on information in the public domain’.164 As such, employees may be restricted in joining a potential competitor of the employer or in starting their own rival business at the end 160 That is for the reason that competitors lose market share and consumers are deceived by such conducts. 161 Article 39 (2) of the TRIPS Agreement. 162 Charles Tait Graves, ‘Trade secrets as property: Theory and Consequences’ (2007) 15 Journal of Intellectual Property Law 69. 163 See Charles Tait Graves, ‘Trade secrets as property: Theory and Consequences’ (2007) 15 Journal of Intellectual Property Law 39,42 : ‘Trade secret law emphasizes not the boundaries of the information at issue but the asserted disloyalty of the employee, who is alleged to have owed a one- way duty of fidelity to the employer.’ 164 Kenneth Shurtz, ‘Has the CUTSA Furthered or Frustrated Underlying Theories of Trade Secrets Law’ (2009) 50 (3) IDEA- Intellectual Property Law Review 501,507. Chapter 2: THEORETICAL PERSPECTIVES 59 of their employment. Far from serving the knowledge spill-over in an industry by changing jobs, this scenario may encourage employees to continue working with the same employer. Indeed, it may be recognised as a modern form of forced labour,165 given such restrictions inevitably impedes employees’ ability to flourish. In a broader perspective, lack of knowledge spill-over may impact on economic growth of a country and thus the public interest.166 However, it is acceptable that this claim may need a proper justification and explanation with practical examples. This issue will be further analysed in Chapters 3 to 5, since relational theory underlies the protection of trade secrets in Australia and Sri Lanka, which is the scope of investigation of this thesis.167 Second, the application of relational theories may depend on the legal traditions of each country. For example, the equitable genesis of the issue or breach of confidence is only applicable to common law countries. By the same token, unfair competition theories are mainly applicable in civil law countries.168 This may be the main reason why trade secrets laws among and within countries become fragmented.169 Third, there is no sui generis theory called relational theory, but is a combination of theories depending on the circumstances of each case. For instance, contract theory cannot apply alone since the contractual obligation cannot be extended towards non- parties of the contract, such as competitors of the employer who gains access through a disgruntled employee.170 Therefore, contract theory should be bracketed with the equitable action of breach of confidence or other legal measures. 165See Abolition of Forced Labour Convention 105, opened for signature 25 June 1957, C 105 (entered into force 17 January 1959). 166 This argument is rationalised under the endogenous growth theory: ‘knowledge is assumed to be an input in production that has increasing marginal productivity’ and economic growth of a country. See Paul M Romer, ‘Increasing Returns and Long-Run Growth’ (1986) 94 (5) Journal of Political Economy 1002, 1003. See also Alan Hyde, Working in Silicon Valley: Economic and Legal Analysis of a High-Velocity Labor Market (Routledge, 2nd ed, 2015) 167. 167 This issue is further analysed in relation to human rights framework. See sections 5.2 and 5.3. 168 See William van Caenegem, Trade Secrets and Intellectual Property: Breach of confidence, Misappropriation and Unfair Competition (Walter Kluwer, Netherlands, 2014) 21, For example, in Germany trade secrets are protected under the s 17 of the Act against Unfair Competition, Gesetz gegen den unlauteren Wettbewerb vom 3. Juli 2004 (BGBl. I 2004 32/1414). 169 See Baker and McKenzie, Study on trade secrets and confidential business information in the internal market (April 2013). 170 This is because the application of privity of contract theory provides that a contract can only be enforced against the parties involved. For example, where employees or ex-employees divulges a trade secret to a competitor of their employer, the (ex)-employer can only take action against the employee. See Dunlop Tyre Co v Selfridge [1915] AC 847. 60 Chapter 2: THEORETICAL PERSPECTIVES A fourth issue that arises from the second is that the breach of confidence action may then be superfluous as it is applicable on top of the contractual obligation. Courts may consider that confidences or obligation to protect trade secrets arise from contracts. However, if so, the problem is then whether courts may disregard contractual legal principles by applying breach of confidence. Therefore, this application of multiple regimes in relational theories may contribute to the creation of more legal problems. As stated in Gurry on Breach of Confidence, the ‘jurisdictional basis of the action of breach of confidence has been a source if lingering uncertainty and controversy’.171 As Gareth Jones observed: A cursory study of the cases, where the plaintiff's confidence has been breached, reveals great conceptual confusion. Property, contract, bailment, trust, fiduciary relationship, good faith, unjust enrichment, have all been claimed, at one time or another, as the basis of judicial intervention. Indeed, some judges have indiscriminately intermingled all these concepts. The result is that the answer to many fundamental questions remains speculative.172 Therefore, not only contracts, but also property and tort may provide the basis for courts to grant relief under the action of breach of confidence.173 Consequently, there remain considerable conceptual confusion within the normative foundations of trade secrets law. A fifth issue relates to unfair competition theory, since it depends on commercial or business morality. In other words, the ultimate goal of this theory is to make sure competition among business firms is fair. However, trade secrets misappropriations are not necessarily limited to the business contexts. In any case, unfair competition theory, which is based on commercial morality or fairness, requires some external reference point to determine what behaviour is and is not moral.174 171 Tanya Aplin, Lionel Bentley, Philip Johnson, Simon Malynicz, Gurry on Breach of Confidence (Oxford University Press, UK, 2nd ed, 2012) 97. 172 Gareth Jones, ‘Restitution of Benefits Obtained in Breach of Another's Confidence’ (1970) 86 Law Quarterly Review 463, 463. 173 Ibid. 174 Mark A Lemley, ‘The Surprising Virtues of Treating Trade Secrets as IP Rights’ (2008) 61 (2) Stanford Law Review 311, 327. Chapter 2: THEORETICAL PERSPECTIVES 61 Therefore, it may be doubtful whether relational theories are able to provide a robust foundation for how trade secrets are protected, without unnecessarily impeding rights and interests of connected parties such as employees and the public.175 2.3.3 Trade Secrets Nihilism Even though most trade secrets law theorists focus on property and relational theories, Bone suggested in 1998 in his article entitled, A New Look at Trade Secret Law: Doctrine in Search of Justification’, that there is no separate law called trade secrets and its doctrinal foundation is parasitic.176 He posits that trade secrets lack normative justification and they depend ‘on a host theory for normative support’.177 In other words, he argues that ‘whatever policies support trade secret law must come from other bodies of law’.178 He rejects the economic arguments of trade secrecy and notes ‘… it is uncertain whether trade secret law generates incentive benefits that exceed its costs’.179 Bone contends that the cost of corporate level measures to protect trade secrets from disclosure (what he calls ‘wasteful precautions’) and high litigation costs outweigh the economic benefits of trade secrets.180 He further asserts that ‘trade secrets law runs the risk of undermining the socially beneficial incentives of the patent system’.181 Accordingly, he comes to a conclusion that trade secrets law is in a muddle ‘due to the absence of convincing normative theory capable of making coherent sense of trade secret doctrine’.182 His article has since been extensively cited and only a few authors have since challenged it in providing other normative justifications for trade 175 See below section 2.5 which further explains this issue in relation to human rights theory. 176 Robert G. Bone, ‘A New Look at Trade Secret Law: Doctrine in Search of Justification’, (1998) 86 California Law Review 241-313. 177 Ibid, 241, 245. 178 Robert G Bone, ‘The (still) Shaky Foundation of Trade Secret Law’ (2014) 92.7 Texas Law Review 1803, 1806. 179 Robert G. Bone, ‘A New Look at Trade Secret Law: Doctrine in Search of Justification’, (1998) 86 California Law Review 241, 243-270. Robert G Bone, ‘The (still) Shaky Foundation of Trade Secret Law’ (2014) 92.7 Texas Law Review 1803, 1807. 180 Robert G. Bone, ‘A New Look at Trade Secret Law: Doctrine in Search of Justification’, (1998) 86 California Law Review 241, 272- 278. Robert G Bone, ‘The (still) Shaky Foundation of Trade Secret Law’ (2014) 92 (7) Texas Law Review 1803, 1808-1809. 181 Robert G. Bone, ‘A New Look at Trade Secret Law: Doctrine in Search of Justification’, (1998) 86 California Law Review 241, 270. 182 Ibid, 304. 62 Chapter 2: THEORETICAL PERSPECTIVES secrecy.183 Again, in 2014, affirming the same arguments, Bone concludes: ‘I remain skeptical that there is a normative basis for freestanding trade secret law that is not parasitic on other legal norms.’184 2.4 TOWARDS A HUMAN-CENTRIC THEORETICAL FRAMEWORK ‘Theories have lives of their own, quite defiantly of the phenomenal world that can be actually observed.’ —Amartya Sen185 It is evident from the above discussion that neither of the mainstream trade secrets theories –– that is, property and relational –– may be able to provide a solid or unshakable justification for protecting trade secrets, nor are they capable of analysing the impacts of law on stakeholders of protection such as employees and the public. For instance, economic or property-related justifications suggest the need for strong protection of trade secrets, claiming it is the only way to incentivise employers to invest in creating trade secrets. In so doing, they focus on the commercial value of information and the rights of employers to protect them. Even though the relational theories may be capable of explaining why and/or how trade secrets are protected, they may not properly explain how to ensure the rights of connected parties such as employees. The fundamental problem of current IP theories, in general, and trade secrets theories in particular may be that they are not human-centric. In other words, as Sunder succinctly articulated: There are no ‘giant-sized’ intellectual property theories capable of accommodating the full range of human values implicit in intellectual production. But there should be.186 183 See for eg, Mark A Lemley, ‘The Surprising Virtues of Treating Trade Secrets as IP Rights’ (2008) 61 (2) Stanford Law Review 311. Michael Risch, ‘Why do we have trade secrets?’ (2007) 11 Marquette Intellectual Property Law Review 1, 43-44. 184 Robert G Bone, ‘The (still) Shaky Foundation of Trade Secret Law’ (2014) 92 (7) Texas Law Review 1803, 1838. 185 Amartya Sen, ‘Democracy Isn’t Western’ Wall Street Journal (2006 March 24) A10. Chapter 2: THEORETICAL PERSPECTIVES 63 The central argument is that whereas robust IP rights are undoubtedly necessary to incentivise innovation and creation of such IPs, there is another side to the same coin. Such IP rights may impact on individuals other than IP owners and the public. Merges argues that IP theories should be ‘personal but unselfish’ and they should represent moralistic values.187 Sunder, focussing on trade secrets law in particular, states that: The mongrel origins of trade secrets law suggest that it is about many things, from freedom of contract to implied duties, rights to exclude, incentives, morality and fault.188 Therefore, trade secrets law should endorse ‘multiple values such as incentives, allocative efficiency, autonomy, commercial morality, corrective justice and other distributive goals’.189 In accordance with this line of argument, the theoretical framework of this thesis takes a human-centric approach. In other words, an alternative trade secrets theory should not be merely confined to analysing why trade secrets should be protected. It should also be able to explain how trade secrets should be protected without unnecessarily interfering in individual interests, freedoms and rights. That is because trade secrets law is not only about the policies of innovation and protecting valuable information of an employer, but also about the rights of employees and broader societal interests. Therefore, this thesis emphasises the need to develop a theory which may place individuals and their rights, interests and freedoms at the front and centre. As such, it proposes that human rights theory may be able to fill this research gap. This thesis proposes to adopt such a theoretical proposal for two purposes: first, to evaluate trade secrets laws in order to see whether and how laws affect the values, interests and rights of employees and society as a whole.190 Second, such a theoretical proposal can be used to guide trade secrets law towards an equilibrium approach which values equally important rights and interests of employers, employees and the public.191 The central argument of this thesis is not to say that economic and property rationales of trade 187 Robert P. Merges, Justifying Intellectual Property (Harvard University Press, 2011) 13. 188 Madhavi Sunder, ‘Trade Secret and Human Freedom’ in Shyamkrishna Balganesh (eds) Intellectual Property and the Common Law (Cambridge University Press, 2013) 334, 335. 189 Shyamkrishna Balganesh, ‘The Pragmatic Incrementalism of Common Law Intellectual Property’ (2010) 63 Vanderbilt Law Review 1543, 1553. 190 See Chapter 5. 191 See section 6.3. 64 Chapter 2: THEORETICAL PERSPECTIVES secrets law are false, but they are incomplete. In fact, they can be supplemented and informed by the rights-based analysis of trade secrets. 2.5 HUMAN RIGHTS FRAMEWORK OF TRADE SECRECY This section introduces a standard that is grounded in human rights theory as an alternative theoretical framework to evaluating and guiding trade secrets laws. In so doing, this section, first, establishes the theoretical underpinnings of the theory. Second, it explains how human rights theory can be relevant to protecting trade secrets with special reference to employment and public interest issues. It argues that human rights theory may provide a balanced approach for the protection of trade secrets at least in the employment context. Finally, it outlines the criteria of evaluating trade secrets laws which was informed by the human rights theory. These criteria will be used to examine the effects of trade secrets law of Australian and Sri Lanka on employees and the public. 2.5.1 Theoretical Underpinnings ‘Inherent dignity and the equal and inalienable rights of all members of the human family [are] the foundation of freedom, justice and peace in the world.’ Universal Declaration of Human Rights192 Human rights are, in general, ‘entitlements (not) to perform certain actions, or (not) to be in certain states’.193 They are a ‘very strong moral reason why people should have a certain freedom, power, protection of benefit’.194 One of the objectives of human rights is to establish the necessary conditions required for a minimally good life of a human being.195 Human rights can be regarded as yardsticks to measure the 192 Preamble of the Universal Declaration of Human Rights., GA Res 217A (III), UN GAOR, 3rd session, 183 plen mtg, UN Doc A/810 (10 December 1948). Hereinafter referred to as the UDHR. 193 Leif Warner, ‘Rights’ Stanford Encyclopaedia (9 September 2015) Chapter 2: THEORETICAL PERSPECTIVES 65 permissibility of actions of humans and State organs.196 That may be because they have become a moral standard of how a human being should be treated, by another human being or the State.197 With the wide acceptance of human rights throughout the world, they have reached ‘the status of an ethical lingua franca’.198 Human rights are based on natural law or moral values. Thus, they are basic moral guarantees which are inherent or belong to humans for the mere reason they are born as humans or by virtue of the humanity of people. 199 As such, human rights do not need to be granted by any person or authority. They are inalienable so that they cannot be taken away, given away or forfeited. Further, human rights are fundamental to human life since it is contended human lives are meaningless without them. They are universal since they are applicable to any person irrespective of their geographical boundaries, origin, sex, race, or any other differences. In other words, human rights ‘exist and are available as standards of justification and criticism whether or not they are recognized and implemented by the legal system or officials of a country’.200 Human rights are, in fact, a derivative of natural rights.201 However, they differ from natural rights. For example, human rights are more specific and numerous, but not broad and abstract like natural rights. That is mainly because the Universal Declaration of Human Rights (UDHR) and many other subsequent human rights treaties globally accept, specify and list human rights. Therefore, human rights need not necessarily be backed up by an external theoretical basis since they are globally accepted, respected and upheld by almost all modern nations.202 196 Ibid. See also John Rawls, A Theory of Justice (Harvard University Press, 2nd ed, 1999); Charles Beitz, The Idea of Human Rights (Oxford: Oxford University Press, 2009) 197 Charles Beitz, The Idea of Human Rights (Oxford: Oxford University Press, 2009); John Rawls, The Law of Peoples with the ‘Idea of Public Reason Revisited’ (Cambridge, MA: Harvard University Press, 1999); Joseph Raz, Human Rights Without Foundations (March 2007). Oxford Legal Studies Research Paper No. 14/2007. 66 Chapter 2: THEORETICAL PERSPECTIVES To elaborate, the UDHR explicitly identifies more than 25 core human rights which can be categorised as civil, political, economic, social and cultural rights. These rights were further perpetuated by the International Covenant on Civil and Political Rights (ICCPR) (1966),203 together with two protocols and the International Covenant on Economic, Social and Cultural Rights (ICESCR) (1966).204 In fact, the UDHR, ICCPR and ICESCR set the international standards of protecting and promoting human rights and are considered as the international bill of rights.205 Nearly 170 countries, including Australia206 and Sri Lanka,207 are signatory to these major human rights treaties and almost all modern nations implement these rights through their constitutions or bill of rights.208 As such, the theory of human rights influences modern legal, economic and political systems in many ways. Indeed, it may provide a means of persuading contemporary thinking on social justice since it brings guidelines to not only government organs and public bodies but also to social institutions and individuals.209 2.5.2 Application of Human Rights in a Private Law Phenomenon At the first glance, one may question how the human rights theory, which fundamentally arises in the context of public law can be applied to a private law phenomenon such as trade secrets protection. The historical purpose of human rights law is to protect people from the abusive power of government authorities.210 As such, human rights enshrined in international covenants or national constitutions primarily ‘focus on civil liberties and political freedoms’. However, the question to be asked is 203 International Covenant on Civil and Political Rights, opened for signature 16 December 1966, 999 UNTS 171 (entered into force 23 March 1976). Hereinafter referred to as ICCPR. 204 International Covenant on Economic, Social & Cultural Rights, opened for signature 16 December 1966, 993 UNTS 3 (entered into force 3 January 1976). Hereinafter referred to as ICESCR. 205 Fact Sheet No.2 (Rev.1), The International Bill of Human Rights Chapter 2: THEORETICAL PERSPECTIVES 67 how far it may be reasonable to compartmentalise fundamental bedrocks of law such as human rights as being a public law concept.211 In fact, human rights may have a horizontal application: among individuals (in the private law sphere) in addition to its vertical application, and among the government and individuals (in the public law sphere). Collins lucidly argues that: Private law is surely not opposed to the values and principles embodied in the terse of human and fundamental rights found in constitutions, conventions and charters. On the contrary, many of those values influenced the doctrines of private law.212 For example, as posited by Collins: ‘the individual right to liberty may be discovered at the core of such key ideas of private law as freedom of contract’.213 Essentially, whereas human rights in the public law context are primarily ‘a defensive weapon against infringements by the state’, in the private law context, rights or interests of individuals ‘are positive claims that must be balanced between parties’.214 Some writers called this phenomenon as constitutionalism of private law, ‘increasing influence of fundamental rights in relationships between parties’.215 A moral foundation for the application of human rights in relation to private parties may be found from Alan Gewirth’s proposition on human rights.216 According 211 For instance, as against isolating the premise of private law from public law, Green calls private as being ‘public law in disguise’. Leon Green, ‘Tort Law Public Law in Disguise’ (1959) 38 Texas Law Review 1, 1. 212 Huge Collins, ‘On the (In)compatibility of Human Rights Discourse and Private Law’ (LSE Law, Society and Economy Working Papers 7/2012, London School of Economics and Political Science Law Department , 2012) 4. 68 Chapter 2: THEORETICAL PERSPECTIVES to his ‘Principle of Generic Consistency’, every agent (a human being) should have inalienable rights to freedom and well-being that are the necessary conditions for his or her action.217 However, ‘the agent logically must accept that all other purposive agents (other human beings) have the same right to freedom and well-being as he [or she] claims for him[her]self’.218 As such, this requires that an individual refrains from interfering with others’ freedom and well-being, and other persons refrain from interfering with fellow-individual’s freedom and well-being.219 In sum, Gewirth proclaims that on the pain of self-contradiction each human being should admit that fellow humans also have human rights. By analysing Gewirth’s moral theory of human rights, Clapham, in Human Rights in the Private Sphere, argued that: This rights theory supports the suggestion that human rights apply between individuals, the question of whether the violator is employed by the State being irrelevant to the reasoning behind the justification.220 It is for that reason that this theoretical notion supports that private persons should honour others’ rights as they think their rights are important. As a result, Gewirth’s ‘Principle of Generic Consistency’ can be regarded as a promising foundation on which the human rights rational of trade secrecy can be underpinned. 2.5.3 Human Rights, IP Law and Trade Secrets The next question to be examined is to what extent the rights conception may be applicable in the IP law sphere in general and in the trade secrets law context in particular. Having observed the analogous relationship between public law concepts and IP law, Blankfein-Tabachnick claims that: The legal academy has long recognized these observations; yet, the role that private law — specifically IP law — might play in fulfilling economic and social goals is enjoying new attention. This interest in IP law has produced a need for new understanding in the field — that is, an analysis of IP law’s doctrinal contours, theory, and precise relationship to broader background 217 Alan Gewirth, ‘The Epistemology of Human Rights’ (1984) 1 (2) Social Philosophy & Policy 14- 17. 218 Ibid, 18. [emphasis added] 219 Alan Gewirth, ‘The Basis of and Content of Human Rights’ (1979) 13 Georgia Law Review 1143, 1156. 220 Andrew Clapham, Human Rights in the Private Sphere (Clarendon Press, Oxford, 1993) 142. Chapter 2: THEORETICAL PERSPECTIVES 69 values, along with a treatment of IP that contrasts it with the spirit of Green’s proclamation [that private is public law in disguise]. In other words, there is a need to articulate IP law’s private law dimensions and properly situate them in the sea of public values.221 Hence, it may be suggestive that the compartmentalisation of theories of IP law is increasingly diminishing and IP law detours to embrace fundamental social justice values such as human rights. Even though historically, human rights law and intellectual property law have been developed in different contexts, recently the interconnectivity and possible conflicts of both laws were taken into consideration by the international community.222 For instance, Helfer concurs: Human rights and intellectual property, two bodies of law that were once strangers, are now becoming increasingly intimate bedfellows. For decades the two subjects developed in virtual isolation from each other. But in the last few years, international standard setting activities have begun to map previously uncharted intersections between intellectual property law on the one hand and human rights law on the other.223 He explains two approaches of human rights on the protection of intellectual properties. The first approach suggests us to see ‘human rights and intellectual property as being in fundamental conflicts’.224 The second approach suggests that both areas of laws are concerned with ‘the same fundamental question: defining the appropriate scope of private monopoly power that gives authors and inventors a sufficient incentive to create and innovate, while ensuring that the consuming public has adequate access to the fruits of their efforts’.225 According to Helfer: This school views human rights law and intellectual property law as essentially compatible, although often disagreeing over where to strike the balance between incentives on the one hand and access on the other.226 221 David H Blankfein-Tabachnick, ‘Intellectual Property Doctrine and Midlevel Principles’ (2013) 101 California Law Review 1315, 1318. 222 Ibid. 223 Laurence R. Helfer, ‘Human Rights and Intellectual Property: Conflict or Coexistence? (2003) 5 (1) Minnesota Intellectual Property Review 47, 47. 224 Ibid, 48. 225 Ibid. 226 Ibid, 48-49. 70 Chapter 2: THEORETICAL PERSPECTIVES However, Peter Yu, analysing these views, proposes a third approach.227 He argues that ‘because of the overlapping human rights attributes, these two sets of rights both coexist and conflict with each other’.228 Possibly, this third approach may explain the issue of protecting trade secrets: that despite the existence of conflicts of competing trade secrets rights and other human rights, the human rights approach may guide trade secrets law to strike a balance between competing interests. Madhavi Sunder may be regarded as an influential IP law scholar who advocates for such a human-centric and balanced approach of intellectual property law.229 She posits: With the advent of the World Trade Organization and its legal obligations, intellectual property also increasingly affects people across the globe, from Brazil to Bangladesh. Yet the full cultural and economic consequences of intellectual property policies are often hidden. We focus instead on the fruits of innovation — more iPods, more bestsellers, more blockbuster drugs— without concern for what is being produced, by whom, and for whose benefit. But make no mistake: intellectual property laws have profound effects on human capabilities …230 Sunder establishes the fact that IP laws may impact on human rights and capabilities. She argues that IP laws may affect the human ability to ‘think, learn, share, sing, dance, tell stories, joke, borrow ideas, inspire and be inspired, reply, critique and pay homage’.231 Therefore, she contends that intellectual property laws do much more than ‘incentivise innovation’.232 Sunder asserts: Intellectual property has grown, perhaps, exponentially, but its march into all corners of our lives and to the most destitute corners of the world has paradoxically exposed the fragility of its economic foundations while amplifying its social and cultural effects’233 227 Peter Yu, ‘Reconceptualizing Intellectual Property Interests in a Human Rights Framework’ (2007) 40 University of California Davis Law Review 1039, 1078. 228 Ibid. 229 Madhavi Sunder, From Goods to a Good Life (Yale University Press, 2012) 7. 230 Ibid, 1. 231 Ibid, 1-2. 232 Ibid. 233 Madhavi Sunder, ‘IP3’ (2006) 56 Stanford Law Review 257, 260. Chapter 2: THEORETICAL PERSPECTIVES 71 Thus, she contends that intellectual property law should be a powerful source for increasing human rights and that intellectual property law should focus on global social justice.234 As stated by Sunder: I suggest that intellectual property law must adopt broader social and cultural analysis. The fundamental failure in the economic story of intellectual property has to do with information’s role in cultural life and human flourishing.235 As such, there is a need for intellectual property laws to support fundamental human values and rights. This need may be largely felt in the trade secrets context, since the obligation of protecting trade secrets mostly arises in human relationships; for example, employee towards employers, franchisee towards franchisor, and business partner towards other business partners. Indeed, scholars such as Wilf perceive trade secrets doctrine and its role as establishing social relations.236 Therefore, trade secrets law should be about humans and human freedoms of all of these connected parties. As Caenegem posits: The traditional motivation for restricting the reach of general trade secrets law and the law of contracts in the post-termination phase lies in basic rights and freedoms: the freedom to work; the freedom of enterprise and competition; the right to personal advancement and self-realization; and the freedom of communication. 237 The nature and human centrism of trade secrets protection can be illuminated by Lon Fullers’ analogy of a ‘polycentric problem’. According to Lon Fuller, ‘a polycentric problem is one that comprises a large and complicated web of interdependent relationships, such that a change to one factor produces an incalculable series of changes to other factors’.238 Fuller utilised the imaginary view of a spider web to explain the notion that pulling on one string would distribute new and complicated 234 Madhavi Sunder, From Goods to a Good Life (Yale University Press, 2012) 8. 235 Ibid, 31. 236 Steven Wilf, ‘Trade Secret, Property and Social Relations’ (2002) 34 Connecticut Law Review 787, 797-802. 237 William van Caenegem, Trade Secrets and Intellectual Property: Breach of confidence, Misappropriation and Unfair Competition (Walter Kluwer, Netherlands, 2014) 194. 238 Lon Fuller, ‘The Forms and Limits of Adjudication’ (1978-1979) 92 Harvard Law Review 353, 394. [emphasis added] 72 Chapter 2: THEORETICAL PERSPECTIVES tensions throughout all other stands of the web.239 According to Fuller, polycentric situation has ‘interacting centres’ –– the points that the strands of the web intersect so that it consists of many centres; hence, polycentric.240 Protection of trade secrets can be regarded as polycentric since it is about the intersections and interdependent relationships of trade secrets owners or employers, and other individuals such as employees, franchisees, business partners, licensees, as well as the public. As such, strengthening the rights of the trade secrets owner in the protection of his or her proprietary rights (pulling on one string of the web)241 may have an impact on the rights of the others, such as employee and the public (other strands of the web). In other words, if an employer wants to have a stringent protection for his or her trade secrets, it may be inevitable that other individual rights and freedoms are affected. 2.5.4 Competing Rights of Employers, Employees and Society As explained in section 1.1, secretly-held information may bring a competitive advantage to an employer for the reason that such information is not generally known or ascertainable by competitors. If secretly-held information or inventive ideas are stolen by a competitor, this presents an opportunity for that competitor to undercut the original producer in the market.242 It may result in erosion of the true inventors’ incentive to continue their research and even eventually to their losing the opportunity to recover the cost of R&D and possible future profits.243 As such, disclosure of trade secrets necessarily lowers the value of intellectual assets of an employer; for example, a disclosure of information of an invention before a patent is filed.244 There are strong economic reasons, therefore, for the law to safeguard the rights of employers to protect confidentiality of information. 239 Ibid, 395. 240 Ibid, 395. 241 Ibid. 242 Magdalena Kolasa, Trade Secrets and Employee Mobility: In Search of an Equilibrium (Cambridge University Press, 2018) 9. 243 Kelley Clement and Brian M Z Reece, ‘Economic Espionage and Theft of Trade Secrets: The Case for a Federal Cause of Action’ (2013) 16 Tulane Journal of Technology and Intellectual Property 1, 6. 244 Magdalena Kolasa, Trade Secrets and Employee Mobility: In Search of an Equilibrium (Cambridge University Press, 2018) 9. Chapter 2: THEORETICAL PERSPECTIVES 73 In any event, employers who possess trade secrets have to reveal them to their employees in the course of the operation of the business. In other words, as against maintaining an absolute secrecy, employers have to share secret information with their employees in order to successfully carry out business processes, develop products, and manage customer relationships.245 As such, an employer may consider the departure of an employee who was exposed to secret information as detriment to the employer’s business. They may fear that that a former employee might join a competitor’s business and use their secret information. Therefore, employers have a strong interest in keeping employees and their knowledge of the company’s secrets under control. A legal tool that an employer uses in this respect is non-competition agreements or restrictive covenants. Under these covenants, employees are not allowed to join a competitor of the employer for a certain period of time after leaving the present employer. However, such a covenant may hinder the employee’s freedom to change their employment and their freedom to contract with prospective employers. Sunder metaphorically explains this phenomenon246 through Roald Dahl’s factious novel of ‘Charlie and the Chocolate Factory’:247 ‘[N]ot so very long ago there used to be thousands of people working in Mr. Willy Wonka’s factory. Then one day, all of a sudden, Mr. Wonka had to ask every single one of them to leave, to go home, never to come back.’ ‘But why?’ asked Charlie. ‘Because of spies.’ Being distrustful of human employees, Willy Wonka, the chocolate maker fired all humans and employed subhuman employees called Oompa Loompas. The Oompa Loompas were not free employees but glorified prisoners. In 245 Ibid, 7. 246 Madhavi Sunder, ‘Trade Secret and Human Freedom’ in Shyamkrishna Balganesh (eds) Intellectual Property and the Common Law (Cambridge University Press, 2013) 334-352. However, Sunder’s analysis in this article was not based on human rights theory. Instead, she analysed the impact of the US trade secrets law on freedom of employees. 247 Madhavi Sunder, ‘Trade Secret and Human Freedom’ in Shyamkrishna Balganesh (eds) Intellectual Property and the Common Law (Cambridge University Press, 2013) 334-335: Based on Roald Dahl, Charlie and the Chocolate Factory (1964). Jeanne C. Fromer, ‘Trade Secrecy in Willy Wonka’s Chocolate Factory’ in Rochelle C. Dreyfuss and Katherine J. Strandburg (eds), The Law and Theory of Trade Secrecy- A Handbook of Contemporary Research (Edward Elgar, UK, USA, 2011) 3, 9-11. [emphasis added] 74 Chapter 2: THEORETICAL PERSPECTIVES Wonka’s factory, ‘the gates were locked’ and ‘Oompa Loompas never come out’.248 In fact, Willy Wonka’s ‘story of whimsical candy-making and cutthroat competition is not pure fantasy, but is grounded in real-life events’ that were observed by Dahl about the chocolate industry in England.249 As Fromer remarks: Spying and extreme secrecy seems not be merely a relic of early twentieth- century British candy making, but endemic to the business historically and currently. She further observes that with increased spying in the candy industry in Europe, employers even began hiring detective agencies to investigate their employees.250 Sunder postulates ‘stories of overprotective, indeed inhumane, employers going to great lengths to protect their trade secrets are legion.’251 For example, history reveals that the ‘Moghul emperor Shah Jahan who commissioned the construction of the Taj Mahal ordered the architect’s hands chopped off after the monument was completed’.252 This act may be attributed to the emperor’s desire that no one else copy his glorious masterpiece by using Taj Mahal’s architectural secrets. By the same token, today’s capitalist corporate world may attempt to protect their trade secrets by harsh measures, disregarding the impact on the freedoms and rights of other human beings and, in particular, employees. Fromer, observing the chocolate industry in the United States, claims: Mars, the maker of M&M’s, Snickers, Twix and Starburst, is so guarded that it has no company representative for outsiders to contact. The company will not answer who the president of the privately held company is when a member of the public calls the company to ask. To prevent anyone from learning about its candy- making process, Mars designs, makes and operates all of its factory machines itself. 248 Ibid. 249 See Jeanne C. Fromer, ‘Trade Secrecy in Willy Wonka’s Chocolate Factory’ in Rochelle C. Dreyfuss and Katherine J. Strandburg (eds), The Law and Theory of Trade Secrecy- A Handbook of Contemporary Research (Edward Elgar, UK, USA, 2011) 3, 8. 250 Ibid, 9. [citations omitted] 251 Madhavi Sunder, ‘Trade Secret and Human Freedom’ in Shyamkrishna Balganesh (eds) Intellectual Property and the Common Law (Cambridge University Press, 2013) 334. 252 Ibid. Chapter 2: THEORETICAL PERSPECTIVES 75 As such, analogically, employees in this industry may be equivalent to the Oompa Loompas in Dhal’s chocolate factory, since they may be in extreme conditions within the employment premises. Moreover, as explained section 1.1, employers who possess trade secrets excessively use non-competes by limiting employees’ ability to move to a new employer, at least for a limited time period after leaving their current place of employment.253 Indeed, such over-protection or over-assertion of trade secrets may hinder ‘employee motivation, entrepreneurship and sharing of knowledge’.254 Thus, these measures may even bring anticompetitive consequences.255 Lobel, an acclaimed expert in law and economics of human capital, argues that ‘excessive controls of talent and inventiveness are harmful to careers, regions, and innovation’.256 She further states that ‘mentalities of secrecy and control have side effects. Employee morale, creativity, and information exchange all suffer under watchful eyes’.257 Lobel highlighted this phenomenon through the example of the extreme measures utilised by Apple Inc. to maintain secrecy of some technical and business information.258 For instance, Apple employees who work on secret prototypes are forced to work under a black cloak.259 That is because Apple wants to keep their information relating to future plans and products secret given if everyone knew that a new product was coming out soon, they may stop buying existing ones.260 Stories abound of brutal interrogations of Apple employees by Apple manufacturing 253 See Orly Lobel, ‘Companies Compete but Won’t Let Their Workers Do the Same’ The New York Times (4 May 2017) According to Lobel, ‘Shockingly large number of workers — 30 million… are shackled by what are called “noncompetes,” which are agreements forbidding employees to leave their job to work for a competitor or to start their own competing business. And the number is growing fast.’ 254 Ibid. See also Elizabeth A. Rowe and Sharon K. Sandeen, Trade Secrecy and International Transactions: Law and Practice (Edward Elgar, UK, USA, 2015) 9-10 and Michael Risch, ‘Trade Secret Law and Information Development Incentives in Rochelle C. Dreyfuss, and Katherine J. Strandburg, (ed), The Law and Theory of Trade Secrecy- A Handbook of Contemporary Research (Edward Elgar, 2011) 152. 255 Ibid. 256 Orly Lobel, Talent Wants to be Free: Why We Should Learn to Leave Leaks, Raids and Free Riding (Yale University Press, 2013) 47. 257 Ibid, 123. 258 Ibid. 259 Megan Rose Dickey, ‘The Most Extreme Examples of Secrecy at Apple’ Business Insider Australia (23 July 2013) 76 Chapter 2: THEORETICAL PERSPECTIVES suppliers; the misplacing of prototypes of next generation iPhone; and firing employees for previewing upcoming software to a business client are reported.261 Lobel remarks that Foxconn, Apple’s leading Chinese manufacturer, utilises rigorous secrecy measures, such as metal detectors and physical searches, in addition to other contractual measures and surveillance.262 It has been observed that in the past few years, reports of employee suicide have been raising concerns over whether secrecy practices have reached dangerously high levels.263 For example, it was reported that a Foxconn-employee who was under investigation for losing the prototype of a new iPhone committed suicide. He alleged in a text message written shortly before his death that he was beaten and humiliated in the course of the investigation.264 Following the tenth consecutive suicide, the company announced plans to increase wages and have employees sign no-suicide pledges. As a result, the company introduced a suicide hotline, and a stress-release centre where workers are invited to hit a punching bag with a picture of their supervisor. This may represent a current example of the lengths some business firms or employers go to in order to jealously guard their trade secrets and the consequences of such endeavours. Lobel argues, therefore, that employee-control tactics utilised by corporate giants or employers may prejudice not only employee-freedom and their motivation and performance, but also stifle the innovative culture of a company, region or of a country at large.265 As such, she proposes that employers must relinquish their ‘archaic control mentality’ allowing employees to freely interact and perform, even if that leads to losing them to competitors.266 However, this does not necessarily mean that employers should not be allowed to protect their valuable trade secrets, given that trade secrets are increasingly 261 Orly Lobel, Talent Wants to be Free: Why We Should Learn to Leave Leaks, Raids and Free Riding (Yale University Press, 2013) 123. 262 Orly Lobel, Talent Wants to be Free: Why We Should Learn to Leave Leaks, Raids and Free Riding (Yale University Press, 2013) 126. 263 Ibid. 264 Barbara Demick and David Sarno, ‘Suicides roil factory in China’ Los Angeles Times (27 May 2010) Reporters quoted Geoffrey Crothall from China Labour Bulletin who mentioned that ‘the company is obsessed with security, and I must say that, from the outside, the place looks like a prison.’ Chapter 2: THEORETICAL PERSPECTIVES 77 vulnerable in today’s information age. Indeed, robust protection and effective enforcement of trade secrets is critical to an employer’s ability to innovate, grow and invest locally and internationally.267 Moreover, employers should not overlook the potential threat of employee-involved misappropriation of trade secrets. For instance, as revealed by the Federal Bureau of Investigation (FBI) of the United States: A company can often detect or control when an outsider (non-employee) tries to access company data either physically or electronically, and can mitigate the threat of an outsider stealing company property. However, the thief who is harder to detect and who could cause the most damage is the insider - the employee with legitimate access.268 The same holds true with the Australian and Sri Lankan contexts.269 For example, Robert Dean proclaims that 80 per cent of trade secret litigation in Australia concerns employers suing ex-employees.270 Therefore, there is no doubt that there should be adequate legal mechanisms to protect the trade secrets of employers from employees and from other intentional and inadvertent disclosures. Nonetheless, the problem is how the law adopts an equilibrium approach which equally value the competing rights of employers and employees. Moreover, in a broader context, trade secrets protection may impede public interest or societal rights as well.271 That is because the very secrecy of trade secrets rights prevents access to information, technological know-how, or knowledge. Hence, there is a risk that, in preserving secrecy, that the public will never come to know of an invention and related information.272 This carries two-fold consequences. First, the 267 US Chamber of Commerce, The Case for Enhanced Protection of Trade Secrets in the Trans- Pacific Partnership Agreement (2013) 10-12. 78 Chapter 2: THEORETICAL PERSPECTIVES public will not per se benefit from such an invention. Second, it may have a chilling effect on follow-on innovations. This phenomenon can be illustrated through the analogy of non-restriction or non-protection of the ‘poliomyelitis (IPV) vaccine’ as against patenting of ‘cervical cancer vaccine’. Once Jonas Salk invented the IPV vaccine in 1955, he neither obtained a patent nor sought trade secrets protection. He rhetorically said that ‘there is no patent … would you patent the sun?’273 With free access to the vaccine, the global fight against the polio epidemic could be effectively and successfully pursued. In consequence, only 37 polio cases were reported in 2016 and more importantly, the World Health Organisation declared in 1999 that the polio virus type 2 had been totally eradicated.274 By contrast, while a vaccine was developed for human papilloma virus (HPV) in 1991, currently half a million women a year still develop cervical cancer, half of whom die from it.275 This may be attributed, at least in part, to the fact that 93 patents relating to HPV vaccine were filed in the United States (or as PCT applications), thereby restricting access to the vaccine.276 Even though this example was related to the ramifications of patenting of drugs, such ramifications may be repeated if a globally-important invention is protected as a trade secret instead of obtaining a patent. That is because such an invention may remain as an infinite secret of the trade secrets owner and thus public and other innovators in the industry will not be benefited. Moreover, blocking access to knowledge and technology through trade secrecy may be contradictory to fundamental values of modern society, such as the right to information and freedom of thought and expression.277 Caenegem asserts that: 273 See C Haberman, ‘Lives and Profits in the Balance: The High Stakes of Medical Patents’ The New York Times (2016.12.11) Chapter 2: THEORETICAL PERSPECTIVES 79 Democratic societies with free markets value the free circulation and diffusion of knowledge, both for its own sake and because this freedom supports social, commercial, scientific and technological advances.278 However, trade secrets law may go against these fundamental democratic values of a just society. That is because creating rights over information by keeping it secret may enhance one person’s personal freedom (that of the trade secret owner) at the expense of everyone else’s freedom.279 Mokyr argues that restricting the access to knowledge may impact on the improvement of human capabilities which depend on the ‘efficiency and cost of access to knowledge’.280 Shaver, in the same vein, stresses that: Innovation and diffusion of knowledge contribute to human welfare in a number of ways, not simply through the sale of more and higher-value goods on world markets. Quality of life may be improved by expanding people’s ability to access, utilise, and contribute to knowledge in ways that may not have direct profit potential – such as solving social problems neglected by the market, promoting and defending political and cultural freedom, and expressing human values through discovery and communication.281 The dissemination of knowledge can be seen as a central theme of human progress and development, although the trade secrets policy does not serve this theme. As such, creating stringent rights over trade secrets may not only ‘harmful to those not in the circle of secrecy, but it is likely detrimental to the public at large, due to a tapered path of innovation, constricted economic growth, and diminished human flourishing’.282 In addition to the above stated competing interests, there may be some tensions between employees and society at large. As observed, employees are legally obliged not to reveal their ex-employer’s trade secrets to a new employer. However, this may negatively impact societal interest: if two employers (previous and new) have access to the relevant trade secret, it could potentially benefit society through an increase in 278 William van Caenegem, Trade Secrets and Intellectual Property: Breach of confidence, Misappropriation and Unfair Competition (Walter Kluwer, Netherlands, 2014) 194. 279 Edwin Hettinger, ‘Justifying Intellectual Property’ (1989) 18 (1) Philosophy and Public Affairs 31, 35. 280 Joel Mokyr, The Gifts of Athena: Historical Origins of the Knowledge Economy (Princeton University Press, 2011) 7. 281 Lea B Shaver, Access to Knowledge in Brazil: New Research on IP, Innovation and Development (Yale Law School, 2008) 8. 282 Jeanne Fromer, ‘A legal tangle of secrets and disclosures in trade: Tabor v. Hoffman and beyond’ in Rochelle Cooper Dreyfuss and Jane C. Ginsburg (eds) Intellectual Property at the Edge: The Contested Contours of IP (Cambridge University Press, 2014) 287. 80 Chapter 2: THEORETICAL PERSPECTIVES competition between those employers, resulting in a reduction in prices and an increase in the quality of products protected as a trade secret. However, allowing an employee to share secrets with new employees merely in the hope of producing such benefits may undermine even reasonable restraints and thereby tip the balance unfairly against past employers. Further, the same benefits might be able to be achieved by other measures such as expressly recognising a freedom to reverse engineer and independent discovery as lawful means of acquiring secrets. It is clear from the above discussion that the side-effect of protecting trade secrets and appraising the commercial values of secret information is its impact on the rights, freedoms and entitlements of individuals such as employees and the public. It is argued, therefore, that this phenomenon can be better explained and analysed through a human-centric theoretical basis, such as human rights theory, rather than an economic or property-based analysis. Such an approach was adopted by Sunder and Lobel in their analyses, although their focus was almost entirely on laws and practices of the United States.283 However, the impacts of trade secrets laws of common law countries such as Australia and mixed-law countries such as Sri Lanka is still underexplored. This thesis intends to fill this knowledge gap. To be more explicit, this thesis intends to analyse the effects of trade secrets law in common law countries (Australia as a case study) and mixed-law countries (Sri Lanka as a case study) which is underexplored by trade secrets and human rights scholars. It seeks to examine whether and how trade secrets laws affect employees’ and public’s rights and freedoms. To do so, this thesis adopts the following criteria based on human rights theory. 283 See Orly Lobel, Talent Wants to be Free: Why We Should Learn to Leave Leaks, Raids and Free Riding (Yale University Press, 2013). Orly Lobel, You Don't Own Me: How Mattel v. MGA Entertainment Exposed Barbie's Dark Side (W.W. Norton & Company, 2018). Madhavi Suder, ‘Trade Secret and Human Freedom’ in Shyamkrishna Balganesh (eds) Intellectual Property and the Common Law (Cambridge University Press, 2013) 334-352; Madhavi Sunder, From Goods to a Good Life (Yale University Press, 2012); Madhavi Sunder, ‘IP3’ (2006-7)59 Stanford Law Review 257. Chapter 2: THEORETICAL PERSPECTIVES 81 2.5.5 Towards Human Rights-Based Criteria (a) Introduction To be consistent with a human rights-based approach of trade secrets, legal mechanisms should satisfy the following criteria: Criterion 1 The objectives and provisions of law should facilitate the rights of employers or trade secrets owners. This includes but is not limited to employers’ right to adequately protect trade secrets. Criterion 2 The objectives and provisions of law should facilitate and foster the rights of employees pertaining to their labour. This includes but is not limited to employees’ right to freely choose and change employment and enter into employment contracts freely and voluntarily. Criterion 3 The objectives and provisions of the law should facilitate the broader rights of the public. This includes but is not limited to the broader societal right to benefit from scientific progress and intellectual creations. (b) Clarifications In designing the above criteria, this thesis considers the rights of three interconnected parties of trade secrets law: employer, employee and the public. However, one may ask to what extent human rights aspects are relevant to employers who are corporations, enterprises or businesses. This thesis assumes that the corporate personhood is equivalent to the human personhood. Although there are fundamental differences between legal and natural persons, legally, there is no discrimination for a legal person in relation to rights and obligations arising from the issue of protecting trade secrets in an employment context.284 In other words, while corporations do not 284 See for more detailed analysis Marius Emberland , The Human Rights of Companies: Exploring the Structure of ECHR Protection (2006, Oxford University Press) 1-2 : “In various legal systems business entities such as companies are protected by rights and freedoms that are regarded as fundamental to individual human beings and the societies in which they live. Customary international law and treaty law afford, for instance, considerable protection of corporate foreign investment, typically through guarantees such as non-discrimination, property protection and due process 82 Chapter 2: THEORETICAL PERSPECTIVES require the protection of rights relating to food, water or other basic human needs, they do enjoy certain rights such as property and equality. This may be relevant to intellectual properties, such as trade secrets, where there is no discrimination in holding the fruits of the intellectual efforts.285 Arguably, this not only helps to establish the rights of employers but also may be helpful to provide for the responsibilities or duties owed towards employees and the public. Such a proposition has been recognised by the United Nations (UN) in several occasions. For instance, in 2011, the UN Human Rights Council adopted the Guiding Principles on Business and Human Rights that provided a global human rights standard for the corporate world to adhere to human rights framework.286 According to the Guiding Principles: Business enterprises should respect human rights. This means that they should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved.287 Furthermore, subsequent chapters (Chapters 3 to 5) are more concerned with criteria 2 and 3 than criterion 1, as the primary purpose of this thesis is to investigate whether and how trade secrets legal mechanisms impact on employees and the public. However, Chapter 6 will consider criterion 1 in proposing theoretical and legal mechanisms that can be considered as a way forward in establishing a balanced trade secrets law which equally values the rights of employers, employees and the public. standards. The rights-catalogues of national constitutions, originally designed with the concerns of individuals in mind, often apply by extension to non-individual actors; as has been notoriously shown in constitutional practice in the United States, companies are prone to making use of this opening in their strategizing vis-à-vis public authorities' exercise of regulatory power. The fundamental rights regime of the European Union is a potent example of the allure, at the level of supranational law, of fundamental rights and freedoms to corporate actors: corporate claims make up a large part of the fundamental rights litigation brought before the European Court of Justice.” 285 See for example, Article 39(2) of the TRIPS Agreements which provides ‘natural and legal persons shall have the possibility of preventing…’ trade secrets misappropriations. 286 United Nations Human Rights: Office of the High Commissioner, ‘Guiding Principles on Business and Human Rights 2011’ Chapter 2: THEORETICAL PERSPECTIVES 83 (c) Justifications In terms of justifying the criteria, this thesis adopts a positivistic approach and endorses the notion that employers, employees and society possess human rights insofar as certain international human rights instruments such as the UDHR, ICCPR or ICESCR recognise them. With regard to the employers’ perspectives, criterion 1 highlights the need of identifying certain rights relevant to the creation and preservation of trade secrets. These rights can be justified by Article 27 (2) of the UDHR which provides that: Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author. Closely following this language, Article 15(1)(c) of the ICESCR recognises ‘the right of everyone … to benefit from the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he [or she] is the author’.288 Accordingly, an employer who has invested in the creation of trade secrets should be able to benefit from his or her creation. As Peter Yu posited, the plausible reason for the inclusion of these provisions in the UDHR and ICESCR may be that the international community have realised the instrumental character in realising rights which also can be seen as having strong moral basis.289 Yu suggests that ‘this view is, indeed, supported by the discussion of how the right [to intellectual property] would ultimately promote intellectual freedom’.290 Accordingly, a trade secrets owner or an employer should possess the following rights in line with the intellectual property rights enshrined in the UDHR and ICESCR: The right to keep certain information secret [so long as such information satisfies the prerequisites of trade secrecy] and obtain legal protection.291 Such a right may include the right to exclude others from acquiring, disclosing and using trade secrets in an unauthorised manner.292 288 See Article 15 (1) (b) and (c) of the ICESCR of 1966. 289 Peter Yu, ‘Reconceptualizing Intellectual Property Interests in a Human Rights Framework’ (2007) 40 University of California Davis Law Review 1039, 1058. 290 Ibid. 291 Charles Tait Graves, ‘Trade secrets as property: Theory and Consequences’ (2007) 15 Journal of Intellectual Property Law 2, 24. 292 Ibid. 84 Chapter 2: THEORETICAL PERSPECTIVES The right to have adequate remedies in the case of misappropriation of trade secrets. This may include the right to recover damages and preventing further misappropriations.293 The right to have adequate measures to preserve the confidentiality of trade secrets during and after trade secrets litigation. Nonetheless, the rights of a trade secrets owner or employer should be limited by the rights of employees and the public. In other words, as argued in section 2.5.2 in relation to Gewirth’s ‘Principle of Generic Consistency’, just as an employer as a rational human being regards his or her own rights (relating to trade secrets) as valuable and something that he or she ought to foster, so too should the employer be committed to fostering the rights of employees and the public, as they are rational human beings as well. This may mirror the wider libertarian notion that ‘your rights end where his [other person’s] nose begins’.294 That is, trade secrets law should provide for the rights of employees and the public without concentrating on establishing rights and protective mechanisms for trade secrets. The law should strike a balance between employers, employees, and societal rights. Criterion 2, employees’ rights, can also be justified by the human rights instruments such as the UDHR and ICESCR. Examining the concept of labour and its nature, the International Labour Organisation (ILO) states that: Labour is not a commodity295… Labour is not like an apple or television set, an inanimate product that can be negotiated for the highest profit or the lowest price. Work is part of everyone’s daily life and is crucial to a person’s dignity, well-being and development as a human being.296 Hence, it should be noted that employees or their labour are not a commodity whose price is determined by supply and demand. In fact, labour is inherent to, or is embodied 293 Ibid. 294 John Stuart Mill, On Liberty (1859) 13; Richard A. Posner, Sex and Reason (Harvard University Press 1992) 3. 295 ILO's Declaration of Philadelphia, 1944, International Labour Organisation. Chapter 2: THEORETICAL PERSPECTIVES 85 in, employees. Thus, employees should not be treated as inanimate machines or Oompa Loompas which are to be sold, owned and controlled by an employer. This golden rule is enshrined not only in international human rights instruments, but also the constitutions of a number of countries.297 For example, the UDHR states that ‘everyone has the right to work, to free choice of employment and to protection against unemployment’;298 Article 8(3)(a) of the ICCPR provides that ‘no one shall be required to perform forced or compulsory labour’. More importantly, the ICESCR recognises the ‘right to work, which includes the right of everyone to the opportunity to gain his living by work which he freely chooses or accepts, and will take appropriate steps to safeguard this right’.299 In addition, in 1998, the ILO recognised labour rights as human rights by adopting the Declaration of Fundamental Principles and Rights at Work.300 This Declaration binds all members and endorses four major labour rights: freedom from forced or compulsory labour; freedom of association and the right to collective bargaining; abolition of child labour; and the elimination of discrimination in employment.301 Even though the Australian Constitution does not specifically mention the right to work, Australia accepts its responsibility to guarantee the rights enshrined in international human rights instruments.302 The Sri Lankan Constitution provides that ‘every citizen is entitled to- the freedom to engage by himself or in association with others in any lawful occupation, profession, trade, business or enterprise’.303 This exemplifies the way in which the right to work and freedom of employment has become a universal norm that is accepted as a basic human right. In a broader context, these international and domestic legal instruments identify three aspects of labour rights: having freedoms and opportunities for employees to 297 Whereas there are debates whether labour rights are actual human rights, I consider international human rights instruments and bill of rights which recognised labour rights may be a straightforward and positive way (a positivistic approach) of recognising labour rights as human rights. See Tonia Novitz and Colin Fenwick, ‘The Application of Human Rights Discourse to Labour Relations: Translation of Theory into Practice’ in T. Novitz and C. Fenwick (ed) Human Rights at Work: Perspectives on Law and Regulation (Hart Publishing, 2010) 3. See also Hugh Collins ‘Theories of Rights as Justifications for Labour Rights’ in Guy Davidov and Brian Langille (ed) The Idea of Labour Law (Oxford University Press, Oxford, UK, 2011) 137-138. 298 Article 23 (1) of the Universal Declaration of Human Rights (UDHR) 1948. 299 Article 6 of the International Covenant on Economic, Social and Cultural Rights (ICESCR) 1966. 300 The ILO Declaration on Fundamental Principles and Rights, 1998 301 See Virginia Mantouvalou, ‘Are Labour Rights Human Rights?’ (2012) 3 (2) European Labour Law Journal 151, 154. 302 Australian Human Rights Commission, ‘Right to work and rights in work’ 86 Chapter 2: THEORETICAL PERSPECTIVES work; freedom of choosing whether and where they work; and providing some level of security or stability for those holding employment.304 Criterion 2 is a combination of the first two aspects of labour rights. If employees do not have an opportunity to freely choose their employees and work conditions, they may not be able to fully realise the right to work. Thus, first and foremost, employees should be able to freely enter into an employment contract by opposing adverse employment conditions. Employees should be empowered to bargain on the conditions of their employment contract. Moreover, employees should be able to change employer, if they wish, without any interference or control by a present or former employer. In addition, they should be capable of using their employment-related knowledge in subsequent occupations since, without this freedom, they may not be able to enjoy the right to work after leaving their present employer. In fact, these rights can be considered as pre-conditions of accomplishing the work rights enshrined by the UDHR and ICESCR. Moreover, like other human beings, employees should be able to enjoy their workplace freedoms without being subject to unnecessary pressure and surveillance. If employees are denied their rights and are subject to unnecessary control by employers who seek to protect trade secrets, they may not be better off than the metaphoric Oompa Loompas in Dahl’s chocolate factory. Ensuring labour rights may be a crucial notion in the current social and economic context where the realisation of other basic rights and needs such as food, cloths, shelter and education relies on a person’s right and capability to engage in work, an occupation, or a business. Appraising this view, Howard and Donnelly argue that: The right to work (Article 23 [of the UDHR]) which is essentially a right to economic participation, is of especially great importance. It has considerable intrinsic value: work is essential to a life of dignity, insofar as man is conceived as homo faber. It is also a great instrumental value, both for the satisfaction of basic material needs and for providing a secure and dignified economic foundation from which to pursue personal values and objectives.305 304 Pablo Gilabert, ‘Labor Human Rights and Human Dignity’ (2016) 42 (2) Philosophy and Social Criticism 171, 172. 305 Rhoda E. Howard and Jack Donnelly, ‘Human Dignity, Human Rights, and Political Regimes’ (1986) 80 (3) The American Political Science Association 801, 806. Chapter 2: THEORETICAL PERSPECTIVES 87 Also, protecting employee rights has current significance given most people are dependent upon employers for the means of livelihood: ‘for our generations, the substance of life is in another man’s [employer’s] hands’.306 For this reason, modern laws are increasingly concerned with protecting the rights of employees. As Otto Kahn-Freund has observed, the main objective of labour law is to be a countervailing force to redress power imbalances and to ensure the rights of employees.307 By the same token, this thesis argues that since protection of trade secrets may impact on the rights of employees, the rights stated under criterion 1 should be endorsed by trade secrets law in order to adopt an equilibrium approach. Criterion 3 reflects the importance of ensuring overall societal rights while providing for the protection of trade secrets. Accordingly, it represents group or collective rights which are called ‘third generation rights’ or ‘solidarity human rights’.308 These rights are foreshadowed in Article 28 of the UDHR, which proclaims that: Everyone is entitled to a social and international order in which the rights and freedoms set forth in this Declaration can be fully realized.309 Solidarity rights may include the rights to economic and social development and the right to benefit from the ‘common heritage of the mankind’, such as scientific, technical and other information and progress.310 In particular, IP rights established by the Article 27 (2) of the UDHR should be read with Article 27 (1) which enshrines the right to enjoy the arts and to share in scientific advancement and its benefits. Therefore, the human rights approach is concerned with broader societal benefits rather than individual gains. 306Lawrence E. Blades, ‘Employment at Will vs Individual Freedom: On Limiting the Abusive Exercise of Employer Power’ (1967) 67 Columbia Law Review 1404, 1404. [emphasis added] 307 Otto Kahn-Freund, Labour and the Law (Stevens & Sons: London, 2nd ed, 1977) 6. 308 The need of third generation human rights or solidarity rights was first raised by Karel Vasak in 1977. Accordingly, the first generation human rights are consisted of the rights defined by the ICCPR and second generation human rights include human rights specified in the ICESCR. However, Vasak claims that there should third generation human rights including, right to development, right to healthy environment and right to peace etc. See Karel Vasak, ‘30-year Struggle: The Sustained Efforts to Give Force of Law to the Universal Declaration of Human Rights’ in the UNESCO Courier: A Window Open on the World (UNESCO, 1977) 29. See also Carl Wellman, ‘Solidarity, the Individual and Human Rights’ (2000) 22 Human Rights Quarterly 639, 639. 309 Article 28, Universal Declaration of Human Rights 1948. 310 Carl Wellman, ‘Solidarity, the Individual and Human Rights’ (2000) 22 Human Rights Quarterly 639, 650. 88 Chapter 2: THEORETICAL PERSPECTIVES The broader purpose of intellectual property is to ensure social and economic welfare of the whole society. Article 7 of the TRIPS Agreement, specifying the objective of the Agreement, states that: The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.311 It further identifies that the promotion of the public interest in sectors that are of vital importance to Member States’ socio-economic and technological development is one of the principles on which Member States should consider when formulating or amending their laws.312 In addition, establishing a fair balance between the protection of IP and the public interest is a major concern of the World Intellectual Property Organisation (WIPO) which is reflected by the WIPO Development Agenda (2007).313 Accordingly, the broader objective of protecting intellectual creations should be to achieve or promote overall human good and development rather than narrowing it down to mere promotion of the creation of IP. It is true that international instruments, such as the UDHR states that ‘everyone has the right to the protection of the moral and material interests resulting from any scientific, literally or artistic production [intellectual properties] of which he is the author’.314 However, the broader objective of such a provision, postulated by General Comment 17 of the UN Economic and 311 Article 7 of the TRIPS Agreement. 312 Article 8-‘Principles’ of the TRIPS Agreement. 313 Development Agenda for WIPO, Cluster A, Recommendation 10: ‘To assist Member States to develop and improve national intellectual property institutional capacity through further development of infrastructure and other facilities with a view to making national intellectual property institutions more efficient and promote fair balance between intellectual property protection and the public interest. This technical assistance should also be extended to sub-regional and regional organizations dealing with intellectual property.’ WIPO, Development Agenda for WIPO, World Intellectual Property Organisation, 2007 Chapter 2: THEORETICAL PERSPECTIVES 89 Social Council, is to ‘preserve the integrity of scientific, literary and artistic productions for the benefit of society as a whole’.315 General Comment 17 further states that State parties may provide higher standards of protecting IP, ‘provided that these standards do not unjustifiably limit the enjoyment by others of their Covenant rights’. Similarly, Article 15 of the ICESCR explicitly recognises the right of everyone to enjoy the benefits of scientific progress and its application. Accordingly, it may be argued that the ultimate goal of protecting intellectual creations, including trade secrets, should be to achieve or promote the overall human good, rights, and development, rather than narrowing it down to mere promotion of creating intellectual property rights. Overall, this theoretical framework can be called modus vivendi as it provides for a balanced framework to co-exist, at least, the three competing interests of employer, employee and the public. As Sen suggested, a human rights approach guides us to see rights as goals as against side constraints.316 A side-constraint view of rights holds that rights should be intrinsically valued and an individual right should not be overridden for greater societal benefit: when we view rights as an ultimate goal of a society then individual rights (for example, an employer’s right to trade secrets or an employee’s labour rights) may limit the achievement of greater societal benefits.317 Sen asks: If results such as starvation and famines were to occur, would the distribution of holding still be morally acceptable despite their disastrous consequences? Why should it be the case that rules of ownership, etc., [for example right to property] should have such absolute priority over life-and-death questions?318 He suggests, therefore, that rights should be seen as ‘parts of a total system of social goals’.319 Accordingly, ensuring the rights of the trade secrets owners does not 315 Section 1 of the General Comment 17 of the UN Economic and Social Council : ‘The Right of Everyone to Benefit from the Protection of the Moral and Material Interests Resulting from Any Scientific, Literary or Artistic Production of Which He Is the Author (Art. 15(1)(c))’ , 4, U.N. Doc. E/C.12/GC/17 ( 12 January 2006)< http://www.refworld.org/docid/441543594.html> 316 Amartya Sen, ‘Rights and Agency’ (1982) 11 (1) Philosophy and Public Affairs 3-39. See also Amartya Sen, ‘Consequential Evaluation and Practical Reason’ (2000) 97 (9) The Journal of Philosophy 477-502 and Amartya Sen, Development as Freedom (Oxford University Press: Oxford, 2001) 227–48. 317 See Robert Nozick, Anarchy, State, and Utopia (1974) 26-53. 318 Amartya Sen, Resources, Values and Development (Harvard University Press, 1984) 312. [emphasis added] 319 Martha Nussbaum, ‘Capabilities and Human Rights’ (1997-98) 66 Fordham Law Review 273, 299. 90 Chapter 2: THEORETICAL PERSPECTIVES necessarily mean that they can accomplish their rights, irrespective of the fact that this may prejudice other stakeholders and society. Therefore, trade secrets owners should sufficiently contribute to social goals in order to claim their own rights. The theoretical approach of this thesis may be regarded as a balancing point of competing interests of trade secrecy, including employers’, employees’, and the public interest. This framework may be able to resolve the major criticism on trade secrets law that it does not leave enough for societal wellbeing, which is a primary objective of IP law. Arguably, in this way, trade secrets may be able to fit into the broader spectrum of IP law as this framework requires trade secrets laws to ensure public interest and the rights of affected parties such as employees. 2.5.6 Evaluation: Limitations of Human Rights Framework of Trade Secrecy The fundamental limitation of proposing to apply a human rights framework for trade secrets may be that, by its very nature, human rights and trade secrets arise in two different contexts. That is, human rights are traditionally a public law concept which ensures state responsibility to protect human rights of people, whereas trade secrets is wholly a private law phenomenon. Therefore, the main limitations of this model may be that: (1) How can human rights, which stem from the public law premises, be applied in a private law sphere? (2) To what extent can the human rights framework be a practical solution in establishing a balanced and solid trade secrets theory? However, as stated in section 6.5, this thesis is not going to argue for a direct application model of human rights in private law. Instead, it is based on the indirect application model. In other words, this thesis will argue for a private law legislative model that is informed by human rights theory. As such, human rights theory may lead trade secrets law towards a horizon which incentivises fair solutions in trade secrets cases by not only valuing the rights of the trade secrets owner, but also employees’ and wider societal rights. Also, trade secrets legislation which incorporates a positivist approach to human rights theory may be a more practical way of enforcing the human rights model of trade secrecy than suggesting a mere abstract theory.320 Accordingly, this legislative model is a sui generis approach which does not depend on whether 320 See section 6.5. See also Aharon Barak, ‘Constitutional Human Rights and Private Law’ (1996) 3 (2) Review of Constitutional Studies 224-226. Chapter 2: THEORETICAL PERSPECTIVES 91 trade secrets rights and employees’ rights are guaranteed by the Constitution or common law of Sri Lanka and Australia, respectively. Another limitation of this model may be that it is doubtful whether the very individualistic nature of human rights theory may be mismatched with the societal or public rights approach of this thesis. However, as stated in the previous section, the main purpose of a rights-based theory is to integrate norms, principles and standards of human rights into laws to ensure the ultimate societal benefit. In other words, social justice, public interest, or ensuring wider societal rights may be regarded as interwoven with human rights theory. In fact, the pursuit of societal rights may fit well with the ‘indivisibility of human rights’ –– one of the fundamental tenets of the human rights theory. Indeed, indivisibility of human rights may be seen as underpinning all human rights, leading to the primary goal of a just society. In a similar vein, the primary goal of a human rights-based approach of trade secrets may be to achieve social justice or public interest goals without prejudicing the rights of the trade secrets owner or other connected parties such as employees. Overall, whether or not the human rights framework of trade secrecy is to become a successful initiative, it remains clear that current trade secrets theories are fragile and unbalanced. This undoubtedly creates a demand for an alternative theory. To this effect, the human rights theory proposed by this thesis provides an alternative theory which, it is argued, is at least superior and more solidly based than present theories. Moreover, it, at least, may fit well with the purpose of this thesis: to evaluate and guide trade secrets laws of Australia and Sri Lanka. 2.6 CONCLUSION Trade secrets are different species when compared to other intellectual property rights. Accordingly, there is uncertainty regarding the purpose and role of trade secrets and how they fit into the broader spectrum of intellectual property law. This triggers a philosophical debate about the normative foundation of trade secrets law which currently swings between the property and relational obligations of protecting trade secrets. These theories fall short inter alia in considering how the protection of trade secrets impact on the rights and interests of the connected parties, such as employees and the public. This chapter argued, first, that trade secrets law should represent 92 Chapter 2: THEORETICAL PERSPECTIVES multiple values of humans –– including employees and society –– and not be limited to the interests of an employer or trade secrets owner. Second, an alternative theoretical foundation is developed which is based on human rights theory in order to evaluate and guide trade secrets law. This chapter contends that employers who possess trade secrets must respect the rights of employees and society as much as they respect the importance of their own rights relating to the protection of trade secrets. As such, this may represent a balanced approach of trade secrets protection. An additional benefit of a human rights-based theoretical framework may be that it can be used to evaluate and guide the existing trade secrets legal mechanisms. Chapter 5 will deal with evaluating trade secrets laws in light of human rights theory. Chapter 2: THEORETICAL PERSPECTIVES 93 Chapter 3: AUSTRALIAN LAW 3.1 INTRODUCTION The overarching aim of this chapter is to analyse the nature and scope of Australian trade secrets law enabling chapter 5 to evaluate the law in light of the human rights-based criteria developed in Chapter 2. First, this chapter explores the significant role played by trade secrets in the Australian economy and policy treatment on the protecting trade secrets. Second, it examines the definitional issues to determine the extent to which Australian law provides a precise definition on trade secrets. Third, and most importantly, this chapter synthesises the legal framework in relation to the protection of trade secrets. It explains how Australian law becomes a collection of many laws. Fourth, it examines how the law provides for the protection of public or societal interests while providing protection for trade secrets. Fifth, this chapter explores the remedies available for an aggrieved party and how the courts ensure the confidentiality of trade secrets during court proceedings. Overall, this chapter outlines key legal issues that may impact the rights of employees and society. 3.2 SIGNIFICANCE OF TRADE SECRETS IN AUSTRALIA Australians are ‘an innovative … people’; ‘innovation … is key to Australia’s future prosperity’; Australia is a ‘knowledge nation’, a ‘clever country’, for which ‘innovation policy is industry policy’. This policy setting can lead to increasingly conscious reliance on ‘stronger’ intellectual property protection at home and abroad to preserve Australia’s longer-term economic security. –Antony Taubman1 The above statement reflects the creativeness and innovativeness of Australians and the importance of the existence of a robust intellectual property protection system in Australia. In fact, Australia performs well in the global intellectual property arena. 1 Antony Taubman, ‘Australia’s Interests under TRIPS Dispute Settlement: Trade Negotiations by Other Means, Multilateral Defence of Domestic Policy Choice, or Safeguarding Market Access?’ (2008) 9(1) Melbourne Journal of International Law 217, 219. [citations omitted] 94 Chapter 3: AUSTRALIAN LAW IP Australia states that there has been tremendous growth in registration of intellectual properties in last few years.2 Also, Australia was placed twelfth place in the Global IP Index 2017, prepared by the US Chamber of Commerce.3 By perusing National IP Reports issued by IP Australia and Productivity Commission Reports,4 one may easily deduce that formal IPs such as patents, copyrights or trademarks are the most commonly used IPs in Australia. However, there may be another version to the story, meaning that informal IPs, such as ‘secrecy and confidential arrangements’, are more popular among Australian businesses than other formal intellectual properties.5 This is reflected by the following table which is based on the data collected by the Australian Bureau of Statistics in 2013 and 2015 from Australian businesses about the methods that were in use to protect their intellectual property.6 2 IP Australia, Australian Intellectual Property Report (2016) Chapter 3: AUSTRALIAN LAW 95 Employment Size 0-4 persons % 5-19 persons 20-199 200 or more Total Form of IP % persons % person % 2014- 2012- 2014- 2012- 2014- 2012- 2014- 2012- 2014- 2012- 15 13 15 13 15 13 15 13 15 13 Patent 1.2 3.2 4.6 3.4 5.0 7.6 17.2 23.1 3.1 4.0 Registration of design 2.2 2.0 4.1 4.2 5.7 4.9 15.6 25.7 3.4 3.4 Copyright or 10.5 12.7 14.8 14.3 24.0 23.0 48.6 54.7 13.9 14.9 trademark Secrecy/confidentiality 9.0 11.4 15.0 16.8 25.7 22.5 38.7 41.0 13.3 15.0 arrangements Complexity of product 3.2 3.1 4.9 4.9 4.5 6.3 9.9 11.9 4.1 4.2 design Any intellectual 21.0 25.4 30.3 29.7 43.2 42.3 67.0 70.8 27.3 29.3 property protection methods used Table 3: Innovation-active businesses: Intellectual property protection methods by employment size, 2014-15 and 2012-13.7 As seen in the above table, ‘secrecy’ (which includes electronic methods of protection) and ‘confidential arrangements’ are highly utilised by the innovative-active businesses of Australia.8 Accordingly, in 2014-15, 13.3% of Australian firms used secrecy as an IP protection method. This means that almost a half of Australian firms which used any IP protection method (27.3%) were interested in secrecy to protect their IPs. In 2014-15, utilising secrecy measures was only second to ‘copyright or trademark’, which comprises 13.9%, when considered together. As far as 2012-13 statistics are concerned, secrecy and confidentiality was the most common intellectual property protection method which represents 15%. 7 Ibid. 8 Ibid. 96 Chapter 3: AUSTRALIAN LAW The following graph shows how secrecy and confidential arrangements are used by Australian industries in 2014-15: 35 30 30 25.2 25 22.9 21.6 20.8 20.1 20.9 20 17.4 17.8 15.1 14.3 15 Percentage 8.6 10 6.7 5.3 4.8 5 3.2 0.6 0 Industries Chart 1: Secrecy and Confidentiality Uses in Australia 2014-159 Accordingly, secrecy arrangements were more popular in the mining industry10 than in other industries during 2014-15. Almost one-third of mining companies were using secrecy to protect their technical and commercial information. Also, secrecy was a popular IP protection method among ‘professional, scientific and technical services industry’. A total of 25.2% of companies in this industry use secrecy. Among other industries, ‘electricity, gas, water and waste services’, ‘information, media and telecommunications’, ‘financial and insurance services’, ‘health care and social 9 Australian Bureau of Statistics, Innovation-active Businesses and Intellectual Property Protection Methods, by Employment Size, by Industry (8158.02) 2014-15 (21 July 2016) Chapter 3: AUSTRALIAN LAW 97 assistance’ and ‘rental, hiring and real estate services’ were major users of secrecy as an IP protection method. More than 20% of companies in those industries were using secrecy as an IP protection method. Paradoxically, trade secrets are not formally recognised as IP in Australia11 and there is less attention on trade secrets from policy-makers12 and academic circles.13 For instance, Australian Intellectual Property Reports issued by IP Australia refrain from recognising the role of trade secrets or confidential information in the Australian IP arena.14 In other words, the scope of trade secrets protection has not come under the purview of IP Australia, as IP Australia is mainly concerned with registered rights such as patents, trademarks and designs.15 Instead, the Attorney General’s Department is responsible for the creation, upgrading or maintenance of the trade secrets policy.16 Although Australia provides a sound legislative framework for the protection of other IP themes –– such as patents, copyright, trademarks, and industrial designs –– as a signatory to the TRIPS Agreement, there is no specific legislation dealing with trade secrets.17 As revealed by a study conducted by the Association Internationale pour la 11 Email from Benjamin Mitra-Kahn (IP Australia) to Darshana Sumanadasa (researcher), 09 March 2015. Copy available on request. 12 This is not a subject addressed by the Australian Intellectual Property Report: See IP Australia, Australian Intellectual Property Report (2016) 98 Chapter 3: AUSTRALIAN LAW Protection de la Propriété Intellectuelle (AIPPI), even the TRIPS Agreement did not have any influence on the development of trade secrets law in Australia.18 Today, nearly two decades after the implementation of TRIPS, there is a new wave of more harmonised and robust trade secrets laws in other major western economies, such as the United States19 and Europe.20 This includes the United Kingdom where Australia has drawn most of its laws in this respect, despite its process of leaving the European Union.21 For instance, in February 2018, the UK Intellectual Property Office issued a ‘Consultation on draft regulations concerning trade secrets’ which explains how the UK can introduce changes to their trade secrets law by complying the provisions of the EU Trade Secrets Directive.22 Consequently, in May 2018, the United Kingdom, for the first time in history, introduced The Trade Secrets (Enforcement, etc.) Regulations, No. 597 of 2018 to give effect to the provisions of the EU Trade Secrets Directive.23 Following these global trends, Australia enacted the National Security Legislation Amendment (Espionage and Foreign Interference) Act 2018 (Cth) which introduced criminal penalties for certain thefts of trade secrets. The Act is applicable when a trade secret is stolen by a foreign government principal24 or a person on behalf 18 Rodney De Boos et al, Protection of Trade Secrets through IPR and Unfair Competition Law-Q 215, Australia, (31 March 2010) Chapter 3: AUSTRALIAN LAW 99 of or in collaboration with a foreign government. As observed by the Explanatory Memorandum, it aims to: Introduces a new theft of trade secrets offence to protect Australia from economic espionage by foreign government principals.25 Accordingly, this should be understood as a part of national security laws rather than an issue of intellectual property, contract, or employment law. In other words, there is no any impact from this legislation unless there is foreign involvement for the trade secrets theft. These initiatives may have been influenced by The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which suggests that Trans-Pacific Partnership countries including Australia should provide stringent and harmonised laws to protect trade secrets, including criminal procedures and penalties.26 Nonetheless, there is no proper consideration from policy-makers on upgrading the civil law or IP aspects relating to trade secrets protection.27 This may mean that trade secrets are still the ‘ugly duckling’ in the Australian IP context who toils in the shadow of her more privileged siblings in the form of patent, copyrights and trademarks despite their significance in the real world.28 (h) an entity or organisation owned, directed or controlled: (i) by a foreign government principal within the meaning of any other paragraph of this definition; or (ii) or more such foreign government principals that are foreign government principals in relation to the same foreign country.’ 25 Explanatory Memorandum, The Trade Secrets (Enforcement, etc.) Regulations, No. 597 of 2018 100 Chapter 3: AUSTRALIAN LAW 3.3 DEFINITIONAL UNCERTAINTIES In Australia, where there is no statutory intervention or harmonisation in light of the TRIPS Agreement, trade secrets are mainly protected under the unwritten laws of common law and equity. Consequently, a definition of trade secrets may be found in case law. However, an AIPPI29 report on Australian trade secrets law indicates that an exact definition of trade secrets is not possible in Australia.30 One explanation for this is that Australian law is more concerned with the protection of confidential information in general and there is less attention on trade secrets in particular.31 Confidential information encompasses a wide range of information, from highly personal information about individuals32, trade, business and technical information33, and artistic works,34 to political and confidential information about government.35 Therefore, confidential information is a broad concept which incorporates trade secrets, as indicated in the following figure. Confidential Information Trade Secrets Figure 2: Confidential information and trade secrets 29 Association Internationale pour la Protection de la Propriété Intellectuelle (The International Association for the Protection of Intellectual Property) Hereinafter referred to as AIPPI. 30 Matthew Swinn and Claire Cunliffe, AIPPI Q 247-Trade secrets: Overlap with restraint of trade, aspects of enforcement: Australia Country Report (21 May 2015) Chapter 3: AUSTRALIAN LAW 101 There are some writers who attempt to argue that the term ‘trade secret’ is no more than a synonym for a commercial confidence, as it introduces no new legal concepts.36 Analysing the approach of the Australian courts, Dean deduces that: Whatever the importance of the definition, courts have categorised a trade secret in terms of confidential information of a commercial character, using [sic] description by example and relying on specific indications of secrecy to determine whether information is a trade secret. 37 It is questionable how Australian law differentiates trade secrets from confidential information and whether it recognises the tri-partite test introduced by the TRIPS Agreement. Staughton LJ, in Lansing Linde Ltd v Kerr,38 asks: What are trade secrets, and how do they differ (if at all) from confidential information? ... I would add first, that it must be information used in a trade or business, and secondly that the owner must limit the dissemination of it or at least not encourage or permit widespread publication.39 His Lordship further states that ‘a trade secret is information which, if disclosed to a competitor, would be liable to cause real (or significant) harm to the owner of the secret’.40 Having accepted Staughton LJ’s views and in interpreting the provisions of Freedom of Information Act 1982 (Cth) relating to exceptions of right to information in Searle Australia Pty. Ltd v Public Interest Advocacy Centre & Anor,41 the Full Court of the Federal Court of Australia held that: The term [trade secret] does not have a technical legal meaning but is an ordinary term of the English language, though used perhaps more commonly in legal judgements and legal writings than elsewhere.42 36 G E Dal Pont and D R C Chalmers, Equity and Trusts in Australia (Lawbook Co, 4th ed, 2007) 151. 37 Robert Dean , The Law of Trade Secrets and Personal Secrets (Lawbook Co, 2nd ed, 2002) 16. 38 [1991] 1 All ER 418. 39 Ibid, 425-426. 40 Ibid. These views were accepted by Australian courts in Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172, [126] and recently in Kung Fu Wushu Australia Ltd v Australian Sports Commission [2018] AATA 157, [32]. (This case embraced Staughton LJ’s views in interpreting s 47(1)(a) of the Freedom of Information Act 1982 (Cth)). 41 Ibid. 42 Ibid, 119. 102 Chapter 3: AUSTRALIAN LAW As such, the Court held that ‘the determination of what is a trade secret is primarily a question of fact for the administrative decision-maker’.43 Furthermore, Gowans J in Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd,44 states that: An exact definition of a trade secret is not possible. Some factors to be considered in determining whether given information is one’s trade secret are: i) the extent to which the information is known outside the business; ii) the extent to which it is known by employees and others involved in the business; iii) the extent of the measures taken by the owner to guard the secrecy of the information; iv) the value of the information to the business and its competitors; v) the amount of effort or money expended by the owner in developing the information; and vi) the ease or difficulty with which the information could properly be acquired or duplicated by others.45 It is observed that in providing these six factors relating to defining trade secrets, Gowans J relied upon the First Restatement of Tort 193946 of the United States which was the most updated and sophisticated trade secrets law at the time the Ansell Rubber Case was decided.47 The list provided by the Ansell Rubber Case was further extended by Hodgson JA in Del Casale v Artedomus (Aust) Pty Ltd.48 In Del Casale, Hodgson JA and McColl JA endorsed a list comprising 12 factors enunciated by Dean49 in determining trade secrecy of information. It is observed that the first six factors of this list was an adoption of the Ansell Rubber list. However, in addition to those six factors, the Court added another six factors, as listed below: 43 Ibid. 44 [1967] VR 37, 49-50. 45Ibid, 50;See also Wright v Gasweld Ptd Ltd [1991] 22 NSWLR 317; See also Thomas Marshall (Export) Ltd v Guinle [1979] Ch 227. 46 § 757 of Restatement (First) of Torts 1939. 47 Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37, 40, 49-50: ‘I have also been greatly helped by reference to the treasury of material from English and American and Commonwealth sources contained in the recently published textbook, The Law of Trade Secrets (Turner), and also by reference to the American Restatement of the Law of Torts (1st ed.)’… ‘American law is rather more explicit. The Restatement of the Law of Torts (1st ed.), art.757, states in the “Comment”…’ 48 (2007) 165 IR 148; [2007] NSWCA 172. 49 Robert Dean , The Law of Trade Secrets and Personal Secrets (Lawbook Co, 2nd ed, 2002) 190. Chapter 3: AUSTRALIAN LAW 103 i. Whether it was plainly made known to the employee that the material was regarded by the employer as confidential; ii. The fact that the usages and practices of the industry support the assertions of confidentiality; iii. The fact that the employee has been permitted to share the information only by reason of his or her seniority or high responsibility; iv. That the owner believes these things to be true and that belief is reasonable; v. The greater the extent to which the “confidential” material is habitually handled by an employee, the greater the obligation of the confidentiality imposed; and vi. That the information can be readily identified.50 However, in this case, by providing a separate opinion, Campbell JA stated that the expression of trade secret is used in several quite different contexts and the meaning of trade secrets in the Australian context is unclear.51 His Honour further explained the ‘imprecision of trade secrets’ as follows: As a matter of ordinary English usage, there is no bright line between things that are of their nature trade secrets and things that are not. Rather, information that is of use in trade or commerce can have greater or lesser degrees of both secrecy and usefulness. And, as the difference between the accounts of “trade secret” given in Thomas Marshall and in Lansing Linde show, there is room for legitimate debate about whether the categorisation of something as a "trade secret" involves only objective facts (and if so, what facts), or also facts concerning the beliefs of the person who asserts that a particular piece of information is a trade secret. This imprecision of meaning limits the usefulness of “trade secret” as a concept that can be used in deciding whether legal obligations exist. But that its usefulness is limited does not mean that it is of no use. Rather, the concept needs to be used with a clear consciousness of the purpose for which it is being used, on the particular occasion when it is being used.52 50 (2007) 165 IR 148; [2007] NSWCA 172, [40]. 51 Ibid, [108]. 52 Ibid, [128] [emphasis added] 104 Chapter 3: AUSTRALIAN LAW In Campbell JA’s opinion, whereas the cases dealing with trade secrets encounter a list to be used in deciding trade secrecy of a particular information, those should not be final determinatives.53 His Honour cited Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd,54 where Fullagar J referred to lists of factors determining trade secrecy as ‘slavishly check off the factors against the information, as if one were counting spots on some strange creature to see if it was indeed the species of leopard illustrated in the picture book’.55 Fullagar J’s opinion was that Gowans J in the Ansell Rubber Case did not intend to present a conclusive list of determinatives of trade secrecy. Moreover, later cases such as GlaxoSmithKline v Ritchie56 and RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd57 adopted the position that there is no settled meaning of the expression ‘trade secrets’ in the Australian context. Dean points out that it is a term that changes as the commercial environment changes.58 Nonetheless, it should be noted that the recently enacted National Security Legislation Amendment (Espionage and Foreign Interference) Act 2018 (Cth) adopted a definition which closely resembles the TRIPS tri-partite test. Accordingly, it states in section 92A.1: ‘Theft of trade secrets involving foreign government principal’ applies to situations which satisfy the following circumstances: i. The information is not generally known in trade or business, or in the particular trade or business concerned; ii. The information has a commercial value that would be, or could reasonably be expected to be, destroyed or diminished if the information were communicated; and iii. The owner of the information has made reasonable efforts in the circumstances to prevent the information becoming generally known. However, it may be too early to see how Australian courts adopt this definition. Also, in any event, this legislative provision may not be applicable to civil law or domestic trade secrets misappropriation cases. That is because the scope of 53 Ibid, [138]. 54 [1979] VR 167. 55 Ibid, 193. 56 (2008) 77 IPR 306, [49] [50]. 57 [2011] FCA 423, [43]. 58 Robert Dean , The Law of Trade Secrets and Personal Secrets (Lawbook Co, 2nd ed, 2002) 16. Chapter 3: AUSTRALIAN LAW 105 this legislation is limited to criminal liability and to cases where there is an involvement of a foreign government. It is reasonable to argue, therefore, that Australian law does not recognise a special category of information called trade secrets but rather confidential information in general. Even though there are attempts to define trade secrets, or at least to introduce a list of considerations –– for example, in the Ansell Rubber Case –– there is no consistency maintained by later cases. Such inconsistent approaches may prejudicially affect the certainty and predictability of the law and consequently render it complex.59 For instance, in some circumstances, information that is not a trade secret may be protected, while in other circumstances, disclosure of a trade secret is not prohibited.60 3.4 LEGAL FRAMEWORK 3.4.1 Introduction As seen in the preceding section, Australian law closely resembles the English legal tradition favouring non-codified common law for the protection of trade secrets, which does not necessarily focus on the protection of trade secrets but on confidential information. As stated by Gowans J: This [the concept of trade secrets] is only a particular subject-matter to which the principles relating to breach of confidence have been applied… English authorities are more disposed to refer to ‘confidential information’ and not to resort to definition of the term ‘trade secrets’.61 59 Certainty and predictability of law is identified as a best practice of a trade secrets protection: APEC- Lima Declaration, Best Practices in Trade Secret Protection and Enforcement Against Misappropriation Asia-Pacific Economic Cooperation (APEC) Leaders and Ministers (2016) 106 Chapter 3: AUSTRALIAN LAW Accordingly, there may be no specific body of ‘trade secrets law’ in Australia and trade secrets are regarded as a part of confidential information.62 Explaining the rationale of protecting confidential information in Australia, Deane J in Moorgate Tobacco Co. Ltd. v Philip Morris Ltd held that: Its [protection of confidential information] rational basis does not lie in proprietary right. It lies in the notion of an obligation of conscience arising from the circumstances in or through which the information was communicated or obtained.63 It is clear from this statement that Australian law is more concerned with protecting and upholding the trust and confidence of relationships than endorsing the intrinsic proprietary values of confidential information or trade secrets.64 According to AG Australia Holdings Ltd v Burton,65 there are three ways that an obligation of confidentiality may arise: First is by express provision in a contract. The second is by an implied term in a contract. The third is as an obligation recognised in the exclusive jurisdiction of equity.66 Therefore, Australian law, on protecting trade secrets, has become a mixture of contract law relating to restraint of trade and duty of fidelity and equitable principles relating to breach of confidence.67 In addition, there is little legislative guidance from enactments such as the Competition and Consumer Act 2010 (Cth)68, the Restraint of 62 For this reason, in the Australian context, academic considerations and analyses are mainly compartmentalised into breach of confidence, restraint of trade and duty of fidelity and good faith. The only dedicated scholarly investigation on Australian trade secrets law is found from the writings of Dr. Robert Dean, a practitioner from Victoria. See Robert Dean, The Law of Trade Secrets (LawBook Company, 1990); Robert Dean, The Law of Trade Secrets and Personal Secrets (LawBook Co, 2nd ed, 2002); Robert Dean, Employers, Ex-employers and Trade Secrets (Lawbook Co., 2004). 63 Moorgate Tobacco Co. Ltd. v Philip Morris Ltd. (No. 2) (1984) 156 CLR 414 at 438. 64 Sullivan v Sclanders [2000] SASC 273, (2000) 77 SASR 419, [57]. 65 (2002) 58 NSWLR 464. 66 Ibid [73]-[74]. See Commonwealth v John Fairfax and Sons Ltd (1980) 147 CLR 39,50: ‘employees who had access to confidential information in the possession of their employers have been restrained from divulging information to third parties in breach of duty and, if they have already divulged the information, the third parties themselves have been restrained from making disclosure or making use of the information’ 67 Richard Gough, ‘Australia’ in Terrence F. MacLaren (eds) Worldwide Trade Secrets Law (Volume 3, Thomson West, 2004) [30.2]. See also Mark Davidson, Ann Monotti and Leanne Wiseman, Australian Intellectual Property Law (Cambridge University Press, 3rd ed, 2016) 411. 68 This statute aims to promote competition (s 2 and s 45) in contractual relationships. However, it treats certain contracts such as contract of service (s 51 (2)b) and partnerships (51 (2) d) as exceptions. Chapter 3: AUSTRALIAN LAW 107 Trade Act 1976 (NSW), the Corporation Act 2001 (Cth),69 the and Criminal Code Act 1995 (Cth).70 The following sections analyse the law to determine how trade secrets are protected in the Australian context and how the law approaches balancing the rights of employers, employees and the public. However, since Australia follows a piecemeal approach in protecting trade secrets and there is a scarce of dedicated academic investigations71 on trade secrets law, there is a need for a detailed analysis of legal approaches which are based on different values and perspectives.72 3.4.2 Contract Law: Express Terms and Restrictive Covenants (a) Increased Use of Contractual Measures Most, if not all, modern employment and business relationships arise from a valid contract, irrespective of whether it is written or not.73 Therefore, employers view the contract as a way to ensure the contractual parties honour the duty of preserving confidentiality of information. These contractual measures are commonly known as 69 See for eg, ss 182-183. 70 See for eg, ss 477- 478. 71 See Robert Dean, The Law of Trade Secrets (LawBook Company, 1990); Robert Dean, The Law of Trade Secrets and Personal Secrets (LawBook Co, 2nd ed, 2002); Robert Dean, Employers, Ex- employers and Trade Secrets (Lawbook Co., 2004). 72 Other scholars separately focus on the breach of confidence under the IP literature and restraint of trade under contract law literature. See for eg, contract law: Rob Jackson, Post-Employment Restraint of Trade: the competing interests of an ex-employee, an ex-employer and the public good (Australia, Federation Press, 2014), Chistopher Arup, Chris Dent, John Howe and William Van Caenegem, ‘Restraint of Trade: The Legal Practice’ (2013) 36 (1) UNSW Law Journal 1; Joellen Riley, Commodifying Sheer Talent: Perverse. Developments in the Law's Enforcement of Restrictive Covenants in Christopher Arup, William van Canaegem (eds.), Intellectual Property Policy Reform (Edward Elgar Publishing, United Kingdom, 2009) 267-284. Neville Rochow, ‘Toward a Modern Reasoned Approach to the Doctrine of Restraint of Trade’ (2014) 5 The Western Australian Jurists 25. Breach of Confidence: Andrew Stewart, Philip Griffith, Judith Bannister and Adam Liberman, Intellectual Property in Australia (LexisNexis Australia, 5th ed, 2014); Mark Davidson, Ann Monotti and Leanne Wiseman, Australian Intellectual Property Law (Cambridge University Press, 3rd ed, 2016) Kaaren Koomen, ‘Breach of Confidence and the Public Interest Defence: Is it in the Public Interest: A Review of the English Public Interest Defence and the Positions for Australia’ (1994) 10 QUT Law Review 56; James Kearney, The Action for Breach of Confidence in Australia (Legal Books Pty Ltd, Sydney, 1985). 73 See for eg, Lister v Romford Ice And Cold Storage Co Ltd [1957] AC 555, 587: ‘In modern times the relationship between master and servant, between employer and employed, is inherently one of contract’; See also See Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] 167, 190: ‘express contracts not to divulge confidential information are made every day… between employers and employees’. 108 Chapter 3: AUSTRALIAN LAW ‘restrictive covenants’ or ‘restraint of trade covenants’, by which contractual parties agree ‘to give up some freedom which he [or she] would otherwise have had’.74 In general, these restraints may include non-disclosures, non-competitions and non-solicitations.75 Non-disclosure agreements prohibit employees from disclosing and using trade secrets in an unauthorised manner during and at the end of the employment. Non-solicitation agreements prevent employees from soliciting the customers of the ex-employer for his or her own benefit or for the benefit of a competitor after leaving the ex-employer. In a broader context, non-competition agreements prohibit ex-employees’ ability to compete with the employer by joining a rival of the ex-employer or by starting his or her own competing business. In the trade secrets regime, these covenants may be considered as a way to incentivise investing ‘in the development of knowledge [trade secrets] with some certainty that it will not fall immediately into the hands of a competitor if the employee leave’.76 In other words, these restraints intend to control and limit the wide circulation of firm-specific information and knowledge. Employers consider that having an express written term in an employment contract may be an effective way of informing employees about their confidentiality obligation and protecting confidential information from current and ex-employees. Restrictive covenants, such as non- competes, are increasingly popular among businesses.77 This practice is encouraged 74 Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269, 298 [emphasis added]. See also Amco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288, 304-305. 75 Linder v Murdock’s Garage, (1959) 83 CLR 628, 633. 76 Chistopher Arup, Chris Dent, John Howe and William Van Caenegem, ‘Restraint of Trade: The Legal Practice’ (2013) 36 (1) UNSW Law Journal 1, 3. [emphasis added] 77 See Chris Neumeyer, Trade Secrets and Employee Mobility in the U.S. and Asia, IPWATCHDOG (9 October 2013) Chapter 3: AUSTRALIAN LAW 109 by policy-makers,78 courts79 and scholars 80 as an effective tool of protecting confidential information or trade secrets. (b) Legal Approaches in Balancing Employers’ and Employees’ Rights (i) Test of Reasonableness Whereas restrictive covenants are considered to be a popular method of protecting employers’ trade secrets, such covenants cannot be automatically enforced by an employer. This is because the common law holds that restraint of trade clauses are prima facie void as contrary to public policy, since it considers the likelihood of reducing competition and freedom of trade.81 Nonetheless, these restraints will be enforced if they are reasonable between the parties (employer and employee) and in the public interest. This can be regarded as a balance of ‘two competing policy considerations: the policy of freedom of contract and enforcing contractual obligations, and the policy of preserving freedom of trade from unreasonable contractual restrictions’.82 In other words, the common law endeavours to strike a balance on an employer’s interest in protecting trade secrets and an employee’s interests in protecting their labour rights. Modern legal principles of restraint of trade were enunciated by Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd,83 which was decided by the House of Lords in the 19th century.84 In Nordenfelt, Nordenfelt, who was an inventor and then a 78 IP Australia suggests that proving a breach of restraint of trade clause such as a non-competition clause is easier than proving breach of confidentiality. See IP Australia, ‘Types of IP: Limitations of Trade Secrets’ 110 Chapter 3: AUSTRALIAN LAW manufacturer of armaments, sold his business, agreeing not to engage in the trade of manufacturing guns, explosives and ammunition in competition with the purchasing company. This covenant was applicable for 25 years, anywhere in the world. However, after some years, Nordenfelt breached the agreement and entered into a partnership which competed with the purchasing company. In this case, establishing the Nordenfelt test, Lord Macnaghten stated that: The public have an interest in every person's carrying on his trade freely: so has the individual. All interference with individual liberty of action in trading, and all restraints of trade themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: restraints of trade and interference with individual liberty of action may be justified by the special circumstances of a particular case. It is sufficient justification, and indeed it is the only justification, if the restriction is reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public.85 In summary, according to the Nordenfelt test, a restraint of trade clause is prima facie void, unless it is proven to be reasonable. This test has been largely adopted by common law countries, including Australia,86 and thus can be regarded as a travelling jurisprudence –– a locus classicus.87 Accordingly, there are two aspects that need to be considered by the courts in determining the validity of restraint of trade. First, restraints must be reasonable between employer and employee. Second, it should be reasonable in terms of public policy considerations. law in relation to restraints of trade began with the speech of Lord Macnaghten’. See also Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126, 139 and Ross v IceTV [2010] NSWCA 272 at [86]. 85 [1894] AC 535, 565. [emphasis added] 86 See Emeco International v O’Shea (No 2) (2010) 225 IR 423, [3]: Edelman J states that ‘the modern law in relation to restraints of trade began with the speech of Lord Macnaghten’. See also Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126, 139 and Ross v IceTV [2010] NSWCA 272 at [86]. See also Rob Jackson, Post-employment Restraint of Trade (The Federation Press, 2014) 12-15; Chris Dent, ‘Nordenfelt v Maxim-Nordenfelt: An Expanded Reading’ (2015) 36 Adelaide Law Review 329, 329. 87 David M. Meltz, The Common Law Doctrine of Restraint of Trade in Australia (Blackstone Press, 1995) 29. Chapter 3: AUSTRALIAN LAW 111 However, the problem arises as to what is meant by reasonable and how it can be measured. According to Gibbs J: The requirement that the restriction be reasonable in the interests of the parties has been explained as meaning that the restraint must afford no more than adequate protection to the party in whose favour it is imposed.88 Accordingly, if the restraint is proportionate with the need to protect the interests of the employer, such a restraint can be reasonable. As enunciated by Australian courts, ‘an employer is not entitled to require protection against mere competition’.89 Having a protectable legitimate interest, such as trade secrets, can be recognised as a valid reason for restraints to be considered reasonable.90 However, the mere fact that an employer has trade secrets to be protected does not mean that a restrictive covenant is reasonable. He or she should also be able to establish that such restraints do not go further than necessary to protect that legitimate interest.91 Thus, the overall question to be asked is ‘does the restriction exceed what is reasonably necessary for the protection of [trade secrets].’92 The onus of establishing that the restrictive covenant is reasonable between parties is upon the employer who seeks to implement such a covenant.93 The rationale behind this may be that: The employer, having fuller picture of the company’s interests and needs than any employee, should be in a much better position to show that a restraint is 88 Amco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288, 315-316 [citation omitted]; See also Stacks Taree v Marshall [No.2] [2010] NSWSC 77, [44]. 89 ‘An employer is not entitled to protect himself [or herself] against mere competition by a former employee, and the corollary of that is that the employee is entitled to use skills, experience and know- how acquired in the service of the former employer in legitimate competition.’: Write v Gasweld (1991) 22 NSWLR 317, 329; Provida Pty Ltd v Sharpe [2012] NSWSC 1041, [4]; Write v Gasweld (1991) 22 NSWLR 317; Stenhouse Australia Ltd v Phillips [1974] AC 391, 400. 90 See Lindner v Murdock’s Garage per Latham CJ (1959) 83 CLR 628, 633:‘Where an employee has access to trade secrets or other confidential information, he may be restrained by agreement from communicating those secrets or such information to other persons, and particularly to competitors in trade with his employer.’ See also Jaddcal Pty Ltd v Minson (No 3) [2011] WASC 362, [63]; Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337, 344; Metcash Ltd v Jardim [48]; John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995, [32]. 91 Lindy Willmott, Sharon Christensen, Des Butler, Bill Dixon, Contract Law (Oxford University Press Sydney, 5th ed, 2018) [18.47]. See also Amco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288, 306. 92 [emphasis added] Amoco Australia Pty Limited v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288, 315-316. See also Heron v Port Huon Fruitgrowers’ Co-operative Association Ltd (1922) 30 CLR 315, 324. 93 Amoco Australia Pty Limited v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288, 317-18. 112 Chapter 3: AUSTRALIAN LAW no more burdensome than needed to protect the employer’s legitimate interest [trade secrets]. The covenantor [an employee], on the other hand, would find it difficult to show that the restraint is reasonable or [not].94 As stated by Heydon J, ‘the onus is not to prove reasonableness, but to prove special circumstances from which reasonableness can, as a matter of law, be inferred by the judge’.95 Proving that a restrictive covenant is reasonable between parties is not enough for the validity of such a clause. According to the second limb of the Nordenfelt test, if an employer proves that the restraint of trade clause is reasonable between the parties, then the onus of proving that it is contrary to public interest lies on an employee who asserts it.96 As such, if an employee could prove that restraints are injurious to the public, such restraints are not enforced.97 However, in general, ‘a restraint held to be reasonable as between the parties will be regarded as reasonable in the public interest’.98 Therefore, arguably, there is actually one test.99 Heydon, approving this view, remarked that ‘most restraint of trade cases concern restraints on employees…; in these cases the public interest has had only a small role to play, and a finding of reasonableness between the parties has usually concluded the case’.100 Nonetheless, there can be situations where restraints may be unreasonable in terms of the public interest, although the restraints are reasonable between parties.101 Therefore, Wilmott et al suggest to have two separate tests, rather 94 H M Blake, ‘Employee Agreements not to Compete’ (1960) 73 Harvard Law Review 625, 648. [emphasis added] 95 J D Heydon, Restraint of Trade Doctrine (LexisNexis Butterworths Australia, 3rd ed, 2008) 35. 96 See Buckley v Tutty (1971) 125 CLR 353, 377. 97 This issue is further analysed in section 3.5.2. 98 Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269. 99 Ibid, 324. In this case, Lord Pearce stated that ‘there is not, as some cases seem to suggest, a separation between what is reasonable on grounds of public policy and what is reasonable as between parties. There is one broad question: is it in the interests of the community that the restraint should, as between the parties, be held to be reasonable and enforceable’. 100 J D Heydon, Restraint of Trade Doctrine (LexisNexis Butterworths Australia, 3rd ed, 2008) 34. 101 See Amoco Australia Pty Limited v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288, 307. See also Lindy Willmott, Sharon Christensen, Des Butler, Bill Dixon, Contract Law (5th ed, Oxford University Press Sydney 2018) [18.85] and John Gooley, Peter Radan and Ilija Vickovich Principles of Australian Contract Law (LexisNexis Butterworths Australia, 3rd ed, 2014) 547. Chapter 3: AUSTRALIAN LAW 113 than merging both.102 Even if there are two tests, the onus of proving reasonableness may be high. As an illustration, Callinan J, in Maggbury v Hafele,103stated that: The law should seek to uphold bargains and enforce restraints other than those which are clearly and demonstrably against the public interest. In other words, a person who wants to break a restrictive covenant should be obliged to show that enforcement of it would substantially reduce competition within a marketplace, result in price fixing, or otherwise cause the public some real and discernible economic detriment of an anti-competitive nature. No less should be required to justify a unique interference with freedom of contract or the giving of a judicial imprimatur to what would otherwise be a flagrant breach of contract when one party decides that he or she has had enough of it.104 Accordingly, employees have to demonstrate how a restraint reduces competition or brings an economic detriment of an anti-competitive nature if they wish to strike it down. Even though Callinan J expressed his views as a dissenting or minority judgment, this, at least, means that there can be strict judicial view when arguing that a restraint goes against the public interest. Courts, over time, have developed a rule of thumb in determining the reasonableness of restrictive covenants. For example, in Brilliant Lighting (Aust) Pty Ltd v Baillieu,105 the Supreme Court of Victoria set out five considerations in deciding the reasonableness of a restrictive covenant: i The scope of the restraint in terms of both the geographic area106 and duration;107 ii The activities covered by the restraint; 108 iii The relative bargaining power of the parties; 109 102 Lindy Willmott, Sharon Christensen, Des Butler, Bill Dixon, Contract Law (Oxford University Press Sydney, 5th ed, 2018) [18.85]. 103 [2001] HCA 70. 104 Ibid, 91. [emphasis added] 105 (2004) VSC. 248. 106 See for eg, Papastravou v Gavan [1968] 2 NSWR 286 107 See for eg, Peters American Delicacy Co Ltd v Patricia’s Chocolates and Candies Pty Ltd (1947) 77 CLR 574. 108 See for eg, Geraghty v Minister (1979) 142 CLR 177 109 A.Schroeder Music Publishing Co. Ltd. V Macaulay [1974] 1 All E R 171. See Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288, 317: ‘The fact that the parties have bargained from a position of equality is therefore one of the circumstances to be considered in determining whether the covenants were reasonable, but it does not save from invalidity a covenant found to be unreasonable or contrary to the public interest’. See also Creamoata Ltd. v Rice Equalization Association Ltd (1953) 89 CLR 286, 318. 114 Chapter 3: AUSTRALIAN LAW iv The consideration paid in exchange for the restraint; 110 and v The context of the contract. However, in general, courts do not consider these factors in isolation and this may be a combined test. For instance, in the case of Emeco International v O’Shea (No 2),111 Mr O’Shea was employed as a business development manager ‘for a substantial salary (well in excess of $ 100,000)’112 of Emeco, which operated in ‘dry hire industry’ mainly in Western Australia. In this case, Edelman J held that restraining Mr O’Shea for six months within the geographical boundary of Western Australia was reasonable. The Court considered Mr O’Shea’s senior position at Emco, the narrowness and competitiveness of the dry hire industry in which Emco operates, the relationship with Mr O’Shea and the clients of Emco, the confinement of restraint only to Western Australia, Mr O’Shea’s privy to Emeco’s confidential information, and his ability to find an alternative employment outside the dry hire industry owing to his prior experience in other industries.113 In general, lifelong restraints are held invalid as they are unreasonable. Nonetheless, legal authorities such as Fitch v Dewes114 suggests that even lifelong restraints can be upheld by the courts.115 This decision was based on the rationale that the restricted trade –– which was a legal practice –– was one to which clients were likely to return over a long period of time or a lifetime. Reference in respect of protecting customer connection was made in the decision of Pearson v HRX Holdings Pty Ltd,116 where a two-year non-competition clause was upheld as being reasonable. The Court considered the following factors in reaching its decision: i) The employee was the company’s primary presenter to prospective clients; 110 The High Court of Australia mentioned in Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288, 315 – 316 that the remuneration of the employee may be (but not “must be”) taken into account when considering reasonableness. See also Smith v Nomad Modular Building Pty Ltd 111 (2012) 225 IR 423, [3]. 112 Ibid, [25]. 113 Ibid, [167]- 114 [1921] 2 AC 158. This case was mentioned by Maxwell J in Birdanco Nominees Pty Ltd v Money [2012] VSCA 64, [2]. 115 Rob Jackson, Post-Employment Restraint of Trade: the competing interests of an ex-employee, an ex-employer and the public good (Australia, Federation Press, 2014) 44 116 (2012) 205 FCR 187. Chapter 3: AUSTRALIAN LAW 115 ii) The employee was “the human face of the business”; iii) The particular restraint was the subject of specific negotiation; and iv) It was the subject of separate consideration in the form of payments during the majority of the restraint.117 Moreover, in Brilliant Lighting (Aust) Ltd v Baillieu,118 Gillard J mentioned that restricting an employee ‘anywhere in Australia’ is too wide and unreasonable.119 On the contrary, it was held in Koops Martin v Reeves120 that ‘where a restraint prohibits solicitation of specific customers or classes of customers, no geographic area of limitation is generally required’.121 What should be noted here is that determining the reasonableness of a restraint of trade clause is a subjective decision of the presiding judges, depending on the prevailing circumstances of the case.122 As a result, the courts focus on the practical effects of the restraints in each case in assessing reasonableness.123 It may be, ultimately, a matter of ascertaining the intention of the parties.124 However, measuring reasonableness, depending on factual metrics of each case, may bring adverse effects to the parties as it may lead to law becomes uncertain. This issue will be further analysed in section 5.2.3. (ii) A Strict View on Employment Contracts Lord Macnaghten in the Nordenfelt case125 suggested that courts should adopt a strict view on employee restraints, distinguishing them from business restraints which have been embraced by Australian courts. For instance, Dodds-Streeton CJ mentioned in I.F. Asia Pacific Pty Ltd v Galbally126 that: The courts have drawn a distinction between restraint covenants against employees and restraint covenants associated with the sale of the goodwill of 117 Ibid. 118 [2004] VSC 248. 119 Ibid, [14]. 120 [2006] NSWSC 449. 121 Ibid, [86]. 122 See I F Asia Pacific Pty Ltd v Galbally [2003] VSC 92,103. 123 John Gooley, Peter Radan and Ilija Vickovich, Principles of Australian Contract Law (LexisNexis Butterworths Australia, 3rd ed, 2014) 545. 124 Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429, 437. 125 [1894] AC 535, 543-4. 126 [2003] VSC 192. 116 Chapter 3: AUSTRALIAN LAW a business, since Lord Macnaghten’s influential judgment in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co.127 A reason of such a distinction may be that inequality in bargaining power between an employer and an employee which is not usually appears in business to business contracts.128 However, in Marquett v Walsh,129 Long Innes J viewed that restraint of trade covenants should not necessarily be based on the reason of inequality of bargaining power of employees in the Australian context. In his Honour’s view: … whatever may be the case in other countries, I doubt whether the views expressed by some very eminent judges in England as to the comparative helpless of the employee have more than slight applicability in this country [Australia] where every class of labour is strictly organised, where the terms and conditions of employment during employment are prescribed with meticulous exactitude by impartial tribunals established by legislative authority, where the interests of each individual employee are carefully watched by energetic trade union officials …130 Another possible reasoning for adopting a strict view on employee restraints is found in Bleby J’s decision in Hydron Pty Ltd v Harous:131 The courts in general take a stricter and less favourable view of covenants in restraint of trade entered into between an employer and an employee than of such covenants entered into between a vendor and a purchaser. This is probably because there are different interests to protect. In the case of sale of a business, the purchaser is entitled to protect himself against competition on the part of the vendor, in order to observe, for a reasonable time, what it is that he has bought. With an employee, the emphasis is not so much on restriction of the activities for which the employee is trained and which might be competitive with those of the employer, but on the use of information obtained about the employer’s business which would be of subsequent use to the employee or to the employee’s new employer.132 127 Ibid, [102]. 128 J D Heydon, Restraint of Trade Doctrine (LexisNexis Butterworths Australia, 3rd ed, 2008) 89. 129 (1929) 29 SR (NSW) 298. 130 Ibid, 312. 131 (2005) SASC 176. 132 Ibid, [85] [emphasis added]. Chapter 3: AUSTRALIAN LAW 117 As such, Australian courts seek to distinguish trade secrets from employee know-how and ensure that restraints are not extended towards employee know-how or ‘general stock of knowledge and skills’.133 Australian courts adopt the view expressed by Cross J in Printers & Finishers Ltd v Holloway (No. 2)134 in demarcating employee know- how.135 In his Honour’s view, ‘if the information in question can fairly be regarded as a separate part of the employee’s stock of knowledge which a man of ordinary honesty and intelligence would recognise to be the property of his old employer and his own to do as he likes with’,136 such information is considered trade secrets and belongs to employers. Thus, such information can undoubtedly be protected by restraints. By contrast, general stock of knowledge and skills of employees, which employees have discovered for themselves ‘by trial and error during the employment’, cannot be considered as trade secrets and such knowledge are free to be used by employees.137 Australian courts consider two policy considerations in this regard: The first is that the court seeks to uphold contracts between contracting parties and the obligations of confidentiality which have expressly or impliedly been undertaken. The second is that the court ‘seeks to respect the rights of servants to advance their chosen trade and profession...[and] promote their own private interests by changing their employment and so promote the public interest by better use of the servants personal aptitudes, experience and skill.138 Accordingly, an employee is entitled to exploit his or her know-how, or the general stock of knowledge, skills and experience which were at his or her command and which constitutes his or her accumulated expertise in a particular field of profession.139 In that way, the courts strike a balance between an employer’s rights to protect trade 133 Courts attempt to classed related information into three categories, namely, trade secrets (would be protected from injunction even in the absence of some contractual covenant with the principles of equity), know-how (could be protected by a valid restraint of trade covenant) and trivial information (not entitled to any protection). See Sameh Refaat v Michael Barry [2015] VSCA 218, [131]- Faccenda Chicken Ltd v Fowler [1985] 1 All ER 724, 731-732. 134[1965] RPC 239, 255. 135 See for eg, ICAP Australia Pty Ltd v BGC Partners (Australia) Pty Ltd [2004] NSWS SC 674 and GD Seal & Co. Limited v Celtech Limited [1982] FSR 92. 136 Printers & Finishers Ltd v Holloway (No. 2) [1965] RPC 239, 255 per Lord Cross. This was accepted by GD Searle & Co Ltd v Celltech Ltd [1982] FSR 92, 255. 137 Ibid. 138 Muggbury Pty Ltd v Hafele Australia Ltd [2001] HCA 70, [68]. 139 GSK Australia Pty Ltd v Ritchie [2009] VSC 25, [25]. 118 Chapter 3: AUSTRALIAN LAW secrets and an employee’s right to earn a living. This issue will be further analysed in section 5.2. (iii) Judicial Power of Severance An important feature of the common law is the doctrine of severance, which allows courts to sever the contractual provisions deemed to be void at common law and enforce the remainder of the contract.140 As explained by Campbell J in Del Casale v Artedomus (Aust) Pty Ltd:141 The first question for the court, when considering the reasonableness of the restraint at common law, is whether the particular restriction that the parties have agreed, imposed upon that particular employee, to protect that particular “trade secret” falls within the range of reasonableness. The second question is whether, if it does not pass the reasonableness test, it can be severed, by the rather mechanical test of severance that the common law uses, to cut out words so that what remains after the cutting out has occurred is reasonable and not of a different nature to the clause upon which the parties had actually agreed.142 Hence, when a contract contains restraint of trade clauses comprising both reasonable and unreasonable restraints, a court may utilise this doctrine to disregard the unreasonable parts and implement instead the reasonable parts. Where there is an identifiably separate or divisible unreasonable restraint, a court may strike down such a restraint of trade clause and enforce the rest of the contract.143 Following common law, Australian courts, except New South Wales, follow an ‘all or nothing’ approach and courts do not, modify or re-write unreasonable restraints.144 Instead, courts can only enforce the reasonable part of the contract as far as the reasonable part can be divisible from the unreasonable part.145 Thus, Australian courts show a restrictive 140 Attwood v Lamont [1929] 3 KB 571; IF Asia Pacific Pty Ltd v Galbally [2003] VSC 192, [171], [174]. 141 (2007) 165 IR 148. 142 Del Casale v Artedomus (Aust) Pty Ltd (2007) 165 IR 148; [2007] NSWCA 172, [132]. [emphasis added]. 143 See Thomas Brown and Sons Ltd. v Fazal Deen (1962) 108 CLR 391. 144 See Lloyds Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 72 ALR 643, 680 and Workpac Pty Ltd v Steel Cap Recruitment Pty Ltd [2008] WASC 238, [35]-[47]. 145 Lindy Willmott, Sharon Christensen, Des Butler, Bill Dixon, Contract Law (Oxford University Press Sydney, 5th ed, 2018) [18.440]. Chapter 3: AUSTRALIAN LAW 119 application of the doctrine of severance. As a result, if a restraint is too broad, unreasonable and indivisible, it is unenforceable. As a result, employees will be free to use his employment-related knowledge and skills in subsequent employment. Nonetheless, employers may attempt to overcome this legal challenge by including a cascading list of restraints in employment contracts. Cascading, ladder or step clauses were held valid in Australia by Spender J in Re Lloyd’s Ships Holdings Pty Ltd and Queensland Merchant Holdings Limited v Davros Pty Ltd.146 In this case, a cascading clause included 10 potential time periods of restraint, ranging from one to ten years, and several geographical scopes of restraints, such as United States and Australia, Australia and New Zealand, or the East Coast of Australia.147 Notwithstanding that the clause contained 120 possible meanings, the Court did not hold it void.148 Further, in Workpac Pty Ltd v Steel Cap Recruitment Pty Ltd,149 the cascading clause included five restraint areas, ranging from a 5 to 500 kilometre radii from the plaintiff’s offices, and four restraint periods ranging from 3 to 12 months. Since the plaintiff had 26 offices, there were 520 different possible combinations of potential restraint.150 Cabrelli and Floyd argue that ‘the cascading restraint looks set to remain valid practice in many parts of Australia.’151 Therefore, the existence of a cascading clause has the potential to draw a blurred picture in an employment contract and consequently an employee would be uncertain as to the reasonable scope of restraints until the matter is determined by a court. (iv) New South Wales Approach New South Wales is the only Australian jurisdiction to have enacted a Restraint of Trade Act 1976 (NSW). The New South Wales approach differs from other jurisdictions for two reasons. First, according to s 4(1) of the Act, ‘a restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable 146 [1987] FCA 70, See also Hydron Pty Ltd v Harous [2005] SASC 176. 147 Ibid, [46]. 148 Ibid. 149 [2008] WASC 238. 150 Ibid, [35]. Since this was an application for interlocutory injunction, considering the balance of convenience, the court held for defendants. However, the court did not hold invalid the restraint of trade clause, which was severable. 151 David Cabrelli and Louise Floyd, ‘New light through old windows: Restraint of trade in English, Scottish and Australian Employment Laws (-) Emerging and enduring issues’ (2010) 26 (2) International Journal of Comparative Labour Law and Industrial Relations 167, 173. 120 Chapter 3: AUSTRALIAN LAW terms or not’. As such, unlike in other jurisdictions, restraint of trade clauses are not prima facie void in New South Wales, unless that goes against public policy. This approach was confirmed by the Supreme Court of New South Wales in Stacks Taree v Marshall [No.2].152 In that case, McDougall J accepted the fact that: In New South Wales, it is not strictly correct that a restraint is prima facie void; a restraint is valid to the extent to which it is not against public policy, even if not in severable terms.153 However, as mentioned by Ball J in Metcash v Jardim,154 this public policy requirement is satisfied if the restraint is reasonable between the employer and employee, and not unreasonable in the public interest. In this respect, New South Wales courts may be able to conduct the same test adopted by other states. Second, s 4(3) allows courts to exercise a broad discretion not only to invalidate a restraint which goes beyond the public policy requirement, but also to modify it which might otherwise be unreasonable.155 Hence, unlike other jurisdictions, New South Wales courts are able to read down an unreasonable restraint of trade clause irrespective of whether or not the covenant is divisible in nature.156 However, this can be done so far as the covenantee (employer) can show that there has been no manifest failure from his or her side in attempting to make a reasonable restraint.157 ‘In other words, the statute will not save a restraint where there has been no attempt to make a reasonable restraint in the first place.’158 As such, the judiciary is empowered with a discretion to enforce an otherwise offensive restraint of trade clause, whether cascading or with only singular prohibitions.159 152 [2010] NSWSC 77. 153 Ibid, [44], See also Koops Martin v Reeves [2006] NSWSC 449 at [27] per Brereton J. 154 [2011] NSWCA 409, [88]; Stacks Taree v Marshall [No.2] [2010] NSWSC 77, [44]. 155 John Gooley, Peter Radan and Ilija Vickovich, Principles of Australian Contract Law (LexisNexis Butterworths Australia, 3rd ed, 2014) 563. 156 Lindy Willmott, Sharon Christensen, Des Butler, Bill Dixon, Contract Law (Oxford University Press Sydney, 5th ed, 2018) [18.495]. 157 Proviso of s 4(3) of the Restraint of Trade Act 1976 (NSW), see also Orton v Melman [1981] 1 NSWLR 583, 589; Woolworths Ltd v Olson [2004] NSWCA 372; Provida Pty Ltd v Sharpe [2012] NSWSC 1041. 158 Lindy Willmott, Sharon Christensen, Des Butler, Bill Dixon, Contract Law (Oxford University Press Sydney5th ed, 2018) [18.495]. 159 Rob Jackson, Post-Employment Restraint of Trade: the competing interests of an ex-employee, an ex-employer and the public good (Australia, Federation Press, 2014) 60. Chapter 3: AUSTRALIAN LAW 121 It may be submitted that the common law relating to restraint of trade, which measures that reasonability of restrictive covenants, attempts to strike a balance between the employer’s concerns in protecting trade secrets and the employee’s right to earn a living. Commentators have identified common law countries such as Australia as low-enforcers of restrictive covenants as these countries ensure that restraints do not impede employee mobility.160 Nonetheless, issues such as judicial dependence on the factual matrices of each case, jurisdictional variations in New South Wales, and the application of cascading clauses may contribute to create clouds of uncertainties. Moreover, even though Australian courts largely rely on the notion that post-employment restraints should not be extended to the employee know-how of general stock of knowledge, still there is a practical difficulty in defining the line between trade secrets and know-how. Even if courts are able to do so, some courts suggest that using employee know-how in a subsequent employment can be restrained by restrictive covenants.161 3.4.3 Contract Law: Implied Terms and Duty of Fidelity In addition to the existence of the express contractual obligations such as restrictive covenants, employees owe an implied duty of fidelity and good faith to their employer which arises from the contract of employment. The modern form of this implied duty was first found in the language of Robb v Green,162 where Smith LJ stated that an employee has an obligation ‘to serve his master with good faith and fidelity’.163 Duty of fidelity aims to ensure employees’ loyalty, faithfulness, honesty and duty to serve to the best of their abilities to their employers.164 Dean states that this duty arises out of the fiduciary relationship between an employer and an employee.165 According to him, ‘here the employer’s protection is not based upon whether the information is a 160 Alan Hyde and Emanuele Menegatti, ‘Legal protection for employee mobility’ in Matthew W. Finkin, and Guy Mundlak (ed) Comparative Labor Law (Edward Elgar Publishing, 2015) 195, 203- 206. 161 These issues warrant for a further investigation and will be analysed in light of the theoretical criteria. See section 5.2. 162 [1895] 2 Q.B. 315 CA. 163 Ibid, 320. 164 Andrew Frazer, Employee’s Contractual Duty of Fidelity (2015) 131 (1) Law Quarterly Review 53, 55. 165 Robert Dean , Employers, Ex-employers and Trade Secrets (Lawbook Co., 2004) 20. 122 Chapter 3: AUSTRALIAN LAW trade secrets or not; it is based upon the conduct of the employee’.166 Acts such as ‘copying and removing lists’;167 ‘deliberately memorising lists’;168 ‘sabotage and canvassing customers’;169 and ‘canvassing employees’170 may be amount to a breach of duty of fidelity or good faith. 171 Broadly speaking, the duty of fidelity requires existing employees not to use or disclose their employer’s trade secrets to the detriment of the employer.172 Also, it ‘extends to duties not to compete or act in any way to the detriment of the employer during the period of employment’.173 However, this duty should be understood as applicable in the absence of an express term of non-disclosure or non-compete. Also, this duty ceases from the moment that the employment contract ceases and it cannot be extended to the post-employment phase.174 Pittard and Naughton argue that ‘one mechanism of shoring up the duty of fidelity is to draft an enforceable restraint clause that might apply during the currency of the employment as well as post-employment’.175 As stated in Lancashire Fires Ltd v S A Lyons & Co Ltd,176 this duty inevitably overlaps with the duty of confidence.177 A duty of fidelity and obligation of confidence was concurrently applied in some cases such as Independent Management Resources v Brown,178 following the precedent established by the English case of Faccenda Chicken Ltd v Fowler.179 Therefore, an obligation of an employee arising from the duty of fidelity and good faith might be applicable in addition to or as an alternative to express contract terms and duty of confidence. 166Ibid, 23. 167 See for eg, Freedom Motors Australia Pty Ltd v Vaupotic [2003] NSWSC 506, [65]. 168 See for eg, Print Investments Pty Ltd v Art-vue Printing Ltd (1983) 8 IR 385. 169 See for eg, Timer Engineering Co Pty Ltd v Anderson [1980] a NSWLR 488. 170 See for eg, Cope Allman (Marrickville) Ltd v Farrow (1984) 3 IPR 567. 171 Robert Dean , Employers, Ex-employers and Trade Secrets (Lawbook Co., 2004) 26-32. 172 Faccenda Chicken Ltd v Fowler [1986] 1 All ER 617, 625–628. 173 Richard Gough, ‘Australia’ in Terrence F. MacLaren (eds) Worldwide Trade Secrets Law ( Volume 3, Thomson West, 2004) [30.21] 174 Ibid, [30.22] 175 Marilyn Pittard and Richard Naughton, Australian Labour and Employment Law (Butterworths, Australia, 1st ed, 2015) 221. 176 [1996] FSR 629, 648. 177 See Mark Davidson, Ann Monotti and Leanne Wiseman Australian Intellectual Property Law (Cambridge University Press, 3rd ed, 2016) 411. 178 [1987] VR 605 179 [1987] Ch 117. Chapter 3: AUSTRALIAN LAW 123 However, it is doubtful as to what extent implied duties are applicable in the Australian employment context. In Del Casale v Artedomus (Aust) Pty Ltd,180 Hodgson JA opined that: The issue of an employee's obligation of confidentiality once employment ceases (in the absence of an express contract on the matter) is best dealt with under general equitable principles rather than terms implied into a contract.181 His Honour reached this conclusion for two reasons: (1) ‘it is very doubtful what, if any, term can be implied into a contract’; and (2) ‘it is very unlikely that relief obtainable pursuant to any such implied term would go beyond relief obtainable on general equitable principles’.182 Therefore, this judicial view may indicate that Australian courts are more likely to apply breach of confidence in the absence of express contractual obligations to protect trade secrets in the employment context than applying an implied duty of fidelity. Moreover, the High Court of Australia held in Commonwealth Bank of Australia v Barker,183 that a duty of mutual trust and confidence is not implied into an Australian employment contract. Even though, in this case, the Court did not directly deal with the issue of the application of duty of good faith and fidelity in the context of protecting trade secrets, this at least may suggest there is a restrictive application of implied duties in Australian employment contexts. In the Court’s opinion, the application of implied terms in Australian law may depend on whether ‘it was “necessary” in the sense that would justify the exercise of the judicial power in a way that may have significant impact upon employment relationships and the law of the contract of employment in this country’.184 3.4.4 Breach of Confidence (a) Introduction In addition to contractual protections, employer’s trade secrets can be protected by the action of breach of confidence, which is based on the equitable principle of good faith that someone who has received information in confidence shall not take 180 [2007] NSWSC 172. 181 Ibid, [35]. Campbell JA dissented. [74] – [100]. 182 Ibid. 183 Commonwealth Bank of Australia v Barker [2014] HCA 32. 184 Ibid, [36]. 124 Chapter 3: AUSTRALIAN LAW unfair advantage of it.185 As such, the purpose of this action is to ‘enjoin a person who had received information in confidence against disclosing it or using it in ways that conflicted with the obligation that he or she had undertaken’.186 For example, in Yovatt v Winyard, which is an early case decided in the 18th century, Lord Eldon stated that a servant who copied the formulas relating to veterinary medicines of his master before leaving his post was liable for breach of confidence.187 His Lordship held that the servant was under an obligation not to disclose or use the formulas in competition with his master.188 Since then, breach of confidence has become a major action for protecting confidential information of an employer from a departing employee. One of major benefits of this action is that it fills the gaps of contractual obligations. For instance, first, it may set an obligation on an employee, irrespective of the fact such an employee is bound by an express or implied contractual obligation to protect trade secrets. In other words, breach of confidence may be an alternative or additional claim when an employer sues an employee for misappropriation of trade secrets. Second, and most importantly, it may establish the obligation of a rival of a trade secrets-owner or a third party who acquires trade secrets in unauthorised manners.189 The elements of modern doctrine of breach of confidence were clarified by Megarry J in the famous Coco v A.N. Clark (Engineers) Ltd Case.190 In his Honour’s view: 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 MR in the Saltman case [Saltman Engineering Co Ltd v Campbell Engineering Co Ltd191] on page 215, must ‘have the necessary quality of confidence about it.’ Secondly, that information must have been imparted in 185 Seager v Copydex Ltd (1967) 2 All E. R. 415, 417; See also Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203. 186 William Cornish, ‘Trade Secrets and Other Confidences’ in William Cornish et.al, The Oxford History of the Laws of England: Volume XIII: 1820–1914 Fields of Development (Oxford Scholarship Online, 2010) 984. 187 (1820) 1 Jac. & W. 394. 188 Ibid. See also Tipping v Clarke (1843) 2 Hare 363; Morison v Moat (1851) 9 Hare 383; Escourt v Escourt Hop Essence (1875) LR 10 Ch App 276. 189 Andrew Stewart, Philip Griffith, Judith Bannister and Adam Liberman, Intellectual Property in Australia (LexisNexis Australia, 5th ed, 2014) 74. 190 [1969] RPC 41, 47. 191 (1948) 65 RPC 203. Chapter 3: AUSTRALIAN LAW 125 circumstances importing an obligation of confidence. Thirdly, there must be an unauthorised use of that information to the detriment of the party communicating it. As such, to find an employee, ex-employee or a third party liable under a breach of confidence action, an employer or trade secrets owner should establish three elements: i) necessary quality of confidence of information; ii) imparting of information in confidential circumstances; and iii) threatened of actual misuse of information which is detrimental to the employer. These criteria have been widely affirmed and further clarified by the Australian courts.192 In addition to these three elements, Australian courts suggest to include a fourth element that the plaintiff should identify the information with sufficient specificity.193 (b) Requirements of the Action (i) Confidentiality and Specificity of Information194 The necessary quality of confidentiality of the information is a threshold requirement for the application of the breach of confidence action. The test to be applied here is ‘essentially a negative one: so long as the information is not in the public domain, it may be the subject of an obligation of confidence’.195 This requirement may be satisfied if the information is not common knowledge in a particular profession or industry.196 Therefore, the information needs not necessarily be trade secrets to qualify for legal protection. In other words, mere confidentiality, but not the commercial or economic value, is required to obtain the protection under breach of confidence.197 Finn states that ‘no general definition can be given of 192 See, eg, Commonwealth v John Fairfax and Sons Ltd (1980) 147 CLR 39,51; O’Loughlin J in Titan Group Pty Ltd v Steriline Manufacturing Pty Ltd (1990) 19 IPR 353; Rapid Metal Developments (Australia) Pty Ltd v Anderson Formrite Pty Ltd [2005] WASC 255; Ekaton Corporation Pty Ltd v Chapman [2010] SADC 150 per Brebner J, [17]. 193 See O’Brien v Komesaroff (1982) 150 CLR 310; Corrs Pavey Whiting & Byrne v Collector of Customs (1987) 14 FCR 434 and Smith Kline & French Laboratories & Ors v Department of Community Services & Health (1990) 95 ALR 87, 102. 194 This section should be read together with section 4.3 - definitional issues. 195 Marshall v Prescott [2015] NSWCA 110, [55]; Johns v Australian Securities Commission (1993) 178 CLR 408 per Gaudron J, 432,438,460-61,475. See also Andrew Stewart, Philip Griffith, Judith Bannister and Adam Liberman, Intellectual Property in Australia (, LexisNexis Australia, 5th ed, 2014) 91. 196 O’Brien v Komesaroff (1982) 150 CLR 310, 326. 197 Moorgate Tobacco Co. Ltd v Philip Morris Ltd (1984) 156 CLR 414, 438. 126 Chapter 3: AUSTRALIAN LAW confidential information –– secrecy in this context is a chameleon’.198 Therefore, breach of confidence can cover a wide array of information in addition to trade secrets, which cannot be pre-determined, but depends on the circumstances and a plaintiff’s ability to prove the prerequisites of the action of breach of confidence. As such, purely personal information,199 government secrets,200 and other ideas201 can be protected under this action if they are confidential. In addition to confidentiality, Australian courts are concerned with whether information sought to be protected can be specifically identified. In Streetscape Projects (Australia) Pty Ltd v City of Sydney,202 Barrett JA noted: The need for specificity in the identification of the information said to be confidential in respect of which relief is sought comes from the fact that the court must make an assessment of the quality of that information, that is, whether it is in truth of a confidential nature. An aspect of that inquiry may turn on whether the whole or some part has become the subject of general disclosure or notoriety. Precise delineation of the subject matter is accordingly essential. The task of a plaintiff, in this respect, is, in the words of Gummow J in Smith Kline & French Laboratories (Australia) Ltd v Department of Community Services and Health … at 87, ‘to identify with specificity, and not merely in global terms, that which is said to be the information in question’.203 Hence, employees who rely on breach of confidence have to establish not only the confidentiality of the information, but also that the information can be specifically identified. (ii) Information Imparted in Confidential Circumstances This can be regarded as the most important element Coco v Clark criteria since the objective of breach of confidence is to ensure the equitable obligation of confidence. As asserted by Dean, what is to be noted here is that: 198 P. D. Finn, Fiduciary Obligations (Lawbook Co, Sydney, 1977) 148. 199 Argyll v Argyll [1967] Ch 302; Price Albert v Strange (1849) 1 H & Tw 1, 2 De G & SM 293; and Douglas v Hello! Ltd [2005] EWCA Civ 595. 200 Commonwealth v John Fairfax and Sons Ltd (1980) 147 CLR 39. 201 Talbot v General Television Corporation Pty Ltd [1980] VR 284; De Maudsley v Palumbo [1996] FSR 447. 202 [2013] NSWCA 2. 203 Ibid, [159]. Chapter 3: AUSTRALIAN LAW 127 There are no legal prerequisites or parameters defining the type or nature of the information that the courts will protect because the courts are not, theoretically at least, protecting information. They are protecting a confidence.204 To have the protection under the breach of confidence action, confidential information such as trade secrets need to be imparted to the recipient in confidence. The common strand is that a reasonable person would understand the received information as involving an obligation of confidentiality.205 In Del Casale v Artedomus (Aust) Pty Ltd,206 Campbell JA, accepting the reasonable person test, stated that the test is whether: Any reasonable man standing in the shoes of the recipient of the information … have realised that upon reasonable grounds the information was being given to him confidence.207 Dean suggests that this test is based on a two-part question: ‘is the recipient under a duty not to disclose or use the information? If so, has that obligation been breached?’208 In most cases, the first part of the question is fulfilled in the employment contexts since, in an employer-employee relationship, the obligation to respect confidentiality arises from a written or implied contract. In other words, the obligation of confidence arises out of a pre-existing relationship in the employment context. Hence, an employee who has received an employer’s information relating to a trade secret must have known that he or she is obtaining that for limited employment purposes in confidence.209 The authors of Gurry on Breach of Confidence state that employment undoubtedly constitutes a special category within the law of confidentiality.210 204 Ibid, 67. 205 R.G. Toulson and C.M. Phipps, Confidentiality (Sweet and Maxwell, London, 2nd ed, 2006) 58; Robert Dean, The Law of Trade Secrets and Personal Secrets, (Lawbook Co, 2nd ed, 2002) 81. See Coco v A N Clark (Engineers) Ltd [1969] RPC 41, 48 per Megarry J. 206 (2007) 165 IR 148 207 Ibid, [104]-[107]; See also Robert Dean, The Law of Trade Secrets and Personal Secrets, (Lawbook Co, Sydney: 2nd ed, 2002) 8. 208 Robert Dean, The Law of Trade Secrets and Personal Secrets, (Lawbook Co, 2nd ed, 2002) 107. 209 Smith Kline and French Laboratories (Australia) Ltd v Secretary, Department of Community Services and Health (1990) 17 IPR 545, 567-569. 210 Tanya Aplin, Lionel Bentley, Philip Johnson, Simon Malynicz, Gurry on Breach of Confidence (Oxford University Press, UK, 2nd ed, 2012) 431 128 Chapter 3: AUSTRALIAN LAW However, the question arises here as to whether the obligation of confidence relates to each and every employee. As stated in Faccenda Chicken Ltd v Fowler,211 it depends on the following factors: i. The nature of the employment (if an employee frequently works with confidential information, for example in a locked lab); ii. The nature of the information (possibilities include secret processes or designs and customer lists); iii. Whether the employer impressed the confidentiality of the information on the employee (e.g. through locked doors, training sessions, rather than being given and discussed openly); iv. Whether the information could be readily isolated from other information; and v. Whether there would be real or significant harm if the information were disclosed.212 Furthermore, some cases adopted the view that there should be a fiduciary relationship between parties in proving breach of confidence.213 However, Coco v Clark,214 and subsequent Australian cases affirm the equitable origin of the breach of confidence action.215 Thus, the ‘duty of confidence has reached the point where it stands alone’ free from fiduciary duties.216 Arguably, therefore, any existing or departing employee who receives trade secrets or confidential information in confidence owes a duty to their employers not to disclose or not to gain unfair advantage from that information. The most significant benefit that the breach of confidence action brings to common law jurisdictions such as Australia is its potential application to third parties 211 [1987] Ch 117. 212Ibid, 303-305. 213 Woolworths Ltd v Olson 63 IPR 258; [2004] NSWSC 849; See also Jennifer E. Stuckey, ‘The equitable action for breach of confidence: Is information ever property?’ (1981) 9 Sydney Law Review 411. 214 Coco v A N Clark (Engineers) Ltd [1969] 65 RPC 41, 47. 215 See for eg, Marshall v Prescott [2015] NSWCA 110 at [53]-[55] and Dargan Financial Pty Ltd ATF the Dargan Financial Discretionary Trust (trading under “Home Loan Experts”) v Nassif Isaac [2017] NSWSC 1077, [46] 216 R P Meagher, J D Heydon and M J Leeming, Meager, Gummow and Lehane’s Equity: Doctrines and Remedies (Butterworths, Sydney, 4th ed, 2002) 1117. Chapter 3: AUSTRALIAN LAW 129 to whom the contractual obligation cannot be extended. The underlying principle is that: Employees who had access to confidential information in the possession of their employers have been restrained from divulging information to third parties in breach of that duty and if they have already divulged the information, the third parties themselves have been restrained from making disclosure or making use of the information.217 In addition, the obligation of confidence can arise in surreptitious obtaining of confidential information where a third party has not actually received information from an employee who is already under the obligation of confidence. As an illustration, in Franklin v Giddins,218 the plaintiff developed a new type of nectarine called the ‘Franklin Early White’ and refrained from sharing the method of making it with others. The defendant, the neighbour of the plaintiff, stole some nectarine budwoods from Franklin’s orchard and started to grow the new nectarines for commercial purposes. In this case, Dunn J in the Supreme Court of Queensland held that the defendant was liable for breach of confidence, even though the information had not been confidentially imparted to him by the plaintiff. Dunn J explained the rationale of applying breach of confidence action towards such surreptitious obtaining of information as follows: I find myself quite unable to accept that a thief [a third party] who steals a trade secret, knowing it to be a trade secret, with the intention of using it in commercial competition with its owner, to the detriment of the latter, and so uses it, is less unconscionable than a traitorous servant … The thief is unconscionable because he plans to use and does his own wrong conduct to better his position with the owner, and also to place himself in a better position than that of a person who deals consensually with the owner.219 As such, a breach of confidence action can be brought to restrain disclosure or use of secret information by third parties, even if they did not receive information directly from the owner of the information.220 That is because a third party should also 217 Commonwealth v John Fairfax and Sons Ltd (1980) 147 CLR 39, 50. 218 [1978] Qd R 72. 219 Ibid, 80. [emphasis added] 220 See also Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199, 224–5 and Attorney-General v Guardian Newspapers (No 2) [1988] 3 All ER 545, 578-9. 130 Chapter 3: AUSTRALIAN LAW have owed a duty of confidence towards the confider after knowing that the information is confidential. ‘This principle is derived from the doctrine that it is equitable fraud in a third party knowingly to assist in a breach of trust, confidence or contract by another.’221 Even when a third party inadvertently or innocently receives information, a case for breach of confidential obligation may be arise when such a person become aware of the confidential nature of the information at a later date.222 That is because constructive knowledge is sufficient to establish liability under the breach of confidence action.223 Moreover, even other means of obtaining the information such as theft224 and eavesdropping225 may lead to a third party obligation of breach of confidence.226 Therefore, a competitor of a trade secrets owner (employer) who acquires the trade secrets of the employer with or without assistance of an employee or ex-employee may be liable under breach of confidence. (iii) Threatened or Actual Misuse of the Information Detrimental to the Claimant In addition to proving that an employer has confidential information which was communicated to the defendant in confidence, an employer has to prove that there is an actual or threatened unauthorised use of such information by the defendant.227 In other words, an employer needs to establish that an (ex)-employee or a third party has 221 R.G. Toulson and C.M. Phipps, Confidentiality (Sweet and Maxwell, London, 2nd ed, 2006) 73. 222 See Mark Davidson, Ann Monotti and Leanne Wiseman Australian Intellectual Property Law (Cambridge University Press, 3rd ed, 2016) 383. Authors cite the following cases: Wheatley v Bell [1982] 2 NSWLR 544; Johns v Australian Securities Commission (1993) 178 CLR 408, 474 (Gaudron J); Stephenson Jordan & Harrison Ltd v MacDonald & Evans (1952) 69 RPC 10; Butler v Board of Trade [1971] Ch 680, 690; Talbot v General Television Corporation Pty Ltd [1980] VR 224; English & American Insurance Co Ltd v Herbert Smith [1988] FSR 232. 223 Robert Dean, The Law of Trade Secrets and Personal Secrets, (Lawbook Co, 2nd ed, 2002) 106; Schering Chemicals Pty Ltd v Falkman Pty Ltd [1981] 2 WLR 848 per Shaw LJ 224 See for eg, Franklin v Gibbs [1978] Qd R 72; Johns v Australian Securities Commission (1993) 178 CLR 408, 424, 426–7 (Brennan J), 459 (Gaudron J), 474 (McHugh J); The Commonwealth of Australia v John Fairfax & Sons Ltd (1980) 147 CLR 39, 50; Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434, 443; Sullivan v Sclanders (2000) 77 SASR 419; Bloomsbury Publishing Group Ltd v News Group Newspapers Ltd [2003] FSR 45; Creation Records Ltd v News Group Newspapers Ltd (1997) 39 IPR 1, Sullivan v Sclanders [2000] SASC 273. 225 Hellewell v Chief Constable of Derbyshire [1995] 1WLR 804, 807 226 Mark Davidson, Ann Monotti and Leanne Wiseman Australian Intellectual Property Law (Cambridge University Press, 3rd ed, 2016) 383-386. 227 Tanya Aplin, Lionel Bentley, Philip Johnson, Simon Malynicz, Gurry on Breach of Confidence (2nd Edi, Oxford University Press, UK, 2012) 664. Chapter 3: AUSTRALIAN LAW 131 acquired, used or disclosed confidential information without consent. According to Toulson and Phipps, ‘where a duty of confidentiality exists, misuse need not be intentional in order to found liability’.228 Therefore, even negligent conduct which leads to misuse of information may amount to breach of confidence. For example, if an employee was told a trade secrets of an employer and if he or she mistakenly emailed that to a third party who misuses it, such an employee may be liable under breach of confidence. However, it is unclear whether an employer must prove that he or she faces any economic detriment due to the unauthorised use of confidential information. For instance, by making an equivocal statement on the issue, Megarry J stated that some authorities consider detriment as a necessary element, while others omit any discussion of it.229 In Smith Kline and French Laboratories (Australia) Ltd v Secretary, Department of Community Services and Health, Gummow J stated that: The obligation of conscience is to respect the confidence, not merely to refrain from causing detriment to the plaintiff. The plaintiff comes to equity to vindicate his right to observe of the obligation, not necessarily to recover loss or to restraint infliction of apprehended loss.230 This demonstrates that detriment is not essential for a successful breach of confidence action. Dean points out that ‘cases expressly dealing with an employee’s misuse of confidential information are at pains to make it clear that detriment is not required’.231 Even if it is required, it is easy to prove in trade secrets misappropriation cases, where the trade secrets owner would suffer sufficient detriment since his or her economically valuable secrets have been revealed and he or she may not be able to make usual profit from it. 228 R.G. Toulson and C.M. Phipps, Confidentiality (Sweet and Maxwell, London, 2nd ed, 2006) 103. 229 [1969] RPC 41, 47. 230 (1990) 22 FCR 73, 112. 231 Robert Dean, The Law of Trade Secrets and Personal Secrets (Lawbook Co, 2nd ed, 2002) 121. He supported his argument by citing the following cases: Green & Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1, 4, Es-me Pty Ltd v Parker [1972] WAR 52; Linda Chih Ling Koo v Lam Tai Hing (1992) 23 IPR 607, 634. 132 Chapter 3: AUSTRALIAN LAW (c) Legal Approaches in Balancing Employers and Employees Interests The underlying rationale of protecting trade secrets under the action of breach of confidence may be that ‘a capitalistic economic structure which relies on ingenuity and innovation to avoid “social stagnation”’.232 This rationale combines with the legal approach in handling the free-rider problem: legal protection is needed to encourage and reward the creation of intellectual properties and to penalise those who reap without sowing.233 As such, the action of breach of confidence focuses on protection of employer’s interests relating to the creation and investment of trade secrets. However, it assures the need of counterbalancing this focus with society’s need to access useful ideas and information. This was recognised in Smith Kline and French Laboratories (Aust) Ltd v Secretary, Department of Community Services and Health234 where a Full Court of Federal Court of Australia held: We would add that in our opinion, courts exercising equitable jurisdiction should not be too ready to import an equitable obligation of confidence in a marginal case. There is the distinction between use of confidential information in a way of which many people might disapprove, on the one hand, and illegal use on the other. Not only the administration of business and government, but ordinary communication between people, might be unduly obstructed by use of too narrow a test.235 Therefore, this action is not applicable for each and every case which involves protection of information, but there is a threshold level to be satisfied by the person who claims to protect his or her information through this action. Furthermore, in Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2,)236 Deane J opined that information under the action of breach of confidence needs to be ‘significant’.237 In his Honour’s view, ‘the preservation of its confidentiality or secrecy is of substantial concern to the plaintiff’.238 This approach can be further supported by Megarry J’s statement that ‘equity ought not to be invoked merely to protect trivial tittle tattle, 232 Jeremy Birch, ‘Breach of Confidence: Dividing the cause of action along proprietary lines’ (2007) 81 Australian Law Journal 338, 339. 233 Jill McKeough and Andrew Stewart, Intellectual Property in Australia (Butterworths, Sydney,2nd ed, 1997) 60-63. 234 (1991) 28 FCR 291. 235 Ibid, 304. 236 (1984) 156 CLR 415. 237 Ibid, 438. 238 Ibid. Chapter 3: AUSTRALIAN LAW 133 however confidential’.239 Therefore, employers are not allowed to protect any of their information from employees, but some significant confidential information. Also, as stated in Coco v Clark, an employee’s obligation under this action depends on circumstances such as nature of employment, the nature of the information, and employees were well informed about the confidentiality of the information. As such, employers may not be able to invoke the liability of all employees in protecting trade secrets, only those who actually knowingly exposed trade secrets. However, by extending the parameters of breach of confidence, Australian courts support the position that breach of confidence actions can cover the situations where information was clandestinely or surreptitiously obtained. Therefore, this action can be applied to a wide range of situations, such as economic espionage, theft240 and eavesdropping.241 As such, an employer may be in a better position in establishing the liability of an anybody who misappropriates confidential information. While this is a progressive and flexible approach, this may result in conceptual obfuscation given that breach of confidence should be based on the existence of a confidential relationship, at least in theory.242 Moreover, establishing commercial value of information is not essential under the action of breach of confidence. Employers may be able to cover a wide array of information under this action, including mundane or ephemeral information.243 The risk may be that such information may include general information that has been generated by employees in the course of employment. Further, with regard to the third element of the Coco criteria, proving that real detriment occurred due to the misappropriation of trade secrets is not essential. Therefore, if an employer can prove that information is confidential and it was 239 [1969] RPC 41, 48. 240 See for eg, Franklin v Gibbs [1978] Qd R 72; Johns v Australian Securities Commission (1993) 178 CLR 408, 424, 426–7 (Brennan J), 459 (Gaudron J), 474 (McHugh J); The Commonwealth of Australia v John Fairfax & Sons Ltd (1980) 147 CLR 39, 50; Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434, 443; Sullivan v Sclanders (2000) 77 SASR 419; Bloomsbury Publishing Group Ltd v News Group Newspapers Ltd [2003] FSR 45; Creation Records Ltd v News Group Newspapers Ltd (1997) 39 IPR 1, Sullivan v Sclanders [2000] SASC 273. 241 Hellewell v Chief Constable of Derbyshire [1995] 1WLR 804, 807. 242 William van Caenegem, ‘Employee Know-how, Non-compete Clauses and Job Mobility across Civil and Common Law Systems’ (2013) 29 (3) International Journal of Comparative Labour Law 219, 226. 243 See section 5.2.2. 134 Chapter 3: AUSTRALIAN LAW obtained by the defendant in an unauthorised manner, it may be enough for the success of the action. As such, employers’ burden of proof may be soothed by this requirement. 3.4.5 Contract and/or Breach of Confidence As explained in this chapter, there are two main legal avenues of trade secrets protection in Australia: contract law and equitable action of breach of confidence. For instance, as noted by Fullagar J in Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd:244 Despite some articles of one kind or another overseas some of which in my respectful opinion border upon obscurantism, I am of the opinion that all the cases on 'breach of confidence' in relation to information fall into two broad and quite clear classes ... whether relating to trade secrets or not. The first ... is ... contract. The second is composed of ... intervention on purely equitable grounds.245 However, there is a issue as to whether and how these avenues can co-exist or be implemented together. In any case, employees’ obligation to protect an employer’s trade secrets invariably arises from an express employment contract terms such as restrictive covenants or implied terms such as duty of fidelity or good faith. The question arises as to whether the duty of confidence is supplanted in the presence of an employment contract that binds an employee to protect trade secrets of an employer. Campbell JA stated in Del Casale v Artedomus (Aust) Pty Ltd246 that ‘if there was a contractual obligation that covered the topic [of confidentiality], there would, of course, be no occasion for equity to intervene to impose its own obligation’.247 In Streetscape Projects (Australia) Pty Ltd v City of Sydney, Barrett JA stated that breach of confidence plays a ‘residual’ or ‘supplementing’ role in protecting confidential information.248 244 [1979] VR 167. 245 Ibid, 190. 246 (2007) 165 IR 148; [2007] NSWCA 172. 247 Ibid, [118]. 248 (2013) 295 ALR 281, [150]. Chapter 3: AUSTRALIAN LAW 135 However, these views were rejected by the Full Court of the Federal Court in Optus Networks Pty Ltd v Telstra Corporation Ltd,249 where the Court held that ‘the notion that no equitable duty of confidence arises where there is a comparable contractual duty is opposed to much authority’.250 In Sullivan v Sclanders, the Court stated that ‘necessary equity can act to protect contractual confidences’.251 The Court stated that confidentiality obligations arise from a contract as ‘contractual confidence’.252 Approving this view, Dean suggests that: Equitable protection will exist where no contractual obligation can be found and may be used in preference to an existing contractual obligation, or alongside a contractual obligation.253 In any case, it is usual in legal practice that counsel include breach of confidence, breach of contract, and even breach of fiduciary relationship in their statements of claims.254 In other words, breach of confidence may be an additional claim when an employer sues an employee for misappropriation of trade secrets. The importance of combining contract claims with the equitable action of breach of confidence may be that it enables courts to grant necessary and flexible solutions as required by the case. One practical benefit of this is that the aggrieved parties may be entitled to a wide range of equitable remedies such as equitable damages, account for profit, and injunctions. 3.4.6 Statutory Laws (a) Civil Law In addition to the application of contract law and equitable action of breach of confidence, there is little influence from statutes. For example, s 182 of the Corporation Act 2001 (Cth) prohibits directors from improperly using their position to gain an advantage for themselves or someone else or to cause detriment to the corporation. As such, they may not be able to misappropriate the information that they 249 (2010) 265 ALR 281. 250 Ibid, [38]. 251 [2000] SASC 273, [59]. 252 Ibid. 253 Robert Dean, The Law of Trade Secrets and Personal Secrets (Lawbook Co, 2nd ed, 2002) 39. 254 Robert Dean, ‘The Protection of Trade Secrets’ (1 July 2016) 17-18 136 Chapter 3: AUSTRALIAN LAW have obtained in the course of their directorships. And, more importantly, according to s 183: A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation.255 In Del Casale v Artedomus (Aust) Pty Ltd,256 the issue that arose was inter alia whether using confidential information relating to a source of a stone (modica stone or Isernia) by two directors who were also employees of Artedomus amounted to a breach of directors’ duties under s 183 of the Corporations Act. Hodgson JA, in interpreting s 183, stated that if there is no breach of contract or breach of confidence, such a use of information cannot be interpreted as an ‘improper use’ which is a crucial part of s 183.257 Hence, s 183 should be read together with contractual and equitable obligations to protect trade secrets or confidential information of a company. As far as the Competition and Consumer Act 2010 (Cth) is concerned, it prohibits unfair restraints and competitions that impact consumers. For example, s 45 of the Act prohibits ‘the making of, giving effect to, or enforcement of a provision of a contract, arrangement or understanding if that provision is either an exclusionary provision or has the purpose or is likely to have the effect of substantially lessening competition’. However, this legislation carves out certain exceptions to this rule, such as employee contracts and partnerships.258 Therefore, employee restraint of trade covenants are excluded by this Act, even if they impact free competition of the country. As such, the legislation leaves this matter to be determined by the common law. (b) Criminal Law In Australia, there was no explicit criminalisation of the theft or misappropriations of trade secrets up until June 2018. However, in 2018, the Australian Parliament enacted the National Security Legislation Amendment (Espionage and Foreign Interference) Act 2018 (Cth) inter alia to introduce criminal 255 s 183 of the Corporation Act 2001 (Cth). 256 [2007] NSWCA 172. 257 Ibid, [59]- [60]. 258 s 51 (2) (b) and (d) of the Competition and Consumer Act 2010 (Cth). Chapter 3: AUSTRALIAN LAW 137 penalties for trade secrets thefts which were sponsored by a foreign government. Section 92A.1 of this Act provides that: A person commits an offence if, the person dishonestly receives, obtains, takes, copies or duplicates, sells, buys or discloses information [trade secrets].259 However, it further states that the following circumstances need to be found to be constitute the crime of trade secrets theft: i. The conduct is engaged in on behalf of, or in collaboration with, a foreign government principal or a person acting on behalf of a foreign government principal; and ii. The conduct is directed, funded or supervised by a foreign government principal or a person acting on behalf of a foreign government principal. Therefore, this legislation should be understood in the general context of foreign government involvement for trade secrets theft rather than trade secrets misappropriations. Also, it is clear that the legislature considers this issue as a national security issue rather than private law or IP law issue. Accordingly, if an employee stole trade secrets of an Australian employer for the benefit of or in connection with a foreign government, such an employee is criminally liable under the s 92A.1 of the Act and punishable for 15 years imprisonment. In addition, trade secrets that are digitally stored can be protected under the Cybercrime Act 2001 (Cth) according to which the unauthorised access, modification or impairment of computer data is prohibited.260 A person who is guilty of such an offence is punishable on conviction by imprisonment for a period of less than 5 years. However, there is no specific mention of trade secrets in this statute.261 Instead, it tends to cover only the misappropriation of computer data. Hence, it is difficult to argue that 259 See above section 3.3. 260 See s 471 and 478(1); In addition, State legislations also indirectly address the issue, see for example, s 308 of the Crimes Act 1900 (NSW) which prohibits intentional obtaining of access to a programme or data stored in a computer knowing that access is unauthorised. 261 Mark F. Schultz and Douglas C. Lippoldt , ‘Approaches to Protection of Undisclosed Information (Trade Secrets)’ (Background Paper, OECD Trade Policy Paper No. 162) 211 138 Chapter 3: AUSTRALIAN LAW this provision is sufficient to cover the criminal aspects of trade secrets misappropriations. 3.5 DEFENCES: PRIVATE INTEREST V PUBLIC INTEREST 3.5.1 Public Interest Defence under Breach of Confidence In general, a recipient of a trade secret is prohibited from using and disclosing it without consent of the owner or holder of the trade secret, irrespective of the way he or she received it. On the contrary, there can be circumstances where courts would refuse to enforce duty of confidence ‘on the basis that to do so would be contrary to public interest’.262 As Dean posits: [T]here has developed a sophisticated defence permitting disclosure of trade secrets, despite the alleged confidentiality, where there is just cause or excuse, to use or disclose the information because it is in the public interest to do so.263 The defence of public interest involves balancing ‘the public interest in maintaining the confidence’ and ‘public interest in knowing the truth’.264 In other words, public interest in disclosure may outweigh the public interest in confidence if the defendant can prove ‘just cause or excuse’ for disclosing confidential information.265 For example, early English cases such as Gartside v Outram266 held that employees may not be bound by the obligation of confidence if they reveal information relating to fraudulent operations of their employer.267 However, Australian courts do not accept the broader defence of public interest which allows any disclosure that enhances wider community interests.268 Instead, the 262 Kaaren Koomen, ‘Breach of Confidence and the Public Interest Defence: Is it in the Public Interest: A Review of the English Public Interest Defence and the Positions for Australia’ (1994) 10 QUT Law Review 56, 56. 263 Robert Dean, The Law of Trade Secrets and Personal Secrets (Lawbook Co, 2nd ed, 2002) 274. 264 Woodward v Hutchins [1977] 2 All E R 751. In David Syme & Co Limited v GMH Limited, [1984] 2 NSWLR 294,309: Samuals JA mentioned that the public interest defence involved a balance between a countervailing public interest and the public interest in maintaining a right to confidentiality. 265 See eg, Fraser v Evans [1969] 1 QB 349, 362. 266 (1857) 26 LJ Ch (NS) 113. 267 Ibid, 114. 268 See for eg, Corrs Pavey Whiting Vic (1987) 74 ALR 428; Smith Kline & French Laboratories & Ors v Department of Community Services & Health (1990) 95 ALR 87 and Sullivan v Sclanders & Goldwell International Pty Ltd (2000) 77 SASR 419, 425. However, see for opposite view, Kirby J in Attorney-General (UK) v Heinemann Publishers Australia Pty Ltd [1987] 10 NSWLR 86, 169 (However, Kerby J represented the minority view) Chapter 3: AUSTRALIAN LAW 139 courts are more inclined to the ‘iniquity rule’ which ‘relates to the truth being disclosed where disgraceful or criminal conduct is involved or disclosure is vital in the public’.269 The question in Allied Mills Industries Pty Ltd v Trade Practices Commission270 was whether an employee’s divulgence of certain confidential information of Allied Milles to the Trade Practices Commission was a breach of confidence. Sheppard J endorsed the view that ‘there is no confidence as to the disclosure of iniquity’.271His Honour stated that: The authorities establish that the public interest in the disclosure (to the appropriate authority or perhaps the press) of iniquity will always outweigh the public interest in the preservation of private and confidential information.272 With respect to the meaning of iniquity, Dean postulates that it is varied depending on the circumstances.273 He further states that ‘it may mean every design … formed, contrary to the laws of the society, to destroy public welfare.274 It may extend to frauds or misdeeds;275 and it probably changes with time.’276 Rath J, in Castrol Australia Pty Ltd v Emtech Associates Pty Ltd,277 mentioned that disclosure of actual or threatened breaches of security or misdeeds of similar gravity can be considered under the rule of iniquity.278 In Australian Football League v The Age Co Ltd,279 the question before the Court was whether divulgence of relatively confidential information with respect to use of illicit drugs by AFL players amounted to a breach of confidence. Kellam J inter alia quoting Gurry on Breach of Confidence mentioned that the person relying on the iniquity defence should establish: 269 Sullivan v Sclanders & Goldwell International Pty Ltd (2000) 77 SASR 419, 425. 270 (1981) 55 FLR 125. 271 See Weld-Blundell v Stephens [1919] 1 KB 520. 272 (1981) 55 FLR 125, 166. Sheppard J referred to British Steel Corporation v Granada Television Ltd. [1981] 1 All ER 452 in making this statement. 273 Robert Dean, The Law of Trade Secrets and Personal Secrets (Lawbook Co, 2nd ed, 2002) 285. 274 See Initial Services Ltd v Putterill [1968] 1 QB 396. 275 Ibid, 410. 276 Robert Dean, The Law of Trade Secrets and Personal Secrets (Lawbook Co, 2nd ed, 2002) 285. 277 (1980) 51 FLR 184 278 Ibid, 260. 279 [2006] VSC 308, [69]. 140 Chapter 3: AUSTRALIAN LAW i. the proposed disclosure will in fact disclose the existence of or the real likelihood of, the existence of an iniquity that is a crime, civil wrong or serious misdeed of public importance;280 ii. that the iniquity to be disclosed is of a character of public importance, in the sense that what is to be disclosed affects the community as a whole, or affects the public welfare; and iii. that the person who is seeking to protect the confidence is so doing in order to prevent disclosure to a third party with a real and direct interest in redressing the alleged crime, wrong or misdeed.281 However, the Court held in this case that disclosing the names of players who have tested positive to illicit drugs would not disclose any iniquity of a serious criminal nature. Kellam J further stated that: Even if the information can be said to disclose an iniquity, there is no suggestion that it is the intention of the defendants to disclose such matters to a third party with a real interest in redressing any such possible crime.282 Furthermore, his Honour rejected the application of broad public interest defence by quoting Mason J in Commonwealth v John Fairfax & Sons Limited:283 I respectfully adopt the approach of Gummow J in Corrs Pavey Whiting and Byrne and Gray J in Sullivan v Sclanders in relation to the narrower ‘iniquity rule’ on the basis that equity ‘is best developed by reference to what conscionable behaviour demands’.284 Therefore, it is clear that Australian law applies the narrower iniquity rule rather than following the general public interest defence. In other words, in Australia, a divulgence of information relating to a crime or illegal activities is considered to be public interest divulgence. Having criticised broader or general public interest defence in English law, Gummow J observed that it is a ‘picturesque’ but ‘imprecise’ notion.285 He went on to say that the public interest defence in English law is ‘not so much a rule of law as an invitation to judicial idiosyncrasy by deciding each case on an ad hoc basis as to whether, on the facts overall, it is better to respect or to override the obligation of 280 AG Australia Holdings Ltd v Burton and Anor (2002) NSWLR 464, 523. 281 [2006] VSC 308, [69]. Corrs Pavey Whiting & Byrne v Collector of Customs (1987) 14 FCR 434, 456. 282 [2006] VSC 308, [71]. 283 (1980) 147 CLR 39 , 57. 284 [2006] VSC 308, [83]. 285 (1990) 22 FCR 73, 211. Chapter 3: AUSTRALIAN LAW 141 confidence’.286 In comparing the application of the broader public interests defence with the iniquity rule, Gray J in Sullivan v Sclanders & Goldwell International Pty Ltd287 remarked that: This approach [iniquity rule] avoids the ad hoc judicial idiosyncrasy associated with deciding whether, on the facts overall, it is better to respect or override the obligation of confidence.288 Accordingly, his Honour concluded: In my view, a general defence of public interest to a claim of breach of confidence does not form part of Australian law. Iniquity is relevant…289 A question arises from the application of the iniquity rule as to whether the public interest defence can be considered under the established equitable principles such as ‘unclean hands doctrine’. According to the unclean hands doctrine, ‘he or she who comes to equity must come with clean hands’. Therefore, a plaintiff’s iniquitous claims can be rejected by the courts if he or she is claiming to protect information that relates to a crime or illicit activities.290 However, according to Dean, ‘such a view confuses “private equities” with public interest’.291 Therefore, he states that the iniquity rule is certainly not an extension of unclean hands doctrine. Instead, considering public interest arguments and clean hands arguments separately can be regarded as the correct approach.292 In addition, there is a doubt as to whether the iniquity rule is actually a defence or merely relates to elements to be proved in establishing a breach of confidence. The question is whether, if the information is iniquitous as to crimes, wrongs and misdeeds, it may prevent the duty of confidence given the lack of necessary quality of confidence.293 Gummow J, in Corrs Pavey Whiting & Byrne v Collector of Customs,294 stated that: 286 Smith Kline & French Laboratories (Australia) Ltd v Department of Community Services and Health [1990] FCR 73, 111. 287 (2000) 77 SASR 419. 288 Ibid, [60] 289 Ibid, [66]. 290 Corrs Pavey Whiting & Byrne v Collector of Customs (1987) 14 FCR 434, [47]. 291 Robert Dean, The Law of Trade Secrets and Personal Secrets (2nd edition, Law Book Co, 2002) 290. 292 Castrol Australia Pty Ltd v Emtech Associates Pty Ltd (1980) 51 FLR 184. 293 Smith Kline & French Laboratories (Australia) Ltd v Department of Community Services and Health [1990] FCR 73, 110. 294 (1987) 14 FCR 434. 142 Chapter 3: AUSTRALIAN LAW [I]nformation will lack the necessary attribute of confidence if the subject matter is the existence or real likelihood of the existence of an iniquity in the sense of a crime, civil wrong or serious misdeed of public importance, and the confidence is relied upon to prevent disclosure to a third party with a real and direct interest in redressing such crime, wrong or misdeed.295 This view was affirmed by Gray J in Sullivan v Sclanders296 and later cases.297 Therefore, if the information that an employer claims to protect as trade secrets amounts to a crime, civil wrong or other serious misdeed, such information may not attract protection under breach of confidence. As an illustration, if a whistleblowing employee has revealed a use of a secret chemical formula by an employer which causes serious environmental damages, the employer may not be able to bring an action against the whistleblowing employee. When claiming the defence under the iniquity rule, the defendant should be able to prove that he or she has revealed the information to ‘proper authorities’.298 As mentioned by Sheppard J in Allied Mills Industries Pty Ltd v Trade Practices Commission,299 the defendant is required to disclose confidential information to ‘proper authorities’ or ‘those who have a real and direct interest in addressing the problem’.300 According to Dean: ‘[P]erson or persons to whom the disclosure was made has a number of connotations. First, it may affect the strength of the public interest defence. Secondly, it will usually reveal the defendant’s motives and thirdly there is a policy argument in favour of limiting unnecessary damage to the plaintiff and discouraging reckless disclosure for reward.301 295 Ibid, [57]. 296 (2000) 77 SASR 419, [38]- [41]. 297 See also AMI Australia Holdings Pty Ltd & anor v Fairfax Media Publications Pty Ltd & ors [2010] NSWSC 1395, [20] which followed Corrs Pavey Whiting & Byrne v Collector of Customs (1987) 14 FCR 434, [57]. ‘Information may lack the necessary attribute of confidence, not only if it is already in the public domain, but also if its subject matter is the existence, or real likelihood of the existence, of an iniquity – in the sense of a crime, civil wrong or serious misdeed of public importance – and the confidence is relied upon to prevent disclosure to a third party with a real and direct interest in redressing such crime, wrong or misdeed.’; See also Mark Davidson, Ann Monotti and Leanne Wiseman, Australian Intellectual Property Law (Cambridge University Press, 3rd ed, 2016) 403. 298 Attorney General (UK) v Heinemann Publishers Australia Pty Ltd (1987) 8 NSWLR 341, 381. See also Initial Services Ltd v Putterill [1968] 1 QB 396, 405-406. 299 (1981) 55 FLR 125. 300 Mark Davidson, Ann Monotti and Leanne Wiseman Australian Intellectual Property Law (Cambridge University Press, 3rd ed, 2016) 419. 301 Robert Dean, The Law of Trade Secrets and Personal Secrets (Lawbook Co, 2nd ed, 2002) 289. Chapter 3: AUSTRALIAN LAW 143 In conclusion, Dean suggests that ‘when considering public interest defence, the preferable approach is to include … the nature of information and to whom it was revealed, and as well, the seriousness of iniquity of danger’.302 3.5.2 Public Policy Considerations under Contract Law As noted above in section 3.4.2, contractual restraints such as non-disclosures, non-competes and non-solicitations clauses are prima facie void, unless shown to be reasonable. 303 Reasonable means that the restraint ‘affords no more than adequate protection to the [employer] while at the same time not being injurious to the public interest’.304 Arguably, in assessing the reasonableness of restrictive covenants, contract law ensures the public interest or public policy in promoting free trade and preclude monopolies is taken into account. Nevertheless, Heydon argues that the public interest does not have large role to play in restraints on employees, whereas it plays predominant role in trade association cases.305 Moreover, Clark and Corones argue that courts have been reluctant to examine the economic impact of a restraint to determine whether it is contrary to the public interest.306 They further contend that: [D]espite the presence of a ‘public interest’ limb in the reasonableness test used to decide the validity of restraints, the focus of attention was on the interests of the parties …307 Also, as postulated by Meltz, courts have largely ignored the second component of the Nordenfelt test that ensures the public interest.308 This view was affirmed by Cabrelli 302 Ibid, 290. 303AG Australia Holdings Ltd v Burton & Anor [2002] NSWSC 170, [196]. 304 Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288, 307. [emphasis added] See also Neville Rochow, ‘Toward a Modern Reasoned Approach to the Doctrine of Restraint of Trade’ (2014) 5 The Western Australian Jurists 25, 43. 305 John Dyson Heydon, The Restraint of Trade Doctrine (LexisNexis Butterworths, 3rd ed, 2008) 34- 35. Heydon makes this argument based on English cases such as Wyatt v Kreglinger & Fernau [1933] 1 KB 793 and Bull v Pitney-Bowes Ltd [1966] 3 All E R 384. See also Neville Rochow, ‘Toward a Modern Reasoned Approach to the Doctrine of Restraint of Trade’ (2014) 5 The Western Australian Jurists 25, 44. 306 Philip Clarke, Stephen Corones and Julie Clarke, Competition Law and Policy: Cases and Materials (Oxford University Press, 3rd ed, 2011) 62. 307 Ibid, 3. 308 David M Meltz, The Common Law Doctrine of Restraint of Trade in Australia (Blackstone Press Pty Ltd, 1995) 91. 144 Chapter 3: AUSTRALIAN LAW and Floyd who investigated the application of restraint of trade doctrine in English, Scottish and Australian contexts as follows: However, as the law has evolved, the element of public interest has been effectively subordinated to private interests to the extent that if the party seeking to rely on the agreement is able to show that the covenant is no more than reasonably necessary to protect its legitimate business interests, the court will decline to go one stage further and enquire whether the arrangement is nevertheless detrimental to the public.309 In Amoco Australia Pty Limited v Rocca Bros Motor Engineering Co Pty Ltd,310 Walsh J stated: [I]f a restraint is imposed which is more than that which is required (in the judgment of the court) to protect the interests of the parties, that is a matter which is relevant to the considerations of public policy which underlie the whole doctrine, since to that extent the deprivation of a person of his liberty of action is regarded as detrimental to the public interest.311 Therefore, according to this judgment, considering private interests between parties is the crux of the doctrine of restraint of trade and there is no need to examine the public interests as such. In John Fairfax Publications Pty Limited v Birt,312 in considering the second limb of the Nordenfelt test (public policy consideration), the New South Wales Supreme Court stated that: In this context, there are two main questions: first, does the employer have a legitimate protectable interest, and secondly, is the restraint no more than reasonable for the protection of that interest.313 Even in Emeco International Pty Ltd v O’Shea (No 2,)314 the Western Australia Supreme Court confined assessing the reasonableness between the parties without 309 David Cabrelli and Louise Floyd, ‘New light through old windows: Restraint of trade in English, Scottish and Australian Employment Laws (-) Emerging and enduring issues’ (2010) 26 (2) International Journal of Comparative Labour Law and Industrial Relations 167, 168; See also Stephen A. Smith, ‘Reconstructing Restraint of Trade’ (1995) 15 Oxford Journal of Legal Studies 565, 591–595. See also Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269, 324 and AG Australia v Addaide Steamship Co [1913] AC 724. 310 (1973) 133 CLR 288. 311 Ibid, See also Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269, 324. 312 [2006] NSWSC 995. 313 Ibid, [26]. 314 [2012] WASC 348. Chapter 3: AUSTRALIAN LAW 145 extensive discussion on the public interest. The Court mentioned that the sole test is whether: [T]he restraint is necessary for the adequate protection of Emeco’s [employer] interests and reasonable in relation to Mr O’Shea [employee].315 Nevertheless, there are contrary views.316 For instance, in Linder v Murdock Garage,317 McTieran J attempted to deal with the public policy aspect. However, referring back to some English cases, his Honour stated that there had been ‘no development in public policy in Australia … which would incline the court to regard with less jealously covenants made by a workman in restraint of his freedom to work at his trade or to engage in employment’.318 Moreover, in N E Perry Pty Ltd v Judge,319 where the Supreme Court of South Australia determined the validity of a restraint of a chiropractor in a country town, the Court was concerned with the fact that the restraint was applicable in a country town where there were only two chiropractor practitioners available.320 However, the Court could not investigate these public interest issues further since the plaintiff was unsuccessful in establishing that the restraint was reasonable between the parties. The Court stated that: However, had NEP [the plaintiff] satisfied me that the restraint was reasonable in the interests of the parties, I can see no reason to conclude that it is not reasonable in the interests of the public.321 Moreover, the same sort of view was adopted by White J in C Convenience Stores Pty Ltd v Wayville Plaza Retirement Pty Ltd.322 In his Honour’s opinion, since the restraint in the case went beyond what was reasonably necessary to protect the legitimate interests of the plaintiff, it was unnecessary to consider the issue of public interest in detail.323 However, his Honour stated that: 315Ibid, [161], Edelman J went on discussing the reasonableness of the restraints in relation to the parties in [165]-[176]. 316 See John Gooley, Peter Radan and Ilija Vickovich Principles of Australian Contract Law (LexisNexis Butterworths Australia, 3rd ed, 2014) 547 and Lindy Willmott, Sharon Christensen, Des Butler, Bill Dixon, Contract Law (Oxford University Press Sydney, 5th ed, 2018) [18.85]. 317 (1959) 83 CLR 628. 318 Ibid, 644. 319 (2002) 84 SASR 86. 320 Ibid, [22]. 321 Ibid, [41] [emphasis added] 322 (2012) 114 SASR 299. 323 Ibid, [156]. 146 Chapter 3: AUSTRALIAN LAW It may also be said that the public interest in encouraging competition in the retail sale of petrol indicates, by itself, that the restraints were not reasonable in the public interest.324 Therefore, it can be noted that there can be contradictory views on whether there is a real need to consider the public interest as a separate ground in cases where the restraint itself is unreasonable between the parties. 3.5.3 Other Defences Whereas defences such as ‘independent development’ or ‘reverse engineering’ are valid defences in trade secrets law, for example under US law,325 there is no explicit recognition of such defences in the Australian context. These defences, in fact, are considered legitimate ways of acquiring trade secrets. With regard to independent development, ‘it is not only proper for an individual or company to acquire trade secret information through their own research and development efforts, such efforts are encouraged because they are consistent with the incentive rationale of patent and trade secret law’.326 Consequently, it may be possible for two companies or individuals to ‘develop the same or a substantially similar body of information in a phenomenon known as multiple independent (or simultaneous) inventions’.327 Reverse engineering can be defined as ‘starting with the known product and working backward to divine the process which aided in its development or manufacture’.328 Therefore, the test to be satisfied is ‘whether the means to obtain the alleged trade secret were proper or honest, as opposed to being obtained by virtue of a confidential relationship with an employer’.329 Issues related to reverse engineering can arise in two contexts of a trade secrets case.330 324 Ibid, [158]. 325 According to s 1 of Uniform Trade Secrets Act (UTSA) of the United States, there are main five defences: 1. Discovery by independent invention; 2. Discovery by reverse engineering 3. Discovery under a licence from the owner of the trade secret; 4. Observation of the item in public use or on public display; 5. Obtaining the trade secret from public literature. 326 Elizabeth A. Rowe and Sharon K. Sandeen, Trade Secrecy and International Transactions: Law and Practice (Edward Elgar, UK, USA, 2015) 52. 327 Ibid. 328 Kewenee Oil Co. v Bicorn Corp., 416 US 470, 476 (1974) 329 Kadant, Inc. v Seeley Mach., Inc., 244 F.Supp.2d 780, 797 (ED La. 2012) 330 Elizabeth A. Rowe and Sharon K. Sandeen, Trade Secrecy and International Transactions: Law and Practice (Edward Elgar, UK, USA, 2015) 82. Chapter 3: AUSTRALIAN LAW 147 First, if a trade secrets-based product can easily be reverse engineered, it means that knowledge or information behind such a product is easily ascertainable. That information cannot be considered as secret per se.331 This argument was accepted by the English courts in Mars UK Ltd v Teknowledge Ltd.332 In this case, the question was the reverse engineering of ‘Cashflow’ (which is a discriminator used to determine the authenticity and denomination of coins fed into Mars’s automatic vending machine) by the defendant would amount to breach of confidence. As such, the Court had to determine ‘whether it is possible to impose confidentiality upon someone who receives information by purchasing an article in the open market’.333 Jacob J held that ‘Cashflow’ did not have the necessary quality of confidence, since the technology behind it could be reverse engineered and learned by anyone who had the necessary skills.334 However, the pre-condition is that the person who was involved in reverse engineering should acquire the product in a lawful way.335 Therefore, this is an issue to be considered under the second limb of the Coco Case: necessary quality of confidentiality of the information.336 Second, reverse engineering can be presented as a defence on the grounds that the defendant acquired the secret information through reverse engineering a publicly available product, and thus there is no misappropriation of trade secrets.337 This defence is widely accepted in the United States. For example, both the Uniform Trade Secrets Act 1985 and the Defend Trade Secrets Act 2016 identifies ‘discovery by reverse engineering’ as a proper means of acquiring trade secrets.338 The same holds true with the European Union, where Article 3 of the Trade Secrets Directive accepts the defence.339 The difference here is that this defence should be still valid, even if the 331 Ibid. 332 [2000] FSR 138. 333 Ibid, [29]. 334 Ibid. 335 Ibid. 336 Coco v A N Clark [1969] RPC 41, 57. 337 Elizabeth A. Rowe and Sharon K. Sandeen, Trade Secrecy and International Transactions: Law and Practice (Edward Elgar, UK, USA, 2015) 82. 338 See s 1(1) of the Uniform Trade Secrets Act (UTSA), published by the Uniform Law Commission (ULC) in 1979 and amended in 1985 and 8 U.S.C. § 1839(6) of the Defend Trade Secrets Act of 2016 (DTSA) (Pub.L. 114–153, 130 Stat. 376, enacted May 11, 2016, codified at 18 U.S.C. § 1836, et seq.) 339 Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure. 148 Chapter 3: AUSTRALIAN LAW plaintiff proves the secrecy of information or necessary quality of confidence of the information. While there is a dearth of case law in Australia on the issue, Dean argues that reverse engineering can be applied in relation to the springboard doctrine 340 He points out that ‘where the “secret” is immediately obvious and immediately capable of transformation into production without reverse engineering, there will be no springboard (for example, financial information found in financial public reports)’. 341 In other words, if any particular information can be easily gathered by reverse engineering, such information may lose the necessary quality of confidence or secrecy. As such, courts are unable to apply the springboard doctrine in restraining defendants, even if the secret information has already entered the public domain. To support this argument, Dean relies on a New Zealand case342 and a Malaysian case343 which involve an Australian company. This reflects the above mentioned application following Mars UK Ltd v Teknowledge Ltd.344 3.6 REMEDIES An aggrieved employer may rely on a wide range of civil remedies including monetary and non-monetary remedies.345 These include temporary and permanent injunctions, damages, account for profits, and other remedies such as delivery-up of items containing trade secrets.346 However, since there is no direct criminal cause of 340 ‘A person who has obtained information in confidence is not allowed to use it as spring-board for activities detrimental to the person which made the confidential information, and spring-board it remains even when all the features have been published or can be ascertained by actual inspection by any member of the public.’ See Terrapin Ltd v Builders’ Supply Co (Hayes) Ltd [1967] RPC 375, 391-392. Australian courts also endorsed this approach, see for eg, British Franco Electric Pty Ltd v Dowling Plastics Pty Ltd [1981] a NSWLR 448, 451 341 Robert Dean, The Law of Trade Secrets and Personal Secrets (Lawbook Co, 2nd ed, 2002) 144. 342 Aquaculture Corp v New Zealand Green Mussel Co Ltd (1985) 5 IPR 353. 343 Electro Cad Australia Pty Ltd v Mejati RCS SDN BHD [1999] FSR 291 at 307 344 [2000] FSR 138. 345 Mark F. Schultz and Douglas C. Lippoldt , ‘Approaches to Protection of Undisclosed Information (Trade Secrets)’ (Background Paper, OECD Trade Policy Paper No. 162) 53 Chapter 3: AUSTRALIAN LAW 149 action for trade secrets misappropriations, criminal remedies are not available for employers. 3.6.1 Injunctions The most effective and powerful remedy available for an employer against threatened disclosure of trade secrets may be interlocutory and permanent injunctions.347 For instance, without the help of an interlocutory injunction, an employer may not be able to halt the further disclosure of trade secrets until final judicial determination is granted. The courts may consider mainly two factors in granting interlocutory injunctions: whether the plaintiff had made out a prima facie case of relief, and whether the balance of convenience favoured the plaintiff.348 Courts may consider a number of factors to determine the balance of convenience such as: ‘The damage that might be suffered by the defendant who has already geared up to exploit the information’349 Whether ‘the plaintiff is not trading in the same market’350; and ‘The weakness of the plaintiff’s case’. 351 Moreover, permanent or final injunction is a powerful remedy in a trade secrets misappropriation case. Given that the main purpose of a trade secrets case is to prevent the misappropriation of information obtained through confidential relationships, an injunction which restrains the use of such information should be regarded as the 347 Ibid. See also Robert Dean, The Law of Trade Secrets and Personal Secrets (Lawbook Co, 2nd ed, 2002) 296. 348 James Kearney, The Action for Breach of Confidence in Australia (Legal Books Pty Ltd, Sydney, 1985) 45. Additionally, the following rules may be considered as a summary of factors that the court would consider: ‘Is there a serious question to be tried?;If the question is resolved in favour of the applicant at trial, would it give entitlement to final relief?; Where does the balance of convenience lie (or “the balance of risk of doing injustice”)?; Will damages be an adequate remedy to either party?; The court will, depending upon the circumstances, decide a contested question of law; The court will not decide a contested question of fact, except insofar as that goes to the balance of convenience; The relative strength of each party’s case is often considered in determining the balance of convenience.’: See Richard Gough, ‘Australia’ in Terrence F. MacLaren (eds) Worldwide Trade Secrets Law (Volume 3, Thomson West, 2004) [30.29]. 349 See for eg, Concept Television Productions Pty Ltd v Australian Broadcasting Corp (1988) 12 IPR 129. 350 See for eg, Coco v A N Clark [1969] RPC 41. 351 See for eg, ANI Corp Ltd v Celtite Australia Pty Ltd (1990) 19 IPR 506. Andrew Stewart, Philip Griffith, Judith Bannister and Adam Liberman, Intellectual Property in Australia (LexisNexis Australia, 5th ed, 2014). 150 Chapter 3: AUSTRALIAN LAW primary remedy.352 In addition to pecuniary remedies, granting injunctions is an important part in protecting trade secrets and stopping further disclosures and uses. In principle, since an injunction should be no wider than is necessary for the protection of rights, the court should identify some precision the confidential information to which the injunction relates.353 However, since an injunction is an equitable remedy, it is granted upon the discretion of the courts, depending on equitable principles such as ‘unclean hands’ and ‘delay defeats equity’.354 Furthermore, an injunctive relief is known as an ill-suited sledgehammer since the application or non-application of it may substantially burden the losing party.355 Therefore, injunctive relief depends on the establishment of a strong case with substantial evidence. The principal problem with regard to employment restraints is converting the suspicion of a breach of contract or confidence into real evidence.356 One important aspect of injunctive relief is the springboard doctrine and its consequent creation of springboard injunctions. This is an important remedy when the misuse of trade secrets has itself destroyed the secret or confidential nature of the relevant information sought to be protected. This doctrine originated with the case of Terrapin Ltd v Builders’ Supply Co (Hayes) Ltd,357 in which Roxburgh J stated that: A person who has obtained information in confidence is not allowed to use it as spring-board for activities detrimental to the person which made the confidential information, and spring-board it remains even when all the features have been published or can be ascertained by actual inspection by any member of the public.358 Therefore, in terms of liability, publication of trade secrets does not relieve the confidant from his or her obligation of not using the trade secrets. In other words, 352 Andrew Stewart, Philip Griffith, Judith Bannister and Adam Liberman, Intellectual Property in Australia (LexisNexis Australia, 5th ed, 2014) 110. 353 Mark Davidson, Ann Monotti and Leanne Wiseman Australian Intellectual Property Law (Cambridge University Press, 3rd ed, 2016) 404. 354 Richard Gough, ‘Australia’ in Terrence F. MacLaren (eds) Worldwide Trade Secrets Law (Volume 3, Thomson West, 2004) [30.29]. See also Geoffrey W. Hill and Associates v King (1992) 27 NSWLR 228. 355 Neville Rochow, ‘Toward a Modern Reasoned Approach to the Doctrine of Restraint of Trade’ (2014) 5 The Western Australian Jurists 25, 52. 356 Ibid. 357 [1967] RPC 375. 358 Ibid, 391-392. Australian courts also endorsed this approach, see for eg, British Franco Electric Pty Ltd v Dowling Plastics Pty Ltd [1981] a NSWLR 448, 451. Chapter 3: AUSTRALIAN LAW 151 springboard injunctions prevent persons who have breached confidence from getting a head start on others irrespective of whether the secret information is already published.359 This is a significant remedy in restraining a former employee from performing work for a competitor or starting his own competitive business in circumstances when employee has already published the secret information.360 Also, one of the important features of Australian courts is that they do not use ‘inevitable disclosure doctrine’ in granting injunctions. By contrast, the United States courts use this doctrine to prevent competition entirely, even when there is no non- competition clause.361 The underlying principle of this doctrine is that if an ex- employee has knowledge of trade secrets, it is inevitable that he or she would reveal them to a new employer. Put another way, this doctrine can be extended to situations where there is no actual misappropriations of trade secrets, but threatened or anticipated misappropriations.362 Section 2 of the Uniform Trade Secrets Act of the United States provides the legal backing for this, since it states that ‘actual or threatened misappropriation may be enjoined’.363 This approach may directly affect the rights of the employees, especially the rights to have employment options or earn a living.364 Nonetheless, some judicial approaches suggest there is an indirect application of the doctrine of inevitable disclosure. For instance, in Orton v Melman,365 McLelland J stated that courts are able to consider threatened breaches of restraint of trade clauses when interpreting s 4(1) of the Restraint of Trade Act 1976 (NSW). Approving this view, Buchanan J in HRX Holdings Pty Ltd v Pearson granted injunctions restraining a leaving employee from being served for a new employer considering threatened or 359 See Terrapin Ltd v Builders Supply C (Hayes) Ltd [1967] RPC 375; see also British Franco Electric Pty Ltd v Dowling Plastics Pty Ltd [1981] 1 NSWLR 448, 451 360 Mark Davidson, Ann Monotti and Leanne Wiseman Australian Intellectual Property Law (Cambridge University Press, 3rd ed, 2016) 404 361 See eg, PepsiCo v Redmond 54 F.3d 1262, 1269 (1995). 362 David Lincicum, ‘Inevitable Conflict?: California's Policy of Worker Mobility and the Doctrine of Inevitable Disclosure’ (2002) 75 Southern California Law Review 1257, 1260. 363 Uniform Trade Secrets Act (UTSA), published by the Uniform Law Commission (ULC) in 1979 and amended in 1985 364 Alan Hyde and Emanuele Menegatti, ‘Legal protection for employee mobility’ in Matthew W. Finkin, and Guy Mundlak (ed) Comparative Labor Law (Edward Elgar Publishing, 2015) 195, 213. 365 Orton v Melman [1981] 1 NSWLR 583, 587. 152 Chapter 3: AUSTRALIAN LAW anticipated breach.366 As such, it may be argued that despite there being no express acceptance of inevitable disclosure doctrine, similar effects can occur in Australia. 3.6.2 Monetary Remedies An injured party may seek monetary relief through damages or account of profits. In general, damages are available when there is a breach of a legal right such as breach of contract 367 or breach of equitable obligation of confidence.368 Courts grant either the value of the information wrongfully used or a reasonable sum for its use as damages depending on the facts of the case.369 Moreover, with the application of equity, there is a possibility of awarding equitable damages to place the injured party in the position he or she would have been in had the misuse of secret is not occurred.370 Explaining the purpose of awarding equitable damages, Stuckey-Clarke J stated that: The aim in every case is to put the plaintiff, so far as monetary compensation can do so, in the position it would have been but for the breach of confidence by the defendant.371 Therefore, equitable damages intend to bring restitution benefits to the aggrieved party since it aims to restore him or her to the original position which existed before the wrong. In addition, a defendant may be ordered to account for the profits made in the consequence of breach of confidence. This is also an established form of equitable relief. Accordingly, the plaintiff is entitled to the defendant’s profits which were earned by utilising the information acquired as a result of breach of confidence. This remedy is based on the premise that no one should be permitted to gain from his or her own wrongdoing.372 This also reflects the restitution benefits acquired in breach of confidence action. Even though there are incidents where both account of profits and 366 HRX Holdings Pty Ltd v Pearson [2012] FCA 16, [47]- [48]. 367 Mark Davidson, Ann Monotti and Leanne Wiseman Australian Intellectual Property Law (Cambridge University Press, 3rd ed, 2016) 405. 368 Richard Gough, ‘Australia’ in Terrence F. MacLaren (eds) Worldwide Trade Secrets Law ( Volume 3, Thomson West, 2004) [30.19] 369 Ibid. 370 Dowson & Mason Ltd v Potter (1986) 9 IPR 360. See also Robert Dean, The Law of Trade Secrets and Personal Secrets (Lawbook Co, 2nd ed, 2002) 327. 371 Darvall McCutcheon v H K Holdings Pty Ltd (2002) 4 VR 570, 589. However, this case was not about the protection of trade secrets, but breach of confidence relating to a solicitor-client relationship. 372 Attorney General v Guardian Newspapers Ltd [1990] 1 AC 109, 262. Chapter 3: AUSTRALIAN LAW 153 damages have been awarded,373 Dean alludes that it is necessary to elect between these two.374 However, there may be a problem in quantifying damages in trade secrets misappropriation cases due to legal and practical reasons. For instance, the courts are not clear in expounding the legal principles on which damages of a trade secret case are to be quantified.375 Moreover, assessing damages is practically difficult since it may involve complex evidence and argument on the value of information which cannot be physically seen.376 3.6.3 Other Remedies and Orders There is an emergency action available to preserve the proof of a trade secrets case, which is known as an Anton Piller order.377 This is an ex parte procedure followed by the courts when there is a risk of evidence being destroyed by the defendant. As per the Federal Court Practice Note No. 24 – Search Orders this is not granted routinely in Australia.378 These orders fall within the purview of judicial discretion. In addition, when the aggrieved parties may be not totally aware of the identity and whereabouts of potential misappropriators or need to obtain more evidence, the court may grant preliminary discovery before the commencement of the proceedings.379 Also, an order for delivery-up, which is a discretionary remedy, can be obtained by the injured party to destruct all physical forms of secret information obtained by the 373 Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488; William R Barnes Co v Mackenzie (1973) 34 DLR (3d) 463. 374 Robert Dean, The Law of Trade Secrets and Personal Secrets (Lawbook Co, 2nd ed, 2002) 355, See also Hospital Products International Pty Ltd v United States Surgical Corp (1984) 156 CLR 41, 78. 375 Robert Dean, The Law of Trade Secrets and Personal Secrets (Lawbook Co, 2nd ed, 2002) 322. 376 Richard Gough, ‘Australia’ in Terrence F. MacLaren (eds) Worldwide Trade Secrets Law (Volume 3, Thomson West, 2004) [30.19]. 377 This order was derived from Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55, 62: Ormrod LJ stated the requirement of this action as follows: ‘there must be an extremely strong prima facie case; the damage, potential or actual, must be very serious for the applicant; and there must be clear evidence that the respondents have in their possession incriminating documents or things, and that there is a real possibility that they may destroy such materials before any application inter partes can be made.’ 378 See also Judicial Commission of New South Wales, Search Orders 154 Chapter 3: AUSTRALIAN LAW defendant.380 The defendant is not allowed to retain the fruits of the information for his or her advantage.381 Statutory remedies are available if the misappropriation was done by a director or an employee in the top management. For instance, sections 182 and 183 of the Corporations Act (Cth) allow the Australian Securities and Investment Commission (ASIC) to seek the imposition of a pecuniary penalty against a director who breaches the duty not to make improper use of position or duty not to make improper use of information. 3.7 PROCEDURAL ISSUES Protection of the status quo of a trade secret during litigation is a pivotal aspect of any trade secrets law, as there is a high risk of divulging the secret during the litigation. There is an ever-present risk in trade secrets cases that the exuberance of counsel, or the predicament of witnesses, may let the cat out of the bag.382 Exposure of a trade secret can occur in two stages of court proceedings: first, when the plaintiff is proving the existence of the trade secrets; and second, when the plaintiff is proving that the defendant possesses the plaintiff’s trade secret.383 Moreover, it can be further exposed when the court is discussing aspects of the trade secret in its orders and opinions.384 Australia adopts both common law and statutory law mechanisms in this regard. At common law, in camera proceedings or closed-hearing is available for trade secrets cases where a failure to do so would cause destruction of the matter in dispute.385 Bowen CJ remarked in Australian Broadcasting Commission v Parish:386 380 Richard Gough, ‘Australia’ in Terrence F. MacLaren (eds) Worldwide Trade Secrets Law (Volume 3, Thomson West, 2004) [30.38]. 381 Robert Dean, The Law of Trade Secrets and Personal Secrets (Law Book Co, 2nd ed, 2002) 341. 382 This issue has been emphasised by Street CJ in David Syme & Co Ltd v General Motors-Holden’s Ltd [1984] 2 NSWLR 294 383 Mark F. Schultz and Douglas C. Lippoldt, ‘Approaches to Protection of Undisclosed Information (Trade Secrets)’ (Background Paper, OECD Trade Policy Paper No. 162) 19. 384 Ibid. 385 See Scott v Scott [1913] Ac 417, 437, 443, 445, 450-1, 482; Andrew v Raeburn [1874] LR 9 Ch 522; see also Enid Campbell and H P Lee, The Australian Judiciary (Cambridge University Press, 2nd ed, 2013) 255. 386 (1980) 29 ALR 228 Chapter 3: AUSTRALIAN LAW 155 …where the proceedings concern a secret process and publication of the process would destroy the subject matter of the proceedings and render them nugatory, an order is necessary to prevent prejudice to the administration of justice. Where proceedings are brought to restrain publication of confidential material, similar considerations apply.387 However, a closed hearing depends on the discretion of the courts and the consideration of a multitude of factors. 388 Moreover, the courts may order certain information be suspended from the public record and withheld from the people present in the court room.389 This is known as a ‘concealment order; which ensures the public’s right of presence during the proceedings on the one hand, and the parties’ right to conceal information from those who are in the court room on the other. In essence, such an order enables parties to place the information relating to trade secrets before the court in writing by only showing that to the legal representatives of the other party.390 Also, superior courts are vested with the power to ‘make orders for the concealment of the identity of persons and other information within the courtroom’.391 These order are issued only so far as ‘necessary to secure the proper administration of justice’.392 Accordingly, the court may order that the details of the problematic trade secret are not to be referred to in open court. As an illustration, in David Syme & Co Ltd v General Motors-Holden’s Ltd,393 the Supreme Court of New South Wales ensured that no reference was made to the details of the problematic confidential information and court referred to it as ‘the technical information’ and ‘project information’ without specifying any particulars. Moreover, the courts may ensure that confidential information is not revealed through the case reports by redacting parts of the transcript.394 387 Ibid, 233. See also Versace v Monte [2001] FCA 1565; Seven Network (Operations) Ltd v Warburton (No 1) [2011] NSWSC 385. 388 Robert Dean, The Law of Trade Secrets and Personal Secrets (Lawbook Co, 2nd ed, 2002) 521. 389 Des Butler and Sharon Rodrick, Australian Media Law (Thomson Reuters Lawbook Co, 5th ed, 2015) 249. 390 Ibid. 391 Ibid, 250. 392 Ibid, 251. 393 AMI Holdings Pty Ltd v Fairfax Media Publications Pty Ltd [2009] NSWSC 1290, [6]. 394 For eg, see Glaxosmithkline Australia Pty Ltd v Ritchie [2008] VSC 164 : Headnote of the case provides that ‘NOTE: These reasons for judgement have been edited to remove certain information that may be confidential to the parties’; See also MG Corrosion Consultants Pty Limited v Gilmour [2011] FCA 1514; Hogan v Australian Crime Commission [2010] HCA 21; See also Law Council of Australia, Case Management Handbook 2011, Federal Court of Australia 156 Chapter 3: AUSTRALIAN LAW In addition, there is a statutory basis for this issue. For instance, s 30 of the Victorian Open Courts Act 2013 (Vic), identifies that close proceedings can be held to avoid the disclosure of confidential information. Section 71 of the Civil Procedure Act of New South Wales 2005 (NSW) provides that civil proceedings may be conducted in certain circumstances, including where the presence of the public would defeat the ends of justice.395 In addition, according to s 50 of Federal Court of Australia Act, 1976 (Cth), ‘the court may … make such order forbidding or restricting the publication of particular evidence, or the name of a party or witness, as appears to the court to be necessary in order to prevent prejudice to the administration of justice or the security of the commonwealth’. However, statutory provisions in this regard are scattered among the states and federal legislation and, as pointed out by Campbell and Lee, there is little consistency among them.396 3.8 CONCLUSION Trade secrets play an extremely important role in Australia in protecting information relating to intellectual properties and businesses. Australian trade secrets law is based on common law in the absence of codified legislative system on the issue. As a result, the law is mostly governed by contract law and equitable action of breach of confidence. Generally speaking, this is applied uniformly around Australia, with the exception of New South Wales where, by virtue of the Restraint of Trade Act 1976 (NSW), restraints are enforced so far as they are valid rather than being prima facie void. This chapter argued that there may be an uncertainty in defining trade secrets, which results in complicating the law. This uncertainty may have occurred due to the fact that the law mainly focuses on the protection of confidential information, in general, which may not necessarily hold a commercial value as is the case in trade secrets. Whether disclosure of trade secrets is prohibited or not may depend on the circumstances and relationships of the parties involved. The application of contractual and breach of confidence regimes involve selecting litigation paths and the issue of Chapter 3: AUSTRALIAN LAW 157 whether one path excludes the other. With regard to the contracts regime, it is clear that the courts have affirmed that restrictive covenants should not be extended towards employee know-how. This ensures the employee’s right to earn a living. Nonetheless, what is unclear inter alia is whether there is a practical way to demarcate employee know-how from trade secrets ensuring the employee’s right to earn a living. Moreover, it is unclear whether and to what extent Australian law ensures public interest in protecting confidential information, including trade secrets, since it does not expressly recognise wide defences such as reverse engineering. Instead, the law is confined to a narrow iniquity rule which allows the revelation of confidential information in circumstances where confidentiality of information leads to crimes or illegal activities. On the other hand, Australian law offers a wide range of remedies including both common law and equitable remedies. In addition, it provides for mechanisms to preserve confidentiality during and after court proceedings, which is an essential component in protecting trade secrets. These issues will be further evaluated in Chapter 5 in light of the human rights-based criteria established by Chapter 2. 158 Chapter 3: AUSTRALIAN LAW Chapter 4: SRI LANKAN LAW 4.1 INTRODUCTION This chapter examines the protection of trade secrets in the Sri Lankan context and the legal approach in addressing employers’, employees’, and the public interests. In so doing, first, this chapter investigates how far Sri Lanka has utilised trade secrets protection in its innovation and business contexts. Second, it explains how Sri Lankan trade secrets law is an intersection of IP law and common law, and adopts different approaches in balancing employers’ and employees’ interests. Third, it analyses the extent to which Sri Lankan law provides for the public interest in protecting trade secrets. Fourth, it examines the procedural measures available for the preservation of trade secrets during court proceedings. The objective of this chapter is to provide a platform for Chapter 5 which comparatively evaluates the law in light of the human rights-based criteria developed by Chapter 2. 4.2 SIGNIFICANCE OF TRADE SECRETS IN SRI LANKA While there are no official statistics found on the utility of trade secrets in Sri Lanka, some researchers argue that the trade secrets regime plays a crucial role in Sri Lanka.1 The reasons for such a claim may include: low levels of inventiveness in Sri Lanka, inability of the patent system in catering to such low levels of inventiveness, large existence of Small and Medium-Sized Enterprises (SMEs), and the availability of traditional knowledge-based products which do not attract any other form of IP protection. Trade secrets may be considered as a gap-filling regime in Sri Lanka since the patent system of the country does not properly contribute to protect the knowledge and innovation of domestic firms. This is mainly because, generally speaking, Sri Lankan 1 N S Punchi Hewage, Promoting a Second-Tier Protection Regime for Innovation of Small and Medium-Sized Enterprises in South Asia: The Case of Sri Lanka (Nomos Verlagsges, Germany, 2015) 105-109. Chapter 4: SRI LANKAN LAW 159 innovators are not in a position to reach the patent threshold,2 which comprises novelty (newness)3, inventive steps,4 and industrial applicability.5 This may be intensified where Sri Lanka follows a ‘universal novelty standard’, which requires that an invention should be new throughout the world.6 This standard provides that all materials made available to the public before the filing date of the patent anywhere in the world form part of the prior art against which a patent’s novelty is assessed.7 This may be one of the reasons for the plunging numbers of resident patents granted in Sri Lanka, as depicted by the following chart: Patent Statistics Sri Lanka 400 350 300 250 200 150 100 Number of patents 50 0 2012 2013 2014 2015 2016 2017 Years Resident Applications Non-resident Applications Resident Grants Non-resident Grants Chart 2: Patent applications and grants in Sri Lanka 2012-20178 This chart shows how patent applications and grants were distributed among resident and foreign applicants in the last five years. First, it is clear that a less patents were filed and granted in Sri Lanka. Second, even though a considerable number of 2 David Llewelyn, Invisible Gold in Asia: Creating Wealth Through Intellectual Property (Marshall Cavendish Business, 2010) 150. 3 Intellectual Property Act, No. 36 of 2003 s 64. 4 Ibid, s 65. 5 Ibid, s 66. 6 Ibid, s 64 (1). 7 According to s 64(1) of the IP Act, ‘an invention is new if it is not anticipated prior art’ and s 64(2) provides that ‘everything made available to the public, anywhere in the world, by means if written publication, oral disclosure, use or in any other way shall be considered as prior art’. Therefore, arguably, this can be regarded as absolute or universal novelty requirement. 8 National Intellectual Property Office of Sri Lanka, Intellectual Property Statistics (2017) 160 Chapter 4: SRI LANKAN LAW Sri Lankan inventors filed patent applications, most of them were not granted as they could not reach the patent threshold. However, in contrast, the majority of patents were granted to non-resident or foreign applicants rather than resident applicants. Therefore, it may be reasonably assumed that there is a shortage of home-grown creativity or innovativeness in Sri Lanka.9 In other words, while there is a low level of inventiveness, the current patent regime may not be able to accommodate that level. De Silva, approving this view, argues that ‘Sri Lankan innovation field unveils that it is largely comprised of minor innovations and lacks the potential of getting patent protection;10 Vitarana, an industrialist at the MAS Holding Sri Lanka, reveals that because of the high costs, more than two-thirds of domestic inventions are not patented.11 According Vitarana, only those that can guarantee a substantial return are patented.12 He also pointed out that applying for patent globally is extremely prohibitive for local firms as the patents cost as much as US$100,000.13 Thus, scholars have argued that Sri Lanka can be considered as a patent-granting country, rather than a patent-producing country.14 Therefore, it can be argued that Sri Lanka does not have a workable patent system in line with the innovation and economic realities of the country.15 The problem in this setting is how can the law resolve this in the absence of a workable patent system? Even though some scholars strongly support the introduction of the Second Tier Patent (STP) regime –– such as the innovation patent in Australia16 –– such a 9 David Llewelyn, Invisible Gold in Asia: Creating Wealth Through Intellectual Property (Marshall Cavendish Business, 2010) 242-243. 10 L M De Silva, ‘Second-Tier Patent Protection or Trade Secrets? East Asian Experience and Sri Lanka in Boosting Innovations of Small and Medium-Sized Enterprises’ (29th LAWASIA Conference ,Colombo, August 2016) Chapter 4: SRI LANKAN LAW 161 system is yet to be realised in Sri Lanka.17 As such, in the absence of a regime that caters to domestic innovation needs, trade secrets may become a gap-filling regime.18 Moreover, one of the other reasons for the significance of trade secrets in Sri Lanka may be the large existence of SMEs.19 As revealed by the Sri Lankan Ministry of Finance, SMEs currently play a pivotal role in the Sri Lankan economy, amounting to 75% of the total number of enterprises, providing 45% of employment, and contributing 52% of the Gross Domestic Product (GDP).20 As suggested by economics researchers, there is a negative correlation between a firm’s size and the intensity of their reliance on trade secrets.21 In other words, as depicted by the following figure, the smaller the firm, the higher the likelihood of using trade secrets rather than other formal IPs. Firm Size Commission Inquiry Report No. 78 (23 September 2016) Australian Government 162 Chapter 4: SRI LANKAN LAW Use of Trade Secrets Figure 3: Firm size and use of trade secrets22 There may be two reasons for the popularity of trade secrets among SMEs. First, SMEs may not be in a position to afford the cost involved, the time consumed, and the bureaucratic process of other registered IP rights.23 Second, these SMEs mostly involve minor or incremental innovations which may not reach the patent threshold.24 As explained by Punchi Hewage, innovative activities of Sri Lankan SMEs are technically less complex and consist of a lower level of inventiveness.25 As a result, currently more than 60% of Sri Lankan SMEs use informal means of secrecy to protect their products and processes.26 Overall, this can be regarded as a significant statistic, considering that 75% of Sri Lankan enterprises are SMEs.27 Furthermore, Sri Lanka is known as a traditional knowledge (TK)28 rich country.29 As a result, TK-based grassroots innovations have occupied a significant place in the innovation landscape of the country.30 These innovations are generally 22 Ibid. 23Ibid. 24 See OECD/Eurostat, OSLO MANUAL: Guidelines for Using and Interpreting Innovation Data (The Measurement of Scientific and Technological Activities: OECD Publishing, 3rd ed, 2005) 138. 25 N S Punchi Hewage, Promoting a Second-Tier Protection Regime for Innovation of Small and Medium-Sized Enterprises in South Asia: The Case of Sri Lanka (Nomos Verlagsges, Germany, 2015) 149. 26 Ibid. 27 National Policy Framework for Small Medium Enterprise (SME) Development, Ministry of Industry and Commerce. Chapter 4: SRI LANKAN LAW 163 based on community-held traditional knowledge, but may consist of new additions to traditional knowledge. However, currently, there is no protection for traditional knowledge or traditional knowledge-inspired inventions, either in a form of IP or any other form. Even though the Sri Lankan Government initiated drafting of a sui generis law for the protection of traditional knowledge in 2009,31 it is yet to be enacted. Since there is no explicit protection for TK or TK-inspired products in Sri Lanka, the TK- based industries currently relies on trade secrets protection.32 For example, TK-based industries, such as indigenous or traditional medicinal industries and cosmetic product industries have remained unprotected in the absence of a formal IP regime to protect their innovations and knowledge.33 However, it can be argued that the trade secrets regime may extend its protection for traditional pharmaceutical and cosmeceutical products so far as they fulfil the tri-partite test of trade secrecy.34 As an illustration, a leading herbal cosmeceutical company, ‘Nature’s Secrets’ mainly relies on the trade secrets regime to protect its herbal and cosmetic products.35 Another example is ‘Link Natural Products’,36 a herbal pharmaceutical company which mainly relies on the trade secrets regime to protect its products.37 Therefore, it may be reasonable to argue that the trade secrets regime has become a pivotal IP protection method in Sri Lanka. The next section examines how trade secrets are protected under Sri Lankan law with emphasis on the legal approaches to 31 A Legal Framework for the Protection of Traditional Knowledge in Sri Lanka – Working Document (January 2009)< http://www.wipo.int/edocs/lexdocs/laws/en/lk/lk011en.pdf > 32 N S Punchi Hewage, Promoting a Second-Tier Protection Regime for Innovation of Small and Medium-Sized Enterprises in South Asia: The Case of Sri Lanka (Nomos Verlagsges, Germany, 2015) 156. However, trade secrets regime may protect TKs or TK-inspired innovations which are satisfied the prerequisites to qualify as trade secrets. See above section 1.6.1. 33 Pathirage Kamal Perera and Manisha Shridhar, ‘Study on Intellectual Property Rights (IPR) and Trade in Traditional Medicines (TM) in Sri Lanka’ (22nd International conference of The College of Medical Administrators in Sri Lanka, March 2015) 164 Chapter 4: SRI LANKAN LAW the balancing of interests of employers and employees. Since Sri Lankan trade secrets law is a combination of many laws, the next section first explains the nature of Sri Lankan legal system, then it investigates legislative and common law approaches. 4.3 LEGAL FRAMEWORK 4.3.1 Sri Lanka as a Mixed System of Law38 As pointed out by the first Chief Justice of Sri Lanka, Sir Richard Ottley (1830), ‘the laws of this island [Sri Lanka] are very multifarious’.39 On the one hand, it is an example of a truly European Law –– that is, Roman-Dutch law and English common law40 –– prevailing outside of Europe.41 On the other hand, it is an example of the application of indigenous laws of the inhabitants of the country; namely, Kandyan Law (for Kandyan Sinhalese), Thesawalamai Law (for Tamils derived from Malabar inhabitants) and Muslim Law (for Muslims).42 However, these indigenous laws only cover the family and inheritance issues of people and consequently are known as personal or territorial laws.43 In addition to these laws, there is a legislative system that consists of Ordinances (enacted by the English colonisers) and Acts (enacted by the Sri Lankan/Ceylon legislative bodies). Therefore, the Sri Lankan legal system is known as a mixed legal system which consists of civil law (Roman-Dutch law) characteristics, English common law characterises, and indigenous laws and legislation.44 38 When there is a presence or interaction of two or more kinds of laws or legal traditions in a country, such a country is called as a mixed jurisdiction. See Jacques du Plessis, ‘Comparative Law and the Study of Mixed Legal Systems’ in Mathias Reimann and Reinhard Zimmermann (eds) The Oxford Handbook of Comparative Law (Oxford University Press, 2006) 477, 480-486. 39 Christopher G Weeramantry, Law of Contracts (Stamford Lake Publication, 1967) Chapter 2. 40 Dutch ruled Sri Lankan from 1656 to 1796. During this period Roman-Dutch law was introduced to the country. Since 1796 British ruled the country until 1948. By 1799 Proclamation British declared that administration of justice should be carried out according to the laws that subsisted in the country. As such, they accepted the application of Roman-Dutch law in the country. See Proclamation 23rd September 1799, Ordinance No.5 of 1835 on the Adoption of Roman Dutch Law, freedom of religious, worship and abolition of torture. 41 LJM Cooray, An Introduction to the Legal System of Sri Lanka (Stamford Lake Publication, 2nd ed, Colombo, 2003) 1-2. 42 Ibid, 135. Muslim law is applicable to a person who professes the Islamic faith. However, Muslim law applicable in Sri Lanka only contains usages and customs peculiar to Sri Lankan Muslim community. 43 Ibid. 44 Wickrema Weerasooriya, The Law Governing Public Administration in Sri Lanka (Stamford Lake Publications, 1992) 75-78. Chapter 4: SRI LANKAN LAW 165 Reflecting this colourful combination of laws, trade secrets law is an intersection of Intellectual Property Act, No. 36 of 2003 and the common law of the country, which includes both Roman-Dutch law and English common law. The following sections examines how law protects trade secrets of employers while providing for the interests of employees. 4.3.2 Intellectual Property Act Sri Lanka has enacted Intellectual Property Act, No. 36 of 2003 (‘IP Act’)45 as a TRIPS-compliant legislation.46 Trade secrets are accorded protection under s 160(6) of this Act, which is most, if not all, a carbon copy of Article 39(2) of the TRIPS Agreement. This can be regarded as the ‘first ever attempt made in Sri Lanka to extend statutory protection to [trade secrets]’.47 (a) Definition As is the case with the TRIPS Agreement, s 160(6) refers to trade secrets as undisclosed information both of which are interchangeably used to denote the same.48 According to the Act, information shall be considered ‘undisclosed information’ if, i. it is not, as a body or in the precise configuration and assembly of its components, generally known among, or readily accessible to, person within the circles that normally deal with the kind of information in question; ii. it has actual or potential commercial value because it is secret; and iii. it has been subject to reasonable steps under the circumstances by the rightful holder to keep it secret.49 45 Intellectual Property Act, No. 36 of 2003: An Act to provide for the law relating to intellectual property and for an efficient procedure for the registration, control and administration there of; to amend the Customs Ordinance (chapter 235) and the High Court of the Provinces (special) Provisions Act, No. 10 of 1996; and to provide for Matters connected therewith or incidental thereto. Hereinafter referred to as the IP Act. 46 Sri Lanka became a member of the WTO and TRIPS Agreement on 1 January 1995. TRIPS Agreement, Contracting Parties, WIPO 166 Chapter 4: SRI LANKAN LAW This definition is nearly identical to the definition provided by the Article 39(2) of the TRIPS Agreement.50 Moreover, the IP Act states that ‘undisclosed information shall include technical information relating to the manufacture of goods or the provision of services and business information which includes the internal information which an enterprise has developed so as to be used within the enterprise’.51 Therefore, from the forgoing definition, it may be observed that the IP Act does not cover all information that an employer wants to protect, only the technical and business information which meets the precise tri-partite requirements of the definition. As such, even if information which was deemed to be trade secrets has been kept confidential by an employer, there may be no actionable trade secrets claim unless the employer can prove that the information meets the definition of the IP Act. (b) Civil Liability Section 160(6)(a) of the IP Act provides: Any act or practice, in the course of industrial or commercial activities, the results in the disclosure, acquisition or use by others, of undisclosed information without the consent of the person lawfully in control of that information (or rightful holder) and in a manner contrary to honest commercial practices shall constitute an act of unfair competition. Accordingly, in order to state a civil claim under the IP Act, an aggrieved employer has to prove that the defendant engaged with a misappropriation of trade secrets that triggers an unfair competition. In other words, s 160(6)(a) prohibits wrongful actions which amount to manners contrary to honest commercial practices designed in order to acquire, disclose and use trade secrets without the consent of the rightful holder or the employer. Section 160(6)(b) the IP Act identifies the following wrongful actions as manners contrary to honest commercial practices: (i) Industrial or commercial espionage; (ii) Breach of contract; 50 See Article 39 (2) of the TRIPS Agreement, See also above section 1.6.1 for more detailed analysis of definition of trade secrets. 51 Intellectual Property Act, No. 36 of 2003 s 160(6)e. Even though such a detailed provisions is not found in the TRIPS Agreement, it is observed that this provisions has been borrowed from the Article 6 of the ‘WIPO model provisions on protection against unfair competition, 1996’. In particular, this provision is a carbon copy of the ‘Note 6.16’ of the WIPO Model Provisions. Chapter 4: SRI LANKAN LAW 167 (iii) Breach of confidence; (iv) Inducement to commit any of the above; and (v) Acquisition of undisclosed information by a third party who knew, or was grossly negligent in failing to know, that an act referred to in (i) to (iv) above was involved in such acquisition.’52 As such, this provision covers a wide range of wrongful ways that a misappropriation of trade secrets may occur. However, this provision does not define the meaning of these wrongful means, leaving that to the courts. Even though section 160(6)(a) does not expressly or specifically deal with the issue of protecting trade secrets from employees, it may be broad enough to address such an issue. That is because this section endorses the availability of many legal avenues for an employer who claims that his or her trade secrets were misappropriated by an employee or a third party. For example, if an employee discloses, acquires or uses trade secrets contrary to his or her contractual obligations, he or she is liable under the Act. In addition, employees’ as well as third parties’ liabilities may arise under breach of confidence and industrial espionage. An inducement to engage with industrial espionage or breach of contract or confidence can amount to an unfair competition and be wrongful under s 160(6)(a). In the broadest sense of s 160(6)(a), third parties may be liable for the acquisition of trade secrets for the mere reason that they ‘knew or was grossly negligent in failing to know’ that the information was misappropriated by another. Therefore, third parties who acquire misappropriated trade secrets may be liable unless they can prove that the information was innocently acquired. As such, this section deals with the ‘traditional concept of bad faith’.53 In other words, ‘as long as acquirers act and remain in good faith, they are exempted from liability’.54 Nonetheless, there are no reported cases which have dealt with the interpretation and application of the provisions of s 160(6) of the IP Act. That may be because the cases decided by the Commercial High Court (which is the court of first instance under 52 Intellectual Property Act, No. 36 of 2003 s 160 (6)(b). 53 See Peter-Tobias Stoll, Jan Busche and Katrin Arend (eds), WTO – Trade-Related Aspects of Intellectual Property Rights (Martinus Nijhoff Publishers, Leiden - Boston, 2009) 644. This book made the same comment in relation to the same sort of provision in the TRIPS Agreement. 54 Ibid, 645. 168 Chapter 4: SRI LANKAN LAW the IP Act)55 are not reported, since it is not an apex court of the country.56 While a small number of unreported cases relating to s 160(6) were traced in the course of research for this thesis, almost of all of them dealt with issues relating to interim stages. Thus, a substantive analysis of s 160(6) is not found in those cases.57 Moreover, those cases were inclined to consider common law principles relating to the issue than solely relying on the provisions of the IP Act.58 (c) Criminal Liability Another salient feature of the IP Act is that it covers criminal aspects in addition to civil aspects. Section 106(8)(a) provides that ‘any person, who wilfully and without lawful authority, discloses any undisclosed information shall be guilty of an offence under the Act’. This may be considered as an additional feature which was not postulated by the TRIPS Agreement. Nonetheless, the preamble of the Act or Hansard relating to the Act59 does not explain why the drafters decided to add a provision by criminalising the wilful disclosures of trade secrets. As explained by Dr Karunaratne, the chairman of the drafting committee of the Act and then the Director General of the National Intellectual Property Office of Sri Lanka, the drafters decided to include such a provision as a result of an industry request led by the Ceylon Chamber of Commerce considering the emergence of employee- involved trade secrets misappropriations.60 The Ceylon Chamber of Commerce was of the view that there should be criminal sanctions in addition to civil liability since civil litigation in Sri Lanka is costly and time-consuming.61 Even though the initial proposal was to criminalise the acts relating to unauthorised acquisitions and uses of trade 55 See s 205 of the IP Act. 56 In Sri Lanka only the judgements of the Supreme Court and the Court of Appeal are reported. 57 See for eg, Casons Rent a Car (Pvt) Ltd. V W.A.W. Wijaysekara and two others Case No. CHC 23/2011/IP, 25.05.2012 and A.T.G. Ceylon (Pvt) Ltd. V A.M.A. Attanayake Case No. CHC 07/2011/IP, 21.03.2012. 58 See for eg, Mackwoods Ltd v Manoj Wickramatunga and Another Case No. 37/2003 (03), 15.06.2004. and John Keells Holdings PLC v I.V.R. Shanitha Fernando Case No. 16/2013/IP and 17/2013/IP, 15.08.2013. 59 Hansard, Intellectual Property Bill, 23 July 2003. 60 Email from Dr. DM Karunaratna (former Director General of the National Intellectual Property Office of Sri Lanka) to author (26 May 2017). 61 Ibid. Chapter 4: SRI LANKAN LAW 169 secrets, the drafting committee decided that ‘these are fundamentally “civil” aspects’.62 Hence, s 160(8)(a) is strictly limited to wilful and unauthorised disclosures.63 (d) Application of Common Law under the IP Act One of the striking features of the IP Act is that it leaves a room for the application of unwritten laws or the common law of the country. For instance, s 160(9) states that rights conferred by the IP Act shall be in addition to, and not in derogation of, any common law rights.64 However, the IP Act does not define what these common law rights are. Certainly, in a system which is based on the English common law tradition, it may be mean English common law. On the contrary, in a mixed law system such as Sri Lanka, it may mean something more than English common law. For instance, Cooray posits that ‘the Roman-Dutch Law is often said to be the common law of Sri Lanka’.65 In Sultan v Peiris, Garvin J states that: It has thus become the inveterate practice in Ceylon to resort to the Roman- Dutch law in all matters outside the area covered by the other systems of law where it can be applied without conflict with any of its provisions, rule or principles. The Roman Dutch law thus became the general law of the Island applicable to all its inhabitants in all matters whereupon which their personal laws are silent and in this sense the common law of the land.66 Approving this view, Goonesekere posits that ‘the Roman Dutch law … is the common law or residuary law of Ceylon, applicable to fill in the gaps in a legal system containing a multiplicity of personal laws’.67 Nonetheless, Lord Diplock held in Kodeeswaran v Attorney General that the Roman-Dutch law is only the starting point of the common law.68 Cooray, interpreting the dictum of Lord Diplock, observes that common law of Ceylon includes the following: 62 Ibid. 63 There is no reported cases found on the application of s 160(8). 64 Intellectual Property Act, No. 36 of 2003 s 160(9). 65 L.J.M. Cooray, ‘Reception of Roman-Dutch law in Sri Lanka’ (1974) 7 The Comparative and International Law Journal of Southern Africa 295, 371. 66 (1933) 35 NLR 57, 81. [emphasis added] See also Weerasekera v Peiris (1932) 34 N.L.R. 281, 285. 67 Savitri Goonesekere, ‘Damage by Animals’ (1971) Colombo Law Review 49. 68 Kodeeswaran v Attorney General (1969) 72 NLR 337 : ‘…although the Roman-Dutch law as applied in Ceylon under the Government of the United Provinces is the starting port of the "common law" of Ceylon, it is not the finishing point’ 170 Chapter 4: SRI LANKAN LAW (i) The Roman-Dutch law as it subsisted in the Netherlands in 1796 (the date of the British conquest); (ii) The Roman-Dutch law as embodied in the case law of Ceylon which would include developments by the courts after 1796, including modifications from the classical Roman-Dutch texts brought about by judicial decisions; (iii) Judicially received principles of English law; (iv) Developments of the law to meet changing circumstances and modern conditions; (v) Practices of the country which the courts recognise; and (vi) Customs recognised by the courts.69 Therefore, the meaning of common law in Sri Lanka may be different from the pure English meaning of common law. Most likely it is a combination of Roman-Dutch law, English Law, and other practices and customs. The only other jurisdiction in the world which continues to use both Roman-Dutch law and English law approaches is South Africa, which was also colonised by the Dutch and then the English. 70 As is the case in South Africa, ‘like a jewel in a brooch, the Roman-Dutch Law in [Sri Lanka] … glitters in a setting that was made in England’.71 As such, the consequence of application of s 160(9) may be that unwritten Roman-Dutch law and English law principles relating to the protection of trade secrets are applicable even after the enactment of the legislation. Nonetheless, the meaning of s 160(9) is uncertain regarding the extent to which the common law can be applied. Judicial practice reflects that judges prefer to apply common law principles rather than merely relying on the provisions of the IP Act.72 That may be because the courts were completely reliant on common law measures to protect the trade secrets prior to the 69 L.J.M. Cooray, ‘Common Law in England and Sri Lanka’ (1975) 24 (3) The International and Comparative Law Quarterly 553,555. 70 South Africa also possesses a mixed legal system with the application of Roman-Dutch law and English common law. Therefore, Sri Lankan authors and courts compare and rely on South African law. 71 HR Hahlo and Ellison Kahn, The South African Legal System and its Background (Juta:1968) 585. 72 N S Punchi Hewage, Promoting a Second-Tier Protection Regime for Innovation of Small and Medium-Sized Enterprises in South Asia: The Case of Sri Lanka (Nomos Verlagsges, Germany, 2015) 146-147. Chapter 4: SRI LANKAN LAW 171 enactment of the IP Act.73 This trend seems to have been continued by the judiciary even after the enactment of the IP Act. For instance, in Mackwoods Ltd v Manoj Wickramatunga and Another,74 the Commercial High Court of Sri Lanka entirely relied on the action of breach of confidence when deciding the grant of an interim injunction to prevent alleged trade secrets misappropriations. In this case, the plaintiff company alleged that there was a risk that its leaving general manager would reveal its secret information –– such as dealer networks, list of customers, price lists and business forecasts –– to a rival company. While the case was instituted under the s 160(6) of the IP Act, the Commercial High Court of Sri Lanka considered the three elements of the action of breach of confidence as established by Coco v A.N. Clark.75 Moreover, in the case of John Keells Holdings PLC v I.V.R. Shanitha Fernando,76 the Commercial High Court applied the law relating to restraint of trade and breach of confidence even without proper reference to the provisions of the IP Act.77 In any event, courts are allowed to apply common law principles relating to breach of contract and breach of confidence, since s 160(6)(b) identifies breach of contract and breach of confidence as means of wrongful disclosures, acquisitions and uses of trade secrets. In other words, whereas s 160(6)(a) suggested to identify trade secrets misappropriation under the unfair competition regime, s 160(6)(b) recognises common law governed breach of confidence as a way of occurring unfair competition. As such, it may be inevitable that the courts rely on the unwritten common law. Thus, there remains reasonable doubt as to whether a substantive change occurred through enacting the IP Act in 2003. Overall, the consequence of application of s 160(9) may be that the protection of trade secrets becomes an intersection of IP law and common law relating to contract and equitable principles. The following sections analyses the common law relating to the issue with reference to the employment context. 73 D.M. Karunaratna, Law of Intellectual Property in Sri Lanka (Sarasavi Publishers, 3rd ed, 2010) 333-334. 74 Case No. 37/2003 (03), 15.06.2004. 75 1969 RPC 41. 76 Case No. 16/2013/IP and 17/2013/IP, 15.08.2013. 77 Ibid. 172 Chapter 4: SRI LANKAN LAW 4.3.3 Contract Law As is the case in Australia, contract law relating to restraint of trade may cover a large part of trade secrets law in Sri Lanka, irrespective of the application of any other laws.78 However, the law relating to restraint of trade may be neither clear nor well settled in Sri Lanka. This is mainly because contract law is governed by the common law of the country which is founded on Roman-Dutch law and English common law.79 This section compares the Roman-Dutch law and English approaches on restraint of trade and examines the Sri Lankan judicial approach. (a) Roman-Dutch Law and English Law Approach Contract law under Roman-Dutch law is based on the maxim pacta servanda sunt which means ‘parties to a contract must honour it’.80 Accordingly, a contract shall be held sacred under Roman-Dutch law.81 Therefore, Roman-Dutch law, in general, supports freedom of contract as against freedom of trade.82 Restraint of trade contracts are considered to be prima facie valid and enforceable. However, this does not necessarily mean that restraints can and should always be enforced. As per the view of Johannes Voet, who is the most respected classical Roman-Dutch law jurist in Sri Lanka and South Africa,83 a contract may be treated as invalid ‘if it carried a taint which could redound to the public injury’.84 This view was adopted by the South African Supreme Court of Appeal in 1984 in the case of Magna Alloy and Research 78 See above section 3.4.2. 79 According to Cooray, ‘substantial areas of contract law are still based on the Roman-Dutch law which has, however, been modified in part by judicial decisions.’ LJM Cooray, An Introduction to the Legal system of Sri Lanka (Stamford Lake Publication, Colombo, 2nd ed, 2003) 15. 80 Coenraad Visser, ‘The Principle of Pacta Servanda Sunt in Roman Dutch Law, with Special Reference to Contract in Restraint of Trade’ (1984) 101 South African Law Journal 641, 646. See also A.A. Roberts, The Law of Contract in South Africa by Sir J.W. Wessels – Volume I (Butterworth Africa, 2nd ed, 1951) 177. 81 Printing and Numerical Registering Co v Sampson (1875) LR 19 Eq 462,465. 82 Ibid. 83 LJM Cooray, An Introduction to the Legal system of Sri Lanka (Stamford Lake Publication, Colombo, 2nd ed, 2003) 59 and James Williams, ‘Roman-Dutch Law’ (1910) 19 (3) The Yale Law Journal 156, 156. See also Saram v Thiruchelvan (1945) 46 N.L.R. 146 Tarrant v Marikkar (1934) 36 N.L.R. 145, 157-158. 84 Johannes Voet, Commentarius ad Pandectas (1647- 1713) (2.14.16): “Deduci possunt in pactionem negotia quaevis honesta et possibilia, non juri publico contraria, quaeve ad publicam spectarent laesionem”. See also Divya Singh, ‘Magna Alloys Onwards: Restraint of Trade in the 1990s’ (1998) 115 The South African Law Journal 536, 537. Chapter 4: SRI LANKAN LAW 173 (SA) (Pty) Ltd v Ellie85 which can be regarded as a watershed point of the law relating to restraint of trade in South Africa. This is the reason the court refused to follow previous South African precedents which applied English common law. Before 1984, South African courts applied English law principles, believing that restraint of trade was entirely foreign to Roman-Dutch law.86 Nonetheless, Rabie CJ stated in Magna Alloy the view that a restraint of trade is prima facie void was taken from English law, which was not the common law of South Africa. Based on Voet’s views and 18th century Hooge Raad87 decisions, Rabie CJ stated that restraints of trade are prima facie enforceable in South Africa, but only to the extent that such enforcement would not be contrary to public policy.88 Thus, the Roman-Dutch law approach differs from the English law approach in three ways. First, English law holds that restraints of trade are prima facie void unless they are proven to be reasonable between parties and in terms of public policy or the public interests.89 However, under Roman-Dutch law, restraints are prima facie valid unless they are conflicted with public policy. Second, Roman-Dutch law is solely concerned with whether the restraint is contrary to public policy; whereas English law adopts a two-fold test: (i) reasonableness of restraints between parties; and (ii) reasonableness in relation to the public interest. Third, in English law, the covenantee (an employer) should bear the onus of proving the validity of the clause and establishing that it is reasonable between parties. If this component is proven then the burden of proof is shifted to the covenantor (an employee) to establish restraints are unreasonable in relation to the public interest. By contrast, in Roman-Dutch law, there is only one test –– that restraints are contrary to the public policy –– the onus of which rests on the employee who is seeking to resile from the restraint of trade clause.90 Sri Lankan courts, in general, maintain a keen eye on legal developments in South Africa because both countries use a similar mixed legal system.91 However, 85 1984 (4) SA 874 (A) 86 See for eg, Katz v Efthinmiou 1948 (4) SA 603 (O); Van de Pol v Silberman 1952 (2) S.A. 561 (A.D.) and Edgecombe v Hodgson (1902) 19 S.C. 226. 87 Hooge Raad was the most superior court of the Dutch during the colonial period. 88 1984 (4) SA 874 (A), 891 C- 892 B. 89 See above section 3.4.2. 90 Magna Alloy and Research (SA) (Pty) Ltd v Ellie 1984 (4) SA 874 (A), 897F-898E. 91 LJM Cooray, An Introduction to the Legal system of Sri Lanka (Stamford Lake Publication, 2nd ed, Colombo, 2003) 60. 174 Chapter 4: SRI LANKAN LAW legal trends in South Africa that occurred after the Magnay Alloy Case have not been properly analysed by Sri Lankan academics or courts. For instance, there has been no extensive academic discussion on the issue since 1967 when Weeramantry published his seminal book on the law of contracts in Ceylon.92 This piece of work was concluded before the Magna Alloy Case. Consequently, the judiciary and legal practitioners have attempted to rely on Weeramantry’s 1967 work and early colonial cases, ignoring the fact that the starting point of Sri Lankan common law should be Roman-Dutch law. The following sections examine the key judicial interpretations of Sri Lanka so as to identify how the Sri Lankan judiciary responded to the issue of restraint of trade and protecting trade secrets in an employment setting. (b) Sri Lankan Judicial Approach It is observed that Sri Lankan courts, following pre-Magna Alloy South African judicial trends,93 have embraced English law concepts. Scholars such as Cooray opined that, in the area of restraint of trade, courts have resorted to English law in the absence of relevant legal principles and where Roman-Dutch law is silent.94 The Sri Lankan judicial approach on restraint of trade was summarised by Weeramantry as follows: The doctrine [of restraint of trade] prevailing in the modern Roman-Dutch law has therefore been described as ‘an unvarnished importation from English law’, the principles laid down the English cases have been followed in South Africa and Ceylon [Sri Lanka]95 Weeramantry argues that in the area of restraint of trade in Sri Lanka, there is a clear diversion towards English law concepts, ignoring Roman-Dutch law principles. His 92 See Christopher G Weeramantry, The Law of Contracts: Being a treatise on the law of contracts as prevailing in Ceylon and involving a comparative study of the Roman-Dutch, English and customary laws relating to contracts (Stamford Lake Publication, 1967). Late Professor Weeramantry is considered as the most respected contract law scholar in Sri Lanka. Professor C G Weeramantry (1926-2017) was a judge of the Supreme Court of Ceylon (1967-1972), a judge of the International Court of Justice (1991-2002) and an Emeritus Professor at Monash University having previously served as Sir Hayden Starke's Chair of Law from 1972 to 1991. Chapter 4: SRI LANKAN LAW 175 view was based on a colonial decision of Krishnan Chetty v Kandasamy,96 which applied English law principles on the basis that Roman-Dutch law and English law adopt similar approaches. In the Krishnan Chetty case, Jayewardene J stated that ‘under Roman-Dutch law, as administered in South Africa, contracts in general restraint of trade are void as being opposed to public policy’. His Lordship then went on to discuss the South African position on the issue by citing Nathan’s Common Law of South Africa which did not analyse English law or Roman-Dutch law, but rather the South African legal practice before the Magna Alloy case. His Lordship then observed that ‘the law as stated there [South Africa] seems to be identical with the English Law on the subject’.97 Therefore, Jayawardena J opined that Sri Lankan courts can and should apply English law relating to restraint of trade, as it is identical to the Roman-Dutch law approach followed by South African courts. However, as explained in Section 4.3.3(a), Roman-Dutch law and English law have diverse approaches on the issue. As such, this judicial assertion by Jayewardene J may be incorrect. Also, Jayawardena J failed to state any English law or South African case law in reaching this conclusion, but chose to rely on Nathan’s view on South African law. As seen, whereas early South African courts held the view that they should apply English law relating to restraint of trade, this was drastically changed after the Magna Alloy case where the South African Supreme Court of Appeal resorted to Roman-Dutch law principles.98 However, this trend has not been followed by the Sri Lankan courts. A careful perusal of Sri Lankan case law reveals that the courts have not analysed Roman-Dutch legal principles. Instead, they have unquestioningly applied English law concepts, using the Krishnan Chetty case as a precedent. Accordingly, restraint of trade clauses are prima facie void unless proven to be reasonable. However, there have been a few cases reported on restraint of trade. That may be because restraint of trade cases are first heard by either the Commercial High Court or District Courts, and these cases are not reported.99 The following sub-sections 96 (1924) 3 T.C.L.R 21, 22. 97 Ibid. [emphasis added] 98 1984 (4) SA 874 (A). 99 In Sri Lanka only apex courts decisions, viz, Court of Appeal and Supreme Court are reported: see New Law Reports and Sri Lanka Law Reports. Therefore, restraint of trade cases are reported only if they are subject to an appeal, which is a rare case in Sri Lanka. 176 Chapter 4: SRI LANKAN LAW analyse how Sri Lankan courts balance employers’ right to trade secrets and employees’ right to earn a living. (c) Balancing Employers’ and Employees’ Rights (i) Test of Reasonableness As was explained in relation to Australian law, the main weaponry that English law utilises in balancing employers’ and employees’ interests is measuring the reasonableness of restrictive covenants. The Sri Lankan judiciary has embraced this test in several cases. For instance, in Hentley Garments Ltd v J.S.A. Fernando,100 following the Nodenfelt case, Ransinghe J stated that ‘the true test of the validity of a condition in restraint of trade is whether the restraint in the particular case, be it general or particular, is or is not reasonable’.101 In Hentely Garments, the Court of Appeal decided the validity of a District Court decision on refusing to grant an interim injunction which was sought by Hentley Garments (the employer) against its leaving employee, Mr Fernando who joined Aitken Spence, a rival of the employer.102 The purpose of pleading an injunction was to prevent the divulgence of the employer’s trade secrets, with respect to the manufacturing of garments and production plans, to Aitken Spence. Hentely Garment argued that Mr Fernando was restricted by his contract of employment to undertake employment in any garment manufacturing or exporting business for a period of three years after leaving Hentley Garments. In this case, Ranasinghe J affirmed that Sri Lankan law follows English law principles in determining the validity of restraint of trade clauses. His Lordship cited the following statement of Weeramantry to support his approach: All contracts in restraint of trade are prima facie void, and each case must be examined having regard to its special circumstances to consider whether or not the restraint is justified. The only ground of justification is that the restraint is reasonable having regard to the interest of both contracting parties as well as to the interests of the public.103 100 (1980) 2 Sri L.R. 145. 101 Ibid, 151. 102 Hentley Garments Ltd v J.S.A. Fernando (1980) 2 Sri L.R. 145. 103 Christopher G Weeramantry, Law of Contracts (Stamford Lake Publication, 1967) 384. Chapter 4: SRI LANKAN LAW 177 Furthermore, based on Esso Petroleum Co. Ltd. v Harper's Garage (Stourport) Ltd,104 Ranasinghe J listed following possible judicial considerations in determining the validity of restraints: i. The words of Lord Macnaghten in the Nordenfelt case were not intended to indicate that any contract which in whatever way restricts a man’s liberty to trade was (either historically under the common law or at the time of which they were speaking) prima facie unenforceable and must be shown to be reasonable. ii. Changing face of commerce must always be borne in mind. iii. Restrictions which in an earlier age were classified as restraints of trade may, in the different circumstances of today have become part of the accepted pattern or structure of trade as encouraging rather than limiting trade. iv. Certain restrictive agreements have now passed into the accepted and normal currency of commercial or contractual or conveyancing relations, and are therefore no longer suspect.105 This may reflect the elasticity and flexibility of the English common law which has the capability to address new and emerging circumstances. Accordingly, Sri Lankan courts may be open to considering a wide range of contemporary issues when assessing the reasonableness of restraint of trade clauses. However, since the main concern of the Court in Hentley Garments was to determine the validity of granting an interim injunction, the final judgement did not evaluate the reasonableness of the restraint of trade clause in Mr Fernando’s contract. The Court held that since the reasonableness of the restraint is to be determined having regard to the particular facts and circumstances, the reasonableness of restrictive covenants cannot and must not be taken into consideration in an application for an interim injunction.106 However, considering the fact that the employer presented prima facie evidence to prove that the balance of convenience is in favour of the employer,107 the Court granted an interim injunction. 104 (1967) 1 AER 699. 105 (1980) 2 Sri L.R. 145,152. [citations omitted] [emphasis added]. 106 Ibid, 156. 107 See sections 4.5.1 and 5.2.3. 178 Chapter 4: SRI LANKAN LAW In Finlay Rentokil (Ceylon) Ltd. v A. Vivekananthan,108 Finlay Rentokil (the employer), alleged that the defendant-respondent, who was an ex-employee, divulged its trade secrets to United Professionals (Pvt) Ltd, a competitor of the employer. Finlay Rentokil further claimed that the respondent had been canvassing its customers for United Professionals (Pvt) Ltd. As such, the plaintiff claimed that the respondent violated the contract of employment which included a restraint of trade clause as follows: You shall not during the period of three years next following the termination of your employment howsoever the same may be determined either on your own account or as an employee or on behalf of any other person, Firm or Company engage or be concerned directly or indirectly, or be interested (save as a minority shareholder in or a debenture holder of a Limited Liability Company) in the marketing, sale or supply of products or services for like purposes. In this case, the Court of Appeal, affirming the Sri Lankan courts’ reliance on English law principles, stated that ‘a contract of this class [restraint of trade] is prima facie void, but it becomes binding upon proof that the restriction is justifiable in the circumstances as being reasonable from the point of view of the parties themselves and the community’.109 In the Court’s view, employers’ need in protecting legitimate proprietary interests, such as ‘confidential information’, ‘trade secrets’, ‘detailed knowledge of the working of a business’ and ‘customer and business connections’, can be regarded as a valid reason for having restraint of trade clauses.110 However, the Court opined that such interests can ‘only be protected within proper limit as to the period of time and geographical area and the activities covered by the restraints’.111 The Court further held that ‘the onus of proving reasonableness of the covenants is on the employer’. However, the Court failed to qualify this statement by mentioning that reasonableness between parties should be established by the employer, whereas the 108 (1995) 2 Sri L R 346. 109Ibid, 349. The court was relied on the legal principles established by English cases such as Petrofina (GB) Ltd., v Martin [1966] 1 All ER 126, Herbert Morris v Saxelby (1916) 1 AC 688 at 710; Faccenda Chicken Ltd., v Fowler 1987 Ch 117 and Esso Petroleum Co., Ltd., v Harper's Garage (Stourport) Ltd (1967) 1 All ER 699. 110(1995) 2 Sri L R 346, 350. 111 Ibid, 350. Chapter 4: SRI LANKAN LAW 179 onus of proving unreasonableness in relation to public policy lies on an employee who challenges the restraints. The Court held that Finlay Rentokil, the employer, did not establish that the ex- employee was using trade secrets or canvassing customers to its detriment. Further, the Court stated that there was no evidence provided by Finaly Rentokil to conclude that restraints questioned in this case are reasonable in respect of the area within which the respondent could work, the duration of the restraint, and the scope. More importantly, the Court held that the employer was unable to place any evidence before it to determine that ‘the respondent [employee] could not earn a living through any other means except the experience that he has gained after working for the petitioner’.112 Thus, the Court rejected the order for an injunction and dismissed the application. The legal principles established by the Finlay Rentokil case were reaffirmed by the Supreme Court in the case of Coats Thread Lanka (Pvt) Ltd v Samarasundara.113 In this case, Mr Samarasundara (the employee) was employed as a work-study assistant at Coats Thread Lanka (the employer). He was suspended from the service upon allegations of corruption. However, it was revealed during the internal inquiry conducted by the employer that Mr Smarasudara had obtained employment at Vinter Fashions Ltd, a rival company of the employer. According to s 16(c) of Mr Samarasundara’s employment contract, he would not be able to enter into any activities similar to that for which he was employed by Coats Thread or obtain employment elsewhere while in its service. Coats Thread claimed that Mr Samarasundara repudiated the contract of employment by working for a rival company while being an employee with Coats Thread. Mr Samarasudara argued that he was not bound by s16(c) of the employment contract since it was an unreasonable restraint of trade and thus void. Even though this case did not involve trade secrets protection, the importance of it may be that the Supreme Court, which is the most superior appellate court of Sri Lanka, acknowledged the application of Nordenfelt test in Sri Lanka.114 As such, this 112 Ibid, 351. 113 (2010) 2 Sri L. R. 1. 114 Ibid, 6-7. 180 Chapter 4: SRI LANKAN LAW establishes an authoritative precedent. Citing Lord Macnaghten’s statement on the test of reasonableness in Nodenfelt, J.A.N. De Silva CJ stated that: In ascertaining the reasonableness, the extent of the prohibition and the time period within which the prohibition is operative are important considerations. Covenants of this nature are upheld where they operate to protect the legitimate interests of the employer, for instance where there is a risk of trade secrets being divulged by an employee.115 By applying these principles to the case, the Court held that even though the undertaking of an additional employment by the employee may bring an adverse effect on the employer’s business, an employer cannot restrict an employee’s reasonable right to seek employment at multiple establishments.116 This point was further justified by the Court based on the fact Mr Samarasundara was employed in the capacity of work-study assistant as opposed to a manager or similar position.117 Therefore, his Lordship opined that it could not be assumed that the Mr Samarasundara was privy to the confidential information of the company. Hence, the Court held that s 16(c) of the employment contract was void and having employment with another company was justified. Further, the Court considered the legality of dismissal of Mr Samarasundara from the services of Coats Thread upon the findings of the internal inquiry on corruption charges. The Court held that the dismissal was justifiable for two reasons: first, the company’s internal inquiry on Mr Samarasundara was conducted fairly; second, Mr Samarasundara did not show any intention to return to work with the company. Therefore, it is clear from the above cases that the test of reasonableness has been accepted by the Sri Lankan courts as the standard of measuring the validity of restraint of trade clauses. However, there are only three reported cases on the issue. It is doubtful whether these cases had an appropriate opportunity to analyse legal principles relating to the Nodenfelt test in detail, although the courts claimed that Sri Lankan courts may depend on English law principles. For instance, the Hentely Garments case primarily dealt with the issue of granting interim injections. As such, the legal principles discussed in this case with respect to the reasonableness test should 115 Ibid, 7. 116 Ibid. 117 Ibid, 8. Chapter 4: SRI LANKAN LAW 181 be considered as obiter dictum. Even in Finlay Rentoki, the only directly relevant case to this thesis, the Court was not be able to analyse the reasonableness of restraints in detail. That is because the Court was not provided with the necessary documents and evidence to further determine the issue of reasonableness. It can be observed that Sri Lankan law on the application of the reasonableness test may be in an embryonic stage since a strong body of case law has not yet developed. As a result, it may be too early to analyse how courts balances employers’ and employees’ interests in enforcing or not enforcing restrictive covenants. However, one clear conclusion is that modern Sri Lankan courts depend on English law principles in determining the validity of restrictive covenants. Sri Lankan courts may be allowed to absorb the developments and progressive approaches in English common law on restraint of trade. (ii) A Strict View on Employment Contracts One advantage of the Sri Lankan courts’ reliance on English law is that the courts may adopt the view that there should be a distinction between employment restraints and restraints with respect to contracts for the sale of a business.118 For instance, based on the Nodenfelt case, Ranasinghe J in Hentley Garments stated that ‘a restraint may be imposed more readily and more widely upon the vendor of a business in the interests of the purchaser than upon a servant [an employee] in the interests of a master’.119 Moreover, in the Finlay Rentokil case, Ranaraja J observed that: In contracts of service the parties are not in an equally strong position and the employee will find it difficult to resist the imposition of terms favourable to the employer. Thus, if an employee agrees that after leaving his employment, he will not work for a competitor, the courts will rarely enforce such an agreement, because the employee will be forced either to work for his former employer or to starve.120 Ranaraja J further stated that an employer cannot prevent an ex-employee from ‘using the knowledge, skills and experience gained during the employment’.121 His Lordship reasoned this statement by citing Herbert Morris v Saxelby which held that ‘public 118 Hentley Garments Ltd v J.S.A. Fernando (1980) 2 Sri L.R. 145, 152. 119 Ibid. 120 Finlay Rentokil (Ceylon) Ltd. v A. Vivekananthan (1995) 2 Sri L R 346, 349. 121 Ibid. 182 Chapter 4: SRI LANKAN LAW policy requires that every man shall be at liberty to work for himself and shall not be at liberty to deprive himself or the state of his labour, skill or talent by any contract that [he or] her enters into’.122 By refusing to grant an injunction as requested by the employer, Ranaraja J concluded the judgment by stating that: The petitioner [did not place] any evidence before Court that the respondent [the employee] could earn a living through any other means except the experience that he has gained after working for the petitioner. Courts have long maintained that an injunction will not be allowed against an employee if the consequences of that he would have to go on working for his former employer or starve. Hence, it can be argued that Sri Lankan judiciary is concerned with the repercussions of enforcing non-competition agreements on employees’ right to earn a living. (iii) Judicial Power of Severance There is no case law precedent on the application of the common law doctrine of severance in relation to restraint of trade cases. However, cases relating to statutory illegality accepted the applicability of the doctrine of severance in Sri Lanka. For instance, in Joseph Perera v Lewis Abeysekera,123 the Court held that when a contract for sale of an immovable property was contrary to s 2 of the Prevention of Fraud Ordinance, the Court may sever the legal part of the contract to give effect to them.124 In the court’s view, such a power can only be invoked if the legal part of the contract is divisible or sparable from the illegal part.125 Moreover, the issue of application of severance was discussed in Kandiah et al v Tambipillai,126 when the Court decided the illegality of an agreement to give a dowry and to restraint of marriage. In this case, Howard CJ inter alia quoting Salter J per Putsman v Taylor127 observed that: If the promise sought to be enforced is invalid, as being in undue restraint of trade or for any other reason, the Court will not invent a valid promise by the 122 Ibid. [emphasis added]. 123 (1957) 58 N.L.R. 505. 124 Ibid, 529-530. 125 Ibid. 126 (1943) 44 N.L.R. 553. 127 (1927) 1 K.B. 637. Chapter 4: SRI LANKAN LAW 183 deletion, alteration, or addition of words, and thus enforce a promise which the promisor might well have made, but did not make. According to his Lordship’s view, the same principles can be applied with respect to a contract restraining marriage. His Lordship stated that if a legal promise is separable from illegal parts of a contract, then the Court can and should enforce it. However, stipulating promises in a divisible way is an act of the parties, not of the courts.128 Therefore, this demonstrates that Sri Lanka follows a restrictive common law approach on severance and courts would not re-write illegal contacts so as to make them legal or enforceable. The effect of this approach may be that if a restrictive covenant is held to be unreasonable, the whole employment contract may be invalid unless other contractual clauses are stipulated by the parties in a manner that courts can easily sever them.129 4.3.4 Breach of Confidence In addition to the provisions of the IP Act and contract law, breach of confidence can also be regarded as a means of protecting trade secrets in Sri Lanka.130 As explained in sections 2.3.2 and 3.4.4, breach of confidence may cover a wide area of confidential relationships, including employer-employee and employer-competitors. As noted, it may reach the frontiers that contract law cannot reach due to the application of privity of contract. Although scholars mention that this action is used by the Sri Lankan courts,131 there are no reported cases on breach of confidence in Sri Lankan law reports.132 However, unreported judgements, such as Mackwoods Ltd v Manoj Wickramatunga and Another,133 state that the courts may consider the three elements enunciated by 128 (1943) 44 N.L.R. 553, 557. 129 Moreover, there is no cases reported in Sri Lanka on the validity of cascading clauses in Sri Lanka. 130 N S Punchi Hewage, Promoting a Second-Tier Protection Regime for Innovation of Small and Medium-Sized Enterprises in South Asia: The Case of Sri Lanka (Nomos Verlagsges, Germany, 2015) 145. 131Ibid, 146-147. 132 There are no reported cases decided by the superior courts of Sri Lanka, namely, the Supreme Court and the Court of Appeal. Breach of confidence cases are not available in the major two law reports in Sri Lanka, namely, Sri.L.R and N.L.R. See 184 Chapter 4: SRI LANKAN LAW Meggarry J in the case of Coco v A.N. Clark134 –– a trade secrets cases that arose under s 160(6) of the IP Act.135 In this case, the Commercial High Court’s major concern was whether the alleged information had the necessary quality of confidence. However, the Court’s view was that, since the information was published in newspapers, it was unlikely that the action of breach of confidence was successful. What should be noted here is that this case related to the order for an interim injunction. Thus, the Court considered the probability of success of a breach of confidence action in order to ascertain whether the plaintiff put forward a prima facie case that had a probable chance of success. In the same vein, a mere reference to the action of breach of confidence in considering the application of interim injunctions is found in Link Natural Products Ltd v Tropical Herbs Ltd.136 In this case, Amarasekara J, quoting Bently and Sherman, stated that: The first factor must be shown to establish breach of confidence that the information is capable of being protected. Before being in a position to determine whether the information is capable of being protected by breach of confidence, it is first necessary for the information in issue to be identified’.137 However, in this case, his Honour referred to breach of confidence to justify the non- granting of an injunction on the basis that the plaintiff failed to particularise or establish the necessary quality of confidentiality. As such, there was no extensive discussion on the application of the action of breach of confidence. The same observation may hold true with John Keells Holdings PLC v Shanitha Fernando.138 Hence, it may reasonable to argue that the application of breach of confidence in Sri Lanka may be in its infant stages. It may be difficult to analyse how the judiciary approaches balancing employers’ and employees’ interests under the breach of confidence actions in Sri Lanka.139 While there are no reported cases on the application of breach of confidence in Sri Lanka, Sri Lankan courts may still apply this action to protect confidential 134 [1969] RPC 41, 47. See above section 3.4.4. 135 See above section 4.3.2. 136 Case No. CHC 25/2001/03, 01.02.2013. 137 Case No. CHC 25/2001/03, 01.02.2013, 33-35. Quoted Lionel Bently and Brad Sharman, Intellectual Property (Oxford University Press) 923. 138 Case No. 16/2013/IP and 17/2013/IP, 15.08.2013. 139 However, the observations made in the above section 3.4.4 on Australia may, more or less, be relevant to Sri Lanka. Chapter 4: SRI LANKAN LAW 185 information in general and trade secrets in particular. Researchers point out that this action is commonly used by first instance courts such as the Commercial High Court (in relation to trade secrets) and District Courts (in relation to confidential information other than trade secrets).140 As noted in relation to Australian law, breach of confidence is used to protect any confidential information but is not necessarily limited to the protection of trade secrets. The consequence of this may be that there can be a jurisdictional issue in cases where the parties are unable to specifically mention that their case is based on the misappropriation of trade secrets. To be more explicit, the Commercial High Court has jurisdiction on matters arising from the IP Act and other commercial cases involving commercial transactions the value of which exceeds Rs. 5 million.141 In general, the District Courts have jurisdiction on any other civil matters which do not exceed the value of Rs. 5 million, including equity, trust, matrimonial, insolvency, and testamentary matters.142 Therefore, if a claim is based on the action of breach of confidence and does not relate to the protection trade secrets in particular, in such circumstances, the District Court has the power to decide on the matter. In other words, if a claim is based on misappropriation of confidential information which is not qualified to be a trade secret, the case should be heard by the District Court. That is because s 160(6) of the IP Act is strictly limited to protect information which fulfils the requirements stated in s 160(6)(c) and it may not be able to cover confidential information in general. Thus, the jurisdiction for breach of confidence action in Sri Lanka depends on the nature of the information. 4.3.5 Other Statutory Laws (a) Company Law Although the Companies Act143 does not explicitly deal with the issue of protection of trade secrets in the employment context, some provisions of it may still 140 N S Punchi Hewage, Promoting a Second-Tier Protection Regime for Innovation of Small and Medium-Sized Enterprises in South Asia: The Case of Sri Lanka (Nomos Verlagsges, Germany, 2015) 147. 141 Provisional High Court (Special Provisions) Act, No. 10 of 1996. In 2012, the monetary limit of the Commercial High Court was raised to Rs. 5 million, from 3 million by Gazette No. 1759/35 dated 25 May 2012. 142 See ss 19-20 of The Judicature Act, No. 2 of 1978 (as amended). There may be some limitations such as Companies Act, No. 07 of 2007; Maintenance Act, No. 37 of 1999. 143 Companies Act, No. 07 of 2007: an Act to amend and consolidate the law relating to companies. 186 Chapter 4: SRI LANKAN LAW be relevant. For example, s 187 states that the directors of a company should act in good faith and in the interest of company. More importantly, s 197 provides that ‘a director who has information in his or her capacity as a director or employee of the company which would not otherwise be available to him, shall not disclose that information to any person or make use of or act on the information’. Thus, directors cannot reveal any information, including trade secrets, obtained in their capacity of director. However, directors are allowed to disclose such information for the purposes of the company, as required by law, or any other circumstances in which the company’s articles authorise the director to do so. Section 197(2) states that a director may disclose, make use of, or act on such information upon the authorisation of the board of directors if that is not likely to prejudice the company. Particulars of such an authorisation should be entered in the ‘interests register’ maintained by the company. In addition, directors and top management officers are under an obligation to prevent insider dealing. Section 32 of the Securities and Exchange Commission Act, No. 36 of 1987 (as amended) provides that a person who gains access to unpublished price-sensitive information of a listed company should refrain from trading in listed securities. Thus, misappropriation of price-sensitive secret information can be regarded as a punishable offence in that sense. However, both of the above-mentioned legislation are only applicable for directors or top-level management officers such as Chief Executive Officers. Also, this legislation is not confined to the protection of a company’s trade secrets, but to the information in general which was obtained by director or top officers. (b) Computer Crimes Act Several provisions of the Computer Crimes Act144 may be relevant, although there is no explicit mention of misappropriation of trade secrets misappropriation. As an illustration, according to s 7, buying, receiving, uploading and downloading of 144 Computer Crimes Act, No. 24 of 2007: An Act to provide the identification of computer crimes and to provide the procedure for the investigation and prevention of such crimes; and to provide for matters connected therewith and incidental thereto. Chapter 4: SRI LANKAN LAW 187 unlawfully obtained data from a computer or storage medium145 is prohibited. As such, if a computer-held trade secret was obtained without the consent of its owner, any person who is receiving, buying, uploading or downloading such information may be criminally liable. More importantly, s 10 provides that: Any person who, being entrusted with information which enables him [or her] to access any service provided by means of a computer, discloses such information without any express authority to do so or in breach of any contract expressed or implied, shall be guilty of an offence. While this provision is not limited to the disclosure of secret information, arguably it can be applicable to the misappropriation of trade secrets held in a computer. As an illustration, if an employee is assigned to do certain work where he or she has gained access to trade secrets stored in a computer system of the employer, and if he or she discloses secret information to an outsider in an unauthorised way, such disclosures constitute a crime under the Computer Crimes Act. According to the forgoing provision, the duty to keep the information confidential may arise from expressed or implied contractual duties. The benefit of this provision may be that employers can initiate criminal proceedings without proving the secrecy of information. Furthermore, whereas the s 160(8) of the IP Act limits criminal liability to wilful disclosures of trade secrets, there is no such limitation under the Computer Crimes Act. Therefore, this section may cover a wide array of information and a wide range of misappropriations of information. 4.4 DEFENCES: PRIVATE INTEREST V PUBLIC INTEREST One of the limitations of the IP Act is its silence regarding the defences or lawful means of using, disclosing and acquiring trade secrets. Thus, it is hard to resolve whether and how the law balances the public interest and societal values and needs. Given that the trade secrets regime is largely used by Sri Lankan innovators and 145 s 37- Interpretation Clause – ‘storage medium means any [electronic or similar device] from which information is capable of being reproduced, with or without the aid of any other article or device.’ 188 Chapter 4: SRI LANKAN LAW business firms, failure to provide provisions on legal ways of disclosing or acquiring trade secrets may result in making the law uncertain.146 However, it can be argued that the IP Act does not prohibit the application of trade secrets defences, such as reverse engineering and independent discovery. That may be because the IP Act merely prohibits the misappropriation of trade secrets in a manner contrary to honest commercial practices. In other words, honest means of obtaining certain information related to trade secrets, such as reverse engineering, is not prohibited under the IP Act. Even though this issue has not yet been examined by the judiciary or academia, comments on Article 39(2) of the TRIPS Agreement may be relevant in this regard, since the Sri Lankan IP Act largely follows the TRIPS provisions. For instance, Stoll et al observe that: Reverse engineering is not expressly prohibited by the Art. 39.2 [of the TRIPS Agreement] and in many jurisdictions is deemed a lawful means of obtaining product-embedded information.147 Therefore, it may reasonable to state that reverse engineering is not prohibited under the Sri Lankan IP Act which is based on the TRIPS Agreement. Nonetheless, it is doubtful whether Sri Lankan courts may successfully interpret the provisions of the IP Act so as to apply the defence of reverse engineering. That may be because, as was observed in respect to Australia, there is a possibility that the courts interpret reverse engineering in the context of the action of breach of confidence.148 As an illustration, the Commercial High Court in Mackwoods Ltd v Manoj Wickramatunga and Another149 held that: This type of accessibility of confidential information [via newspapers] through analysis and reverse engineering had been upheld in the cases of Ackroyds (London) Ltd Vs. Islington Plastics Ltd and Terrapin Ltd Vs. Builders Supply Co. Ltd.150 146 This issue will be further analysed in light of the human rights theories in Chapter 5. 147 Peter-Tobias Stoll, Jan Busche and Katrin Arend (eds), WTO – Trade-Related Aspects of Intellectual Property Rights (Martinus Nijhoff Publishers, Leiden - Boston, 2009) 640 [emphasis added]. 148 See above section 3.5.3. 149 Case No. 37/2003 (03), 15.06.2004. 150 [Citation omitted] Chapter 4: SRI LANKAN LAW 189 While the preceding judge did not go on to explain the meaning of this application, it may be reasonable to argue that his Honour meant to claim that if the information is easily ascertainably to the public through reverse engineering, such information may lose the quality of confidentiality.151 Moreover, as explained with respect to Australia, Sri Lanka may still rely on the defence of public interest under a breach of confidence action. While none of the reported cases explicitly address the issue of application of public interest defence in Sri Lanka, some indication of the defence of public interest is found in N.H. Keerthiratne v M.M.P Gunawardene.152 In this case, the Supreme Court held that public officers, such as ministers, are obliged not to release information provided in official confidence since the public interest may suffer by such disclosure. Therefore, the Court held that confidential information submitted to public authorities may not brought as evidence before the courts. However, this case was not based on the action of breach of confidence but the provisions of the Evidence Ordinance.153 Also, this case establishes that the public interests involves the protection of information held by public officers in confidence. Conversely, the public interest defence with respect to breach of confidence suggests that confidants may be able to reveal the confidential information for the public interest, or at least to avoid the continuation of illegal activities. As such, it is doubtful whether this case is directly relevant to this research. Nonetheless, it may be reasonable to claim that Sri Lankan courts follow English common law developments regarding the defence of public interest as allowed by the s 160(9) of the IP Act. Furthermore, courts may consider public interest issues when assessing the reasonability of restrictive covenants. For instance, in the Finlay Rentokil case, Ranaraja J expressed the view that: Public policy requires that every man shall be at liberty to work for himself and shall not be at liberty to deprive himself or the state of his labour, skill or talent by any contract that he enters in to.154 151 See the same argument made in relation to Australia in section 3.5.3. 152 (1956) 58 N.L.R. 62. 153 See s 124 of the Evidence Ordinance: No public officer shall be compelled to disclose communications made to him in official confidence when he considers that the public interests would suffer by the disclosure. 154 Finlay Rentokil (Ceylon) Ltd. v A. Vivekananthan (1995) 2 Sri L R 346, 349. 190 Chapter 4: SRI LANKAN LAW His Lordship suggested the employee’s right to earn a living should be considered as an issue of public interest. However, the Finlay Rentokil judgement did not analyse this issue in detail. The Court held that Finlay Rentokil had not placed sufficient evidence before it to determine whether the non-competition clause impeded the employee’s right to earn a living. The Court stated that the employer should prove that his employee can still earn a living if and when he enforces a non-competition clause. This indicates that the Court considered this issue as a part of the first limb of the Nordenfelt test: reasonableness of restraints between parties needs to be proven by the employer. It is doubtful whether the court considered the impact of enforcing restraints on the public interest, which is the second limb of the Nordenfelt test. 4.5 REMEDIES An aggrieved employer of trade secrets misappropriation is entitled to both civil155 and criminal remedies.156 These remedies include injunctions, compensation, fines and imprisonment. However, the difference when compared to Australia is that these remedies are statutorily regulated in Sri Lanka. 4.5.1 Injunctions Section 170 (1) of the IP Act provides that: Where a person to whom any recognised rights granted under this Act, proves to the satisfaction of the Court that any person is threatening to infringe or has infringed his rights or is performing acts which makes it likely to infringe a right under this Act, … the Court may grant an injunction restraining any such person from commencing or continuing such infringement or performing such acts ... The injunction may be granted along with an award of damages and shall not be denied only for the reason that the applicant is entitled to damages. The Commercial High Court is enabled to grant injunctions to prevent misappropriations or threatened misappropriations of trade secrets. In general, injunctions may be granted in two stages: during the proceedings and at the end of the 155 Intellectual Property Act, No. 36 of 2003 s 160(7). 156 Ibid, s 160(8). Chapter 4: SRI LANKAN LAW 191 proceedings. First, interim or interlocutory injunctions can be granted at the preliminary stage of the proceedings to prevent the continuance of the exposure of the secret while the case is being heard.157 The rationale behind granting interim injunctions may be that if the plaintiff could not quickly enjoin the defendant, there is a high likelihood that the information will be revealed. This provisional measure is considered as an integral part of a trade secret action. Second, a final injunction may be issued at the end of the case, preventing a defendant profiting from his or her own wrongdoing. In other words, a court may grant a final injunction to protect the plaintiff whose rights are infringed or threatened.158 As such, a final injunction may grant in the final decree in a trade secrets action to perpetually prohibit a defendant from further using or disclosing trade secrets of the plaintiff. Section 170(1) has not expressly addressed the issue of granting ‘springboard injunctions’ which aim to restrain a former employee from gaining a head start in competition with the ex-employer by using the ex-employer’s trade secrets irrespective of the fact that the information has already published and entered into the public domain. However, it can be argued that s 170(1) may be broad enough to cover springboard injunctions as well. That is because s 170(1) enables the Commercial High Court to grant injunctions restraining any person, including employees, from commencing and continuing an infringement. Especially, s 170(1) provides that the court may grant any relief ‘as the court may deem just and equitable’. As such, based on this provision, the court may grant a springboard injunction when and if the court deems that such an injunction is just and equitable. Although the IP Act does not provide provisions on the legal principles applicable in granting injunction, it is well established that Sri Lankan courts largely rely upon equitable principles.159 As enunciated in Felix Dias Bandaranaike v State Film Corporation,160 a three-fold test should be adopted in deciding whether or not to grant interim injunctions. First, courts have to seek whether the plaintiff made out a strong prima facie case of infringement or imminent infringement of a legal right to 157 See also s 170(6) of the IP Act, No. 36 of 2003; s 54 of the Judicature Act No 2 of 1978 (as amended); ss 662-667 of the Civil Procedure Code, No. 12 of 1895 (as amended). 158 Zahira Umma v Abdul Rahiman (1928) 29 NLR 411, 414. 159 Felix Dias Bandaranaike v State Film Corporation(1981) 2 Sri L R 218; Subramanian v Sahabdeen (1984) 1 Sri L R 48; Yakkaduwe Sri Pragnarama Thero v Minister of Education and Others (1969) 71 N.L.R. 506 and Fernando v Wickremasinghe (1998) 3 Sri L R 37. 160 (1981) 2 Sri L R 218. See also Subramanian v Sahabdeen (1984) 1 Sri L R 48, 54. 192 Chapter 4: SRI LANKAN LAW which he or she has title. Clarifying this requirement, in Jinadasa v Weerasinghe,161 Dalton J observed that the court ‘must be satisfied that there is a serious question to be tried at the hearing and that on the facts before it there is a probability that the plaintiff is entitled to relief’.162 Second, courts must take into consideration the balance of convenience to the parties and whether the claimant would suffer irreparable loss or damages unless an injunction is issued.163 Third, since an injunction is an equitable remedy issued on a discretionary basis, courts have to consider the conduct of the parties and the circumstances of the case.164 These principles were embraced in the Hentley Garments case where an employer sought an interim injunction to restrain a leaving employee from divulging trade secrets to a competitor. In this case, the Court of Appeal, hearing an appeal from the District Court of Mt Lavinia, held that the courts are not allowed to consider the substantive issues, such as the validity of a restraint of trade clause, when granting interim injunctions. Instead, the Court of Appeal opined, the courts’ main concerns should be whether there is a prima facie case and whether the balance of convenience is in favour of the trade secrets owner.165 As such, in this case, the Court of Appeal decided to grant an interim injunction restraining the ex-employee, Mr Fernando from joining a rival of his employer. Moreover, it can be observed that most of the trade secrets cases, whether before or after the enactment of the IP Act, primarily focused on interim injunctions. For instance, two of the most relevant reported cases –– namely the Hentely Garments case and the Finaly Rentokil case –– involved determining the validity of District Court decisions on interim injunctions. Moreover, even recent unreported cases, such as Casons Rent a Car (Pvt) Ltd. V W.A.W. Wijaysekara and two others;166 John Keells Holdings PLC and another v I.V.R. Shanitha Fernando;167 and Sirocco Air Technologies (Pvt) Ltd v Kurukulasooriyage Chamith Srikantha Perera168 are 161 (1929) 31 N.L.R. 33. 162 Ibid. 163 Yakkaduwe Sri Pragnarama Thero v Minister of Education and Others (1969) 71 N.L.R. 506; See also Fernando v Wickremasinghe (1998) 3 Sri L R 37. 164 Felix Dias Bandaranaike v State Film Corporation (1981) 2 Sri L R 218, 302. 165 Hentley Garments Ltd v J.S.A. Fernando (1980) 2 Sri L.R. 145, 155-157. 166 Case No. CHC 23/2011/IP, 25.05.2012. 167 CHC Colombo 16/2013/IP Decided on 15.08.2013. 168 HC/Civil/38/2016/IP (17. 01.2017) Chapter 4: SRI LANKAN LAW 193 evidence that most trade secrets cases are concluded in the interim stage in Sri Lanka. The consequence of this may be that the courts are not necessarily required go to the root of the case and apply substantive laws. 4.5.2 Monetary Remedies According to s 160(7) of the IP Act, an aggrieved trade secrets owner may seek damages for losses suffered as a result of misappropriation of his or her trade secrets. Section 170(3)(a) further provides that damages may comprise both compensatory damages and recovery of any profits.169 The Act is silent on the principles relating to calculation of damages which may be an important aspect with regard to trade secrets misappropriation. However, one of the unique features of the IP Act is that the aggrieved employer is entitled to statutory damages. Section 170(10) provides: Any person of the rights protected under this Act may, notwithstanding any provision in the Act relating to the award of damages, elect at any time before final judgment to recover, instead of proved actual damages, an award of statutory damages for any infringement involved in the action of a sum not less than rupees fifty thousand and not more than rupees one million as the court may consider appropriate and just. This provision may be important in trade secrets cases where the monetary loss of a trade secrets misappropriation may be hard to ascertain. In other words, a trade secret may lose its whole value and utility if it enters into the public domain through misappropriations. As such, it may be difficult to prove and calculate damages of a trade secrets misappropriation. Accordingly, when an aggrieved employer is uncertain of the calculation of damages due to the alleged misappropriation, he or she can elect statutory damages instead of actual damages. 4.5.3 Criminal Remedies Section 106(8)(a) states that a person who is guilty of the offence of wilfully disclosing undisclosed information without lawful authority is subject to a fine and/or imprisonment. It further provides that such a person shall on conviction after a trial 169 Intellectual Property Act, No. 36 of 2003 s 170(3)(a)(i) 194 Chapter 4: SRI LANKAN LAW before a Magistrate be liable to a fine not exceeding LK Rs. 500,000/- or to imprisonment for a terms not exceeding six months or to both such fine and imprisonment. Furthermore, a Magistrate is enabled to make an order forfeiting the goods or articles concerning the offences referred to in the Act.170 However, there has been no reported case as yet concerning violation of s 160(8) of the IP Act. 4.5.4 Other Remedies As postulated by s 170(6), a plaintiff may seek ex parte enjoining orders or interim measures where any delay is likely to cause irreparable harm to the right holder or where there is a demonstrable risk of evidence being destroyed.171 As such, first, courts may grant enjoining orders to restrain the possible further misappropriations of trade secrets even before an application of interim injunction is determined. Second, courts may make orders allowing the plaintiff to search the premises of the defendant in order obtain and seize evidence essential to the case. However, such enjoining orders or interim measures can be revoked or modified.172 In such circumstances, or if the court subsequently found that there has been no infringement of a protected right, the court has the power to order the plaintiff to pay appropriate compensation to the defendant for any injury caused.173 4.6 PROCEDURAL ISSUES174 As explained in section 3.7, preserving secrecy of information during the trade secrets litigation can be regarded as a crucial factor for the successful implementation of law. However, it is doubtful whether Sri Lankan law adequately addresses this issue. For instance, Article 106(1) of the Constitution of Sri Lanka175 provides that all sittings of every court shall be held in public. However, there are exceptions available 170 Ibid, s 197. 171 Ibid, s 170(6). 172 Ibid, s 170(7). 173 Ibid, s 170 (8). 174 Most parts of this section is a re-reproduction of researcher’s a publication during the period of the PhD which was published as: Darshana Sumanadasa, ‘Emerging and Enduring Issues of Trade Secrecy- A Sri Lankan Perspective’. WIPO- WTO Colloquium Papers, Asian Edition 2017 Chapter 4: SRI LANKAN LAW 195 for this general rule such as proceedings relating to family relations, sexual offences, and issues relating to national security.176 This constitutional provision does not cover proceedings regarding trade secrets or confidential information. There is no explicit provision addressing this issue in the IP Act, except s 85 (2). In addressing the issue of a reverse burden of proof in patent litigation, s 85(2) provides that the legitimate interests of the alleged infringers in protecting their undisclosed information shall be taken into account. Nevertheless, this provision is only applicable in cases related to patent infringements, not trade secrets misappropriations. Even this provision fails to indicate how courts could ensure or protect the infringer’s legitimate interests relating to undisclosed information. Case law examples are evidence that the vulnerability of trade secrets during court proceedings is regarded as a serious impediment in proving the plaintiff’s claim and establishing the plaintiff has possessed trade secrets. For instance, in Link Natural Products Ltd v Tropical Herbs Ltd,177 two former employees of the plaintiff were alleged to have misappropriated a secret process for making a medicinal product called ‘Samahan’. The respondent company which hired these two ex-employees had developed a new product called ‘Suveni’ which was similar to Samahan and which served the same purposes. Despite establishing the trade secrecy of Samahan, the plaintiff attempted to utilise chemical tests such as chromatographs to establish that the rival company had made a similar product. However, Amarasekara J held that the Court was unable to hold the case in favour of the plaintiff, as the Court was not given the required information to make the decision. In effect, this would have meant that the plaintiff would have had to disclose the information that it was trying to protect, and plaintiff chose not to reveal it to the Court. The same issue has been highlighted in the case of John Kells Honldings PLC v Shanitha Fernando.178 Therefore, this issue may be a barrier to implementing the law. However, Punchi Hewage argues that s 839 of the Civil Procedure Code, No.12 of 1895 (as amended) can be utilised in resolving the problem.179 According to this 176 Article 106 (1) of The Second Republic Constitution of Sri Lanka, 1978. 177 Case No. CHC 25/2001/03, 01.02.2013. 178 CHC Colombo 16/2013/IP and 17/2013/IP Decided on 15.08.2013. 179 N S Punchi Hewage, Promoting a Second-Tier Protection Regime for Innovation of Small and Medium-Sized Enterprises in South Asia: The Case of Sri Lanka (Nomos Verlagsges, Germany, 2015) 153. 196 Chapter 4: SRI LANKAN LAW section, the courts can make an order in terms of the inherent powers as may be necessary to meet the needs of justice. Whereas provisions of Civil Procedure Code encourage courts to hear the case in open and public courts,180 s 839 provides that ‘nothing in this Ordinance shall be deemed to limit or otherwise affect the inherent power of the court to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the court’. Therefore, a closed hearing can be ordered as a mean of justice in trade secrets cases since a public hearing would defeat the purpose of a trade secrets case. However, this is considered as a discretionary power of courts which can be utilised in exercising the revisionary jurisdiction. This power is vested only with the superior courts and it may not be issued routinely. As a result, plaintiffs have to bear an additional burden to prove that a closed-hearing is required in their cases. This may discourage employers in pursuing litigation as there is no guarantee on the preservation of confidentiality of trade secrets during court proceedings. 4.7 CONCLUSION As observed in this chapter, there may be a significant use of trade secrets in Sri Lanka for reasons such as the absence of a workable patent regime and the existence of SMEs. The law relating to the protection of trade secrets is an intersection of many laws, even after the enactment of the IP Act which expressly provides for protecting trade secrets under the umbrella of unfair competition. This may be because the IP Act still enables the application of common law which either fills gaps or advances the provisions of the IP Act. Accordingly, the common law relating to restrictive covenants and breach of confidence may still apply. However, there can be diverse judicial approaches, especially relating to restraint of trade, since the common law, in the context of Sri Lanka, includes Roman-Dutch law and English law. In other words, there is a possibility of applying both Roman-Dutch law and English law which hold diverse approaches on deciding the validity of restrictive covenants. However, this research demonstrates that modern Sri Lankan cases are more reliant upon English law concepts concerning employee restraints. As such, as was the case in Australia, Sri 180 See s 167, 186, 774 and 830 of the the Civil Procedure Code, No.12 of 1895 (as amended). Chapter 4: SRI LANKAN LAW 197 Lankan law endorses the test of reasonableness in balancing employers’ and employee’s interests. In addition, a few unreported cases endorsed the application of breach of confidence in Sri Lanka. They did not involve an extensive discussion on how the law should balance employers’ and employees’ interests. Moreover, Sri Lankan law has not explicitly provided for how the law may ensure the public interest while protecting trade secrets. Since the trade secrets regime is commonly used by Sri Lankan enterprises, the law’s silence on public interest considerations may be problematic. Also, from the above discussion, it is evident that Sri Lanka has provided for a wide range of remedies, including civil and criminal remedies. However, Sri Lankan law does not provide for the preservation of confidentiality during the litigation, which may discourage the aggrieved parties to pursue court proceedings. These issues will be further analysed in Chapter 5 which is dedicated to the human rights-based analysis of law. 198 Chapter 4: SRI LANKAN LAW Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 5.1 INTRODUCTION The last two chapters (Chapters 3 and 4) of this thesis analysed how trade secrets are protected under Australian and Sri Lankan laws. The chapters explained that trade secrets play a pivotal role in protecting intellectual assets in both jurisdictions. In particular, while Australia law is based on common law, Sri Lanka adopts a legislation plus common law approach. These two countries nevertheless share a range of commonalities in practice, including the wide use of restraint of trade and equitable action of breach of confidence to protect trade secrets. Even though these laws are mainly crafted to protect employers’ rights and interests, they are also concerned with the rights and interests of other parties, such as employees and the public. For example, in the employment context, measuring reasonableness of restrictive covenants, adopting a stricter approach on employee restraints, and attempting to limit the restraints to cover employee know-how are all mechanisms that courts adopt to balance the rights of employers and employees. In the case of the employer-public interest context, such balancing mechanisms are found in courts’ consideration that restrictive covenants should be reasonable having regard to public interest and in the application of the iniquity rule to protect those who reveal secret, but illegal, activities. However, there is another side to the same coin. As such, this chapter explains how employees and the public may be hindered in pursuing their rights because of the nature of trade secrets legal approaches in Australia and Sri Lanka. In so doing, this chapter develops its arguments by relying on the human rights- based criteria developed in Chapter 2. Accordingly, section 5.2, in line with criterion 2,1 explains how trade secrets law, especially the application of restrictive covenants, may impede employees’ right to work.2 First, it argues employees’ rights to choose work conditions may be impeded through the excessive use of restrictive covenants where employees are given less opportunity to voluntarily assumed restrictive 1 See above section 2.5.5. 2 See above section 1.4, scope and limitations of this research. Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 199 covenants. Second, it explains how the application of non-competition clauses and related legal practices may impact on freedom of mobility of labour or the right to change employment. Third, it explains the overall effects of the existence of uncertain laws and practical issues of trade secrets litigation for successful implementation of employees’ rights. In addition, section 5.3, in concert with criterion 3,3 explains how the reliance of the trade secrets regime may impact on the knowledge diffusion and follow-on inventions and other economic and social effects on the public. It is shown that the narrow application of trade secrets exceptions may intensify these impacts. It is argued that trade secrets law may impact on the right to information, knowledge and the right to development. As a whole, this chapter serves the main objective of this thesis in helping to explain how and whether trade secrets laws impact on the rights of employees and society at large. 5.2 IMPACT OF LAW ON THE RIGHTS OF EMPLOYEES This section examines how Australian and Sri Lankan trade secrets laws may affect the human rights of employees. This section is closely associated with criterion 2, established by section 2.5.5, and seeks to examine the extent to which trade secrets law impede employees’ rights to free choice of employment and the right to work. As noted in section 1.4, analysis in this section mainly focuses on the difficulties that employees may experience as a party to restrictive covenants in their employment contracts. In particular, this section shows how employees’ rights can be impeded during negotiation and in challenging restrictive covenants. In so doing, first the chapter addresses two main employment-related rights: the right to enter into employment contracts freely and voluntarily, and the right to work or earn a living. Second, it outlines the factors that may affect the overall implementation of employees’ rights. 3 See above section 2.5.5. 200 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 5.2.1 Right to Enter into Employment Contracts Freely and Voluntarily Employers largely rely on the contractual measures to protect their trade secrets.4 In the world of IP, this has been recognised as a ‘belt and suspenders’ approach –– a two-way protection,5 where employers use contracts to augment their trade secrets rights in addition to other legal protections.6 From an employer’s perspective, such restrictive covenants are a primary way of protecting their legitimate business interests, including trade secrets. As such, restrictive covenants are a helpful tool to prevent employees who have been exposed to confidential business information from joining a rival company immediately after leaving their present employment. Indeed, a contract of employment can be regarded as the primary means of establishing rights and obligations of employers and employees.7 As such, an employment contract can be regarded as the foundation stone of selection and acceptance of work on which other rights and duties of employment may be relied upon. However, it may be difficult to argue that employees assume their contractual duties, including non-competes, freely and voluntarily. In general, an obligation is voluntary or reciprocal to the degree that it is consciously and willingly assumed by both parties.8 As mentioned by Aristotle there are two major conditions of voluntary action: freedom from coercion and an understanding of the circumstances and implication of the action.9 Thus, choice and understanding are two important aspects of voluntariness.10 Nevertheless, it may be difficult to argue that employees voluntarily assume restrictive covenants given their typically weaker bargaining power. Indeed, the employment relationship is, in general, recognised as ‘the paradigmatic example of inequality of bargaining power in contract law’.11 The power of asymmetry between 4 See section 4.3.2. 5 Viva R Moffat, ‘The Wrong Tool For the Job’ (2010) 52 William and Mary Law Review 873, 876. 6 Rachel S Arnow-Richman, ‘Cubewrap Contracts: The Rise of Delayed Term, Standard Form Employment Agreements’ (2007) 49 Arizona Law Review 637, 638. 7 See Simon Honeyball and David Pearce, ‘Contract, Employment and the Contract of Employment’ (2006) 35 (1) Industrial Law Journal 30, 30. 8 Joel Levin and Banks McDowell, ‘The Balance Theory of Contracts: Seeking Justice in voluntary obligations’ (1983-84) 29 McGill Law Journal 24, 28-29. 9 Aristotle, Nicomachean Ethics (Sir David Ross trans, 1925 ed) Book III. Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 201 an employer and an employee may heavily influence the existence and the character of restrictive covenants, such as non-disclosures and non-competes.12 For example, terms and conditions of an employment contract may be unilaterally defined by an employer and presented in a boilerplate format.13 Even though there is, theoretically at least, a negotiation period in any contract, for employment contracts this may be less and less in evidence.14 Moreover, there is evidence that employees are often asked to sign an employment contract as a ‘take-it-or-leave’ condition.15 Ann-Reichman remarks that modern businesses frequently follow ‘agreement-now-terms-later’ model of contracting.16 Thus, employees may, in general, not be properly aware of issues such as post-termination competition at the time of signing a contract, whereas they may be more immediately concerned over issues such as salary, duties and title.17 Worse, it is doubtful whether the average employee understands the subtleties of a confidentiality contract.18 Therefore, employees may not have accepted their restraints voluntarily and in a non-coercive manner. It is true that the law has recognised the vulnerability of employees and designed special sets of laws to meet welfare needs. However, involuntary assumption of obligations by an employee through an employment contract is not identified as a ground to repudiate the contract unless the contract has been concluded where there is misrepresentation, mistake, unconscionable conduct, duress or undue influence. Even mere economic pressure or asymmetrical bargaining power is not considered as grounds for claiming duress or unconscionability.19 Moreover, there is no legal recourse for the ex-ante scrutiny of restraint of trade clauses in an employment 12 Viva R Moffat, ‘The wrong Tool For the Job’ (2010) 52 William and Mary Law Review 873, 885. See also John Howe and Andrew Newman, ‘Collective Bargaining and Ownership of Employee Creation: An Empirical Examination of Statutory Industrial Instruments’ University of Melbourne Legal Studies Research Paper No. 677 (May 2014) 6. 202 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW contract. Instead, legal action in this regard is largely ex-post and in such cases courts are unlikely to strike down an employment contract per se on the ground that the contract was not concluded with the genuine consent of the employee.20 That is to say, the law only focuses on the reasonableness of restrictive covenants and contracts which would be held invalid to the extent restrictive covenants are unreasonable. For instance, in John Fairfax Publications Pty Limited v Birt21, Brereton J, by upholding a post-employment restraint, stated that: … an employee who pursues such employment despite the terms of a restraint is the author of his or her own misfortune. I do not think that sympathy for the position in which Mr. Birt [the employee] now finds himself can justify not enforcing the contractual rights of Fairfax Publications.22 As such, if there is valuable consideration exchanged and restrictions are reasonable in terms of the scope, time and geographical boundaries, courts may not examine the roots of the contract and how it was formed.23 This practice may be incompatible with the human rights standards accepted by the ICESCR. Article 6 of the ICESCR postulates that everyone has a right to gain a living by work which is freely chosen and accepted.24 As explained in section 2.5, a human should be free to choose their work and working conditions, since work is one of the primary ways in which a human ‘develops as mature, responsible, happy and satisfied adult’.25 The voluntary choosing of conditions of the working contract or 20 Christopher Arup, Chris Dent, John Howe and William Van Caenegem, ‘Restraint of Trade: The Legal Practice’ (2013) 36 (1) UNSW Law Journal 1, 2-3: ‘The common law starts with a presumption that restraints are unenforceable as contrary to public policy. This is not because of the quality of the bargain between the employer and employee, whether, for the contract is void for unconscionability of duress or lack of consideration.’ 21 [2006] NSWSC 995; See also Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [45] where the High Court stated: ‘It should not be overlooked that to sign a document known and intended to affect legal relations is an act which itself ordinarily conveys a representation to a reasonable reader of the document. The representation is that the person who signs either has read and approved the contents of the document or is willing to take the chance of being bound by those contents, as Latham CJ put it, whatever they might be.’ [Citations omitted]. Therefore, if the contract is properly concluded and legal, courts would not go in to the roots of the contract to see whether contract is voluntarily concluded. 22 Ibid, [49]. 23 This issue is not even dealt with in the Competition and Consumer Act 2010 (Cth) since s 51(2)(d) of the Act which excludes employment contracts. 24 See Article 6 of the International Covenant of Economic, Social and Cultural Rights 1966. See also Article 23 (1) of the Universal Declaration of Human Rights 1948. 25 Alan Hyde and Emanuele Menegatti, ‘Legal protection for employee mobility’ in Matthew W. Finkin, and Guy Mundlak (eds), Comparative Labor Law (Edward Elgar Publishing, 2015) 195, 195. Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 203 freedom of contract may be regarded as the starting point of establishing such a freedom.26 As proclaimed by Trstenjak, there are two components that help to realise the freedom of contract: ‘freedom to choose the contracting party and the freedom to determine the content of the contract’.27 However, given the power asymmetry, employees may not enjoy the autonomy or freedom of contract which enables them to ‘arrange their relationships in a way that best suits them’.28 As such, employees may not be given proper opportunities to define the content of the employment contract; for example, the existence and scope of non-competition clauses.29 Accordingly, this practice may be considered as an impediment to the effective implementation of an employee’s right to choose just and favourable employment conditions.30 5.2.2 Right to Choose and Change Employment or Employee Mobility Employees are considered to be the engine of the modern workplace; they may easily gain access to the information of a company. This is mainly because they know how and where the information is stored, as well as details of the processes of trade secrets-based products. As a result, employees are identified as the biggest threat to the protection of trade secrets.31 Thus, it is not surprising that employers increasingly rely on contractual obligations to protect their trade secrets from their employees, and treat such agreements as an effective instrument to prevent the disclosure and acquisition of trade secrets by the employees. Indeed, employers should be able to protect their information assets, which are an integral and invaluable part of the success of a business. Employers at stake possess a right to include non-competition clauses in employment contracts in order to prohibit employees competing with them by using the undue advantage that employees gained by exposing to the trade secrets of them. 26 Ibid, 203-206. 27 Verica Trstenjak, ‘General Report: The Influence of Human Rights and Basic Rights in Private Law’ in Verica Trstenjak and Petra Weingerl (eds) The Influence of Human Rights and Basic Rights in Private Law (Springer, Switzerland, 2016) 11. 28 Ibid. 29 Viva R Moffat, ‘The wrong Tool For the Job’ (2010) 52 William and Mary Law Review 873, 885. 30 See Article 23 (1) of the Universal Declaration of Human Rights 1948. GA Res 217A (III), UN GAOR, 3rd session, 183 plen mtg, UN Doc A/810 (10 December 1948) 31 Talhiya Sheikh, Trade secrets and employee loyalty, SMEs Division, World Intellectual Property Organization 204 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW As such, non-competition clauses are in line with the one of major objectives of trade secrets law: that an individual should not be allowed to reap without sowing.32 Nonetheless, there can be another side to the same coin. Excessive use of restrictive covenants may contribute to stifle competition and limit the flow of talented individuals and creative ideas in an industry.33 More importantly, it may bring a negative impact on the exercise of employees’ right to have employment options or mobility of labour. Free mobility of labour or the right to change jobs is a crucial issue where ‘employment security’ or ‘free employability’ is seen as more important than ‘job security’ or ‘life-long jobs’.34 From an employee’s perspective, the right to choose and change employers or employment is a key factor in the flow of knowledge and in acquiring new knowledge. In other words, employees may develop, sharpen and further enhance their employment capabilities, skills and professional connections by changing jobs. Freedom of changing employment may also provide an opportunity for employees whose skills or aspirations are a poor match for the current job, employer, or sector in which they work. Therefore, having the freedom or right to change employment may regarded as a key aspect of the meaningful realisation of the right to work, as enshrined by criterion 2 of section 2.5.5. To be explicit, the right to change employment and freedom from compulsory labour are fundamental labour rights values enshrined by international human rights instruments. For example, both the UDHR and ICESCR accept the ‘right to work in a job freely chosen’ by an employee.35 In addition, both the ICCPR and ILO Declaration of Fundamental Principles and 32 Sam Ricketson, ‘“Reaping Without Sowing”: Unfair Competition and Intellectual Property Rights in Anglo-Australian Law’ (1984) 7 (1) University of New South Wales Law Journal 1. See also Rudolf Callman, ‘He Who Reaps Where He Has Not Sown: Unjust Enrichment in the Law of Unfair Competition’ (1942) 55 (4) Harvard Law Review 595. 33 Jonathan Chally, ‘The Law of Trade Secrets: Towards a More Efficient Approach’ (2004) 57 (4) Vanderbilt Law Review 1269. 34 Nuna Zekic, ‘Job Security or Employment Security: What’s in a Name?’ Job Security or Employment Security: What’s in a Name?’ (2016) 7 (4) European Labour Law Journal 548, 548-549. For example, in Australia today the average tenure of employment is 7 years. See Patrick D’Arcy, Linus Gustafsson, Christine Lewis and Trent Wiltshire, ‘Labour Market Turnover and Mobility’ (2012) Reserve Bank of Australia Bulletin, 1, 2. Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 205 Rights at Work explicitly ensure that employees have freedom from forced and compulsory labour.36 However, the wide application of restrictive covenants and related legal approaches may discourage freedom of changing employment by imposing legal restrictions on an employee. At a first glance, as noted in sections 3.4.2 and 4.3.3, restrictive covenants cannot automatically be enforced in either Australia or Sri Lanka. Following the common law tradition, courts are concerned with the reasonableness of such restraints, in terms of the parties and public policy. In so doing, courts are generally sympathetic to a situation where an employee would lose the right to earn a living if a particular non-competition clause is enforced. In other words, both Australian and Sri Lanka courts, following the English common law, adopt a ‘stricter view’ on non-competes in employment contracts compared to business restraints; for example, restraining a vendor of the goodwill of a business. 37 Courts are, thereby, of the view that post-employment restraints should only be extended to protect employers’ trade secrets, not employee know-how or general stock of knowledge. Hence, both Australian and Sri Lankan courts, in general, attempt to secure employees’ right to earn a living by allowing them to use their knowledge and skills gained through their employment. However, in a practical sense, for the following reasons, the existence and enforcement of non-competition clauses may prejudice employees in exercising their freedom in changing employments. (a) Blurry Line Between Trade Secrets and Employee know-how There is a doubt whether courts can successfully demarcate employee know-how from the employer’s trade secrets. The approach of Australian courts in this regard is to classify information into three categories: trade secrets (which would be protected by injunction, even in the absence of some contractual covenant according to the principles of equity); know-how (which would be protected by a valid restraint of trade covenant)’ and trivial information (which is not entitled to any protection).38 As 36 See Article 8(3)(a) of the ICCPR and Article 2 of the ILO Declaration of Fundamental Principles and Rights at Work 1998. 37 See section 3.4.2 and 4.3.3. 38 See Sameh Refaat v Michael Barry [2015] VSCA 218, [131] and Faccenda Chicken Ltd v Fowler [1985] 1 All ER 724, 731-732. See section 3.4.2. 206 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW explained in section 3.4.2, the strategy Australian courts utilise in demarcating trade secrets from employee know-how is the adoption of the ‘reasonable man’ test. Accordingly, the test is whether ‘the information be regarded as a separate part of the employee’s stock of knowledge which a man of ordinary honesty and intelligence would recognise to be the property of his old employer and not his own to do as he likes with’.39 Dean explains that the courts adopt an objective approach –– the reasonable person test –– in determining what constitutes a trade secret, whereas a subjective approach is used in determining whether information amounts to skill and general technical experience held by particular employee at the time.40 Therefore, the court considers the circumstances, such as ‘the nature of the employment, the nature of information, whether the employer impressed on the employee the confidentiality of the information and whether the relevant information can be easily isolated from other information’.41 Nonetheless, protection of trade secrets is invariably connected to the protection of information or information-related knowledge. Employee know-how or stock of knowledge acquired through employment is inevitably mixed with that knowledge. For this reason, Merges describes the blurry line between trade secrets and employee know-how as ‘one of the most litigated issues in the pantheon of intellectual property disputes’.42 In GSK Australia Pty Ltd v Ritchie, Harper J observed that ‘I repeat that it may not be easy to distinguish between information which remains the property of the former employer and that which forms the general stock knowledge of the ex- employee.’43 Campbell JA in Del Casale v Artedomus (Aust) Pty44 held that ‘as a matter of ordinary English usage, there is no bright line between things that are of their nature trade secrets things that are not’.45 As Dean remarks: [G]reat difficulty remains in defining the line between trade secrets and know- how. “The difficulty … is that of drawing the line between that which in 39 GD Searle and Co Ltd V Celltech Ltd [1982] FSR 92, 255; See also Printers & Finishers Ltd v Holloway (No. 2) [1965] RPC 239, 255 per Lord Cross. 40 Robert Dean , Employers, Ex-employers and Trade Secrets (Lawbook Co., 2004) 11. 41 AIM Maintenance Ltd v Brunt [2004] WASC 49, [69]. Robert Dean , Employers, Ex-employers and Trade Secrets (Lawbook Co., 2004) 9. 42 Orly Lobel, Talent Wants to be Free: Why We Should Learn to Leave Leaks, Raids and Free Riding (Yale University Press, 2013) 127. 43 [2009] VSC 25, [29] - [30]. See also O’Brien v Komesaroff (1982) 150 CLR 310. 44 [2007] NSWCA 172. 45 Ibid, [128]. Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 207 conscience is his employer’s … and that which has become the employee’s own”.46 In a similar vein, Caenegem argues that: …the conceptual, practical and evidentiary difficulties of separating trade secrets from general knowledge, know-how and experience are daunting, particularly where the claims relates to information that is not recorded in a document, file, date storage device or the like allegedly removed by the ex- employee.47 Thus, courts face the unenviable task of delineating know-how from trade secrets- related knowledge.48 This view was further described by Rob Jackson as follows: This absence of judicial consideration as to what constitutes know-how is commonplace among all of the State and Commonwealth courts. Employee know-how as a concept in its own right is worthy of serious academic and judicial consideration, not merely as an adjunct to the law regulating the operation of confidential information or post-employment restraint provisions.49 (b) The Possibility of Extending the Tenet of Restraint of Trade to Employee know-how Even if the courts are able to define what know-how is, employers can still restrict the use of know-how through restrictive covenants. Dean posits that ‘know- how will be protected, but only if that information has been made the subject of a restraint of trade clause’.50 For instance, affirming the view adopted by Samuels JA in Faccenda Chicken Ltd v Fowler,51 Roberts-Smith J held in AIM Maintenance Ltd v Brunt52 that: 46 Robert Dean, The Law of Trade Secrets (LawBook Co, 1990) 208. Citing Metrans Pty Ltd v Courtney-Smith (1983) 8 I.R. 379, 381. 47 William van Caenegem, ‘Employee Know-how, Non-compete Clauses and Job Mobility across Civil and Common Law Systems’ (2013) 29 (3) International Journal of Comparative Labour Law 219, 228. 48 See for eg, Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; 210 CLR 181, [160]. 49 Rob Jackson, Post-Employment Restraint of Trade (1st edition, The Federation Press, 2014) 99. 50 Robert Dean , Employers, Ex-employers and Trade Secrets (Lawbook Co., 2004) 4. 51 [1984] ICR 589, 599. 52 2004 WASC 49. 208 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW I accordingly take the law to be that confidential information falling short of a “trade secret” may be protected after termination of employment, by an express restrictive covenant.53 As opined by Brereton J in Cactus Imaging Pty Ltd v Peters:54 An employer has an interest in its confidential information, which it may legitimately protect by a restraint of trade, even if the information is not in the nature of a trade secret such as to attract equitable protection in the absence of any contractual agreement.55 Furthermore, in Smith v Nomad Modular Building Pty Ltd,56 the following view of Lord Denning57 was endorsed by the Western Australian Supreme Court: It is thus established that an employer can stipulate for protection against having his confidential information passed on to a rival in trade. But experience has shown that it is not satisfactory to have simply a covenant against disclosing confidential information. The reason is because it is so difficult to draw the line between information which is confidential and information which is not; and it is very difficult to prove a breach when the information is of such a character that a servant can carry it away in his head. The difficulties are such that the only practicable solution is to take a covenant from the servant by which he is not to go to work for a rival in trade. Such a covenant may well be held to be reasonable if limited to a short period.58 Sanderson J, approving Lord Denning’s view, stated that ‘in my view, that is exactly this case’.59 His Honour went on to say that even though there is no suggestion at present that the defendant will use information, know-how or the like gained during his employment with the plaintiff, there must be a risk that he will do so. Therefore, the Court held that: 53 Ibid, [74]. See also Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317; Workpac Pty Ltd v Steel Cap Recruitment Pty Ltd [2008] WASC 238, [34]; and Smith v Nomad Modular Building Pty Ltd [2007] WASCA 169, [35] - [36]. 54 [2006] NSWSC 717. 55 Ibid, [12]. 56 [2007] WASCA 169, [35] - [36]. 57 In Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472, 1479. 58 [2007] WASCA 169, [35] - [36] [emphasis added] 59 Ibid, [36]. Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 209 The plaintiff has no way of knowing when and if that might happen. So to prevent the situation arising, a reasonable restraint clause was placed in the employment agreement. It should be allowed to operate as between the parties.60 The same judicial approach may be found in Sri Lanka. As an illustration, the Hentley Garment case61 held that the use of employee know-how in subsequent employment also can be restricted by the non-compete clauses. Ranasinghe J, citing English authorities such as Commercial Plastics Ltd. v Vincent,62 stated that: Even the general knowledge derived from secret information which has taught an employee how best to solve particular problems as they arise may be a proper subject-matter of protection.63 While the Court neither further analysed nor applied this legal principle, this statement may be at least regarded as a guiding principle. Consequently, there may be a risk that employees are restricted in productively utilising their employment-related information and knowledge in subsequent employment. As a result, employees’ right to enjoy the freedom of changing employment may be circumscribed.64 (c) Extending the Scope of Trade Secrecy to Include Mundane Information As Riley claimed, in recent years Australian courts have attempted to include mundane or ephemeral information in the orbit of confidential information.65 For 60 Ibid, [36]. 61 Hentley Garments Ltd v J.S.A. Fernando (1980) 2 Sri L.R. 145. 62 Commercial Plastics Ltd v Vincent (1964) 3 All E R 546. 63 Hentley Garments Ltd v J.S.A. Fernando (1980) 2 Sri L.R. 145, 152. 64 See William van Caenegem, ‘Employee Know-how, Non-compete Clauses and Job Mobility across Civil and Common Law Systems’ (2013) 29 (3) International Journal of Comparative Labour Law 219, 222. 65 Joellen Riley, Commodifying Sheer Talent: Perverse. Developments in the Law's Enforcement of Restrictive. Covenants in Christopher Arup, William van Canaegem (eds.), Intellectual Property Policy Reform (Edward Elgar Publishing, United Kingdom, 2009) 267, 282. The same was observed by Stone in respect to the USA. She argues that ‘firms value [and seek to protect] not merely specific technical knowledge, such as computer code or bio-technical discoveries, but also more mundane types of knowledge, such as how the business operates, how the goods are produced, how paperwork flows, and how files are organized.’ She further points out even employees may prohibited to use the knowledge relating to negative-trade secrets in subsequent employments. According to her, ‘a negative-trade secret is the knowledge of products tested or systems tried that have proven to be unproductive.’ See Katherine V W Stone, ‘Knowledge at Work: Disputes over the Ownership of Human Capital in the Changing Workplace’ (2002) 34 Connecticut Law Review 721, 737. 210 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW instance, in Woolworths v Olsen,66 Mason P treated a system designed to transform Woolworths’s product supply procedures as confidential information.67 In Fairfax Publications Pty Limited v Birt,68 strategies and tactical plans for selling media advertising to real estate agents were identified as confidential information.69 This information may have been generated by employees in the course of their employment. Riley remarks that ‘in earlier times it is arguable that this kind of information would be regarded as just part of the industry know-how and creative ideas of the employees themselves’.70 Therefore, she challenges the judicial approach in which courts have considered information which is mundane as nevertheless being confidential information, or as employees’ goodwill which can be protected via restrictive covenants.71 One of the reasons behind this is that Australian law is concerned with the protection of confidential information in general, which is considerably broader than trade secrets.72 Put differently, in Australia it is not essential to establish that particular information possesses commercial value.73 Instead, showing that information is not in the public domain may be sufficient.74 Therefore, the information that an employer is willing to protect may not necessarily be limited to trade secrets which carry a commercial value. Explaining the ramification of this legal approach, Riley posits: The cases on confidential information demonstrate that the strategic planning skills, the general know-how and creative thinking of working people can now be treated as a resource under the control of the employing business enterprise, not only during employment but afterwards. While the former employer can still (mercifully) not enslave the former employee by requiring continued service, the employer can (with an appropriately drafted covenant in an 66 [2004] NSWCA 372. 67 Ibid, [6]. 68 [2006] NSWSC 995. 69 Ibid, [20]. 70Joellen Riley, Commodifying Sheer Talent: Perverse. Developments in the Law's Enforcement of Restrictive. Covenants in Christopher Arup, William van Canaegem (eds.), Intellectual Property Policy Reform (Edward Elgar Publishing, United Kingdom, 2009) 267, 272. 71 Ibid. 72 See above section 3.3. 73 William van Caenegem, ‘Employee Know-how, Non-compete Clauses and Job Mobility across Civil and Common Law Systems’ (2013) 29 (3) International Journal of Comparative Labour Law 219, 225. 74 Ibid. See sections 3.3 and 3.4.4 of this thesis. Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 211 employment contract) prevent employee from taking that talent and exploiting it elsewhere for a time75 (d) Non-existence of a Measure to Compensate Employees during the Restraint Period In both Sri Lanka and Australia, depending on the circumstances, when a trade secret or protectable legitimate interest arises, the court has generally upheld what it deems to be a reasonable restrictive period of employment. However, the law is silent on the issue of what an employee is supposed to do in this restrictive period. Indeed, there is no legal means to compensate an employee who is not entitled to undertake new employment relative to the employee’s skill and experience, or to start his or her own business in that period. For instance, in John Fairfax Publications Pty Limited v Birt,76 Brereton J adopted the view that, despite the fact the employee had to face hardship during the three months restraint period (viz, his wife was expecting their second child and their first child was only 16 months old), the Court enforced the restraint. The Court further held that ‘to a significant extent, an employee who pursues such employment despite the terms of a restraint, is the author of his or her own misfortune’.77 Therefore, even if courts hold that the restraint of trade period is reasonable, employees may be still deprived of their right to employment or to earn a living in that period. Also, as noted in section 5.2.1, in any case, it cannot be argued that agreeing upon a non-competition clause in an employment contract is a voluntary act of an employee. In fact, this is not a situation where an employee is responsible for his or her own misfortune. Rather, circumstances at the time may have forced him or her to sign the contract. Moreover, while there is no automatic enforcement of non-competes by the courts, even within a reasonable non-competition period, there is a risk that an employee may have to separate his or her labour from himself or herself by not working. It is accepted that the post-employment restraint period may be varied depending on the circumstances. However, in some cases, even three month restraints 75 Joellen Riley, Commodifying Sheer Talent: Perverse. Developments in the Law's Enforcement of Restrictive. Covenants in Christopher Arup, William van Canaegem (eds.), Intellectual Property Policy Reform (Edward Elgar Publishing, United Kingdom, 2009) 267, 272. 76 [2006] NSWSC 995. 77 Ibid, [49]. 212 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW may be too long to keep an employee out of productive work.78 Moreover, when there is a longer a period of restraint, there is a risk that the enthusiasm of a potential new employer to offer a job may be diminished.79 Also, in cases such as IceTV v Duncan Ross and Ors,80 it is evident that post-employment restraint can be held to be reasonable in circumstances where an employee is terminated by the employer. The overall ramification is that an employee is deprived of his or her right to earn a living. Therefore, it can be submitted that the existence and application of restrictive covenants may hinder successful realisation of employees’ rights, such as freedom of changing jobs. Given that employees may not be able to delineate what information or knowledge they can obtain and use in their subsequent employment, there is a risk that they may not change their employment or surrender to the contractual restraints and be effectively forced to remain with their current employer. In any case, employers may be able to restraint employees from using their know-how in their future employment or at least successfully threaten them not to do so. The fundamental problem may be that there is no limitation on the protectable interest under restrictive covenants. As such, employers may effectively compel employees to remain with them and cancel any plans to join a competitor. Moreover, the existence of restrictive covenants may lead employees to career detours or involuntary occupational change for the reason that employees may not engage in a competing profession or business for the restraint of trade period.81 That is, even in the case of a reasonable restraint which merely prohibits employees from working in a particular sector for a limited period, a skilful and enthusiastic employee may be compelled to seek employment opportunities in other sectors which are not covered by the restraint. On other hand, based on the same rationale, one may argue that non-competition clauses do not completely restrict the ability of employees to work. However, a question that arises in this regard is whether it is reasonable to expect a highly skilled employee in one sector to work in a completely different sector. As an illustration, we cannot expect a robotic technician to find work as a cleaner. 78 Joellen Riley, Commodifying Sheer Talent: Perverse. Developments in the Law's Enforcement of Restrictive. Covenants in Christopher Arup, William van Canaegem (eds.), Intellectual Property Policy Reform (Edward Elgar Publishing, United Kingdom, 2009) 267, 282. 79 Ibid. 80 [2007] NSWSC 635. 81 Matt Marx, ‘The Firm Strikes Back: Non-compete Agreements and the Mobility of Technical Professionals’ (2011) 76 (5) American Sociological Review 695, 702. Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 213 As a result, these legal approaches may result in circumscribing employees’ ‘right to work in a job freely chosen’, which is a basic human right enshrined by the UDHR and ICESCR.82 Article 23(1) of the UDHR states: Everyone has the right to work, to free choice of employment [and] to just and favourable conditions of work…83 Further accepting the same human rights value, Article 6(1) of the ICESCR postulates that: [Everyone has ] the right to work, which includes the right of everyone to the opportunity to gain his living by work which he freely chooses or accepts, and will take appropriate steps to safeguard this right.84 According to the UN committee on Economic, Social and Cultural Rights (CESCR), ‘the right to work is essential for realizing other human rights and forms and inseparable and inherent part of human dignity’.85 Saul et al proclaim that: The right to work brings dignity because it allows a person freedom to choose their work, but also because it enables ‘personal development’ and ‘social and economic inclusion’, including through self-reliance, self-esteem and the sense of social worth that comes from an individual’s contribution to the economy and society.86 However, restricting the right to choose and change employment through restrictive covenants may be a reason to impede the right to dignity and self-esteem of an employee, at least for the period of restraint. In fact, employees may feel socially unworthy by not having the opportunities to work during the restraint period, or as a result of career detours in which they may have to work in a field in which they might not have expertise or which they are otherwise overqualified to perform. The core of the issue can be metaphorically explained by Riley as follows: [In] Shakespeare’s Merchant of Venice, Shylock was forbidden by the court from taking the pound of flesh for which he had contracted because to do so 82 See section 2.5 for a detailed analysis of this right. 83 See Article 23(1) of the UDHR. [emphasis added] 84 See Article 6 of the ICESCR. [emphasis added] 85 UN committee on Economic, Social and Cultural Rights (CESCR), General Comment No. 18, Article 6 of the ICESCR, E/C.12/GC/18 (6 February 2006). 86 Ben Saul, David Kinley and Jacqueline Mowbray, The International Covenant on Economic, Social and Cultural Rights: Commentary, Cases, and Materials (Oxford Scholarly Authorities on International Law, 2014) 272. [citations omitted] 214 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW would rob his victim of vital blood, which was not the subject of the bargain. Our present law turns this on its head. The employee is made to surrender up their life-blood – the very liberty to work and use their own know-how, skills and talents to the full – in order to render to the employer a mere pound of so- called ‘confidential information’.87 Overall, restrictive covenants may prejudice an employee who is subjected to restraints depending on the circumstances. As such, employees may not be able to either use their own knowledge, skills and talents in their next employment or to glean and develop new knowledge through continuous employment and industry participation. 5.2.3 Factors Affected the Overall Implementation of Rights (a) Uncertainty of Laws In general, clear legal rules constitute the most important standard for the resolution of cases.88 As such, individuals can know in advance ‘what legal consequences follow from their own conduct’.89 In other words, knowing in advance how laws would operate permits an individual to make legal decisions and to plan their actions.90 As a result, individuals can be aware of their rights which may help them to successfully implement their legal rights. The same notion may hold true with trade secrets law. For example, the APEC-Lima Declaration identified legal certainty as a best practice of trade secrets law. As provided by the Declaration, APEC members are encouraged: 87 Joellen Riley, Commodifying Sheer Talent: Perverse. Developments in the Law's Enforcement of Restrictive. Covenants in Christopher Arup, William van Canaegem (eds.), Intellectual Property Policy Reform (Edward Elgar Publishing, United Kingdom, 2009) 267, 277. 88 See Lord Mance, ‘Should the law be certain?’ (Speech delivered at the Oxford Shrieval Lecture, University Church of St Mary Virgin, Oxford, 11 October 2011) Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 215 To provide greater certainty and predictability, address any lack of clarity within their respective legal systems as to the extent to which contractual arrangements, written non-disclosure agreements, employment agreements and other measures, may give rise to obligations to protect trade secrets.91 However, it is doubtful whether Australia and Sri Lanka provide for certain and predictable trade secrets law. As explained in Chapter 3 and 4, the trade secrets law of Australia and Sri Lanka does not originated from one source of law. Instead, it is a combination of many laws, such as legislation, contract law, implied duty of fidelity and breach of confidence, which may be grounded on different conceptual foundations and values. Therefore, at the first glance, there may be a problem of knowing the applicable law.92 In addition, legal confusion can occur when applying laws and in the judicial construction of legal concepts. In order to understand how Sri Lankan and Australian law becomes uncertain, we may need to focus on the nature of the legal systems of each country. Sri Lanka has a mixed jurisdiction, which reflects a particular blend of statutory laws, Roman- Dutch law, English common law and some indigenous laws.93 As seen in Chapter 3, whereas Sri Lanka enacted a TRIPS-compliant legislation, it still keeps room for an employer to rely on common law rights.94 Consequently, common law relating to contract law and breach of confidence can be applicable in Sri Lanka, even after the enactment of comprehensive IP legislation in 2003. However, as explained in section 4.3.3, there is a possibility of applying Roman-Dutch law in respect of restraint of trade.95 Such an application may not bring great certainty to courts or the parties to a trade secrets case (employers or employees), given that Roman-Dutch law and English 91 Certainty and predictability of law is identified as a best practice of a trade secrets protection: APEC- Lima Declaration, Best Practices in Trade Secret Protection and Enforcement Against Misappropriation , Asia-Pacific Economic Cooperation (APEC) (2016) 216 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW law approach the issue of validity of restrictive covenants in different ways.96 By contrast, Australian law is entirely based on the English law tradition, and thus is governed by common law relating to contracts and the equitable doctrine of breach of confidence. Therefore, there may be less doubt in selecting applicable laws. Moreover, there can be uncertainty of legal principles in Australia and Sri Lanka. First, the issue may be the court’s reliance on the Nordenfelt test, which specifies that restraint of trade clauses are prima facie void, unless they are reasonable.97 Reasonableness should be measured not only in relation to the parties, but also in terms of the public interest. Hence, employees who are sign a contract containing restrictive covenants, such as non-disclosures and non-competes, cannot predict the validity of their contract at the time of signing. That may depend on the factual matrices and the judicial attitude to the reasonableness of the facts of the case. This issue was asserted by Callinan J in Maggbury Pty Ltd v Hafele Australia Pty Ltd98 as follows: The test of reasonableness between the parties has considerable difficulties. The test requires judges to substitute their own views for the decisions of businessmen and women, thereby overturning the arrangements on which the latter have based their affairs. It asks the courts to engage in a delicate exercise: they must not inquire into the adequacy of consideration or the fairness of the contract, but they can take account of the quantum of consideration to determine if a covenant is reasonable. The test also leaves undefined in what circumstances the “public interest” should strike down restraints that surmount the hurdle of reasonableness.99 This issue was further investigated by Arup et al in 2013 who affirmed that Australian case laws ‘do not provide clear a priori rule as to what scope, time and territory of restraint is reasonable’.100 Having explored this issue, they stated that: …the common law proceeds on a pragmatic, discretionary basis. Restraints are enforceable if they are reasonable. When restraints are put before them, the courts ask whether the particular restraint is reasonably adapted to the protection of the employer’s legitimate business interests. The legal process 96 See section 4.3.3 for a more detailed analysis of law. 97 See section 3.4.2. 98 [2001] HCA 70. 99 Ibid, [90]. See the footnote 73 of the case. 100 Christopher Arup, Chris Dent, John Howe and William Van Caenegem, ‘Restraint of Trade: The Legal Practice’ (2013) 36 (1) UNSW Law Journal 1, 4. Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 217 becomes a sorting system. In such a system, the legal principles do not provide the parties with bright line certainty to predict the outcomes.101 The same observation may remain true in the case of Sri Lankan law, since it also relies on English law principles and centres on seeking the reasonability of restraints.102 Second, in Australia, restraint of trade cases are heard by the State Supreme Courts which are not bound by their own decisions. As such, Arup et al argue that ‘the law is evolving and fresh decisions are being made in each jurisdiction’.103 Similarly, in Sri Lanka, the Commercial High Court of Sri Lanka which is vested with power to hear trade secrets related restraint of trade cases, is not bound by its decisions. In fact, Commercial High Court decisions are not reported and future judges may not be able to access to the present judgments. As a result, there may be different and contradictory judicial approaches in determining the validity of restrictive covenants and the application of legislative provisions enshrined in the IP Act. Third, there can be state-to-state variations in respect of restraint of trade, at least between New South Wales and other states in Australia. For instance, the Restraint of Trade Act 1976 (NSW) empowers the court to re-write restraints that are excessive so as to reduce its operation to that of a reasonable level.104 However, such a power is not entertained by other states which mostly follow the common law ‘all-or-nothing’ approach.105 Consequently, the New South Wales Supreme Court enjoys more discretion in deciding what restraints are reasonable than other state Supreme Courts. As pointed out by Caenegem, the New South Wales approach should not be considered as encouraging ‘employers to keep restraints to a reasonable scope’.106 Instead, ‘an employer may … insert a very broad or oppressive clause, which either will be observed by employee who has neither the courage nor the means to challenge it, or 101 Ibid. 102 See section 4.3.3. 103 Ibid. 104 See section 3.4.2. See also Restraints of Trade Act 1976 (NSW) s 4(3); Woolworths Ltd v Olson [2004] NSWCA 372; Hanna v OAMPS Insurance Brokers Ltd (2010) 202 IR 420; Breen Creighton and Andrew Stewart, Labour Law (Federation Press, 5th ed, 2010) [14.28]–[14.36]. 105 See section 3.4. 2. 106 William van Caenegem, Trade Secrets and Intellectual Property: Breach of confidence, Misappropriation and Unfair Competition (Walter Kluwer, Netherlands, 2014) 213. 218 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW will be made valid by a court under the Act’.107 Therefore, employers in New South Wales may ‘have a distinct advantage over employers in other states’.108 This issue may loom large when it comes to the application of cascading or ladder clauses –– where restraint of trade clauses provide different levels of restraint – – enabling an employer to enforce lower levels of restraints if higher levels are deemed to be unreasonable.109 This practice looks set to remain valid practice in many parts of Australia.110 As noted in section 3.4.2, even though there were 120 possible readings of the restraint in Re Lloyd’s Ships Holdings Pty Ltd and Queensland Merchant Holdings Limited v Davros Pty Ltd.,111 the Queensland Supreme Court held that the cascading restraint was valid. In Workpac Pty Ltd v Steel Cap Recruitment Pty Ltd,112 there were 520 different possible constructions of the restraint of trade clause. Arup et al, analysing this practice, remark that: While this practice [cascading clauses] assists the employers, it does not give employees clarity about the restraint that they will have to honour, whether at the time of the negotiation of the contract, or the end of the employment relationship, or the entry into litigation.113 As such, employees are unable to predict the outcome of the application of a restraint of trade clause and cannot predict the legal interpretation if a lawsuit has been initiated. And, in an absence of a lawsuit, it may be reasonable that an employee assumes a broad cascading or non-competition clause would be enforced as written.114 That is 107 Ibid. 108 See Brian Powles, ‘Post-employment Restraints: When ‘playing fair’ is the practical approach to protecting your interests’ PCC Employment Lawyers News Letter (23 March 2017) < http://www.pcclawyers.com.au/news-centre/2017-newsletters > Perhaps, this advantage may persuade new or potential employers, especially, in knowledge or innovation related industries to establish in New South Wales. Accordingly, forum shopping can be occurred. See also Christopher Arup, Chris Dent, John Howe and William Van Caenegem, ‘Restraint of Trade: The Legal Practice’ (2013) 36 (1) UNSW Law Journal 1, 16. 109 See section 3.4.2. 110 See section 3.4.2. 111 [1987] FCA 70, See also Hydron Pty Ltd v Harous [2005] SASC 176. 112 [2008] WASC 238. 113Christopher Arup, Chris Dent, John Howe and William Van Caenegem, ‘Restraint of Trade: The Legal Practice’ (2013) 36 (1) UNSW Law Journal 1, 5. 114 Matt Marx, ‘Reforming Non-Competes to Support Workers’ The Hamilton Project, Brookings (February 2018) Although, authors observations relating to the US law, his observations may equally valid in the Australian context. Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 219 because an employee may not fully comprehend the legality of the restraints even if he or she feels that the restraint is unreasoanble.115 Fourth, the application of breach of confidence can be regarded as a characteristic of Australian and Sri Lankan trade secrets law. As explained, the doctrine of breach of confidence is derived from equity, which was developed in parallel to common law in serving justice based on the conscience and morality of judges. Hence, one may argue that equitable fairness would serve the purpose of bringing justice to the affected parties. However, the problem arising here is that certainty and fairness may be colliding principles. In particular, achieving a greater degree of certainty may lead to relinquishing some aspects of reasonableness on the one hand and, on the other, preserving reasonableness may be a cause of loss of legal certainty. Therefore, the equitable action of breach of confidence may contribute to uncertainty in the outcome of a judgment. In other words, in trade secrets litigation, it may be difficult to predict ex ante how the law will be applied ex post by the courts.116 As a result, employees may be unclear about the legality of their actions in relation to their job and actions relating to the utilisation of trade secrets-related knowledge, especially in the post-employment phase. Moreover, breach of confidence did not originate in order to particularly protect trade secrets. Instead, it is based on public policy considerations and focuses on the protection of confidentiality. As such, Australian law does not identify a particular class of information called ‘trade secrets’ and there is no special treatment for such a class. Consequently, there is no definitive understanding of the meaning of ‘trade secrets’ in Australia. Even though some Australian judges have sought to ensure that the protection of trade secrets is not to be extended to cover general stock of knowledge of the employees or employee know-how, both trade secrets and employee know-how are poorly defined in the Australian context.117 Hence, an employer who usually takes the upper hand in an employment relationship may exploit uncertainty in this relationship by extending the trade secrets restraints to employee know-how or stock 115 Ibid. 116 Giuseppe Dari-Mattiacci and Bruno Deffains, Uncertainty of Law and the Legal Process, Amsterdam Center for Law & Economics Working Paper No. 2005-10 (2005). 220 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW of knowledge of an employee.118 In other words, employees who are uncertain about what sort of information that they are allowed to use in subsequent employments may not be able to make decisions in respect of changing jobs. For these reasons, it may be argued that the trade secrets law of both Australia and Sri Lanka may contribute to uncertainties, especially in the context of the application of contractual restraints, implied duty of fidelity, and breach of confidence. The application of such uncertain laws may hinder the successful implementation of human rights of employers and employees, such as employers’ right to effectively protect their trade secrets and employees’ right to work in a freely chosen employment.119 That is because if employers or employees are uncertain as to their legal rights, they may not be able to know whether their rights are being respected or protected by others. Observing the repercussions of legal uncertainty in restraint of trade, Arup et al state: In principle, if a party has the law on their side they can go to obtain a ruling on the merits. However, under conditions of uncertainty, the benefits to be gained from the law have to be discounted by the chances of success, which are not so easy to calculate.120 Investigating the impact of the existence of uncertain laws in the European region, EU- commissioned research reveals that employers consider that legal uncertainty may negatively impact on the implementation of their rights over trade secrets.121 As such, there is a risk that uncertain laws may discourage employers from investing in creating trade secrets since they may not know the legal conditions that will govern their investments in the event of a misappropriation.122 For an employee, the existence of so many laws brings confusion as to what rights are protected and what behaviours are lawful. For example, when it comes to the application of post-employment restraints, employees may be uncertain as to the point at which a non-competition clause can be 118 William van Caenegem, Trade Secrets and Intellectual Property: Breach of confidence, Misappropriation and Unfair Competition (Walter Kluwer, Netherlands, 2014) 207. 119 See criteria 1 and 2 outlined in section 2.5.5. 120 Christopher Arup, Chris Dent, John Howe and William Van Caenegem, ‘Restraint of Trade: The Legal Practice’ (2013) 36 (1) UNSW Law Journal 1, 29. 121 Baker and McKenzie, Study on trade secrets and confidential business information in the internal market (April 2013) 10,14, 151. 122 Christopher Rebel J Pace, ‘The Case For a Federal Trade Secrets Act’ (1995) 8 (2) Harvard Journal of Law and Technology 427, 447. Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 221 regarded as reasonable or unreasonable. Perhaps, by looking at their contractual obligations, they may consider they are bound to their employer in the terms stated by the contract. Consequently, the employee may surrender to the present employer, thinking they are bound by restraints, regardless of whether or not they are reasonable. Although the disadvantage of uncertain laws is equally relevant to both parties, it can be argued that it more often prejudices employees.123 That may be for the reason that employers may have more means to access expert legal advice than employees, given their better financial capacities and resourcefulness.124 Therefore, uncertainty, as a whole, may impact the identification, protection and effective implementation of employees’ right to work. (b) Some other Practical Impediments This section examines some practical difficulties that employees may encounter in exercising their rights being subject to restrictive covenants and being a defendant to a trade secrets case. As seen in Chapter 3 and 4, first, most trade secrets-related cases are settled at the interlocutory stage, which is more favourable for employers than employees.125 Exploring the legal practice relating to restraint of trade in Australia, Arup et al observe that: The research also shows that much of the hard bargaining goes towards submission or settlement: the employer’s lawyer threatens to file with the court; the employee is advised of the factors weighing against a defence in court; and depending on nerve, cost constraints and the benefits at stake, the employee submits or some compromise is hammered out.126 As such, their research shows that court proceedings in respect of breach of restrictive covenants –– which is a primary cause of action in a trade secrets case –– is not 123 Ibid. 124 This issue is further analysed in section 5.2.3(b). 125 See Joellen Riley, Commodifying Sheer Talent: Perverse. Developments in the Law's Enforcement of Restrictive. Covenants in Christopher Arup, William van Canaegem (eds), Intellectual Property Policy Reform (Edward Elgar Publishing, United Kingdom, 2009) 267, 279. 126 Chistopher Arup, Chris Dent, John Howe and William Van Caenegem, ‘Restraint of Trade: The Legal Practice’ (2013) 36 (1) UNSW Law Journal 1, 24. 222 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW favourable for employees.127 Riley remarks that many decisions relating to misappropriation of trade secrets are made at the interlocutory stage128 where an interlocutory injunction is granted as a matter of urgency.129 As explained in sections 3.6.1 and 4.5.1, interlocutory injunctions may be considered a primary solution in a trade secrets case because, first, there is a need to immediately prevent an employee, who is leaving, from potentially divulging the (ex)-employer’s trade secrets to the new employer. Second, if an employer waits until the final court decision there may be a risk, due to procedural delays, that the restraint of trade period will have expired. Third, an employer may need some time to prepare for a full hearing by gathering all the evidence required to prove his or her case.130 Both Sri Lanka and Australia follow English legal principles regarding the grant of interlocutory injunctions. The main concern of the courts is to consider: (1) whether there is a serious case to be tried; and (2) whether the balance of convenience favours granting the relief.131 However, both of these factors may favour an employer over an employee at this stage of proceedings. Generally, an employer who is claiming to have trade secrets only has to establish that he or she has a serious case to try.132 Once achieved, it may be comparatively easy for an employer to prove the risk of such secrets being divulged to a competitor if a leaving employee is allowed to join the competitor. Thus, the balance of convenience is likely to favour an employer.133 In other words, at the interlocutory stage, judges merely determine whether an employer has an arguable and serious case to try, given the need to make an urgent and 127 Ibid. 128 This is affirmed by Richard Gough, ‘Australia’ in Terrence F. MacLaren (eds) Worldwide Trade Secrets Law (Volume 3, Thomson West, 2004) [30.1]: ‘…most cases are decided in the lower courts, and very often at an interelocutory stage rather than after a full trial of the issues.’ 129 Joellen Riley, Commodifying Sheer Talent: Perverse. Developments in the Law's Enforcement of Restrictive. Covenants in Christopher Arup, William van Canaegem (eds), Intellectual Property Policy Reform (Edward Elgar Publishing, United Kingdom, 2009) 267, 279. 130 Ibid. 131 See above section 3.6.1 and 4.5.1. 132 Ibid. 133 See Joellen Riley, Commodifying Sheer Talent: Perverse. Developments in the Law's Enforcement of Restrictive. Covenants in Christopher Arup, William van Canaegem (eds.), Intellectual Property Policy Reform (Edward Elgar Publishing, United Kingdom, 2009) 267, 280, Chistopher Arup, Chris Dent, John Howe and William Van Caenegem, ‘Restraint of Trade: The Legal Practice’ (2013) 36 (1) UNSW Law Journal 1,9; See also HRX Holdings Pty Ltd v Pearson [2012] FCA 16; DP World Sydney v Guy [2016] NSWSC 1072, [59] :‘on the balance of convenience, or to put it another way, the balance of the risk of doing an injustice, the case heavily favours DPW (employer)’ Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 223 provisional decision.134 The whole picture or the factual scenario may not be analysed when reaching a decision at an interlocutory stage.135 For instance, Arup et al observe that ‘the court relaxes the onus [in the interlocutory stage] and says that it is enough to show that the employee is going to work for a competitor that could make use of the information’.136 In the same vein, Riley proclaims that: While this balance of convenience is weighted in favour of the employer seeking the injunction, there is a serious risk of injustice to the worker, and sterilisation of innovation and productivity.137 For example, in IceTV v Duncan Ross & Ors,138 injunctive relief was granted notwithstanding that two employees who were the subject of the case had already been dismissed by the ex-employer. The result was that they were unemployed for one year.139 Furthermore, as previously noted, in the John Fairfax case, when considering the issue of the balance of convenience, Brereton J favoured the employer despite the fact that the employee was the breadwinner of his family with an expectant wife and a 16-month-old toddler.140 Arguably, this practice carries far-reaching repercussions in depriving employees’ right to earn a living or right to occupy a lawful profession, at least for a limited period. Since the law does not provide for making a payment to employees during the restricted period, being unemployed may mean employees may not be able to afford basic needs such as food, shelter and health care. Therefore, this situation hinders the realisation of a right to life and fulfilling the basic needs required 134 Chistopher Arup, Chris Dent, John Howe and William Van Caenegem, ‘Restraint of Trade: The Legal Practice’ (2013) 36 (1) UNSW Law Journal 1, 9. 135 See for eg, Australia: BDO Group Investments (NSW-Vic) Pty Ltd v Ngo [2010] VSC 206, [67]- [68]. Sri Lanka: Hentley Garments Ltd v J.S.A. Fernando (1980) 2 Sri L.R. 145. See also Christopher Arup, ‘What/Whose Knowledge? Restraints of Trade and Concepts of Knowledge? (2012) 36 (2) Melbourne University Law Review 369, 388. 136 Chistopher Arup, Chris Dent, John Howe and William Van Caenegem, ‘Restraint of Trade: The Legal Practice’ (2013) 36 (1) UNSW Law Journal 1, 9. 137 Joellen Riley, Commodifying Sheer Talent: Perverse. Developments in the Law's Enforcement of Restrictive. Covenants in Christopher Arup, William van Canaegem (eds.), Intellectual Property Policy Reform (Edward Elgar Publishing, United Kingdom, 2009) 267, 281. She further states that: ‘Presently, the balance is tipped in favour of the employer plaintiff, who needs only to demonstrate the existence of a restrictive covenant’. 138 [2007] NSWSC 635. 139 See Joellen Riley, Commodifying Sheer Talent: Perverse. Developments in the Law's Enforcement of Restrictive. Covenants in Christopher Arup, William van Canaegem (eds.), Intellectual Property Policy Reform (Edward Elgar Publishing, United Kingdom, 2009) 267, 280. 140 John Fairfax Publications Pty Limited v Birt [2006] NSWSC 995, [49]. 224 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW for living. As a whole, favouring employers over employees during the interlocutory stage should be considered a serious issue given that interim relief may become a ‘practical determinant of the matter’, since most trade secret-related cases stop at the interlocutory stages.141 Secondly, common law countries including Australia and Sri Lanka142 follow an adversarial system of administration of justice. In such a system, litigation produces a battle between ‘haves and have-nots’.143 Hence, in many cases, employees may opt not to bring their case to the courts as they may not be able to afford the cost and the stress of litigation.144 If they opt to contest against the plaintiff-employer, then they may have to face the difficulty of hiring a lawyer who is familiar with not only intellectual property law but also restraint of trade, breach of confidence, and perhaps labour law.145 Even if they find a lawyer who is an expert in these areas, they may not be able to afford such a lawyer.146 This problem may be intensified given that the legal outcome of a case is uncertain and can take many years.147 By contrast, employers who may be repeat litigants and have considerable knowledge of the litigation process, may have an advantage of having the resources to afford a lawyer who is an expert in the area.148 As opined by Caenegem: If a disputes arises, uncertainty may encourage firms to advance a case that is apparently arguable, sufficient to deter the ex-employee. Also the negative 141 Chistopher Arup, Chris Dent, John Howe and William Van Caenegem, ‘Restraint of Trade: The Legal Practice’ (2013) 36 (1) UNSW Law Journal 1, 12. 142 Even though substantive laws of Sri Lanka follows Roman-Dutch law (following the civil law tradition) to some extent, procedural laws in its entirety are based on English law and English traditions. See LJM Cooray, An Introduction to the Legal system of Sri Lanka (Stamford Lake Publication, 2nd ed, Colombo, 2003) 45-46. 143 Marc Galanter, ‘Why the “Haves” come out Ahead: Speculations on the Limits of Legal Change’ (1974) 9 (1) Law and Society Review 95, 123. 144 David Cabrelli and Louise Floyd, ‘New light through old windows: Restraint of trade in English, Scottish and Australian Employment Laws (-) Emerging and enduring issues’ (2010) 26 (2) International Journal of Comparative Labour Law and Industrial Relations 167, 173. 145 This is a consequence of the application of multiple legal regimes in protecting trade secrets. 146 See Chistopher Arup, Chris Dent, John Howe and William Van Caenegem, ‘Restraint of Trade: The Legal Practice’ (2013) 36 (1) UNSW Law Journal 1, 18: Cost of interlocutory proceeding may be around $25000- $100000 and the cost of contesting a trial may be around $300000. 147 See above section 5.2.3(a). 148 Chistopher Arup, Chris Dent, John Howe and William Van Caenegem, ‘Restraint of Trade: The Legal Practice’ (2013) 36 (1) UNSW Law Journal 1, 17-18. However, this point may not be valid when a small firm sues an employee. Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 225 repercussions of a ‘gung-ho’ approach to a trade secrets claim for well- resourced employers may be slight.149 In any case, for employees, litigation may be a long, stressful and painful process.150 Appearing before the courts as a defendant may be highly distracting in the life of an employee and become a particularly physically and mentally taxing experience.151 Employees may not be able to properly represent themselves even if they have a strong case. Thirdly, it may be reasonable to argue that when an employee is bound by a non- competition clause or subjected to litigation, potential employers may be reluctant to recruit such an employee.152 That may be because ‘future employers need to hire an employee, not a lawsuit’.153 Wilf, in supporting this argument, asserts that: When [an] employee finds her[him]self seeking further employment, she [or he] may be facing restricted opportunities based upon a covenant not to compete.154 As such, it is likely that employees may surrender to the (ex)-employer’s contractual restraints, irrespective of the unreasonableness of them.155 These practical issues may hinder the enjoyment and enforcement of right to work and other related rights of employees. 149 William van Caenegem, ‘Employee Know-how, Non-compete Clauses and Job Mobility across Civil and Common Law Systems’ (2013) 29 (3) International Journal of Comparative Labour Law 219, 235. 150 Robin Shea, ‘Employees: Better Think Twice Before Suing Your Employer (Four Reasons Why) Labour and Employment Law Blog LexisNexis (30 May 2013) 226 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 5.3 IMPACT OF LAW ON PUBLIC INTEREST OR SOCIETAL RIGHTS156 As pointed out in sections 3.2 and 4.2, the trade secrets regime plays a major role in preserving information or knowledge relating to invention and businesses.157 As such, it may be argued that both jurisdictions are over-reliant on trade secrets protection. Such an overreliance may bring far-reaching repercussions. In general, the legal approach in creating private rights over a subject matter may involve the act of balancing private rights with public rights. For example, as seen in section 2.2, the public policy goal of intellectual property law, in general, is to promote disclosure of knowledge in exchange for creating private rights over an intellectual property for a limited period of time. However, it may be questionable as to what extent trade secrets protection may bring such societal or public benefit. In this context, in light of criteria 3 established by Chapter 2, this section examines the effect of trade secrets protection on the exercising of societal rights as a whole. 5.3.1 Impact on Right to Knowledge and Information As seen in section 2.2, although the public policy goal of intellectual property law, in general, is to promote disclosure of technical information resulting in promoting invention, there is a risk in trade secrets law that the public will never come to know the invention.158 That may be because trade secrets law prohibits public access to information or knowledge since it promotes secrecy. As Bone points out, ‘trade secrets law runs the risk of undermining the socially beneficial incentives of the patent system’.159 As explained in sections 3.2 and 4.2, Australian and Sri Lankan businesses prefer the trade secrets regime over other alternative methods, as a method of protecting their intellectual property-related knowledge. This may be equally relevant to other jurisdictions, such as the United States and Europe.160 Trade secrets protection 156 This thesis inchangebly use societal right or public rights to denote public interest. 157 See above sections 3.2 and 4.2. 158 Lionel Bentley, ‘Patents and Trade Secrets’ in Neil Wilkof and Shamnad Basheer (eds) Overlapping Intellectual Property Rights (Oxford University Press, 2012), 82. 159 Robert G Bone, ‘A New Look at Trade Secret Law: Doctrine in Search of Justification’ (1998) 86 California Law Review 241, 270; See also Robert G Bone, ‘The (still) Shaky Foundation of Trade Secret Law ’ (2014) 92 (7) Texas Law Review 1803,1807–10 (2014) (reiterating the concerns raised in his original article). 160 EU Intellectual Property Office, ‘Protecting Innovation Through Trade Secrets and Patents: Determination For European Union Firms’ (July 2017) 44 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 227 may bring a competitive advantage and financial benefit to the owner and thus is a way of stimulating investment on inventions. On the contrary, trade secrets protection may be a reason for blocking a swath of technical knowledge which may be essential for further innovation and may bring negative effects. First, the very secrecy of trade secrets may bring a chilling-effect on follow-on inventions.161 To be more explicit, blocking access to knowledge through trade secrets law is questionable because knowledge flow is considered to be an essential element for innovation, economic growth and human flourishing.162 Marshall posits that knowledge can be regarded as the genie of innovation163 since the existence and dissemination of knowledge contributes to the increase of inventions.164 That may be because, as Hettinger proclaimed, ‘intellectual activity is not creation ex nihilo’.165 In other words, one’s knowledge, thoughts and ideas basically depend on the knowledge of previous generations.166 For this reason, in general, even intellectual properties, including trade secrets, which are knowledge products can be regarded as social products or social goods.167 The question that arises here (analogous to Nozick’s contention) is whether a trade secrets owner can claim exclusive rights to a product in a manner of ‘pouring a tomato can into the ocean’.168 In other words, as noted in section 2.2, since there is no requirement to prove novelty or inventive step in the trade secrets regime, a minor creative effort is enough to claim trade secrets rights. Besides, given that a trade secrets owner or an employer may have to rely on the knowledge of previous generations, he or she may not be able to legitimately claim the sole right for keeping an invention or creation secret. In essence, the trade secrets regime enables web/secure/webdav/guest/document_library/observatory/documents/reports/Trade%20Secrets%20Rep ort_en.pdf > 161 I. P. L. Png, ‘Secrecy and Patents: Theory and Evidence from the Uniform Trade Secrets Act’ (2017) 2 (3) Strategy Science 176, 176. 162 Yochai Benkler, The Wealth of Networks (Yale University Press, 2006) 133; Lea B Shaver, ‘Defining and Measuring Access to Knowledge: A Blueprint for an Index of A2K’ (2007) 4 (2) A Journal of Law and Policy 1. 163 A Marshall, Principles of Economics (Macmillan and Co., 8th ed, 1920) 18. 164 Nicolas Suzor, ‘Access, Progress, and Fairness: Rethinking Exclusivity in Copyright’ (2013) 15 (2) Vanderbilt Journal of Entertainment and Technology Law 297, 318; 165 Edwin Hettinger, ‘Justifying Intellectual Property’ (1989) 18 (1) Philosophy and Public Affairs 31, 38. 166 Rajshree Chandra, Knowledge as Property: Issues in the Moral Grounding of Intellectual Property Rights (Oxford University Press, 2010) 69. 167 Edwin Hettinger, ‘Justifying Intellectual Property’ (1989) 18 (1) Philosophy and Public Affairs 31, 38. 168 Robert Nozick, Anarchy, State, and Utopia (Basic Books, 1974) 175. 228 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW employers to claim sole ownership to information or knowledge and blocking the present and future generations’ access to such knowledge. Consequently, trade secret law may hinder society’s right to know a phase of knowledge progression. As such, new or potential inventors may not be able to develop their knowledge and inventions on the existing, but secret knowledge. Instead, they may have to repeat previous but undisclosed work.169 Second, technology transfer is as an essential element of dissemination of knowledge.170 This is, in fact, in line with the broader objective of the TRIPS Agreement which specifies that it intends to ‘promote innovation and facilitate the diffusion of technology, in a manner conducive to social and economic welfare, and to a balance of rights and obligations’.171 Article 66 (2) encourages technology transfer by providing that: Developed country Members shall provide incentives to enterprises and institutions in their territories for the purpose of promoting and encouraging technology transfer to least-developed country Members in order to enable them to create a sound and viable technological base.172 However, it may be doubtful whether trade secrets law successfully provides for technology transfer. As pointed out by Bone, ‘secrecy required constant vigilance, however, since ideas, like wild animals, had a tendency to escape. Once gone, they returned to the commons as public property’.173 In other words, trade secrets law per se provides protection for information being kept as secret –– protection which is lost once the secret is disclosed. However, technology transfer brings a high risk of divulging trade secrets and there is no protection once the secret is disclosed. 169 Belay Seyoum, ‘Property rights versus public welfare in the protection of trade secrets in developing countries’, (1993) 7 (3) The International Trade Journal 349. 170 Harvey Brooks, ‘What We Know and Do not Know about Technology Transfer: Linking Knowledge to Action’ (Paper presented at Marshalling Technology for Development Symposium, California, 28-30 November 1994) 83, 83. 171 See Article 7 of the TRIPS Agreement which sets out that intellectual property protection ‘should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations’. The importance of increasing the flow of technology to developing countries was further emphasised by the WTO Doha Ministerial Declaration: See ‘Article 37: Trade and Transfer of Technology’ of the Doha Declaration on the TRIPS Agreement and Public Health, WTO 4th Ministerial Conference, Doha, Qatar, 2001. 172 Article 66 (2) of the TRIPS Agreement. 173 Robert G Bone, ‘A New Look at Trade Secret Law: Doctrine in Search of Justification’ (1998) 86 California Law Review 241, 278. Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 229 According to commentators such as Jorda, transferring a technology protected as a trade secret can be considered a ‘black box’,174 in that unrestricted disclosure of a proprietary know-how would result in the certain loss of trade secrets rights.175 Thus, the transferee and related parties should be bound with contractual confidentiality obligations through non-disclosure or non-competition clauses. However, the law relating to this matter may be uncertain and depends on the legal systems of the countries, and even regions.176 As such, relying on the contracts regime for successful technology transfer among countries and firms may be problematic. Moreover, whereas trade secrets licencing may be helpful to some extent to share information at least within an industry, according to Levine, ‘licencing is a long way from free access to information and the ability of the public to offer criticisms’.177 In any case, trade secrets ‘doctrine was not designed to encourage cooperation or sharing information, but to prevent it in order to preserve competitive advantages between businesses’.178 Third, and more importantly, as noted in section 2.2, if an inventor has opted for trade secrets protection over patenting, there is no statutory limitation for his or her invention. This may be a sweet reward for successful inventors, since the trade secrets regime offers a monopoly over secretly-held inventions enabling the inventor to generate great wealth.179 To the contrary, it may not bring any benefit to the public. To be more explicit, knowledge behind a patented invention may become public domain after its statutory life has expired, but there may be no such expiration of trade secrets protection. As such, knowledge behind a secretly-held invention may in the hands of trade secrets owner, potentially forever.180 As an illustration, forceps, an aid for childbirth, was first invented by Peter Chamberlen in the 17th century and passed down as a family secret for three 174 K F Jorda, ‘Trade Secrets and Trade-Secret Licensing’ in A Krattiger, R T Mahoney, L Nelsen (eds), Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices (MIHR, UK and PIPRA, USA, 2007) 1043-1057. 175 See AIPPI, Protection of Trade Secrets through IPR and Unfair Competition Law Q 215 (31 March 2010) 176 See above section 5.2.3(a) . 177 David S Levine, ‘Secrecy and Unaccountability: Trade Secret in our Public Infrastructure’ (2007) 59 Fordham Law Review 135, 174. 178 Ibid, 175. 179 Andrew A. Schwartz, ‘The Corporate Preference for Trade Secret’ (2013) 74 (4) Ohio State Law Journal 623, 633. 180 Ibid. 230 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW generations.181 It may be true that forceps have helped save hundreds of lives during its secret tenure. However, ‘had it been patented, it could have saved thousands or even millions’.182 That may be because, first, public, at least, medical professionals, being aware of the existence of such technology, may use the equipment by purchasing it. Second, it may add to the public domain after the patent expires which enables anybody to use the technology or equipment for free.183 Fourth, it may be doubtful whether Australian and Sri Lanka law adequately provide for the existence and application of trade secrets exceptions such as reverse engineering. As observed in section 2.2, trade secrets law, in general, provides a protection against wrongful means of acquiring trade secrets; it does not offer any protection against ‘fair and honest means’ of discovering trade secrets. These honest means or exceptions to trade secrets rights include reverse engineering and independent invention or development.184 Therefore, more than one individual may ‘develop the same or substantially similar body of information in a phenomenon known as “multiple independent (or simultaneous) inventions”’185 or dependent inventions (based on reverse engineering). Thus, one may argue that trade secrets law encourages duplicate investment in research and development by permitting these defences.186 However, trade secrets exceptions such as reverse engineering may fall short in a number of contexts in Australia and Sri Lanka. First, as explained in sections 3.5 and 4.4, there are no clear legal provisions on this issue in the selected countries. Therefore, 181 Atul Gawande, ‘The Score: How Childbirth Went Industrial’, The New Yorker (online) 9 October 2006 < https://www.newyorker.com/magazine/2006/10/09/the-score> : ‘It looked like a pair of big metal salad tongs, with two blades shaped to fit snugly around a baby’s head and handles that locked together with a single screw in the middle. It let doctors more or less yank stuck babies out and, carefully applied, was the first technique that could save both the baby and the mother.’ 182 Andrew A. Schwartz, ‘The Corporate Preference for Trade Secret’ (2013) 74 (4) Ohio State Law Journal 623, 635. 183 This may be a crucial issue given that 50 per cent of the poorest countries of the world depends on the off-patent drugs because they cannot afford the cost of recently patented-sophisticated drugs. See D. Wayne Taylor, ‘Pharmaceutical Access in Least Developed Countries: On-the-ground Barriers and Industry Success’, Cameron Institute – World Health Organisation (2010) Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 231 it is for the judiciary to define the circumstances in which a defendant can claim this defence. In Australia, there may be a limited application of reverse engineering in respect of a breach of confidence action.187 For instance, if any particular information can be easily gathered by reverse engineering, such information may lose the necessary quality of confidence or secrecy.188 As such, courts may not grant springboard injunctions to restrain the defendant when the information has already entered the public domain.189 By contrast, it may be argued that reverse engineering is implicitly allowed by the Sri Lankan IP Act, as the IP Act merely prohibits the use, acquisition and disclosure of trade secrets in manners contrary to honest commercial practices.190 Nevertheless, it is doubtful whether there are means or financial resources for a researcher to invest in such duplicate innovation in a country like Sri Lanka, where the technological advancements, monetary capacity, and home-grown creativity is comparatively low. Even if Sri Lankan investors gain the ability to reverse engineer a product, the question to be asked may be why a country or a company should invest on repeat previous but undisclosed work?191 Also, in any event, reverse engineering ‘does not consider the social benefits of defendant’s use or disclosure if the information was acquired in any way other than reverse engineering’.192 In other words, it does not allow a person to reveal a trade secret for broader public interest. However, the public interest defence of a breach of confidence action may be able to cover such a situation. The question arises here as to whether the public interest defence allows or justifies any revelation of trade secrets where a divulger claims that he or she has revealed trade secrets for greater societal benefit. 193 For example, when an inventing-employer puts a blanket of secrecy on a new life-saving drug or new safety device for cars, can an employee disclose such secrets for the public interest? 187 Robert Dean, The Law of Trade Secrets and Personal Secrets (Lawbook Co, 2nd ed, 2002) 144. 188 Ibid. 189 Ibid. 190 See above section 4.4. 191 See Belay Seyoum, ‘Property rights versus public welfare in the protection of trade secrets in developing countries’ (1993) 7 (3) The International Trade Journal 349. 192 Deepa Varadarajan, 'Trade Secret Fair Use' (2014-2015) 83 Fordham Law Review 1401, 1434. 193 Tanya Aplin, Lionel Bentley, Philip Johnson, Simon Malynicz, Gurry on Breach of Confidence (Oxford University Press, UK, 2nd ed, 2012) 693. 232 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW Nonetheless, as observed in sections 3.5 and 4.4, there is no wide application of the public interest defence in the Australian and Sri Lankan contexts. To be more explicit, there are no reported cases on the application of public interest defence in Sri Lanka. By contrast, the public interest defence has been confined to the narrow iniquity rule in Australia.194 As such, this defence is limited to disclosures of crimes or misdeeds.195 Even a broader public interest-based disclosure may not be possible under the English law.196 For instance, in Church of Scientology v Kaufman,197 Goff J held: It might well be in the public interest to have a valuable chemical formula or the secrets of an invention disclosed, but that could never be justified a breach of confidence.198 Later cases, such as Beloff v Pressdram Ltd199 and Lion Laboratories v Evans,200held the same view –– that public interest defence cannot be applicable for mere disclosures that potentially bring public benefit. Therefore, it may be clear that Australian law or even English law does not provide for a broader public interest defence. As a result, the public may never be able to benefit from secretly-held information. This may discourage an employee, or any other insider of a business, who disclose secretly held information thinking that such a disclosure may bring a greater benefit society. Another problem that may arise is that employers may use trade secrets protection to shield information from ‘potential “right” hands such as government scrutinising authorities, consumers, public watchdog groups, and significant improvers’.201 Thus, this notion may directly affect the right to information, which in turn enables democratic accountability of a country.202 For instance, non-disclosure of proprietary information, such as ingredients of a product –– for example, pesticides or biotechnological technique-based invention –– that could pose a threat to the public interest, environmental sustainability and perhaps public health should arguably be 194 See above section 3.5.1. 195 See above section 3.5.1. 196 Tanya Aplin, Lionel Bentley, Philip Johnson, Simon Malynicz, Gurry on Breach of Confidence (Oxford University Press, UK, 2nd ed, 2012) 693. 197 [1973] RPC 635. 198 Ibid, 649. 199 [1973] 1 All E R 241. 200 [1985] 2 QB 526. See also Attorney General v Guardian Newspapers (No 2) [1990] 1 AC 109, 282. 201 Ibid. 202 See Article 19 (1) of the International Covenant of Civil and Political Rights 1966. Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 233 disclosed.203 However, such a phenomenon may be covered by the iniquity rule as applies in Australia. That is to say, if preserving confidentiality of information may amount to ‘a crime, civil wrong or serious misdeed of public importance’ such information may lack the necessary quality of confidence.204 Nonetheless, in Sri Lanka, with the absence of the application of the public interest defence, there is a risk that a public interest-based revelation may amount to a trade secrets violation. This may be particularly felt in the area of agrochemicals. For instance, research reveals that glyphosate-based agrochemicals may be a reason for Chronic Kidney Disease (CKD) epidemic in the rice paddy farming areas in Sri Lanka.205 Even a report issued by the World Health Organisation (WHO) suggests that glyphosate may be carcinogenic to humans.206 However, multi-national corporations who make glyphosate refuse to disclose the required information about the possible risks in the name of trade secrets protection.207 While this issue was not brought to the attention of the Sri Lankan judiciary, the adverse effect of glyphosate was taken into consideration by the European Court of Justice (ECJ) in European Commission v Stichting Greenpeace Nederland and Pesticide Action Network Europe (PAN Europe).208 The ECJ held in this case that the public interest in information on glyphosate emissions overrides the interest in protecting the commercial interests of pesticide innovators.209 However, such a development cannot be found in Sri Lanka and the issue of CKD is still unresolved. Overall, restricting access to knowledge and information through the trade secrets regime and the lack of application of trade secrets exceptions can be regarded as a crucial issue in terms of the public interest or the rights of society. This may amount to deprivation of the right to access to information and knowledge which plays 203 Belay Seyoum, ‘Property rights versus public welfare in the protection of trade secrets in developing countries’, (1993) 7 (3) The International Trade Journal 341, 350-351. 204 See Corrs Pavey Whiting & Byrne v Collector of Customs (1987) 14 FCR 434, [57]. 205 Channa Jayasumana, Sarath Gunatilake and Priyantha Senanayake, ‘Glyphosate, Hard Water and Nephrotoxic Metals: Are They the Culprits Behind the Epidemic of Chronic Kidney Disease of Unknown Etiology in Sri Lanka?’ (2014) 11 (2) International Journal of Environmental Research and Public Health 2125-2147. 206 Food and Agriculture Organisation of the United Nations, ‘Summary Report - Joint FAO/WHO Meeting on Pesticide Residues’ (9-13 May 2016) Geneva. 234 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW a pivotal role in human wellbeing and development.210 In fact, increased accessibility to knowledge may be an important determinant of how quickly new knowledge can be generated and how that knowledge translates into intellectual creations and inventions.211 Right to access to knowledge or information is closely linked with freedom of expression. For instance, Article 19 (2) of the ICCPR holds: Everyone shall have the right to freedom of expression; this right shall include freedom to seek, receive and impart information and ideas of all kinds, regardless of frontiers, either orally, in writing or in print, in the form of art, or through any other media of his choice.212 As such, blocking access to information through a trade secrets regime may be regarded as a violation of right to information which, in turn, empowers the right to knowledge. Right to information laws of Australia and Sri Lanka identified trade secrets protection as an exception to the implementation of right to information.213 As such, in the present context, an employer’s right to trade secrets may take precedence over the general public’s right to information and knowledge. While the right to access to knowledge has been advanced by access to knowledge movements, such as ‘Creative Commons’214 and ‘World Summit of Information Society’ (WSIS),215 these movement are focussed on registered or visible IP rights, such as copyrights and patents, not on trade secrets. In fact, the nature of trade secrets may preclude researchers or scholars from analysing the actual impact of an invention that is protected by trade secrets. It may be that any individual –– except a few insiders of a business, such as employees –– have never known that such a 210 See Joel Mokyr, The Gifts of Athena: Historical Origins of the Knowledge Economy (Princeton University Press, 2011) 25-28. 211 Ibid. 212 Article 19 (3) of the ICCPR [emphasis added]. 213 See s 47 of the Australian Freedom of Information Act 1982 (Cth) and s 5(1)(d) of the Sri Lankan Right to Information Act, No. 12 of 2016. 214 Creative Commons aims to provide a platform for individuals to share ‘knowledge and creativity to build more equitable, accessible and innovative world.’ See Creative Commons, ‘What we do?’ Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 235 secretly held invention is available, unless it is a well-known trade secret, such as Coca-Cola. 5.3.2 Economic and Social Implications (a) Knowledge Spill-over and Endogenous Growth As discussed in section 1.1, we are living in a knowledge-based economy which is ‘directly based in production, distribution and use of knowledge and information’:216 All economies are knowledge based and could not be otherwise…economies can grow because knowledge can grow.217 As such, circulation of knowledge relating to intellectual properties may become a crucial determinant of economic development of a country. This has been accepted by the United Nations General Assembly in 1986 by the Declaration of Right to Development.218 According to this Declaration: Rights to development is an inalienable human right by virtue of which every person and all peoples are entitled to participate in, contribute to, and enjoy economic, social, cultural and political development.219 However, as endorsed by Drahos, there can be ‘considerable tension between intellectual property rights and right to development’.220 His argument was based on the impact of pharmaceutical patents on the right to health and the resultant consequences on human capital. Therefore, he claims that ‘the recognition of rights to development might be the basis on which to argue that states should cooperate in lowering levels of IP protection in some areas, or at least not to advance those levels’.221 While his focus is not on trade secrets law, with the blocking of knowledge 216 Organisation for Economic Co-operation and Development (OECD), The Knowledge- Based Economy” in OECD, Science, Technology and Industry Outlook 1996 (Paris: OECD, 1996) 585-586. 236 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW and by restricting knowledge spill-over within and among sectors, the trade secrets regime may pose a risk to the economic development of a country. Indeed, as explained in section 5.3.1, the generation of knowledge is a cumulative process which invariably depends on existing knowledge. As such, large dissemination of knowledge or knowledge spill-over –– such as inter-firm exchanges of information –– is a driving force behind the increased innovative and economic performance of an industry and a country.222 First, spill-over of existing knowledge may minimise wasteful duplication of research efforts of other firms.223 Second, it may enhance follow-on innovators’ ability to access to the stock of knowledge relevant to their inventions.224 Legal-economic literature analyses this phenomenon through endogenous economic growth theory and suggests that there is a positive correlation between knowledge spill-over and economic development.225 Endogenous growth theory establishes that economic growth may be a result of endogenous forces such as knowledge spill-overs, development of human capital and innovation, rather than external economic forces.226 In other words, it suggests that investment in knowledge of human capital and resultant circulation of knowledge endogenously generates economic growth.227 As such, intra-sectoral and inter-sectoral knowledge diffusion may be regarded as a crucial factor of economic growth in this knowledge-based economy.228 222Ronald J. Gilson, The Legal Infrastructure of High Technology Industrial Districts: Silicon Valley, Route 128, and Covenants Not to Compete’ (1999) 74 New York Law Review 575, 608-609; Effie Kesidou and Adam Szirmai, ‘Local Knowledge Spillovers, Innovation and Economic Performance in Developing Countries: A discussion of alternative specifications’ (2008) Working Paper Series 2008- 033 of United Nations University - Maastricht Economic and Social Research and Training Centre on Innovation and Technology, 7. Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 237 Nonetheless, trade secrets law may bring contrary results to a firm or a country. First, as noted elsewhere, trade secrets law is largely concerned with the preservation of secrecy of information so that knowledge behind a secretly-held product is not widely shared.229 While such knowledge may be shared with small circles, such as employees, such circles are prohibited from sharing secretly-held knowledge.230 That is because they may not only contractually obliged not to disclose trade secrets-related knowledge (by signing non-disclosures), but are also forbidden by joining any competitor (by signing non-competes) which might contribute to revaluation of such knowledge. The practical effect of such covenants may be that they may slow down the ‘dissemination of ideas, process and methods’ among firms by prohibiting employees’ freedom to change their jobs.231 This situation may be a reason for a slow economic growth.232 Researchers, such as Hyde, explain the correlation between enforcement of non- competes, knowledge spill-overs, and endogenous economic growth using the example of the Silicon Valley’s rise as a premier centre for innovation and economic growth.233 According to Hyde, ‘regions such as Silicon Valley … that experience growth as knowledge spreads beyond the boundaries of the firm, demonstrate the ‘endogenous growth’ through generation and diffusion of non-rivalrous and non- exclusive information.’234 The root cause for such a development may be the unenforceability of non-compete clauses in California. Section 16600 of the California Business and Professional Code provides that: Every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.235 Research Council (ed) The Rate and Direction of Inventive Activity: Economic and Social Science Research Council (Princeton University Press, New York, 1962) 609, 614. 229 See section 2.2. 230 See sections 1.1, 3.4.2 and 4.3.3. 231 Harlan M. Blake, ‘Employee Agreements Not to Compete’ (1960) 73 Harvard Law Review 625, 627. 232 Anna Kirsten Rawlings, Trade Secrecy in a Knowledge-Based Economy (Maters Thesis, University of Toronto, 2001) 11. 233 Alan Hyde and Emanuele Menegatti, ‘Legal protection for employee mobility’ in Matthew W. Finkin, and Guy Mundlak (ed) Comparative Labor Law (Edward Elgar Publishing, 2015) 195, 196. Ronald J. Gilson, ‘The Legal Infrastructure of High Technology Industrial Districts: Silicon Valley, Route 128, and Covenants Not to Compete’ (1999) 74 New York Law Review 575, 608-609. 234 Alan Hyde and Emanuele Menegatti, ‘Legal protection for employee mobility’ in Matthew W. Finkin, and Guy Mundlak (ed) Comparative Labor Law (Edward Elgar Publishing, 2015) 195, 196. 235 California Business and Professional Code § 16600. 238 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW The application of this provision results in establishing a ‘culture of mobility’ leading to a ‘high velocity labour market’ and a high volume of ‘knowledge spill- overs’.236 According to Gibson, this legal approach is the main reason for the dominance of California in the high technology industry.237 Hyde claims that ‘unenforceability of non-competes encouraged a culture of start-ups, velocity of labour and information sharing’.238 As such, he argues that the rapid technological and economic growth in Silicon Valley cannot be achieved unless there is high velocity of labour and resultant knowledge spill-overs among firms and sectors.239 For instance, high labour mobility or velocity of labour was a decisive factor in forming the semiconductor and biotechnology industries of Silicon Valley.240 According to Buenstorf et al, these industries were developed through spin-off entrepreneurs –– new firms started by either leaving employees or those who work in the same or closely related industries.241 However, in contrast, in Australian and Sri Lanka, with the difficulty in demarcating trade secrets and employee know-how and the possibility of restraining employee know-how by restrictive covenants, it is doubtful whether wide labour mobility can occur. This may prejudice knowledge spill-over, which may contribute to a lack of innovation, technological and economic growth. In fact, restrictions on working in the same country or region may contribute to brain-drain, since employees who are restricted by non-competes may be induced to relocate by seeking a suitable job.242 Therefore, this scenario may contribute, at least to some extent, to hamper the right to development of the society and the country and is incompatible with the approach adopted by the UN Declaration of Right to Development.243 236 Ronald J. Gilson, ‘The Legal Infrastructure of High Technology Industrial Districts: Silicon Valley, Route 128, and Covenants Not to Compete’ (1999) 74 New York Law Review 575, 608-609. 237 Ibid. 238 Alan Hyde, Working in Silicon Valley: Economic and Legal Analysis of a High-Velocity Labor Market (Routledge, London and New York, 2nd ed, 2015) 167. 239 Ibid. 240 Laura G Pedraza-Farina, ‘Spill Your (Trade) Secrets: Knowledge Networks as Innovation Drivers’ (2017) 92 (4) Notre Dame Law Review 1561, 1565. 241 Guido Buenstorfa, Christoph Engelb, Sven Fischerc, Werner Guethb, ‘Non-compete clauses, employee effort and spin-off entrepreneurship: A laboratory experiment’ (2016) 45 Research Policy 2113, 2113. 242 M. Marx, J Singh and L Fleming, ‘Regional disadvantage? Employee non-compete agreements and brain drain’ (2015) 44 Research Policy 394-404. 243 Declaration on the Right to Development 1987 U.N. GAOR, 41st Sess., Annex, Agenda Item 101, 97th plen. mtg. at 1, U.N. Doc. A/RES/41/128 (1987). Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 239 (b) Socio-political Implications Whereas Australia is based on western liberal capitalistic political ideologies, Sri Lanka is recognised as a Democratic Socialistic Republic.244 Therefore, ideologically, Sri Lanka is supposed to have a socially or collectively-owned economy, along with a democratic system of governance.245 Egalitarianism or equitable social order is an important component of such an economy, which enunciates that true democracy cannot thrive in a society with great extremes of wealth and poverty.246 Arguably, a trade secrets system which encourages the market dominance and profit maximisation of trade secrets-owned companies will not fit into to Sri Lankan political-economic foundations. While survival of the fittest and giving scant attention to those left behind is the reality in capitalistic economies, socialistic countries believe that collective survival and society take precedence over the economic rights of one person. However, the trade secrets regime which promotes non-disclosure for an indefinite time does not serve this purpose. Thus, it can be pointed out that the existence of a trade secrets regime as one of the most significant IP rights in the country reflects a discrepancy in terms of Sri Lanka’s political-economic ideology. Moreover, it is uncertain whether the corpus of trade secrets law embraces the societal values of Asian countries, such as Sri Lanka. For instance, historically, altruism, based on Buddhist philosophy, is one of the values rooted in Sri Lankan society. Sabbe saththa bawanthu sukhithathwa or ‘wishing the welfare and happiness of all beings’ is one of the inseparable values in Sri Lankan Buddhist culture. As stated 244 See Lester J. Thompson and John Stannard, ‘Australian Values, Liberal Traditions and Australian Democracy: Introductory Considerations of Government for Contemporary Civil Society’ (2008) 27(1) Social Alternatives 58, 61. See also Preamble of the 1978 Constitution of the Democratic Socialistic Republic of Sri Lanka. 245 See Chapter VI- Article 27 of Sri Lankan Constitution: Directive Principles of State Policy and Fundamental Duties. Article 27 states that ‘the State is pledged to establish in Sri Lanka a democratic socialist society, the objectives of which include - (2)(b) ‘the promotion of the welfare of the People by securing and protecting as effectively as it may, a social order in which justice (social, economic and political) shall guide all the institutions of the national life.’ According to Article 27 (7) and (8) ‘the State shall eliminate economic and social privilege and disparity, and the exploitation of man by man or by the State’ ; ‘the State shall ensure that the operation of the economic system does not result in the concentration of wealth and the means of production to the common detriment.’ Article 27 (1) states that ‘the Directive Principles of State Policy shall guide Parliament, the President and the Cabinet of Ministers in the enactment of laws and the governance of Sri Lanka for the establishment of a just and free society.’ 246 E. Anugwom, ‘Socialism’ in G. L. Anderson and K. G. Herr (eds), Encyclopaedia of activism and social justice Vol. 3 (SAGE Publications Ltd, 2007) 1301-1303. 240 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW in the Karaneeya Metta Sutta, as a mother with her life will guard her only child, let him/her extend unboundedly his/her heart every living being. Therefore, societal values, such as ‘giving or desire to do so’, ‘empathy’ and ‘non-expectation of anything as reward’ are incorporated into Sri Lankan Buddhist culture. This may suggest that the trade secrets regime needs to be more attuned to the public interest considerations in light of the societal values which promote ‘wellbeing of all’, rather than the capitalistic idea of ‘individual wellbeing based on profit maximisation’. Even though economic and social factors can be considered by the courts, at least in the case of enforcing restrictive covenants, the courts of Sri Lanka and Australia place less emphasis on this issue.247 Australian and Sri Lankan courts, at least in theory, consider public policy considerations when assessing the reasonableness of restrictive covenants. Nevertheless, courts give more attention to whether restraints are reasonable between parties than considering whether they are reasonable having regard to public policy issues.248 Overall, trade secrets protection may impact on the realisation of rights and values of a society in many ways. It may hinder rights to information, knowledge and economic development.249 As such, the trade secrets regime negatively impacts the overall objectives of protecting intellectual properties which seek to ensure society’s right to enjoy scientific advancements and benefits.250 Also, the trade secrets policy may be incompatible with some social values and cultures of countries such as Sri Lanka. Article 27(2) of the UDHR provides for human right to intellectual property and this should read with the Article 27(1), which ensures the right to enjoy the cultural values as a community. The overall purpose of protecting intellectual property rights may be to ensure the societal rights, even though the trade secrets regime may not serve that objective, at least to some extent.251 247 See sections 3.5.2 and 4.4. 248 See sections 3.5.2 and 4.4. 249 See Article 1 of the Declaration on the Right to Development 1987 U.N. GAOR, 41st Sess., Annex, Agenda Item 101, 97th plen. mtg. at 1, U.N. Doc. A/RES/41/128 (1987): “The right to development is an inalienable human right by virtue of which every human person and all peoples are entitled to participate in, contribute to, and enjoy economic, social, cultural and political development, in which all human rights and fundamental freedoms can be fully realized.” 250 See sections 2.2 and 2.5. 251 See section 2.5. According to Article 27 (1) of the UDHR ‘everyone has the right freely to participate in the cultural life of the community, to enjoy the arts and to share in scientific advancement and its benefits.’ Chapter 5: RIGHTS-BASED ANALYSIS OF LAW 241 5.4 CONCLUSION There are at least two key ramifications which flow from the analysis in this chapter. First is that trade secret legal approaches, especially restrictive covenants, may hamper employees’ right to work and freedom of mobility. Moreover, the wide application of restrictive covenants can be considered as a serious issue since employees are rarely given proper opportunities to assume contractual duties voluntarily. Among other legal impediments on the rights of employees are uncertainty of laws and the disadvantaged position of employees at the litigation stage. The second major conclusion that may be drawn from the analysis in this chapter is that wider societal rights may be impacted by enforcing trade secrets rights. This chapter argued that limiting the contribution of trade secrets to knowledge diffusion and follow-on invention may impact the public rights to information, knowledge and development. This chapter further demonstrated that trade secrets exceptions, such reverse engineering and public interest exception in breach of confidence, may play a limited role in both Sri Lanka and Australia. While Sri Lankan IP legislation is silent on the trade secrets exceptions, a narrow iniquity rule applies in Australian courts. In addition, this chapter explained how keeping valuable knowledge secret may prejudice the economic growth of a country. This argument was based on the fact that trade secrets law may prejudice knowledge spill-over which may be essential for endogenous growth. Finally, this chapter showed how trade secrets policy may be incompatible with the societal values, such as altruism and egalitarianism, which are important in the culture of Sri Lanka. 242 Chapter 5: RIGHTS-BASED ANALYSIS OF LAW Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 6.1 INTRODUCTION This thesis provides a normative account as to how a more human-centric framework can be developed for the protection of trade secrets. In so doing, this thesis provided a human rights-based framework in order to evaluate and guide trade secrets law. In line with the main objective, human rights theory was employed to investigate how trade secrets law impact on the rights of employees and society. To this effect, a three-phase analysis of law was developed. The first phase (Chapter 2) analysed the existing doctrinal foundations of trade secrets protection and then proposed human rights theory as a way of evaluating and guiding trade secrets law. The second phase (Chapters 3 and 4) mapped and synthesised Australian and Sri Lankan legal approaches in protecting trade secrets with particular emphasis on employer-employee and employer-public interest contexts. The third phase (Chapter 5) evaluated the trade secrets laws of Australia and Sri Lanka in light of human rights theory. The main purpose of this chapter is to draw together the main arguments presented in this thesis and to consider a way forward or a preferred approach that may contribute to resolving the problems identified by preceding chapters. 6.2 FINDINGS AND SUMMARY OF MAIN ARGUMENTS The main impetus for this thesis was the identification of the shortcomings of present trade secrets theories and the need to provide a balanced and robust normative account for the protection of trade secrets. This thesis found that dissimilar origins, diverse objectives, and different characteristics of trade secrets give rise to questions about whether trade secrets ought to belong in the intellectual property law pantheon. This leads to a theoretical puzzle, in that defining a location for trade secrets currently fluctuates mainly between property and relational theories. The fundamental problem with existing theories is that their main focus is to protect trade secrets, thus they are less concerned with the values, interests and rights of other individuals. Chapter 2 of Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 243 this thesis identified the need for developing a theory which may place individuals and their rights at the front and centre. To this effect, it proposed human rights theory as an alternative way of establishing a balanced approach which protects trade secrets of employers while, at the same time, being concerned with the rights of other stakeholders. It then designed criteria, based on the three major stakeholders of trade secrets protection –– employers, employees and the public –– to evaluate and guide trade secrets laws. These criteria were based on the notion that, just as an employer as a rational human being regards his or her own rights relating to trade secrets as valuable, so the employer should be committed to fostering the rights of employees and the public. This study then moved into its two case studies: Australia and Sri Lanka, whose laws were evaluated in light of human rights theory. However, prior to evaluating the laws through the lens of human rights, there was a need to analyse the law in detail. This was because, first, in respect of Australia, there is no separate body of law developed as trade secrets law. Accordingly, the academic literature on the issue is mainly split into studies of restraint of trade (contract law scholars) and equitable action of breach of confidence (IP scholars). Second, there is no in-depth analysis of trade secrets law and the judicial approaches on the protection of trade secrets in Sri Lanka. As these two case studies revealed, both countries have adopted a piecemeal approach in protecting trade secrets. In Australia, mainly unwritten common law governs trade secrets protection, whereas in Sri Lanka a TRIPS-compliant legislation is applied. However, from a practical perspective, both countries largely rely on restraint of trade and breach of confidence in protecting trade secrets. Major findings from the analysis of Australian law can be summarised as follows: Trade secrets are not considered as an intellectual property right per se in Australia, even though there is extensive use of trade secrets among innovation-active Australian businesses. The definition of trade secrets may be uncertain in the Australian context since the law is not primarily concerned with protecting trade secrets, but rather confidential information. 244 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS Restraint of trade clauses, such as non-disclosures and non-competes, may be considered as the major legal tool for protecting trade secrets in the employment context. Case law mainly arises in the employment context either solely based on restraint of trade doctrine or in combination with breach of confidence. In the case of restraint of trade, following English common law, Australian courts do not automatically enforce restrictive covenants. Based on the Nordenfelt test, courts measure reasonableness of restraint of trade clauses in terms of the parties and the public interest. As such, in general, Australian courts attempt to strike a balance between an employer’s concerns in protecting trade secrets and the employee’s right to earn a living. Nonetheless, issues such as judicial dependence on the factual matrices of each case, jurisdictional variations in New South Wales, and the application of cascading clauses may contribute to the creation of considerable uncertainties. Even though Australian courts largely rely on the notion that post- employment restraints should not be extended to the employee know-how of general stock of knowledge, there may be a practical difficulty in defining the line between trade secrets and know-how. Even if courts are able to do so, some courts suggest that using employee know-how in subsequent employment can be restrained by restrictive covenants. In addition to contractual protections, the equitable action of breach of confidence has a significant place in Australian trade secrets law. It primarily aims to enjoin a person who had received information in confidence against disclosing or using it in ways that conflicts with the obligation that he or she had undertaken. Breach of confidence can be regarded as a supplementary or gap-filling regime in the employment context, which mainly covers the liability of third parties who are being exposed to trade secrets through an employee. Even though the action of breach of confidence has extended its protection to surreptitiously obtaining of information, or where an unrelated party has obtained information in an unauthorised manner, at least there is a conceptual obfuscation as to how it Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 245 can cover such incidents since breach of confidence is based on trust and confidence. Australian law, in general, does not recognise major trade secrets exceptions such as reverse engineering. Similarly, there is no application of a wide public interest defence as a part of the action of breach of confidence in Australia. Instead, the law is merely confined to a narrow iniquity rule which allows the revelation of confidential information in circumstances where the confidentiality of information leads to crimes or illegal activities. Australian law provides for a wide range of remedies and measures for the preservation of secrecy of information during and after court proceedings which may be regarded as positive characteristics of the law. The main findings from the analysis of Sri Lankan law may be summarised as follows: There may be wide usage of trade secrets in the absence of a workable patent regime and the widespread occurrence of SMEs and TK-inspired inventions. The Sri Lankan IP Act provides a TRIPS-style protection for trade secrets: o It provides a precise and detailed definition in concert with the TRIPS definition. o Section 160(6) of the IP Act states that disclosure, acquisition and use of trade secrets in a manner contrary to honest commercial practices may amount to an act of unfair competition. Such manners include industrial espionage, breach of contract, breach of confidence or induce to conduct them. As such, the IP Act covers many aspects of trade secrets misappropriation. o It provides that wilful disclosures of trade secrets may amount to a crime. This can be regarded as one of the salient features of the Sri Lankan IP Act and a major divergence from the TRIPS provisions. o The IP Act provides that its provisions should be applicable in addition to, but not in derogation of, common law rights. Therefore, there is no embargo on courts relying on common law relating to contract or breach 246 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS of confidence. Indeed, cases law examples suggest that courts are more likely to rely on common law protection rather than solely rely on s 160(6) of the IP Act. One of the major issues unveiled by this research is the possibility of Sri Lankan courts relying on Roman-Dutch law, as against English law in assessing the validity of restraint of trade clauses. Whereas existing academic literature suggests that English law is applicable in the area of restraint of trade, this thesis argues, based on the dictum of the first reported case in this area, that this area of law should be governed by Roman-Dutch law. Nonetheless, given the judicial tendency to rely on English law principles (which was initially based on the wrong assertion that Roman-Dutch law and English law approach the issue in the same manner), Sri Lankan law endorses the test of reasonableness in balancing the rights of employers and employees. However, as is the case of Australia, there is a possibility for an employer to use restrictive covenants to restraint the use of employee know-how in subsequent employments. Further, there is a practical difficulty of demarcating trade secrets from employee know-how. Moreover, a few unreported cases endorsed the application of breach of confidence in Sri Lanka, although these cases were not involved in an extensive discussion on how the law should balance employers’ and employees’ interests. Neither the IP Act nor case law explicitly provides for the application of trade secrets exceptions, such as reverse engineering or the public interest defence of breach of confidence. However, since the IP Act merely prohibits unlawful acquisitions, uses and disclosures of trade secrets in a manner contrary to honest commercial practices, it may be argued that it does not prohibit the honest means of acquiring trade secrets such as reverse engineering. There is a wide range of statutory, common law and equitable remedies such as injunctions, damages, statutory damages and account for profit available Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 247 when a trade secret is misappropriated. In addition, criminal redresses such as fines and imprisonments are available in the case of wilful disclosures. Nonetheless, one of the major drawbacks of Sri Lankan trade secrets law may be that there is no explicit provision for the preservation of confidentiality during and after court proceedings. Having analysed the legal approaches adopted by Australia and Sri Lanka, Chapter 5 evaluated laws in light of human rights-based criteria proposed by Chapter 2. In so doing, it mainly focussed on the difficulties that employees may experience in negotiating and challenging restrictive covenants. The conclusion drawn from the analysis of Chapter 5 was that Australian and Sri Lankan legal approaches may impact on the rights of employees for several reasons. First, employees, in general, have less opportunity to consider the inclusion of restrictive covenants to their employment contract or the scope of restrictive covenants. Accordingly, the wide utility of restrictive covenants to protect trade secrets can be regarded as an impediment to the effective implementation of employees’ rights to choose just and favourable employment conditions. Second, the application of restrictive covenants may impact employees’ right to work or earn a living for the following reasons: It is true that Australian and Sri Lanka courts seek to distinguish trade secrets from employee know-how and ensure that the protection should only extended to trade secrets. However, in practice, there is a blurred line between trade secrets and employee know-how, which may lead to restrict the employees’ use of their knowledge in subsequent employment. Even if the courts could demarcate the two notions of trade secrets and employee know-how, employers would still be able to restrict the use of employee know-how through restrictive covenants. This was accepted by several Australian and Sri Lankan judgments. Therefore, employees may not be able to freely change their employment. In a case where a court decides a particular restraint is reasonable, there is no legal means to compensate an employee who is not entitled to undertake new employment or start his own business venture. 248 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS Third, this thesis found uncertainty in the laws in Australia and Sri Lanka which impact the overall implementation of rights of employers and employees. As revealed in Chapter 5, uncertainty has occurred for the following reasons: application of multiple legal regimes to protect trade secrets; judicial reliance on factual metrics in determining the validity of restrictive covenants; divergence in the legal approach of New South Wales in respect of restraint of trade; and application of cascading clauses. Fourth, employees may be discriminated against in litigation, especially in the interlocutory stage) and by being a defendant of an adversarial court. In addition, being a party to post-employment restraint of trade clause, departing employees may be less attractive in the labour market since future employers do not necessarily want to be involved in a potential lawsuit. In addition, Chapter 5 demonstrated how the wide reliance on trade secrets as an IP-protection method and associated legal approaches might affect wider societal rights. First, there was no explicit recognition of general trade secrets defences, such as reverse engineering in Australia and Sri Lanka. The consequence may be that trade secrets law does not adequately contribute to knowledge diffusion and follow-on invention. The non-disclosure requirement of trade secrets, indefinite protection, and the difficulty in transferring secretly-held technology are among the major reasons why the trade secrets regime may negatively impact knowledge diffusion and follow- on inventions. This may impede the right to information and the right to development. Second, there is no application of a wide public interest defence in Australia and Sri Lanka. Australian law is limited to narrow iniquity rule, whereas in Sri Lanka there are no reported cases on the issue. Third, it was found that trade secrets law may impact on the economic growth and social values of a country. This argument was mainly based on: (1) the impact of applying restrictive covenants on the endogenous growth or economic development of a country; (2) the impact of indefinite protection of trade secrets on free competition; Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 249 and (3) the existence of incompatibilities of trade secrets law with societal values such as altruism and egalitarianism. Overall, this thesis argued that legal approaches in protecting trade secrets in both Australia and Sri Lanka may impact on the rights of employees and society. Nonetheless, this does not necessarily mean that the creation and protection of trade secrets should totally be discouraged. As argued in sections 1.1, 2.2, 3.2 and 4.2, trade secrets play an important role in the intellectual property contexts of the economies of Australia, Sri Lanka, and elsewhere. What is therefore warranted is an approach that equally has concern for the rights of the trade secrets owners or employers, but also the rights of employees and society. 6.3 IMPLEMENTING A HUMAN RIGHTS FRAMEWORK OF TRADE SECRECY As explained in Chapter 2, this thesis utilises a human rights-based framework for two purposes: first, to evaluate laws, and second, to guide laws. As such, Chapter 5 analysed the phenomenon of trade secrets protection in light of human rights theory to gauge how legal approaches of protecting trade secrets impact on the rights of employees and society. This section, in line with the human rights-based criteria in section 2.5.5, explains how human rights theory may be able to suggest a way forward in resolving identified problems in trade secrets law and practice in Australia and Sri Lanka. However, the practical problem that arises here is how a human rights framework may be successfully implemented in the trade secrets context and how such a law may reconcile competing rights. To this effect, first, this section argues how the principle of proportionality may be helpful in striking a fair balance between the rights of employers, employees, and society. Second, it explains how a legislative approach may be a promising way to implement the human right-based approach, together with principles of proportionality in trade secrets law. 6.3.1 Principle of Proportionality as a Fulcrum Point to Strike a Balance between Competing Rights As explained in sections 2.4 and 2.5, protection of trade secrets represents multiple values, interests, and rights. In particular, it signifies triangular competing 250 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS interests in the research context, namely, employers and employees; employers and society and employees and society. Practically, it may be an indispensable task for any theoretical or legal framework to successfully reconcile competing rights, interests and values in a fair manner. Nonetheless, currently, there is no giant-sized theoretical or practical mechanism to establish a fair balance between competing rights in the trade secrets context. This thesis proposes that the principle of proportionality, which carries a European genesis, may be regarded as a tool that strikes an appropriate balance between the competing rights of employers, employees and society.1 As observed by Pila, proportionality ‘is said to explain and justify the legal restrictions on the scope and enforcement of IP rights’.2 Robert Merges describes the principle of proportionality as a ‘midlevel principle’ of IP law.3 Merges argues that IP theories should be ‘personal but unselfish’ and should represent moralistic values.4 While he argues for moralist IP theories based on liberal schools of thought, he observes that these theories are still weakly linked with the other IP doctrines, rules, institutions and practice.5 As such, he claims that there should be mid-level principles such as proportionality; legal instruments which tie ‘together a number of discrete and detailed doctrines, rules and practices’ of IP law.6 As he explains: The size or scope of an IP right ought to be proportional to the value or significance of the work covered by the right. This is the proportionality principle… Indeed, this … basic concept informs many doctrinally district areas of IP law … To state simply, an IPR [including trade secrets rights] must not confer on its holder leverage or power that is grossly disproportionate to what is deserved in the situation.7 1 Principle of proportionality is a one of the founding values of the European Union. See Article 5 of the Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community [2007] OJ C306/01 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 251 Merges proposes that the principle of proportionality may be utilised to define the size and scope of an intellectual property right. As such, it could act as a promising guide for courts to define the boundaries of a trade secrets right and then balance such rights with other competing rights. In particular, the use of the principle of proportionality may be beneficial in trade secrets law in two contexts: first, in balancing private interests –– between an employer and employee8 ––; and secondly, balancing private interests (of employers and employees –– and the public interest. In the employer-employee context, when a court assesses a limitation (i.e, a restraint of trade) of a right (i.e. right to work or freedom of mobility), ‘the standard technique is to ask whether the restriction of the right was for a legitimate purpose and whether it went no further than necessary to achieve that purpose’.9 It can be observed that the test of reasonableness adopted by the Australian and Sri Lankan courts closely resembles this test. In other words, common law courts use the reasonableness test by asking whether a restriction exceeds what is reasonably necessary for the protection of a legitimate business interest such as a trade secret.10 Therefore, the authors of Gurry on Breach of Confidence assert that ‘in truth … reasonableness test is really a common law precursor of the sort of ‘proportionality’ inquiry’.11 In this sense, therefore, restraint of trade may be regarded as an area where the proportionality test is applicable and acts as a disguised test of reasonableness.12 However, currently, there is no clear guidelines for courts to assess reasonableness which depends on the circumstances of each case. It can therefore be submitted that courts should be guided by the following proportionality-based criteria when deciding the validity of restrictive covenants: Suitability: whether the restraint is capable of attaining its objective, i.e., protecting trade secrets; Necessity: whether there is any other less restrictive means to accomplish the same end; and 8 Other private interests such as franchisees and business partners also can also be included. 9 Tanya Aplin, Lionel Bentley, Philip Johnson, Simon Malynicz, Gurry on Breach of Confidence (Oxford University Press, UK, 2nd ed, 2012) 503. 10See sections 3.4.2 and 4.3.3 which explained the meaning of reasonableness test in Australian and Sri Lankan contexts. 11 Tanya Aplin, Lionel Bentley, Philip Johnson, Simon Malynicz, Gurry on Breach of Confidence (Oxford University Press, UK, 2nd ed, 2012) 503. 12 Neville Rochow, ‘Toward a Modern Reasoned Approach to the Doctrine of Restraint of Trade’ (2014) 5 The Western Australian Jurists 25, 50. 252 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS Balancing: whether the restrictive clause places an excessive burden on an employee.13 Overall, the sole objective of such a restraint of trade clause should be the protection of trade secrets and not to sterilise an employee who is a potentially threat. Besides, secrecy measures adopted by employers in order to protect trade secrets may be informed by the principle of proportionality. The application of proportionality in this context can be metaphorically explained by the saying ‘don’t use a sledgehammer to crack a nut’.14 In other words, secrecy measures should be used only as far as they are necessary to achieve the desired objective: to maintain the secrecy of information.15 As such, courts may consider whether secrecy measures, such as trade secrets protection procedures, are proportionate in light of the information that is claimed to be protected by an employer. In addition, the proportionality principle may be used by the court in striking a balance between employers’ and employees’ rights when granting remedies such as injunctions. This utility of the principle has already been acknowledged by, for example, the EU Trade Secrets Directive. For instance, Article 7(1) of the Directive provides that: The measures, procedures and remedies… shall be applied in a manner that is proportionate.16 In particular, Article 13(1) proposes that, in assessing the proportionality of granting of injunctions and corrective measures, the courts may consider the following: (a) the value or other specific features of the trade secret; (b) the measures taken to protect the trade secret; (c) the conduct of the infringer in acquiring, using or disclosing the trade secret; (d) the impact of the unlawful use or disclosure of the trade secret; 13 This proposal is inspired by the like proportionality test developed in German administrative and constitutional law. See Patrick Quirk, ‘An Australian Looks at the German 'Proportionality'’ (1999) 1 (1) University of Notre Dame Australia Law Review 39, 42-44. 14 See Eva Brems and Laurens Lavrysen, ‘Don’t Use a Sledgehammer to Crack a Nut: Less Restrictive Means in the Case Law of the European Court of Human Rights’ 2015 Human Rights Law Review 1-30. 15 Marius Andreescu, ‘Principle of Proportionality, Criterion of Legitimacy in the Public Law’, (2011) XVIII.1 Lex et Scientia 113. 16 Article 7 (1) of the EU Trade Secrets Directive. Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 253 (e) the legitimate interests of the parties and the impact which the granting or rejection of the measures could have on the parties; (f) the legitimate interests of third parties; (g) the public interest; and (h) the safeguard of fundamental rights.17 Further, according to Article 13(1) of the Directive, courts may order pecuniary compensation to be paid to an injured party instead of injunctions, if the execution of injunctions would cause the respondent disproportionate harm. Accordingly, the judiciary can balance employers’ right to protect trade secrets with employees’ rights in granting remedies. Moreover, principles of proportionality may be utilised in ordering measures to preserve secrecy during and after court proceedings. For instance, Article 9 of the EU Trade Secrets Directive states that ‘[measures taken as necessary to preserve the confidentiality of trade secrets] shall be no greater than necessary in order to ensure compliance with the rights of the parties to the legal proceedings to an effective remedy and to a fair trial’. 18 Thus, it proposes that at least there should be one natural person from each party and the respective lawyers or other representatives of those parties presented to legal proceedings. Additionally, Article 15 postulates that courts should be guided by the principles of proportionality in deciding the publication of trade secrets proceedings or a judgment. To this effect, it states that: …when assessing its proportionality, the competent judicial authorities shall take into account, where appropriate, the value of the trade secret, the conduct of the infringer in acquiring, using or disclosing the trade secret, the impact of the unlawful use or disclosure of the trade secret, and the likelihood of further unlawful use or disclosure of the trade secret by the infringer.19 When it comes to the balancing of individual rights of employers and wider societal rights, this may be achieved under the rubric of the proportionality principle. In other words, an employer’s right to protect his or her trade secrets may be ‘effectively limited by the counterprinciple of proportionality’.20 Therefore, legal entitlements should not offer ‘excessive’ or ‘disproportionate’ leverage to the trade 17 See Article 13 of the EU Trade Secrets Directive. 18 See Article 9 (3) Proviso of the EU Trade Secrets Directive. 19 See Article 15(3) of the EU Trade Secrets Directive. 20 See Robert P. Merges, Justifying Intellectual Property (Harvard University Press, 2011) 165. 254 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS secrets holders or employers.21 Some guidance of this approach may be found from the EU Trade Secrets Directive. As provided by recital 21 of the EU Trade Secrets Directive: In line with the principle of proportionality, measures, procedures and remedies intended to protect trade secrets should be tailored to meet the objective of a smooth-functioning internal market for research and innovation, in particular by deterring the unlawful acquisition, use and disclosure of a trade secret. Such tailoring of measures, procedures and remedies should not jeopardise or undermine fundamental rights and freedoms or the public interest, such as public safety, consumer protection, public health and environmental protection, and should be without prejudice to the mobility of workers. Accepting these fundamental values enshrined, Article 7 of the Directive postulates that ‘the measures, procedures and remedies provided for in this Directive shall be applied in a manners that… is proportionate’.22 As such, it is clear that this Directive ‘places special emphasis on the proportionality principle as a criterion to be observed by the judicial authorities’ as a tool of balancing private interests with the public interest.23 In short, the proportionality principle may be helpful for courts to define the frontiers of employers’ rights in respect to trade secrets so that those rights may not encroach the rights of others and the public interest. From a practical perspective, when courts consider the validity of a trade secrets misappropriation claim and a counter-claim of lawful acquisition of trade secrets (for example, reverse engineering), they may utilise the proportionality test in assessing the both claims. Accordingly, the courts may weigh the benefits of keeping information as secret or acquiring it through lawful means against the social cost of each scenarios. If benefits exceed the social cost, such a claim (whether that is on unlawful acquisition or lawful acquisition) may be entertained by the courts. However, this is not to suggest that this principle should be based on a narrow utilitarian model. Instead, proportionality can be regarded as a principle that is concerned with the best overall consequences of trade 21 Ibid, 150. 22 Article 7 of the EU Trade Secrets Directive. 23 Roland Knaak, Annette Kur and Reto M. Hilty, Comments of the Max Planck Institute for Innovation and Competition of 3 June 2014 on the Proposal of the European Commission for a Directive on the Protection of Undisclosed Know-How and Business Information (Trade Secrets) Against Their Unlawful Acquisition, Use and Disclosure of 28 November 2013, COM(2013) 813 Final (2014) 45 (8) IIC - International Review of Intellectual Property and Competition Law 953, 962. Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 255 secrets protection. In other words, it may be about private interests and public interests, but not private interests or public interest. In this way, the principle of proportionality may become a key tool in assisting to successfully strike a balance between employers’ and employees’ rights and employers’ and societal rights. This principle may undoubtedly be helpful in establishing a personal but unselfish approach to trade secrecy, since it may allow the policy-makers and courts to equally consider the rights of employers, employees and society in introducing trade secrets laws and in interpreting laws respectively. 6.3.2 A Preferred Approach of Implementation The next question that arises against this backdrop is how a fair balance of the rights of employers, employees and society can be implemented in the Australian and Sri Lankan contexts. The crux of the question may be how a human rights-based theory which arises in the public law context can be implemented in a private law phenomenon, such as trade secrets law. In addressing this issue, Justice Barak24 proposed four models which show how private laws may or may not ensure human rights protection. The first model suggests directly applying human rights in private law (the direct application model). Accordingly, human rights should be protected not only by the government or government organs, but also by individuals. In other words, this model enables the notion that individuals have an obligation to respect and protect human rights of fellow individuals. The second model holds that human rights can only be applicable in the public law context and should be enshrined in a country’s bill of rights so as to protect individual rights against government bodies (the non-application model). In addition to these two extreme models, Justice Barak proposes a third model called the ‘indirect application model’.25 In fact, this may be a practical way of applying a human rights model to a private law phenomenon. According to the third 24 Aharon Barak, ‘Constitutional Human Rights and Private Law’ (1996) 3 (2) Review of Constitutional Studies 224-226. 25 Ibid, 225. 256 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS model, human rights do not necessarily need to apply directly in the private law context, but can be applied in an indirect manner. As stated by Justice Barak: Protected human rights do not directly permeate private law “in and of themselves,” but rather by means of private law doctrines (either through existing doctrines or through new doctrines created for the purpose of public law ‘absorption’). Further, according to the fourth model, while human rights are protected merely against the government, there is no application to the relationships between private parties.26 However, in the fourth model, the judiciary is included in the definition of government. As a result, the judiciary has to be concerned with human rights when applying common law and other statutory laws and when granting remedies.27 This thesis adopts the third model, which enables an indirect application of human rights notions to private law phenomenon, such as protection of trade secrets. As expressed by Justice Barak, the advantage of the indirect application model is that it ‘makes use of private law tools’ in order to implement human rights values.28 As such, this thesis proposes a legislative approach which is seen as a promising way of implanting human rights values in the trade secrets legal regime. Indeed, a legislative approach may be an appropriate way of resolving some of the theoretical fragilities of trade secrets protection. As explained by Risch, this is known as the ‘populist approach’ of trade secrets theory.29 He argues in respect of the United States that the acceptance of trade secrets protection by the legislatures of a majority of states may be a sufficient justification for the protection of trade secrets.30 In his words: With so many state legislatures independently enacting trade secret statutes, it is pretty clear that trade secret law is supported by the masses.31 Accordingly, since the legislature is a representation of the will of the people, introducing trade secrets legislation may be as a way of representing the majority 26 Ibid, 226. 27 Ibid. 28 Ibid, 238. 29 Michael Risch, ‘Why do we have trade secrets?’ (2007) 11 Marquette Intellectual Property Law Review 1, 35. 30 Ibid. 31 Ibid. Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 257 views of people. The same argument may be valid to Australia and Sri Lanka, which are also representative democracies. According to sections 7 and 24 of the Australian Constitution, both houses of Parliament are ‘directly chosen by the people’.32 Similarly, the Sri Lankan Constitution provides that the ‘sovereignty is in the people’ and legislative power of people shall be exercised by Parliament.33 As such, it may be argued that Risch’s view of seeing ‘legislation as the populist approach’ may equally apply in Australian and Sri Lankan contexts. Lemley, in supporting the legislating of intellectual property rights, states that ‘intellectual property has come of age: it no longer needs to turn to some broader area of legal theory to seek legitimacy’.34 He uses the following statement of the Canadian Supreme Court regarding the copyright theory to justify his claim: Copyright is neither tort law nor property law in classification, but is statutory law. It neither cuts across existing rights in property or conduct nor falls in between rights and obligations heretofore existing in the common law. Copyright legislation simply creates rights and obligations upon the terms and in the circumstances set out in the statute.35 This observation may also be relevant to trade secrets protection. As such, if a legislative framework is introduced to protect trade secrets, then trade secrets is neither contract law, equity nor property law in classification, but is statutory law. Moreover, a legislative framework may contribute to resolving the uncertainties of laws. As argued by Caenegem: 36 One possible response therefore is to reduce uncertainty by imposing more mandatory rules by statute. It may be that imposing statutory maxima qua term; rules about reading down restraints; requirements as to consideration 32 Australian Constitution ss 7 (the Senate) and 24 (the House of Representatives). 33 Article 3 and 4 of the Second Republic Constitution of Sri Lanka 1978. 34 Mark A. Lemley, ‘Property, Intellectual Property, and Free Riding’ (2005) 83 Texas Law Review 1031, 1075. 35 Ibid, Compo Co. v. Blue Crest Music Inc., 1980 S.C.R. 357, 372-73 (Can.). 36 William van Caenegem, ‘Employee Know-how, Non-compete Clauses and Job Mobility across Civil and Common Law Systems’ (2013) 29 (3) International Journal of Comparative Labour Law 219, 235. However, in his view, there can be downsides of introducing a trade secrets legislation. For instance, he argues that ‘extensive regulation may have the potentially counter-productive effect of encouraging more restraints, while at the same time giving rise to additional questions of interpretation and application of laws.’ Nevertheless, in order to avoid such effects, this thesis proposes a legislative framework based on human rights theory which considers the importance rights not only of employers, but also of employees and the society at large. 258 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS and consent; and clarity concerning available remedies would be more conducive to an adequate balance between the interests of the firm in a degree of predictability, individual rights and the public interest in employee self- sufficiency and mobility. It might also be possible to introduce mandatory processes, perhaps before specialist courts or tribunals, which allow non- compete claims to be resolved more quickly and efficiently. Indeed, a legislative approach may be regarded as a turning point in Australia, in a context where there is a trend, at least in the industrial or developed world, to adopt clear legislative provisions on protecting trade secrets. The development in the United States of introducing a federal civil cause of action in cases of trade secrets misappropriation in 2016, and the introduction of the EU Trade Secrets Directive, may be regarded as milestones of such a trend. And more importantly, the United Kingdom, from which Australia has borrowed most of its common law instruments, has recently adopted legislation on the protection of trade secrets for the first time in their history.37 Therefore, it is reasonable to state that it is high time for Australia to consider introducing legislation on the protection of trade secrets in a similar manner to how Australia dealt with other IP rights such as patent, copyrights and trademarks. In fact, a legislative approach in respect of protecting trade secrets or restraint of trade is not a novel approach in Australia or Sri Lanka. In the Australian context, New South Wales has already chosen to follow a legislative route, in the form of the Restraint of Trade Act 1976 (NSW). Also, it can be noted that a trend of legislating trade secrets law has already been initiated by the National Security Legislation Amendment (Espionage and Foreign Interference) Act 2018 (Cth) which criminalises trade secrets theft conducted for the benefit of a foreign government. However, neither of these statutes can be understood as addressing the issues relating to trade secrets since both of them are confined to two separate related issues of the trade secrets protection in isolation. For instance, the Restraint of Trade Act 1976 (NSW) can be regarded as legislating rules relating to restraint of trade. Also, in the National Security Legislation Amendment Act, Parliament merely considers trade secret theft that may impact the national security of Australia. Therefore, there is still a need to introduce a piece of legislation to regulate trade secrets protection in Australia by addressing 37 The Trade Secrets (Enforcement, etc.) Regulations, No. 597 of 2018. (This legislation came into force from 9th June 2018) Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 259 pivotal aspects of trade secrets protection, including the rights of employers, employees and society. In contrast, in Sri Lanka, trade secrets protection is already regulated under the general IP legislation. However, as explained in Chapter 3, trade secrets provisions in this Act led to confusion over the selection of laws and preservation of secrecy of information during and after court proceedings. In any event, it may not be practical to expect that the legislature can include a detailed trade secrets provision in general IP legislation which includes provisions relating to all IPs. Hence, given the divergent nature and exceptional characteristics of trade secrets, it may be a promising idea to introduce separate or standalone legislation on the issue. The following sections outline the contexts in which policy-makers may consider introducing legislation informed by the human rights perspectives as a solution to the problems identified by Chapters 3, 4 and 5. In conjunction with the human rights-based criteria developed by section 2.5.5, these sections consider the rights of employers in creating and protection trade secrets; the rights of employees in exercising their right to work; and wider societal rights in terms of access to knowledge.38 The proposed components of legislation closely resemble the EU Directive Trade Secrets Directive and consider the Directive as guidance for establishing the rights of employers, employees and society in the context of protecting trade secrets. That is mainly because the Directive may be considered as a balanced framework that equally weighs not only the rights of employers but also the rights of employees and the public. In fact, the Directive has explicitly identified the need to respect fundamental rights, especially the rights of employees.39 Accordingly, it may be worthwhile to consider the Directive as a guide in establishing the rights-based trade secrecy framework in Australia and Sri Lanka. (a) Introducing a Uniform Definition As explained in Chapter 3, there can be some definitional variations and uncertainties in trade secrets terminology in the Australian context. Introducing a common and uniform definition may contribute to resolving the uncertainties of law. 38 See below section 6.3.2 (b), (c) and (d). 39 See recital 34 of the EU Trade Secrets Directive [emphasis added]. 260 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS This can be guided by the recently enacted National Security Legislation Amendment (Espionage and Foreign Interference) Act 2018 (Cth) which endorses the following components as prerequisites for a trade secret: i. The information is not generally known in trade or business, or in the particular trade or business concerned; ii. The information has a commercial value that would be, or could reasonably be expected to be, destroyed or diminished if the information were communicated; and iii. The owner of the information has made reasonable efforts in the circumstances to prevent the information becoming generally known.40 In addition to this tri-partite test, a proviso may be added so as to explicitly and clearly state that trade secrets should exclude trivial information, employee know-how (experience and skills gained in the course of employment) and information which is generally known among or is readily accessible to persons within the circles that normally deal with the kind of information in question.41 Accordingly, the scope of information that employers may protect is limited to his or her trade secrets. First, such an approach may be helpful in guiding the courts to demarcate trade secrets from other related knowledge, such as employee know-how, which is a major issue affecting the enforcement of employees’ right to work.42 A clear definition may guide courts to limit the protection only to trade secrets, without extending it to the employees’ general stock of knowledge. In other words, courts may be able to hold that any other information that has not satisfied the above-mentioned tri-partite test does not belong to an employer. Thus, a legal protection cannot be sought for such information. Secondly, having a precise definition may be helpful to promote a robust public domain which helps to promote public interest or societal rights. 43In other words, a 40 Section 92A.1 of the National Security Legislation Amendment (Espionage and Foreign Interference) Act 2018 (Cth). 41 See recital 14 of the EU Trade Secrets Directive. 42 See section 5.2. 43 Since, this thesis advances the argument that in order to protect public interest in more effective manner – in addition to narrowing the definition of trade secrets – there is a need of introducing exceptions to the trade secrets protection and lawful means of acquiring trade secrets. See 6.3.2 (d) (i) and (ii) for more detailed analysis. Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 261 precise definition may be helpful to understand and affirm that not all information qualifies as a trade secret. Accordingly, information which satisfies the tri-partite test –– secrecy, commercial value and reasonable efforts –– should only be considered as trade secrets. The rest of the information should be considered as in public domain and thus the public can freely use them. As Sandeen proclaimed: …trade secrets law (when properly applied) is …consistent with an interest in the diffusion of knowledge because, it does not, and never has, protected all business information.44 Therefore, introducing a precise definition may be a promising way to ensure that only trade secrets are protected and the scope of protection is not extended to cover mundane information.45 The effect of this approach may be that it denies the common perception that ‘virtually any useful information’ can be protected under the trade secrets regime.46 (b) Ensuring the Rights of Employers or Trade Secrets Owners (i) Defining Rights As highlighted in section 2.5, ensuring the right of employers or trade secrets owners might be the starting point of a trade secrets law. As such, defining their rights and addressing issues relating to implementation of the rights should an important component of a trade secrets legislation. Legislation can clearly state the rights of an employer with regard to trade secrets or the circumstances in which a trade secret misappropriation can occur. Consequently, employers can be certain of their position and may take necessary actions to protect their rights. Clear guidance may be taken from the recently enacted EU Trade Secrets Directive which offers a wide course of action for employers whose trade secrets have been unlawfully acquired, used or disclosed by another person, including employees. 44 Sharon Sandeen and D S Levine, ‘Trade secrets and climate change: uncovering secret solutions to the problem of greenhouse gas emissions’ in J D Sarnoff (eds) Research Handbook on Intellectual Property and Climate Change (Edward Elgar, Massachusetts, 2016) 352, 360. 45 See section 5.2.: the impact of expanding trade secrets or confidential information protection to mundane information. 46 See Deepa Varadarajan, 'Trade Secret Fair Use' (2014-2015) 83 Fordham Law Review 1401, 1409. 262 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS For instance, first, in consonant with the Directive, trade secrets legislation can define lists of the means that might be considered as unlawful ways of acquiring trade secrets, such as unauthorised access, copying theft, bribery, deception, breach or inducement to breach a confidentiality agreement.47 This may be regarded as creating negative rights by which an employer or a trade secret owner may be able to restrain others from interfering with his or her rights in an unauthorised manners. Second, it can be proposed to distinguish the information acquired directly from the trade secrets holder (first category) and information acquired from a third party (second category). With regard to the first category, disclosures of trade secrets may be considered unlawful when they are carried out in the following manner intentionally or with gross negligence without consent of the trade secrets owner or employer: i. Having acquired the trade secrets unlawfully; ii. Being in breach of a confidentiality agreement or any other duty not to disclose the trade secret; iii. Being in breach of a contractual or any other duty to limit the use of the trade secret.48 When it comes to the second category, legislation can introduce the liability of a third party who has obtained a trade secret ‘directly or indirectly from another person who was using or disclosing the trade secret unlawfully’.49 In such circumstances, the liability of third parties may depend on the establishment of an actual or constructive knowledge of a third party that the trade secret was obtained from someone who was using or disclosing it unlawfully.50 Accordingly, the acquisition, use or disclosure of a trade secret by a third party shall be considered unlawful, only if a party at the time of its acquisition, use or disclosure knew or, under the circumstances, should have known that a trade secret was obtained from a third party who was using or disclosing the trade secret unlawfully.51 The same liability of third parties may occur in the case of production, marketing, import, export, or storage of infringing goods.52 47 See Article 4(2) of the EU Trade Secrets Directive. 48 See Article 4(3) of the EU Trade Secrets Directive [emphasis added] 49 See Article 4(4) of the EU Trade Secrets Directive. 50 See Article 4(4) of the EU Trade Secrets Directive. 51 See Article 4(4) of the EU Trade Secrets Directive. 52 See Article 4(5) of the EU Trade Secrets Directive. Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 263 (ii) Preserving the Secrecy of the Subject Matter During and After the Court Proceedings As explained in sections 3.7 and 4.6, preserving the secrecy of information during a trade secrets litigation is a crucial issue in a trade secrets case. Indeed, the entire purpose of litigation may be futile if the information claimed to be secret is revealed as a part of the litigation. As noted, whereas Australia provides for this in general Commonwealth and state legislation on judicial procedures, Sri Lankan law is silent on the issue. Thus, it can be submitted that a legislative framework should establish clear procedural measures to preserve confidentiality of trade secrets during and after court proceedings. As an illustration, the EU Trade Secrets Directive postulates that: The parties, their lawyers or other representatives, court officials, witnesses, experts and any other person participating in legal proceedings relating to… [a trade secrets case] are not permitted to use or disclose any trade secret or alleged trade secret…53 It further provides that this obligation shall remain in force even after the end of a legal proceeding.54 The judiciary may take the following measure in ensuring the secrecy of information: i. Restricting access to any document containing trade secrets or alleged trade secrets submitted by the parties or third parties, in whole or in part, to a limited number of persons; ii. Restraining access to hearings, when trade secrets or alleged trade secrets may be disclosed, and the corresponding record or transcript of those hearings to a limited number of persons; and iii. Making available to any other persons other than a limited number of persons, non-confidential versions of judicial decisions, in which passages containing trade secrets have been removed or redacted.55 Accordingly, this guideline may help courts take appropriate measures in preserving confidentiality of information during and after court proceedings. As noted in section 3.7, in Australia, a closed-hearing or concealment order can be sought in trade secrets cases. However, first, such measures are not tailor-made for trade secrets 53 See Article 9 (1) of the EU Trade Secrets Directive. 54 Ibid. 55 See Article 9 (2) of the EU Trade Secrets Directive. 264 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS cases and depend on establishing that judicial process would destroy the subject matter of proceedings and render them negatory unless a closed-hearing is granted. As such, such an order may not be routinely granted as it may be a matter of balancing a multitude of factors.56 Second, with regard to Commonwealth and state legislation on the issue, there is little consistency among legislative provisions. Third, whether or not the alleged party has actually misappropriated a trade secret, it may be inevitable that court proceedings reveal the details of a trade secret to the alleged party, witnesses, and counsels. As such, there is a need to establish obligations of all participants of the case, including not only the alleged party, but also counsel and witnesses of the case, to preserve the confidentiality of information during and after the case. Moreover, when it comes to Sri Lanka, there is no direct address of the issue of preserving confidentiality of information either in legislation or in case law. Therefore, establishing clear guidance as done in the EU Trade Secrets Directive may be a way forward for both Australia and Sri Lanka. (iii) Defining the Scope of Remedies Introducing provisions relating to remedies may be equally as important as establishing rights of trade secrets owners. Identifying rights may be a futile exercise if there is no clear way of implementing them. Even though Australia provides for a wide range of remedies, there is a less guidance from the legislation on granting remedies, leaving it to judicial discretion.57 In respect of Sri Lanka, the IP Act has already included provisions on interim and permanent injunctions, damages and account for profit, and selection between fixed statutory damages and proving actual damages.58 However, what is lacking in both jurisdictions may be that there is no clear guidance or values for courts to use in granting remedies. As such, in order to guide courts to approach trade secrets cases in a consistent manner, legislation may introduce values on which remedies are based. Such values may include: i. Remedies should be fair and equitable; 56 See section 3.7. 57 See sections 3.6. 58 See section 4.5. Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 265 ii. Remedies should not be unnecessarily complicated or costly, or entail unreasonable rime-limits or unwarranted delays; iii. Remedies should be effective and dissuasive; iv. Courts should take into account the principles of proportionality in granting remedies.59 With regard to damages, legislation may guide the judiciary to grant ‘damages appropriate to the actual prejudice suffered [by an employer] as a result of the unlawful acquisition, use or disclosure of trade secrets’.60 In considering a pleading on damages, courts may consider factors such as: The negative economic consequences, including lost profits, which the injured party suffered or any unfair profits made by the infringer Non-economic factors such as the moral prejudice caused to the trade secret holder by the unlawful acquisition, use or disclosure of the trade secret.61 When it comes to injunctions and other corrective measures, following the Directive, legislation may provide for: i. The cessation of or, as the cases may be, the prohibition of the use or disclosure of the trade secret; ii. The prohibition of the production, offering, placing on the market or use of infringing goods, or the importation, export or storage of infringing goods for those purposes; iii. The adoption of the appropriate corrective measures with regard to the infringing goods;62 iv. The destruction of all or part of any document, object, material, substance or electronic file containing or embodying the trade secret or, where appropriate, the delivery up to the application of all or part of those documents, objects, materials substances or electronic files.63 59 See Article 6 of the EU Trade Secrets Directive. 60 See Article 14(1) and 13(1) of the EU Trade Secrets Directive. 61 See Article 14(2) of the EU Trade Secrets Directive. 62 These corrective measures may include: ‘Recall of the infringing goods from the market; depriving the infringing goods of their infringing quality; destruction of the infringing goods or where appropriate, their withdrawal from the market, provided that the withdrawal does not undermine the protection of the trade secret in question. See Article 12(2) of the EU Trade Secrets Directive. 63 See Article 12(1) of the EU Trade Secrets Directive: Injunctions and Corrective Measures. 266 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS As explained in section 6.3.1, these remedies can be granted by taking due account of the principle of proportionality. For instance, as provided by Article 13 of the Directive, courts may take into consideration many factors rather than limiting their consideration to the need of preserving the value and secrecy of trade secrets.64 In addition, in order to establish a proportional balance between the rights of employers and employees by following the provisions of the Directive, legislation may make interlocutory injunctions conditional on the fact that an employer filing a security.65 The effect of this is that the respondent-employee may be compensated if the interim injunction is revoked due to any act or omission by the employer, or ‘where it is subsequently found that there has been no unlawful acquisition, use or disclosure of trade secrets or thereat of such conduct’.66 As a result, this may be a deterrent on pleading interlocutory injunctions by employers. This may be a helpful way of striking a balance between the rights of employers and employees in the interlocutory stage which is a practical determinant of the matter since the most trade secrets cases are made at the interlocutory stage.67 Another measure which may balance the rights of employers and employees may be restricting the liability for damages of employees only for unlawful acquisition, use or disclosure of a trade secret where employees acted without intention.68 In other words, if an employee does not wilfully misappropriate a trade secret, such an employee has a limited liability to pay damages. While the Directive does not clearly define the meaning of limited liability, it is proposed that the court limit the liability of such an employee to an amount equivalent to a certain number of last remunerations received by the employee, or as may be determined to be just by the legislature. 64 See above section 6.3.1. For example, courts may consider the following factors: (a) the value or other specific features of the trade secret; (b) the measures taken to protect the trade secret; (c) the conduct of the infringer in acquiring, using or disclosing the trade secret; (d) the impact of the unlawful use or disclosure of the trade secret; (e) the legitimate interests of the parties and the impact which the granting or rejection of the measures could have on the parties; (f) the legitimate interests of third parties; (g) the public interest; and (h) the safeguard of fundamental rights. 65 Article 11 (4) of the EU Trade Secrets Directive. 66 Article 11 (5) of the EU Trade Secrets Directive. 67 See section 5.2.3 for a detailed analysis of the issue. 68 See Article 14 (1) proviso of the EU Trade Secrets Directive. Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 267 Moreover, legislation may consider introducing sanctions for abusive litigation.69 Accordingly, when a court found that an employer initiated a trade secrets legal proceeding abusively or in bad faith, the court is vested with power to award damages to the respondent and impose sanctions on the employer.70 Therefore, this measure encourages employers to seek remedies only when they have a strong case and not in circumstances where they presuppose that there can be a misappropriation. (c) Ensuring Right to Work of Employees As explained in section 5.2, legal approaches to protecting trade secrets in Australia and Sri Lanka may impede an employee’s right to work.71 A legislative approach may be a way to ensure that rights of employees are clearly defined and guaranteed. Indeed, in the context of the welfare state, where a number of statutes are enacted in order to protect under-privileged or vulnerable employees,72 it is submitted that this area of law may also be governed through legislation to provide protection against a different form of vulnerability. Otherwise, it is inevitable that employees may be in a vulnerable situation with the application of traditional contractual concepts such as so-called freedom of contract and sanctity of contract.73 This vulnerability may be most felt at the entry level, where employees are not in a position to bargain for better rights or for the avoidance of unfair contractual obligations. The following components may be considered by policy-makers in guaranteeing workers’ rights in trade secrets legislation. (i) Explicit Recognition of the need of Protecting Right to Work Section 5.2 of this thesis observed that certain legal approaches of trade secret law may impede rights of employees. However, currently, there is no direct legislative or judicial approach to ensure employees’ rights in the trade secrets context in either 69 See Article 7(1)(c) and 7(2) of the EU Trade Secrets Directive. 70 Article 7 (2) of the of the EU Trade Secrets Directive. 71 See section 5.2. 72 See for eg, Australia: Work Health and Safety Act 2011 (Qld); Work Health and Safety Act 2011 (ACT); Work Health and Safety Act 2011 (NSW); Work Health and Safety (National Uniform Legislation) Act 2011 (NT); Work Health and Safety Act 2012 (SA); Work Health and Safety Act 2012 (Tas) and Occupational Health and Safety Act 2004 (Vic). Sri Lanka: Factories Ordinance, No. 45 of 1942; The Workmen's Compensation Ordinance, No. 19 of 1934. 73 See the analysis in section 5.2. 268 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS in Australia or Sri Lanka. Therefore, identifying and guaranteeing employees’ rights in legislation is highly desirable. In this regard, the EU Trade Secrets Directive may be considered as a promising exemplar for Australian and Sri Lankan policy-makers to ensure employees’ rights while providing for the protection of trade secrets. For instance, the Directive explicitly reiterates the need of respecting employees’ rights including ‘the freedom to choose and occupation and right to engage work [and] the freedom to conduct a business’.74 Article 1(3) of the Directive provides that the provisions of the Directive should not be understood as ‘offering any ground for restricting the mobility of employees, in particular in ‘limiting employees’ use of information which is not a trade secret’.75 However, an additional concern for Australian and Sri Lankan policy makers should be the introduction of a practical way to distinguish employee know-how from trade secrets, which is not provided by the EU Directive. Moreover, there is a need for a mechanism to compensate a leaving employee who is under an obligation of restrictive covenant. As explained in section 5.2 of this thesis, these two issues may be regarded as crucial issues that prejudice the rights of employees. They may be effectively addressed by ‘the memory rule’ and ‘the doctrine of garden leave’. (ii) Defining the Protectable Interest under Restrictive Covenants From the employers’ perspective, a restrictive covenant is a way of retaining talented and dedicated employees as well as preventing the use of trade secrets by a leaving employee. In a typical scenario, restrictive covenants aim to protect proprietary information of employers which includes more than trade secrets. There is no proper limitation on the interests that can be protected through restrictive covenants, leaving that to parties of the contract to decide. This has been approved by Pembroke J in Seven Network (Operations) Limited v James Warburton (No. 2).76 His Honour opined that: …the categories of case in which covenants in restraint of trade are enforceable are neither rigid nor exclusive. They included…any case where 74 See recital 34 of the EU Trade Secrets Directive. [emphasis added] 75 See Article 1(3) of the EU Trade Secrets Directive. 76 [2011] NSWSC 386. Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 269 the covenantee has a legitimate interest of whatever kind to protect and where the covenant is no wider than necessary to protect that interest.77 The repercussion of this scenario is that there is a possibility of extending the scope of restrictive covenants to cover employee know-how. This may result in impeding employees’ rights to successfully utilise employment-related knowledge in subsequent employment.78 Therefore, Van Caenegem highlights the need of defining the ‘scope and extent of the categories of protectable interests’.79 To remedy this, the protectable interest of restrictive covenants should be defined through a legislative provision. However, introducing an overarching limitation on the protectable interest may hinder the employers’ ability to contract and protect their legitimate business interests, such as trade secrets. Therefore, in balancing the interests of both employers and employees, policy-makers may consider including a provision such as: An employer has a protectable interest when [and only if] the employee (i) has access trade secrets of the employer or (ii) has access to competitively sensitive confidential information that otherwise would not qualify as a trade secret, including product development plans, product launch plans , marketing plans and sales plans.80 At the same time, legislation may introduce a list of exclusions or information that cannot be protected by restrictive covenants. Such a list may include general skill, knowledge and general job training acquired by an employee during his or her tenure. Such a provision may strengthen the position of employees in two ways. First, it may establish that employers can prove that they have possessed a protectable interest under a restrictive covenant only if an employee has access to trade secrets or other related confidential and sensitive information. Second, employees may be able to successfully utilise their skills, knowledge and general training in subsequent employment. This may lead to empowering employees by ensuring that the application of restrictive 77 Ibid, [68]. 78 See section 5.2.2. 79 William van Caenegem, Trade Secrets and Intellectual Property: Breach of confidence, Misappropriation and Unfair Competition (Walter Kluwer, Netherlands, 2014) 218-220. 80 See Non Competition Agreements, 2017 ORS 653.295, Oregon Revised Statutes 2017. 270 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS covenants may not circumscribe their ability to successful realisation of their right to work. (iii) Demarcating Employee know-how from Trade Secrets: Embracing the Memory Rule As explained elsewhere, there is a risk that trade secrets law may catch within its ambit the information that is in the memory of the employees.81 For instance, in the Australian context, where there is no precise definition on trade secrets, and in both Australia and Sri Lanka, where there are no clear rules to demarcate trade secrets form employee know-how, there is a possibility that the law may embrace information that is purely in the memory of the employee.82 The consequence may be that employees may not be able to successfully engage in their subsequent employments. As stated in the Massachusetts case of Marcam Corp. v Orchard:83 [An ex-employee] does not go with a tabula rasa with respect to …significant business information of [the former employer]. It is difficult to conceive how all this information stored in [the ex-employee’s] memory can be set aside as he [or she] applied himself [or herself] to a competitor’s business and its products.84 The solution that was suggested to resolve this issue by the US courts was to apply the ‘inevitable disclosure’ doctrine.85 The inevitable disclosure doctrine proposes that an employee ‘may be enjoined by demonstrating that the employee’s new job duties will inevitably cause the employee to rely upon knowledge of the former employer’s trade secrets’.86 In other words, this doctrine is based on the proposition that it may be inevitable that an employee reveals trade secrets of an ex- employer to a new employer since an employee might not be able to compartmentalise the information, knowledge and experience gleaned through the previous employment from their knowledge on the trade secrets of the ex-employer. The doctrine of inevitable disclosure seeks to protect trade secrets from threatened misappropriation, 81 See above sections 3.3, 3.4.2, 4.3.3 and 5.2. 82 Ibid. 83 885 E Supp. 294 (D. Mass. 1995). 84 Ibid, 297. 85 See PepsiCo, Inc. v Redmond 54 F.3d 1262, 1272 (7th Cir. 1995). 86 Whyte v Schlage Lock Co., 101 Cal. App. 4th 1443, 1446 (2002). Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 271 allowing courts to grant preliminary injunctions to forbid an immediate threat. However, this doctrine or rule may prejudicially affect public interest in that employers should be free to hire whomever they please and employees should be free to work for whomever they please.87 Consequently, this may affect the mobility of labour, the right to earn a living, as well as the dissemination of knowledge. Even though there is no such doctrine in the Australian or Sri Lankan legal systems, a similar result may follow the application of the current laws in Australia and Sri Lanka. That is, first, given the practical difficulty in demarcating employee know-how and trade secrets, there is a risk that courts may take overly expansive interpretation of the protected information, thereby restricting the use of employee know-how in subsequent employment.88 Second, interim injunctions, which are more or less favourable to employers, may become a final determinant of trade secrets cases in both Australia and Sri Lanka.89 In the interim stages, courts are not necessarily required to consider the actual misappropriations. Threatened misappropriations may suffice for a court to issue an interim injunction. As such, these two applications may contribute to impede the rights of employees in a similar vein to the inevitable disclosure doctrine. This thesis proposes that policy-makers consider the ‘memory rule’ to resolve the problem of drawing lines between trade secrets and employee know-how. An 18th century English case, Merryweather v Moore,90 may provide a foundation for this argument. In this case, Kekewich J held that: If he [an employee] can carry them in his head, no one can prevent his doing that and making use of them.91 Feldman, based on this statement,92 argues that the judicial approach should be to enjoin merely the ‘use of information that was copied down prior to the termination of the employment’ but not the use of the knowledge carried out in the heads of departing 87 See Bimbo Bakeries USA, Inc v. Botticella, 613 F.3d 102 (3rd Cir. 2010) 88 See section 5.2.2. 89 See section 5.2.3. 90 [1892] 2 Ch 518. 91 Ibid, 524. 92 Whereas he did not mention this case, he attempted to rely on an analysis of Pooley’s analysis on the rule. See James HA Pooley, M A Lemley and Peter J Toren, ‘Understanding the Economic Espionage Act of 1996’ (1997) 5 Texas Intellectual Property Law Journal 177, 189–90. However, Pooley et.al did not deal with the memory rule per se. 272 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS employees.93 This seemingly simple concept has been forgotten by the common law world,94 but may be a way of successfully drawing a line between employers’ protectable trade secrets and employees’ know-how, which is allowed to be used in subsequent employment. Feldman, having empirically investigated this proposition, suggests that the tangibility of information is the most important determinant in a trade secrets misappropriation case.95 In other words, he asserts that while trade secret law should cover downloaded or deliberated collected information (which are employers’ information) by a leaving employee, the law should not cover memorised information (which can be freely used by employees).96 In summary, despite the fact that the information was confidential, if it had been absorbed by an employee during his or her employment, it should be recognised as a part of his or her general knowledge and expertise. Nonetheless, it might be argued that proposing the memory rule might be undermined in the rare case of an employee having an eidetic memory. As such, there may be a risk that an employee with an eidetic memory may carry trade secrets such as a recipe or a formula in his or her mind when leaving an employer. However, at least, the memory rule can be regarded as a practical measure that may resolve the problem of uncertainty of demarcating employee know-how from trade secrets by providing that protected information does not extend to the general stock of knowledge of an employee with normal memory. In simple terms, then, if information cannot be deleted from the head of the employee and, so far as the employee does not make any additional effort to store particular information relating to trade secrets in his or her head, it may be fair to consider that this knowledge is his or hers. 93 Yuval Feldman, ‘The Behavioral Foundations of Trade Secrets: Tangibility, Authorship and Legality’ (2006) 3 (2) Journal of Empirical Legal Studies 197, 203. 94 See Ronald McCallum and Andrew Stewart, ‘The Duty Of Loyalty: Employee Loyalty In Australia’ (1999) 20 Comparative Labour Law and Policy Journal 155. They argue that there is no fundamental difference between the memorised and downloaded information in Australian context. 95Yuval Feldman, ‘The Behavioral Foundations of Trade Secrets: Tangibility, Authorship and Legality’ (2006) 3 (2) Journal of Empirical Legal Studies 197, 231: Feldman, based on the data collected from a non-random multi-sourced sample of 260 high-tech employees in Silicon Valley, suggests an alignment of ‘law with people’s [employees’] intuitions’ or what people think is right or wrong. According to this view, social support is required for the long-term functionality, legitimacy and credibility of the law. He identified that the memory rule is such a legal principle that supported by persons, i.e., employees. 96 Ibid, 224, 231. Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 273 (iv) Promoting Garden Leave in lieu of Non-Competition Clauses As explained in section 3.4.2, restrictive covenants are a common tactic used by employers to protect their trade secrets, requiring (ex)-employees not to compete with them by using their trade secrets. In practice, this measure restricts the employees’ rights to change their employment and ultimately the right to earn a living.97 Also, this may be regarded as a unilateral measure that forces employees to bear the primary burden (of protecting trade secrets) without receiving anything in exchange.98 In other words, one of the major deficiencies of non-competes may be that they do not provide provisions for making a payment to an employee who is restricted to working for a certain (reasonable) time period. Alternatively, the ‘garden leave’ or ‘gardening leave’ doctrine can be regarded as a fairer mechanism than non-competes, and may serve the same purpose as non- competes. Garden leave can be defined as a mechanism that ‘an employer insisting an employee, who has given notice, stay away from work for the duration of the notice period, whilst continuing to receive the employee's remuneration’.99 Thus, rather than immediately beginning work for a competing enterprise after leaving the previous employment, the employee is paid to remain at home and, at least metaphorically, work only in the garden.100 From an employer’s perspective, garden leave may be a measure to protect them against the misappropriations of trade secrets and competition from leaving employees. From an employee’s perspective, whereas the doctrine of garden leave still restricts the mobility of an employee, it nevertheless compensates him or her for the period of the restraint. Accordingly, employers may not attempt to restrict leaving employees routinely since they have an immediate and tangible cost in enforcing a garden leave agreement. As such, they may be cautious to apply gardening leave only to the employees plausibly exposed to trade secrets. Therefore, garden leave may be considered as striking a fair balance between employers and employees.101 97 See above sections 3.4.2, 4.3.3 and 5.2.3. 98 See section 5.2.1. 99 Bearingpoint Australia Pty Limited v Robert Hillard [2008] VSC 115 (Habersberger J). 100Bishara N D and Michelle Wastermann-Behaylo, ‘The Law and Ethics of Restrictions on an Employee’s Post-Employment Mobility’ (2012) 49 American Business Law Journal 26. 101 Garden leave is commonly used by Australian employees as reflected by recent cases. See for eg, SAI Global Property Division Pty Ltd v Jones [2018] NSWSC 438 and Grace Worldwide (Australia) 274 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS Nonetheless, the flipside of this doctrine may be that this may be a violation of employees’ right to work during the ‘gardening leave’ period in the context where an employer might be under an implied duty to provide the employee with work.102 However, a garden leave clause may bring less inimical ramifications to employees when compared to non-competition clauses, at least in terms of compensating employees during the restricted time period. Hence, it is worthwhile that the policy- makers of Australia and Sri Lanka consider giving life to this concept and promoting it in a trade secrets legislation. (v) Legislative Provisions/Guarantees not to be excluded by Contracts Policy-makers may consider including a provision to eliminate the possibility that an employer may exclude the application of legislative provisions through contractual measures. Such a guarantee may be important to protect employees who may be otherwise vulnerable to employers who have stronger bargaining power. Therefore, legislation may introduce a provision stating: A term of a contract is void to the extent that the term(s) purports to exclude, restrict or modify or has the effect of excluding, restricting or modifying (a) the application of all or any of the provisions of this legislation and (b) the exercise of a right conferred by the provisions of this legislation.103 The purpose of such a provision is to prohibit the possibility of contracting out of the progressive statutory measures introduced to establish a balanced approach concerned with the rights of employers and employees. Employees may be protected by the legislative provisions irrespective of the fact they were compelled by an employer to sign an ‘opt out contract’. (d) Ensuring Broader Societal Rights or Public Interest As explained in sections 2.2 and 5.3, what is lacking in the trade secrets regime compared to other IP rights is that it may not be able to contribute to the public interest Pty Ltd v Alves [2017] NSWSC 1296. However, there is no evidence of the use of the doctrine in Sri Lanka. 102 See Amanda Coulthard, ‘Garden Leave, The Right to Work and Restraints on Trade’ (2009) 22 Australian Journal of Labour Law 87, 89-90. 103 Cf Section 64 of the Competition and Consumer Act 2010 (Cth). [emphasis added] Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 275 per se.104 In other words, non-disclosure requirement of trade secrets law and indefinite protection may raise doubts as to whether trade secrets law provides for the public interest in exchange for protecting a trade secret. However, these two issues may not be easy to be resolved: first, since the very secrecy of a trade secret defines its protection; second, it may not be possible to establish a statutory time limitation for trade secrets since there is no registration system and therefore it cannot be pinpointed when a particular trade secret is created. Therefore, guaranteeing public interest or societal rights is limited in the current trade secrets law. Accordingly, in line with criterion 3 of this thesis,105 this section proposes the following as a way of guaranteeing public interest or societal rights in the trade secrets context. (i) Providing Lawful Means of Acquiring Trade Secrets Introducing lawful ways of acquiring trade secrets may be a promising way to resolve public interest issues in both Australian and Sri Lankan laws, which are silent on the globally accepted trade secrets exceptions, such as reverse engineering and independent discovery.106 Thus, clearly and expressly identifying and delineating lawful means of trade secrecy may be a means to ensure the rights of the public. When considering how these lawful measures of acquiring trade secrets can be introduced, the EU Trade Secrets Directive may be considered a guide for Australian and Sri Lankan policy-makers. For example, the Directive explicitly identifies independent creation or discovery and reverse engineering as a legitimate way of reproducing or acquiring the information protected as a trade secret.107 Article 3(1)(b) of the Directive defines reverse engineering as ‘observation, study, disassembly or testing of a product or object that has been made available to the public or that is lawfully in the possession of the acquirer of the information who is free from any legally valid duty to limit the acquisition of the trade secret’. In other words, protecting trade secrets does not mean that it prevents competitors ‘from copying and using the same solutions if a trade secret is obtained in a lawful manner’.108 104 See section 2.5.5 : Criterion 3. 105 See section 2.5.5. 106 See arguments in sections 3.5, 4.4 and 5.3. 107 See Article 3(1)(a) and (b) of the EU Trade Secrets Directive. 108 European IPR Helpdesk, ‘Trade secrets: An efficient tool for competitiveness’ (June 2017) 276 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS As expressed by recital 16 of the Directive, introducing independent discovery and reverse engineering as lawful means may serve the greater interest of innovation and foster competition.109 Such an approach may be helpful to create non-exclusive rights to information protected as trade secrets.110 Accordingly, Australian and Sri Lankan policy-makers might explicitly introduce reverse engineering and independent discovery as lawful means of acquiring and using trade secrets. In this way, these countries may ensure that follow-on innovators may benefit from trade secrets by allowing them to reverse engineer the trade secrets-based products and get to know the technology behind such products. This may be a significant step in the Australian context where there is no recognition of reverse engineering as a lawful way of acquiring trade secrets. In Sri Lanka, as stated in section 4.4, whereas reverse engineering has not been prohibited, explicit recognition of reverse engineering may be a way of ensuring legal certainty. The effect of explicit recognition of reverse engineering may be that future interested parties may be able to routinely apply and claim it as a right. Accordingly, the societal right to information and knowledge may be guaranteed, at least to some extent, while preserving the secrecy of employers. One of the other benefits of reverse engineering may be that it allows interested parties to engage in research on a secretly-held product in order to reveal potential health risks, safety issues, or environmental harms of such a product, if there is any. In other words, the problem in the trade secrets context may be that, given the confidential nature of trade secrets, a limited number of persons may know that a subject matter of a trade secret may cause harm to public safety, health, or the environment. As such, unless a person from that limited circle is exposed to the potential harms there is no other way of the general public knowing the harms of such a secret. A clear example of this may be the potential health risks of Coca-Cola, which is the third most popular product in the world.111 Some researchers suggest that it is harmful and may cause Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 277 cancers and some non-communicable diseases.112 As such, one may reverse engineer such a product in order to reveal the potential health risks or other problematic issues of using such a product. Moreover, in addition to independent discovery and reverse engineering, the Directive identifies the ‘exercise of the right of workers or worker’ representatives to information and consultation in accordance with European Union law and national laws and practice as a lawful means of acquiring trade secrets. However, this lawful means should be understood as applicable in the European context where the Directive established a regulatory framework ‘to ensure all workers are informed about and involved in the development of their company and their working life’.113 Furthermore, the Directive provides that ‘any other practice which, under the circumstances, is in conformity with honest commercial practices’ can be considered as a lawful means of acquiring trade secrets. Nevertheless, it does not define the meaning of these other practices of lawful acquisition of trade secrets, allowing future courts to decide depending on the circumstances of cases. Therefore, it may be desirable for Australian and Sri Lankan policy makers to avoid having such a provision in their legislative reforms since such a broad provision may introduce unnecessary uncertainty. (ii) Introducing Exceptions to the Trade Secrets Protection In addition to introducing lawful means of acquiring trade secrets, it may be equally important to legislate exceptions or defences enabling courts to dismiss trade secrets cases in certain circumstances which serve the public interest. As is the case in introducing lawful means of acquiring trade secrets, the EU Trade Secrets Directive 112 See for eg, Navneet Singh and Kuruswamy Thurai Prasad, ‘A Cola to Improve My EGFR TKI Absorption in Metastatic Non–Small-Cell Lung Cancer? No, Thank You, I Prefer Lemonade or Orange Juice Instead’ (2016) 4053 Journal of Clinical Oncology 34, 33 and Katie Moisse, ‘Coroner Links Mom's Death to Coke 'Addiction'’ (13 February 2013) ABC News. 278 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS may promising guide Australian and Sri Lankan policy-makers to introduce and clarify the application of trade secrets exceptions in their countries. For instance, Article 5 of the Directive sets outs the following four major exceptions to unlawful acquisition, use or disclosure of trade secrets: Revealing misconducts, wrongdoings or illegal activities; Exercising the right to freedom of expression; Disclosure of trade secrets by workers to their representatives; and Protecting other legitimate interest recognised by the EU or national laws of EU members. Revealing Misconducts, Wrongdoings or Illegal activities As stated by the EU Trade Secrets Directive: first, whistle-blowers acting in the public interest should be considered an exception when they reveal a misconduct, wrongdoing or illegal activity.114 In other words, ‘the protection of trade secrets should not extend to cases in which disclosure of a trade secret serves the public interest, insofar as directly relevant misconduct, wrongdoing or illegal activity is revealed’.115 Such misconduct and wrongdoings may include potential harms of secret information relating to public health, safety, or environmental harms. This reflects the existing defence in Australia where the iniquity rule has been accepted by the courts as the main defence for a breach of confidence. Therefore, this exception can be considered as giving a statutory recognition to an existing common law principle in Australia. However, this provision may be helpful guidance for Sri Lankan policy-makers where either the public interest defence or iniquity rule has not explicitly been recognised. The Right to Freedom of Expression and Information The second exception introduced by the EU Trade Secrets Directive is exercising freedom of expression and information. This exception may be helpful to encourage 114 See Article 5 (b) of the EU Trade Secrets Directive: This may be considered as legislating the iniquity rule applicable in Australia. 115 See recital 20 of the EU Trade Secrets Directive. Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 279 journalists involved in investigative journalism and revealing the misconduct of companies which may seek to cover their wrongdoings through trade secrets protection. By explaining the meaning of the exception, recital 19 of the Directive provides that: While this Directive provides for measures and remedies which can consist of preventing the disclosure of information in order to protect the confidentiality of trade secrets, it is essential that the exercise of the right to freedom of expression and information which encompasses media freedom and pluralism as reflected in Article 11 of the Charter of Fundamental Rights of the European Union, (‘the Charter’) not be restricted, in particular with regard to investigative journalism and the protection of journalistic sources. In the similar way, Australian and Sri Lankan policy-makers may consider introducing such an exception in their jurisdictions. Nevertheless, this exception should be understood in the EU human right context where there is an explicit guarantee for the freedom of expression by virtue of Article 11 of the Charter of Fundamental Rights of the European Union.116 In Sri Lanka, this exception can be successfully realised in a context where the Constitution has expressly recognised ‘the freedom of speech and expression including publication’.117 However, there is no such constitutional or legal guarantee of free speech in Australia. Courts have, on occasion, implied freedom of communication concerning government or political matters.118 For instance, in Lange v Australian Broadcasting Corporation,119 the Full Court of the High Court of Australia held that: … our Constitution contains no express right of freedom of communication or expression. Within our system, communications are free only to the extent that they are left unburdened by laws that comply with the Constitution.120 116 See Article 11 of the Charter of Fundamental Rights of the European Union (2000/C 364/01) and Article 10 of the European Convention on Human Rights 1950. 117 See Article 14(1)(a) of the Second Republic Constitution of Sri Lanka. See also Fernando v The Sri Lanka Broadcasting Corporation and Others (1996) 1 Sri L R 157. 118 Lange v Australian Broadcasting Corporation (1997) 189 CLR 520. See also Hogan v Hinch (2011) 243 CLR 506. 119 (1997) 189 CLR 520. 120 Ibid, 567. [emphasis added] 280 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS As such, the Court opined that the Constitution ‘do[es] not confer person rights on individuals’.121 Therefore, it is doubtful whether this exception can be successfully implemented in the Australian context. However, the Australian Human Rights Commission Act122 has accepted the application of human rights enshrined by the ICCPR, including freedom of expression. For example, s 3 of the Human Rights Commission Act provides that: …the reference to the rights and freedom recognised in the Covenant123 [including ICCPR] shall be read as a reference to the rights and freedoms recognised in the Covenant as it applied to Australia.124 According to Article 19(2) of the ICCPR: Everyone shall have the right to freedom of expression; this right shall include freedom to seek, receive and impart information and ideas of all kinds, regardless of frontiers, either orally, in writing or in print, in the form of art, or through any other media of his choice. In this sense, it may be reasonable to argue that Australia, by its main human rights legislation, has recognised the application of freedom of expression and right to information. Therefore, introducing a provision in a similar manner of Article 5(a) of the EU Trade Secrets Directive cannot be considered as contrary to the human rights values endorsed by Australia. Therefore, it is proposed to introduce a provision to the trade secrets legislation, such as ‘application of measures, procedures and remedies should be dismissed where the alleged acquisition, use or disclosure of a trade secret was carried out for exercising the right to freedom of expression and information’.125 However, the application of this exception should be conditional to the extent that such a publication of a trade secret should bring a benefit to society. In other words, this exception should not be allowed for the mere reason that the general public is interested in knowing a trade secret, such as the formula of Coca-Cola. Otherwise, such a provision may destroy the whole meaning of trade secrets law. 121 Ibid. 560. 122 Australian Human Rights Commission Act, No. 125 of 1986 (Cth). 123 ‘Covenant means the International Covenant on Civil and Political Rigths’…’. See s 3, Australian Human Rights Commission Act, No. 125 of 1986 (Cth). 124 Ibid, s 3 [emphasis added]. 125 See Article 5(a) of the EU Trade Secrets Directive. Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 281 Disclosure by Workers to Their Representatives and Protecting Other Legitimate Interests The third exception identified by the EU Trade Secrets Directive is the ‘disclosure by workers to their representatives as part of the legitimate exercise by those representatives of their functions in accordance with [European] Union or national law, provided that such disclosure was necessary for that exercise’.126 While this provision does not define the meaning of ‘representative of workers’, it can be submitted that this provision means to empower employees to share secret information derived from employers with their trade unions where required. The fourth exception set out by the Directive provides that individuals may reveal trade secrets ‘for the purpose of protecting a legitimate interest recognised by [the European] Union or national law’.127 Policy-makers in Australian and Sri Lankan may consider a similar provision in their statutes which defines the legitimate interests of those countries in which trade secrets disclosures are allowed. These legitimate interests may include public health and national security concerns. While the application of the last two exceptions are still uncertain, the first two exceptions of the EU Trade Secrets Directive may be regarded as a guideline. It may be desirable to replicate them in the Australian and Sri Lankan contexts. That may be because these two exceptions expressly ‘safeguard those who, acting in the public interest, disclose a trade secret for the purpose of revealing a misconduct, wrongdoing or illegal activity’.128 This approach can be helpful in reducing exclusivity of trade secrets protection and establishing a balanced approach. (iii) Widening the Scope of Exceptions: ‘Compulsion in the Public Interest’ As noted above, this thesis considers legislating lawful means of acquiring trade secrets –– namely, reverse engineering is a means of ensuring the public interest or societal rights. Yet, there may still be doubt whether such a measure may actually bring the necessary and adequate public benefit to society. For example, we cannot argue 126 Ibid. [emphasis added] 127 Ibid. [emphasis added] 128 See European Commission, ‘Trade Secrets’< http://ec.europa.eu/growth/industry/intellectual- property/trade-secrets_en> 282 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS that all products in the market can be reverse engineered, enabling follow-on inventors to create their own inventions. Also, there is no mechanism to compel a trade secret owner to reveal secretly held information or knowledge even in a critical situation that may impact a country or the world. Such a situation would not fall within the ambit of, for example, the iniquity rule as may be reflected in the first exception identified by the EU Trade Secrets Directive which, in essence, requires some wrongdoing by the trade secrets owner, because it may involve circumstances in which the trade secrets owner has done no wrong. Nonetheless, in such cases, the public interest should outweigh the interests of a trade secret owner. As an illustration, under the present system, if a life-saving drug is kept secret, the owner cannot be compelled to reveal it to government authorities for the public benefit, even in the event of an epidemic. The exceptions in the EU Trade Secrets Directive do not provide for such a situation.129 Consequently, this thesis argues that introducing a further exception –– compulsion in the public interest –– to the trade secrets regime may be desirable. Such a system may enable a government to force a trade secrets holder to reveal the secret in order to reproduce the secret product or process, if the societal need force the government to do so.130 For example, in circumstances where a life-saving medicine is kept secret and an epidemic of a particular disease has been emerged in a country, it may be reasonable for a government authority to issue a compulsory licence to another pharmaceutical company to manufacture such medicine. In other words, ‘compulsion in the public interest’ exception may enable a compulsory licencing system in the trade secrets regime. As such, Australian and Sri Lankan policy-makers may consider including a provision enabling regulatory authorities to grant compulsory licences. Such licences may be granted when there is a serious threat to the community or imminent threat of death or serious injury. However, at the same time, there may be a need of including provisions on paying a royalty to the owner of the trade secrets. Such a royalty can be granted by the issuing agency (a government authority which issues the compulsory licence) based on the principle of 129 This may be an illustration of how the statutory language of the EU Directive would not adequately protect the human rigths interests of society. As such, this can be regarded as an issue to be considered by Australian and Sri Lankan policy makers in introducing their human –centric trade secrets legislation. 130 See Darshana Sumanadasa, ‘Emerging and Enduring Issues of Trade Secrecy- A Sri Lankan Perspective’. WIPO- WTO Colloquium Papers, Asian Edition 2017. Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 283 proportionality. Accordingly, a royalty that is proportional to the profit earned by the licensee-company can be granted. Moreover, when introducing the ‘compulsion in the public interest’ exception to the trade secrets system, there may be a need to introduce further mechanisms to restrict the potential abuse of the system by the licensees and competitors of the trade secrets holder. As such, the relevant issuing authority may require the licensee to enter into an agreement stipulating that: (1) he or she should not reveal the secret to a third party in good faith or for commercial purposes; (2) he or she is allowed use the licence only for the sole purpose stated in the licence; for example, making a medicine and making that medicine available in the market; and (3) his or her licence can be revoked any time by the issuing authority; for example, in the case of medicine, the licence can be revoked at the end of epidemic. Overall, as explained in this section, increasing the public benefit or ensuing societal rights may be a difficult task given the secret nature of trade secrets. As such, in consonant with the human rights-based criteria introduced by section 2.5.5, this section reiterates the need to introduce lawful means of acquiring trade secrets and the need to widen the scope of trade secrets exceptions in order to ensure the public interest or societal rights. 6.4 IMPLICATIONS FOR FUTURE RESEARCH Identifying and justifying alternative trade secrets theories is a progressive process. While such a discourse has already begun in the United States, it is still under- explored in other common law countries. Also, a wide utilisation of trade secrets as an IP protection method in both Australia and Sri Lanka warrants further analysis of the ways of protecting trade secrets and their implications from empirical and theoretical lenses. First, future work may extend the human-centric trade secrets theories, such as human rights or human flourishing theories as balanced-normative foundations of protecting trade secrets. Such theoretical frameworks may also be extended to other IP rights such as patents, copyrights and trademarks. 284 Chapter 6: CONCLUSIONS AND RECOMMENDATIONS Second, one of the major research obstacles that this research faced was the scarcity of empirical data. As such, based on the theoretical and doctrinal analyses of this research, empirical investigations may be worth conducting. Economic research can be conducted on the actual value and use of trade secrets in Australia and Sri Lanka which are underexplored when compared to the United States and the European Union. As well, along the lines of theoretical investigations of this thesis, socio-legal research can be conducted to assess how employees are impacted by the secrecy measures taken by an employer. Similarly, such research may investigate the practical impediments that impact the employees at the litigation stage. However, empirical investigations should be conducted under strict conditions of ethics approval, given the secret nature of the subject matter (trade secrets) of the research. For instance, there may be a risk that an interviewee may reveal at least a part of a trade secret during the research process. It is also proposed to conduct inter-disciplinary research –– namely, socio- economic and legal research –– on the value, protection aspects and implications of trade secrets. Third, in the Sri Lankan context, a major research impediment noted in this research is the non-reporting of Commercial High Court decisions. Since the Commercial High Court is vested with the sole jurisdiction to hear IP cases and there is a low frequency of appeal to superior courts, some basic research into compilation of cases is suggested. In a nutshell, government authorities should initiate a system of compilation of judgments delivered by the Commercial High Court. Furthermore, there is no existing research into any aspect of trade secrets protection in Sri Lanka, except for some related studies. As such, this research can be regarded as shedding a light for future research which examines and evaluates Sri Lankan trade secrets law, especially judicial approaches. Finally, while this research primarily focuses on the conventional employment relationship, there is a need for future research to examine how trade secrets can be protected in the context of the ‘gig’ economy and the impact of new legal constructs on workers (who may be neither employees nor independent contractors) which flow from the gig economy. The gig economy, a construct in today’s society, promotes freelance or independent workers who are contracted with employers for short-term engagements. In this digital and information age, workers may work from anywhere leading to work location being decoupled. This may lead to the creation of a Chapter 6: CONCLUSIONS AND RECOMMENDATIONS 285 conundrum in the application of domestically-oriented trade secrets law and restraint of trade provisions leading to a new phenomenon (involving trade secrets misappropriation) which could become a global issue. Therefore, a thorough investigation into the protection of trade secrets in the gig economy and the impact of trade secrets laws on the gig economy worker may warrant further attention from legal researchers. 6.5 CONCLUSION Trade secrets are increasingly important information assets in modern innovation and business contexts irrespective of their irregular nature when compared to other intellectual property rights. This irregularity leads to their identification as neither a fully-fledged IP right nor completely a subject matter of other theories. For this reason, trade secrets become a Cindrella or ugly duckling of IP law. This may be why trade secrets laws are highly fragmented among countries. This thesis proposes human rights theory as a promising way of establishing a balanced theory of protecting trade secrets. What is key to human rights theory is that it is human-centric and able to represent the multiple rights perspectives of trade secrets protection, at least in the employment context, within which most trade secrets cases arise. This research proposed to utilise human rights-based theory for two purposes: first, to evaluate the trade secrets laws of Australia and Sri Lanka; and second, to provide a guide to the creation of a balanced trade secrets legal framework. Accordingly, having evaluated trade secrets laws, this research proposed a legislative framework informed by the human rights theory. Such a legislative framework is shown to be a viable means to establish the notion that the law is not only about the economic rights of trade secrets owners, but also about ensuring the rights of connected parties such as employees. 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Attorney General (UK) v Heinemann Publishers Australia Pty Ltd (1987) 8 NSWLR 341 Australia Timber Workers Union v Monaro Sawmills Pty Ltd (1980) 29 ALR 322 0 Bibliography 311 Australian Broadcasting Commission v Parish (1980) 29 ALR 228 Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 Australian Football League v The Age Co Ltd [2006] VSC 308 Bachich v Australian Broadcasting Corporation (1992) 29 NSWLR 1 BDO Group Investments (NSW-Vic) Pty Ltd v Ngo [2010] VSC 206 Birdanco Nominees Pty Ltd v Money [2012] VSCA 64 Bloomsbury Publishing Group Ltd v News Group Newspapers Ltd [2003] FSR 45 Brilliant Lighting (Aust) Pty Ltd v Baillieu (2004) VSC. 248 British Franco Electric Pty Ltd v Dowling Plastics Pty Ltd [1981] a NSWLR 448 Buckley v Tutty (1971) 125 CLR 353 C Convenience Stores Pty Ltd v Wayville Plaza Retirement Pty Ltd (2012) 114 SASR 299 Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717 Castrol Australia Pty Ltd v Emtech Associates Pty Ltd (1980) 51 FLR 184 Commonwealth Bank of Australia v Barker [2014] HCA 32 Concept Television Productions Pty Ltd v Australian Broadcasting Corp (1988) 12 IPR 129 Cope Allman (Marrickville) Ltd v Farrow (1984) 3 IPR 567 Corrs Pavey Whiting & Byrne v Collector of Customs (1987) 14 FCR 434 Creamoata Ltd. v. Rice Equalization Association Ltd (1953) 89 CLR 286 Creation Records Ltd v News Group Newspapers Ltd (1997) 39 IPR 1 Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 Dais Studio Pty Ltd v Bullet Creative Pty Ltd [2007] FCA 2054 Dargan Financial Pty Ltd ATF the Dargan Financial Discretionary Trust (trading under “Home Loan Experts”) v Nassif Isaac [2017] NSWSC 1077 Darvall McCutcheon v H K Holdings Pty Ltd (2002) 4 VR 570 David Syme & Co Ltd v General Motors-Holden’s Ltd [1984] 2 NSWLR 294 De Maudsley v Palumbo [1996] FSR 447 Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172 312 0 Bibliography Deputy Commissioner of Taxation (Cth) v Rettke (1995) 31 ATR 59 Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] 167 Dowson & Mason Ltd v Potter (1986) 9 IPR 360 DP World Sydney v Guy [2016] NSWSC 1072 Ekaton Corporation Pty Ltd v Chapman [2010] SADC 150 Electro Cad Australia Pty Ltd v Mejati RCS SDN BHD [1999] FSR 291 Emeco International Pty Ltd v O’Shea (No 2) [2012] WASC 348, (2010) 225 IR 423 English & American Insurance Co Ltd v Herbert Smith [1988] FSR 232 Es-me Pty Ltd v Parker [1972] WAR 52 Federal Commissioner of Taxation v United Aircraft Corp (1943-44) 68 CLR 525 Fractionated Cane Technology Ltd v Ruiz-Avila [1988] 1 Qd R 51 Franklin v Gibbs [1978] Qd R 72 Freedom Motors Australia Pty Ltd v Vaupotic [2003] NSWSC 506 GD Seal & Co. Limited v Celtech Limited [1982] FSR 92 Geraghty v Minister (1979) 142 CLR 177 Glaxosmithkline Australia Pty Ltd v Ritchie [2008] VSC 164, (2008) 77 IPR 306 Grace Worldwide (Australia) Pty Ltd v Alves [2017] NSWSC 1296 Green & Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1 Hanna v OAMPS Insurance Brokers Ltd (2010) 202 IR 420 Hellewell v Chief Constable of Derbyshire [1995] 1WLR 804 Heron v Port Huon Fruitgrowers’ Co-operative Association Ltd (1922) 30 CLR 315 Hogan v Australian Crime Commission [2010] HCA 21 Hospital Products International Pty Ltd v United States Surgical Corp (1984) 156 CLR 41 HRX Holdings Pty Ltd v Pearson [2012] FCA 16 Hydron Pty Ltd v Harous (2005) SASC 176 I F Asia Pacific Pty Ltd v Galbally [2003] VSC 92 ICAP Australia Pty Ltd v BGC Partners (Australia) Pty Ltd [2004] NSWS SC 674 IceTV v Duncan Ross and Ors [2007] NSWSC 635 Independent Management Resources v Brown [1987] VR 605 Jaddcal Pty Ltd v Minson (No 3) [2011] WASC 362 0 Bibliography 313 John Fairfax Publications Pty Limited v Birt [2006] NSWSC 995 Johns v Australian Securities Commission (1993) 178 CLR 408 Koops Martin v Dean Reeves [2006] NSWSC 449 Lend Lease Real Estate Investments Ltd v GPT RE Ltd [2006] NSWCA 207 Linda Chih Ling Koo v Lam Tai Hing (1992) 23 IPR 607 Linder v Murdock’s Garage (1959) 83 CLR 628 Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70, 210 CLR 181 Maggbury v Hafele [2001] HCA 70 Marquett v Walsh (1929) 29 SR (NSW) 298 Marshall v Prescott [2015] NSWCA 110 Metcash v Jardim [2011] NSWCA 409 MG Corrosion Consultants Pty Limited v Gilmour [2011] FCA 1514 Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 415, [1984] HCA 73 Muggbury Pty Ltd v Hafele Australia Ltd [2001] HCA 70 N E Perry Pty Ltd v Judge (2002) 84 SASR 86 National Education Advancement Programs (NEAP) Pty Ltd v Ashton (1995) 128 FLR 334 O’Brien v Komesaroff (1982) 150 CLR 310 O’Loughlin J in Titan Group Pty Ltd v Steriline Manufacturing Pty Ltd (1990) 19 IPR 353 Ocular Sciences v Aspect Vision Care Ltd [1997] RPC 289 Optus Networks Pty Ltd v Telstra Corporation Ltd (2010) 265 ALR 281 Orton v Melman [1981] 1 NSWLR 583 Papastravou v Gavan [1968] 2 NSWR 286 Parkesinclair Chemicals (Aust) Pty Ltd v Asia Associates Inc [2000] VSC 362 Pearson v HRX Holdings Pty Ltd (2012) 205 FCR 187 Peter Pan Manufacturing Corp v Corsets Silhouette Ltd [1964] 1 WLR 96 Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126. Peters American Delicacy Co Ltd v Patricia’s Chocolates and Candies Pty Ltd (1947) 77 CLR 574 Portal Software v Bodsworth [2005] NSWSC 1179 314 0 Bibliography Print Investments Pty Ltd v Art-vue Printing Ltd (1983) 8 IR 385 Provida Pty Ltd v Sharpe [2012] NSWSC 1041 Queensland Mines Ltd v Hudson (1978) 52 ALJR 399 Rapid Metal Developments (Australia) Pty Ltd v Anderson Formrite Pty Ltd [2005] WASC 255 Re Lloyd’s Ships Holdings Pty Ltd and Queensland Merchant Holdings Limited v Davros Pty Ltd [1987] FCA 70 Rentokil Pty Ltd v Lee (1995) 66 SASR 301 Riteway Express Pty Ltd v Clayton (1987) 10 NSWLR 238 RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd [2011] FCA 423 Ross v IceTV [2010] NSWCA 272 SAI Global Property Division Pty Ltd v Jones [2018] NSWSC 438 Sameh Refaat v Michael Barry [2015] VSCA 218 Smith Kline & French Laboratories & Ors v Department of Community Services & Health (1990) 95 ALR 87, [1990] FCR 73, 111. Smith v Nomad Modular Building Pty Ltd [2007] WASCA 169 Stacks Taree v Marshall [No.2] [2010] NSWSC 77 Stenhouse Australia Ltd v Phillips [1974] AC 391 Stephens v Avery (1988) 11 IPR 439 Stephenson Jordan & Harrison Ltd v MacDonald & Evans (1952) 69 RPC 10 Streetscape Projects (Australia) Pty Ltd v City of Sydney (2013)295 ALR 281 Streetscape Projects (Australia) Pty Ltd v City of Sydney [2013] NSWCA 2 Sullivan v Sclanders & Goldwell International Pty Ltd (2000) 77 SASR 419 Surveys & Mining Ltd v Morrison [1969] Qd R 470 Talbot v General Television Corporation Pty Ltd [1980] VR 284 Terrapin Ltd v Builders Supply C (Hayes) Ltd [1967] RPC 375 The Commonwealth of Australia v John Fairfax & Sons Ltd (1980) 147 CLR 39 Thomas Brown and Sons Ltd. v Fazal Deen (1962) 108 CLR 391 Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Under Water Welders & Repairers Ltd v Street & Longthorne [1968] RPC 498 0 Bibliography 315 Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 Versace v Monte [2001] FCA 1565 Warburton (No 1) [2011] NSWSC 385. Westpac Banking Corp v John Fairfax Group Pty Ltd (1991) 19 IPR 513 Wheatley v Bell [1982] 2 NSWLR 544 Woolworths Ltd v Olson [2004] NSWCA 372 Workpac Pty Ltd v Steel Cap Recruitment Pty Ltd [2008] WASC 238 Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 Sri Lanka A.T.G. Ceylon (Pvt) Ltd. v A.M.A. Attanayake Case No. CHC 07/2011/IP, 21.03.2012 Casons Rent a Car (Pvt) Ltd. v W.A.W. Wijaysekara and two others Case No. CHC 23/2011/IP, 25.05.2012 Coats Thread Lanka (Pvt) Ltd v Samarasundara (2010) 2 Sri L R 1 De Silva v Associated Newspapers of Ceylon Ltd (1978/79) 2 Sri L R 173 Felix Dias Bandaranaike v State Film Corporation (1981) 2 Sri L R 218 Fernando v Wickremasinghe (1998) 3 Sri L R 37 Finlay Rentokil (Ceylon) Ltd. v A. Vivekananthan (1995) 2 Sri L R 346 Free Lanka Trading Co. Ltd v De Mel (1979) 2 NLR 158 Hentley Garments Ltd v J.S.A. Fernando (1980) 2 Sri L R 145 Jinadasa v Weerasinghe (1933) 35 NLR 57 John Keells Holdings PLC and another v I.V.R. Shanitha Fernando CHC Colombo 16/2013/IP Decided on 15.08.2013 Joseph Perera v Lewis Abeysekera (1957) 58 NLR 505 Kandiah et al v Tambipillai (1943) 44 NLR 553 Keerthiratne v M.M.P Gunawardene (1956) 58 NLR 62 Kodeeswaran v Attorney General (1933) 35 NLR 58 Krishnan Chetty v Kandasamy (1924) 3 T.C.L.R 21 Link Natural Products Ltd v Tropical Herbs Ltd Case No. CHC 25/2001/03, 01.02.2013 316 0 Bibliography Mackwoods Ltd v Manoj Wickramatunga and Another Case No. 37/2003 (03), 15.06.2004. Saram v Thiruchelvan (1945) 46 NLR 146 Sirocco Air Technologies (Pvt) Ltd v Kurukulasooriyage Chamith Srikantha Perera HC/Civil/38/2016/IP (17. 01.2017) Subramanian v Sahabdeen (1984) 1 Sri L R 48 Sultan v Peiris (1933) 35 NLR 57 Tarrant v Marikkar (1934) 36 NLR 145 Weerasekera v Peiris (1932) 34 NLR 281 Yakkaduwe Sri Pragnarama Thero v Minister of Education and Others (1969) 71 NLR 506 Zahira Umma v Abdul Rahiman (1928) 29 NLR 411 Zuijs v Wirth Brothers Pty Ltd (1955) 93 CLR 561 The United Kingdom A.Schroeder Music Publishing Co. Ltd. V Macaulay [1974] 1 All E R 171 AG Australia v Addaide Steamship Co [1913] AC 724 Andrew v Raeburn [1874] LR 9 Ch 522 Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55 Argyll v Argyll [1967] Ch 302 Attorney General v Guardian Newspapers (No 2) [1990] 1 AC 109, [1988] 3 All ER 545, [1998] 2 WLR 805 Attwood v Lamont [1929] 3 KB 571 Beloff v Pressdram Ltd [1973] 1 All E R 241 British Steel Corporation v Granada Television Ltd [1981] 1 All ER 452 Bull v Pitney-Bowes Ltd [1966] 3 All E R 384. Butler v Board of Trade [1971] Ch 680 Church of Scientology v Kaufman [1973] RPC 635 Coco v A N Clark (Engineers) Ltd [1969] RPC 41 Commercial Plastics Ltd v Vincent (1964) 3 All E R 546. Creation Records Ltd v News Group Newspapers Ltd [1997] EMLR 444 Douglas v Hello! (No. 8) [2007] UKHL 21 0 Bibliography 317 Douglas v Hello! Ltd [2005] EWCA Civ 595 Dunlop Tyre Co v Selfridge [1915] AC 847 Escourt v Escourt Hop Essence (1875) LR 10 Ch App 276 Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269, (1967) 1 All ER 699. Faccenda Chicken Ltd v Fowler [1985] 1 All ER 724, [1987] Ch 117 Fitch v Dewes [1921] 2 AC 158 Fraser v Evans [1969] 1 QB 349 Gartside v Outram (1857) 26 LJ Ch (NS) 113 Hellewell v Chief Constable of Derbyshire [1995] 1WLR 804 Herbert Morris v. Saxelby (1916) 1 AC 688 Initial Services Ltd v Putterill [1968] 1 QB 396. Lancashire Fires Ltd v S A Lyons & Co Ltd [1996] FSR 629, 648. Lansing Linde Ltd v. Kerr [1991] 1 All ER 418 Lion Laboratories v Evans [1985] 2 QB 526 Lister v Romford Ice And Cold Storage Co Ltd [1957] AC 555 Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472 Lloyds Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 72 ALR 643 Mars UK Ltd v Teknowledge Ltd [2000] FSR 138. Merryweather v Moore [1892] 2 Ch 518 Morison V. Moat (1851) 9 Hare 383 Morrison v Moat (1851) 9 Hare 241 Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535 Performing Right Society Ltd v Mitchell & Booker Ltd [1924] 1 KB 762 Petrofina (GB) Ltd., v Martin [1966] 1 All ER 126 Pope v Curl (1741) 26 ER 608 Price Albert v Strange (1849) 1 H & Tw 1, 2 De G & SM 293 Price Albert v Strange (1849) 1 Mac & G 25 Printers & Finishers Ltd v Holloway (No. 2) [1965] RPC 239 Printing and Numerical Registering Co v Sampson (1875) LR 19 Eq 462 Robb v Green [1895] 2 Q.B. 315 CA 318 0 Bibliography Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203 Schering Chemicals Pty Ltd v Falkman Pty Ltd [1981] 2 WLR 848 Scott v Scott [1913] AC 417 Seager v Copydex Ltd (1967) 2 All E R 417 (CA). Shelley Films Ltd v Rex Features Ltd [1994] EMLR 134 Thomas Marshall (Export) Ltd v Guinle [1979] Ch 227 Tipping V. Clarke (1843) 2 Hare 363 Webb v Rose (1732) 98 ER 924 Weld-Blundell v Stephens [1919] 1 KB 520 Woodward v Hutchins [1977] 2 All E R 751 Wyatt v Kreglinger & Fernau [1933] 1 KB 793 Yovatt v Winyard (1820) 1 Jac. & W. 394 The United States Berkey Photo, Inc v Estman Kodak, Inc 603 F.2d 263 (2d Cir. 1979) Bimbo Bakeries USA, Inc v. Botticella, 613 F.3d 102 (3rd Cir. 2010) C CVD Inc v Raytheon Co 769 F2d 842 (1st Cir 1985) Chicken (KFC Corp. v. Marion-Kay Co., 620 F. Supp. 1160 (S.D. Ind. 1985) Coca-Cola Bottling Co. v. Coca-Cola Co., 107 F.R.D. 288 (D. Del. 1985) E.I. du Pont de Nemours & Co. Ltd. v. Christopher, 431 F2d 1012 (5th Cir.) Kadant, Inc. v Seeley Mach., Inc., 244 F.Supp.2d 780 (ED La. 2012) Kewanee Oil Co. v Bicron Corp 416 U.S. 470 (1974) Marcam Corp. v Orchard 885 E Supp. 294 (D. Mass. 1995) Peabody v. Norfolk 98 Mass. 452 (1868) PepsiCo, Inc. v Redmond 54 F.3d 1262 (7th Cir. 1995) Ruckelshaus v Monsanto 467 U.S. 986 (1984) Technicon Data Systems v. Curtis 1000 Inc., (1985) 224 USPQ 286 Whyte v Schlage Lock Co., 101 Cal. App. 4th 1443, 1446 (2002). South Africa 0 Bibliography 319 Edgecombe v Hodgson (1902) 19 S.C. 226 Katz v Efthinmiou 1948 (4) SA 603 (O) Magna Alloy and Research (SA) (Pty) Ltd v Ellie 1984 (4) SA 874 (A) Van de Pol v Silberman 1952 (2) S.A. 561 (A.D.) European Union European Commission v Stichting Greenpeace Nederland and Pesticide Action Network Europe (PAN Europe) Case C-673/13 P (23 November 2016) Microsoft Corp. v Commission COMP/C-3/37.792 C. LEGISLATION Australia Accident Compensation Act 1985 (Vic) Australian Intellectual Property Laws Amendment Act 1998 (Cth) Australian Wine and Brandy Corporation Act 1980 (Cth) Circuit Layout Act 1989(Cth) Competition and Consumer Act 2010 (Cth) Copyright Act 1968 (Cth) Copyright Act 1968 (Cth) Corporation Act 2001 (Cth) Design Act 2003(Cth) Industrial Relations Act 1996 (NSW) Intellectual Property Laws Amendment Act 2015 (Cth) Long Service Leave Act 1958 (WA) Order 15 A of the Rules of Federal Court Patent Act 1990 (Cth) Plant Breeder’s rights Act 1994 (Cth) Superannuation Guarantee (Administration) Act 1992 (Cth) The Rules of Supreme Court 1971 (WA) Trademarks Act 1995 (Cth) 320 0 Bibliography Sri Lanka Civil Procedure Code, No. 12 of 1895 Companies Act, No. 07 of 2007 Computer Crimes Act, No. 24 of 2007 Gazette No. 1759/35 dated 25 May 2012 Hansard, Intellectual Property Bill, 23 July 2003 High Court of the Provinces (special) Provisions Act, No. 10 of 1996 Intellectual Property Act, No. 36 of 2003 Maintenance Act, No. 37 of 1999 Ordinance No.5 of 1835 on the Adoption of Roman Dutch Law, Freedom of Religious, Worship and Abolition of Torture. Proclamation 23rd September 1799 Termination of Employment of Workmen (Special Provisions) Act, No. 45 of 1971 The Judicature Act No 2 of 1978 The Second Republic Constitution of Sri Lanka, 1978 The United States California Business and Professional Code § 16600. Defend Trade Secrets Act of 2016 (DTSA) (Pub.L. 114–153, 130 Stat. 376, enacted May 11, 2016, codified at 18 U.S.C. § 1836, et seq.) The Restatement (First) of the Law of Torts (1st ed.) 1939 Uniform Trade Secrets Act (UTSA), published by the Uniform Law Commission (ULC) in 1979 and amended in 1985, Germany Act against Unfair Competition, Gesetz gegen den unlauteren Wettbewerb vom 3. Juli 2004 (BGBl. I 2004 32/1414) Bundesgerichtshof, Wurftaubenpresse, GRUR 63 (1961) Bundesgerichtshof, Möbelwachspaste GRUR 57 (1955) 0 Bibliography 321 D. INTERNATIONAL TREATIES AND DECLARATIONS Abolition of Forced Labour Convention 105, opened for signature 25 June 1957, C 105 (entered into force 17 January 1959). Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, Marrakesh Agreement Establishing The World Trade Organization, Annex 1c, The Legal Texts: The Results of The Uruguay Round of Multilateral Trade Negotiations 320 (1999), 1869 U.N.T.S. 299, 33 I.L.M. 1197 (1994). APEC- Lima Declaration, Best Practices in Trade Secret Protection and Enforcement Against Misappropriation Asia-Pacific Economic Cooperation (APEC) Leaders and Ministers (2016) 322 0 Bibliography E. OTHER A Legal Framework for the Protection of Traditional Knowledge in Sri Lanka – Working Document (January 2009)< http://www.wipo.int/edocs/lexdocs/laws/en/lk/lk011en.pdf > Application by DJ Porter for an Inquiry into an Election in the Transport workers’ Union of Australia (1989) 34 IP 179, 184-185. Australian Bureau of Statistics, 6310.0 - Employee Earnings, Benefits and Trade Union Membership, Australia, August 2013 (4 June 2014) 0 Bibliography 323 Food and Agriculture Organisation of the United Nations, ‘Summary Report - Joint FAO/WHO Meeting on Pesticide Residues’ (9-13 May 2016) Geneva. 324 0 Bibliography Mining, Department of Industry, Innovation and Science, Australian Government. 0 Bibliography 325 Taylor, D. Wayne, ‘Pharmaceutical Access in Least Developed Countries: On-the- ground Barriers and Industry Success’, Cameron Institute – World Health Organisation (2010) 326 0 Bibliography WIPO, Intergovernmental Committee on Intellectual Property & Genetic Resources Traditional Knowledge and Folklore, Thirteenth Session Geneva WIPO/GRTKF/IC/13/7 Annex, page 5, 13-17 October 2008. WSIS Declaration of Principles- Building the Information Society: a Global Challenge in the New Millennium (12 December 2003 0 Bibliography 327