Trade Secrets and
Confidential Information
What are trade secrets?
A trade secret is both a type of intellectual property (“IP”)
and a strategy for protecting the IP. Can be formulas,
patterns, methods, programs, techniques, processes or
compilations of information that provide one's business
with a competitive advantage.
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The information:
• can be connected with another IP right e.g. relevant
know-how for working a patent;
• can be material existing before the other IP right has
come into being e.g. details of the invention for which a
patent has not yet been sought; or
• it can be material that is already protected by IP e.g.
where copyright exists in material that is to be shown
under a confidentiality agreement to a potential partner
for its exploitation.
Trade Secrets and
Confidential Information
What is confidential information?
Generally information which is the object of an obligation
of confidence and is used to cover all information of a
confidential character. May consist of information such as
client lists and information relating to areas such as:-
 production processes;
 research & development;
 new business projects;
 business finances;
 etc
Trade Secrets and
Confidential Information
Whether a given body of information
is confidential …
An action for breach of confidence will lie where there is
a breach of an obligation of confidence. The Law of
Intellectual Property by Staniforth Ricketson sets out a
useful summary at p. 822 of the factors relevant to
determining whether a given body of information is
confidential. They are:
• The extent to which the information is known outside
the owner's business;
• The extent to which it is known by employees and
others involved in his business;
Trade Secrets and
Confidential Information
Whether a given body of information
is confidential …
 The extent of measures taken by him to guard the
secrecy of the information;
• The value of the information to him and his
competitors;
• The amount of effort or money expended by him in
developing the information;
• The ease or difficulty with which the information could
be properly acquired or duplicated by others (i.e. by
their independent endeavours).
Trade Secrets and
Confidential Information
Requirements for obtaining trade
secret protection
Some of the factors commonly considered include:
 the extent to which the information is known outside of
the business;
 the extent to which the information is known by
employees and others involved in the trade secret
owner's business;
 the extent of the measures taken to guard the trade
secrets;
Trade Secrets and
Confidential Information
Requirements for obtaining trade
secret protection
 the value of the information to the owner and his
competitors;
 the amount of money or effort expended by the trade
secret owner in developing
the secret; and
 the effort required by others to acquire or duplicate
(through reverse engineering) the information.
Trade Secrets and
Confidential Information
How Is a Trade Secret Protected?
In order to maintain business information as a trade secret,
you must take reasonable precautions to prevent the
information from becoming generally known to
competitors. Reasonable precautions could include:
 Revealing business information to employees on a
"need to know" basis.
 Keeping sensitive documents under lock and key.
 Requiring passwords to access computer files.
 Restricting access to certain areas of production
facilities.
 Requiring visitors to the facilities to sign in upon
arrival and sign out upon departure.
Trade Secrets and
Confidential Information
What if someone infringes my trade
secret?
In Malaysia at present, the protection of trade
secrets and confidential information are based on common
law which are independent of statute. Registration is not
required under common law of confidentiality.
Beware!
• Proving a breach of confidentiality under common law
can be complex and is potentially more costly than
defending registered rights.
• Ask contractors and employees to provide written
undertakings not to compete with your business after
they leave in addition to signing a confidentiality
agreement. It is often much easier to prove this than to
prove breach of confidentiality. These undertakings,
however, are difficult to enforce and need to be
prepared by your legal adviser, as you need to be
careful that the undertaking does not restrict the
contractor's or employee's right to earn a living.
Trade Secrets and
Confidential Information
Implied obligations of confidentiality
• There are a number of specific relationships or
situations where the courts will imply situations of
confidence e.g. the relationship between solicitor and
client, director and relevant company and employer and
employee.
• Although there may be an implied obligation of
confidentiality placed on an employee, prudent
employers recognise that certain individuals within their
business will have access to very confidential
information. Accordingly, employers often provide
explicit provisions in individual contracts of
employment regarding an employee's responsibilities in
this area. The expressed terms of such employment
contracts are usually drawn much wider than the terms
of any implied duty of confidence and they often also
cover the situation when the contract of the employment
has terminated.
Trade Secrets and
Confidential Information
Schmidt Scientific Sdn Bhd v Ong
Han Suan [1997] 5 MLJ 632
Court held: The duty of good faith or fidelity on an
employee does not only require that the employee refrain
from misuse or disclosure of information while under
employment, but that there is also an implied duty that
prohibits the employee from using any confidential
information obtained during his employment, without the
employer’s consent, after the employment contract ends.
Haw Par Brothers International Ltd &
Anor v. Jack Chiarapurk & Ors
[1991] 4 CLJ 833 (Rep)
Court held: A partner to a joint venture as owing a
fiduciary duty to the other partner of the joint venture as
well as the joint venture company, by virtue of his act of
launching another similar product after having obtained
information imparted under an obligation of confidence
with regard to the manufacturing process of the plaintiff's
product.
Trade Secrets and
Confidential Information
Confidentiality Agreement
A confidentiality agreement is often used to stop
employees from revealing your secret or proprietary
knowledge during and after their employment or
association with your business.
Note:• Make sure you back up your trade secret with signed
confidentiality agreements with every person who has
knowledge of the secret.
• If an agreement is breached, you will have evidence of
what was agreed and protection through the law.
Trade Secrets and
Confidential Information
Main issues to look out for in
relation to confidentiality agreements
• Is the agreement on a mutual or a one way basis - i.e. is
only one party disclosing confidential information or is
more than one party making such a disclosure?
• Most agreements will provide a definition of what
information is to be regarded as confidential - ensure
that this is appropriate.
• Usually these agreements will provide that certain
information is not to be regarded as confidential. For
example, most agreements will provide that any
information that the receiving party can prove was
known to it before receipt from the disclosing party will
not be regarded as confidential. Another standard
exclusion clause provides that any information that is
the public domain will not be regarded as confidential again care must be taken to ensure that these
"exceptions" are appropriate.
Trade Secrets and
Confidential Information
Main issues to look out for in
relation to confidentiality
Agreements :
• Most confidentiality agreements will include a time
limit. Accordingly, once the time limit has passed the
confidentiality obligations will expire. If a time limit is
to be included in the confidentiality agreement, it is
essential to make sure it is appropriate. This will depend
on the circumstances. For example, in the software
industry, given the short shelf live of some products,
confidentiality agreements that only extend for a period
of two years may be appropriate. However, in other
sectors such as the manufacturing industry, longer
periods will be more realistic.
Trade Secrets and
Confidential Information
Contract restraining trade
Under Malaysian contract law, there may be a need to
balance trade secrets and confidential information on the
one hand against the possibility of a restraint of trade
should such secrecy or confidentiality provision be
imposed on the other hand.
Section 28 of the Contracts Act 1950 provides that every
agreement by which anyone is restrained from exercising
a lawful profession, trade or business of any kind is to that
extent void unless the restraint falls within one of three
stipulated exceptions.
Polygram Records Sdn Bhd v The Search
Court held: Section 28 of the Contracts Act only applied to
restraints in the post-contract period i.e.that restrictive
provisions which are applicable during the currency of the
contract would not be a covenant in restraint of trade and
would be valid. Any restrictive provisions enforced post
contract could be construed as a covenant in restraint of
trade and therefore void.
Polygram Records Sdn Bhd v The
Search
Court held: Section 28 of the Contracts Act only applied
to restraints in the post-contract period i.e.that restrictive
provisions which are applicable during the currency of the
contract would not be a covenant in restraint of trade and
would be valid. Any restrictive provisions enforced post
contract could be construed as a covenant in restraint of
trade and therefore void.
Trade Secrets and
Confidential Information
REMEDIES AVAILABLE FOR
INFRINGEMENT
1) Damages;
2) Injunction.
The End