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					                 2. CONFIDENTIAL INFORMATION

Outline
This topic discusses:
      The elements required for information to be considered confidential
      The relationship between the nature of the information and the nature of the
       relationship in which it was imparted
      When theft of information will involve a breach of confidence
      How an employment relationship affects the obligation of confidence, and the
       competing interests that may limit what information can be protected
      The other considerations involved with protecting as confidential information
       disclosed to the government
      The two elements of the defence to a breach of confidence.
      The remedies for breach of confidence


The following cases are illustrative of the principle issues considered:
      Coco v AN Clark (Engineers) Ltd [1969] RPC 41 (UK Chancery Division –
       Megarry J at 46-48) (RR 485, 501).
      Re: Smith Kline & French Laboratories (Aust) v Sec. Dept of Community Services
       and Health (1991) 20 IPR 643 (full Fed Crt) (Sheppard, Wilcox and Pincus JJ at
       654-57 or para 43-54) (RR 497).
      Faccenda Chicken Ltd v Fowler [1985] FSR 114 (UK Chancery Division –
       Goulding J at 114-15 and Neil J at 165) (RR 519).
      Commonwealth of Australia v John Fairfax & Sons (1980) 32 ALR 485 (High Crt –
       Mason J at 491-94 or para 21-30) (RR 508).


The following issues are not directly raised by the discussion that follows, but will
be discussed in class and should be considered when doing the reading:
      The content of confidentiality agreements and their value
      The difficulties with applying the spring-board doctrine and how the doctrine
       may apply in practice
      How confidential information in employment relationships can be protected
       in practice
      Whether confidential information can be considered proprietary in nature,
       especially given the potential liability of third parties, and how this affects the
       alternative foundation of the doctrine as maintaining relationships of trust.
      Does confidential information provide a right to privacy? Compare the UK
       cases of Prince Albert v Strange (1849) 47 ER 1302 and Douglas and others v
       Hello! Ltd, CA 21 December 2000 extracted at
       http://www.lawreports.co.uk/civjan0.1.htm
                                      Intellectual Property Materials - 2 - Confidential Information


      
     Is there a tension between the protection of confidential information and the
     objectives of open and accountable government sought by the Freedom of
     information Acts in various Australian jurisdictions? See for eg. the decision
     in Secretary, Department of Employment, Workplace Relations & Small
     Business v The Staff Development & Training Centre Pty Ltd [2001] FCA 382
     (4 April 2001).
Recommended Video - "The Insider" staring Russell Crowe

[2.1] Introduction
Confidential Information concerns rights over information, or more accurately,
secret information. The law relating to confidential information deals with “trade
secrets, industrial espionage and treachery, with the covert, the clandestine and the
concealed.” The law of confidential information in many ways is an attempt to
determine what should be able to be kept secret: what information should ‘belong’ to
someone rather then the public at large. Ideas, unpatentable or unpatented
inventions, technical know-how, customer information, formulae, recipes, and
organisational information, often not otherwise protectable through other forms of
Intellectual Property rights, are just some of the types of information that people
want to keep secret. Also of increasing concern is the commercial importance and
availability of personal information, such as customer spending habits, as well as the
need to protect against disclosure of medical conditions.


Unlike the legislative systems in the US and Japan,1 in Australia this area is covered
by the common law, principally through equity. Appropriation of commercially
valuable information is not in itself a wrong. However, individuals generally have
the privilege to decide whether, to whom and for what purpose they disclose
information that they possess.2 As stated in Moorgate Tobacco,3 the duty of
confidentiality lies in an obligation of conscience, arising from the circumstances in
or through which information was communicated or obtained. It is therefore
protective of the relationships between the individuals and not solely dependent on
the value of the information itself.

            Why Protect Confidential Information?
Moral arguments in favour of the legal protection of trade secrets include:
1) the Lockean view that every man is entitled to the fruits of his own labour



1Japan provided only very limited protection for confidential information and trade secrets up till
1990.
2   See Brennan J in Johns v Australian Securities Commission (1993) 178 CLR 408 at 426
3   Moorgate Tobacco Co Ltd v Phillip Morris Ltd (No.2) (1984) 156 CLR 414


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2) the issue of personal autonomy – the individual’s legitimate claim to control over
   secrecy or openness of their own thoughts, ideas, inventions and plans; and
3) the maintenance of commercial ethics through the insistence that parties should
   observe obligations of good faith in their dealings with the trade secrets of other
   persons.
The protection of confidential information also relates to the need to provide
incentives and rewards to creators and innovators while trying to promote
dissemination of information and the mobility of labour throughout society.4

           Contractual Protection
Much of confidential information is protected through contractual commitments.
However contract is of limited protection against third parties and in situations not
involving contractual relations, including voluntary communications or
misappropriation. Restrictive covenants are invalid if they constitute a restraint of
trade, and so must be reasonable and not go beyond that required to carry out the
legitimate objectives of the employer. However, the protection of confidential
information often amounts to such a legitimate objective.5
The balance of authorities also suggest that an obligation of secrecy may be imposed
and enforced by the courts despite the obligation going beyond an express
obligation between the parties which offers only limited protection, or which
conversely is unenforceable as being an unreasonable restraint of trade.6

           International Dimensions
Confidential Information is covered by the Agreement on Trade Related Aspects of
Intellectual Property (TRIPS)7, Article 39, which requires protection for information
“which has commercial value because it is secret.”




4See Institute of Law Research and Reform (Alberta), and a federal Working Party, Trade Secrets, Report No
46, July 1986, Ch 5.
5   See McKeough & Stewart (1997) 110
6   See McKeough & Stewart (1997) 78
7Concluded on 15 December 1993 as part of the Uruguay Round of Multi-lateral trade negotiations,
under the General Agreement on Tariffs and Trade (which is a series of multi-lateral agreements
subscribed to by over 130 countries which together account for over 90% of world trade). It was the
round that established the World Trade Organisation. TRIPS calls for minimum standards of
protection of Intellectual Property and enforcement proceedings. The TRIPS agreement can be found
at via the WTO site: http://www.wto.org.


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[2.2] Elements of the Action for Breach of Confidence

[2.2.1] Emergence
The modern doctrine emerged from the influential case of Saltman Co Ltd v
Campbell Engineering Co Ltd [1963] 3 All ER 413 (UK CofA) where Lord Greene
accepted that:
           “If the Defendant uses confidential information, directly or indirectly, obtained from a
           plaintiff, without the consent, express or implied of the plaintiff, they will be guilty of an
           infringement of the plaintiff’s rights.”

[2.2.2] The General Test
In Coco v AN Clark (Engineers) Ltd [1969] RPC 41 (UK Ch), it was held that there
are generally three elements which will be sufficient to establish a breach of
confidence apart from obligations arising under contract, fiduciary obligation, tort,
etc.
1) the information itself … must ‘have the necessary quality of confidence about it.’
2) the information must have been imparted in circumstances importing an
   obligation of confidence; and
3) there must be an unauthorised use of that information to the detriment of the
   party communicating it.8

[2.2.3] Confidential nature of the information –
Can’t be public property and public knowledge, or common knowledge.
           Something new and confidential may have been brought into being by the application of the
           skill and ingenuity of the human brain. Novelty depends on the thing itself, and not upon
           the quality of its constituent parts. …9

            Factors to be considered
The factors to be considered in distinguishing between public knowledge and
confidential information include:10
      1)           The extent to which the information is known outside the employer’s business
      2)           The extent to which it is known by employees and others involved in the business.
      3)           The measures taken to guard the secrecy of the information
      4)           The value of the information to the plaintiff and their competitors


8   However, the need for detriment has been questioned, as outlined below.
9Coco v AN Clark (Engineers) Ltd [1969] RPC 41 (UK Ch). Note the analogy to the requirement of
novelty for a Patent discussed in Topic 6.
10American Restatement of Torts, Art 757, accepted in Ansell Rubber Co Pty Ltd v Allied Rubber Pty Ltd
[1967] VR 37. However, it has been made clear that the list is not exhaustive Deta Nominees Pty Ltd v.
Allied Rubber Industries Pty Ltd [1979] VR 167 at 193 per Fullagher J


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     5)           The amount of effort or money expended by him in developing the information
     6)           The ease or difficulty with which the information could be properly acquired or
          duplicated by others.

The courts in this area may be attempting to make up for the lack of protection
against unfair competition in Australia by protecting information that is not
particularly secret but took time and effort to create.

           Relative Secrecy
The courts look to the relative secrecy of the information, depending on the
circumstances of each case. Strict secrecy is not generally required. The nature of
the information is important in determining the relative ‘public’ who would be
interested in or to whom release would affect the commercial or other value of the
information.
Information can be public either because it is obvious or accessible without the
expenditure of considerable effort or skill so that it it could be considered as being
generally known, or as a matter of fact it has become known to a sufficient number
of the relevant people. Thus in Franchi v Franchi [1967] RC 149 a patent application
in Belgium by the Plaintiff’s themselves was held to put information into the public
domain as British Patent agents regularly inspected foreign specifications. However,
in Mustad v Allcock and Dosen [1963] 3 All ER 416 (UK HL) the confidential
information could have extended beyond the details in the patent to include
‘ancillary secrets’ connected with it which would be of “great service to any person
who proceeded to make the machine to which the invention related.”11

           Duration of Confidentiality and the Spring-Board Doctrine
Where the confidant (receiver of the confidential information) has not breached
confidence or done anything prior to the information reaching the public domain,
then the obligation of confidence lapses on publication.
Where, however, the has been a breach or use made of the information prior to it
being made public or in publication itself, then a question of the scope of relief to be
awarded arises. The question is whether injunctive relief can be awarded, and if so
for what duration.


In Terrapin Ltd v Builders’ Supply Co (Hayes) Ltd [1967] RPC 375 at 391-2,
Roxburgh J stated that:
          A person who has obtained information in confidence is not allowed to use it as a spring-
          board for activities detrimental to the person who made the confidential communication, and
          spring-board it remains even when all the features have been published or can be ascertained


11Note however the relationship between the degree of confidentiality and the
degree of specificity with which the information can be identified. This may result
in information that is difficult to identify not being protected as confidential.


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           by actual inspection by any member of the public. … It is, in my view inherent in the
           principle upon which the Saltman case rests that the possession of such information must be
           placed under a special disability in the field of competition in order to ensure that he does not
           get an unfair start.

However, as suggested by Megarry J in Coco v AN Clark (Engineers) Ltd this is
difficult to apply in practice, particularly where information is part public and part
private. In many commercial contexts the duty of confidentiality may resolve into a
duty not to use the confidential information without paying for it, rather then an
impractical or unenforceable duty not to use the information at all. If regarded as a
duty to pay, then an injunction would not be the appropriate remedy.

[2.2.4] Relationship between the Parties
There is no precise test for when the circumstances impart an obligation of
confidence. It is a question of whether:
           the circumstances are such that any reasonable man standing in the shoes of the recipient of
           the information would have realised that upon reasonable grounds the information was
           being given to him in confidence, then this should suffice to impose upon him the equitable
           obligation of confidence.12

In Re: Smith Kline & French Laboratories (Australia) Ltd and Secretary Dept of
Community Services and Health (1991) 20 IPR 643 (FC Fed Crt) it was held that the
intention of the confider to impart confidential information was not sufficient, but
depended on whether, in all the circumstances, there has been unconscientious use
made of the information. Thus the most important question is whether the nature of
the relationship between the parties can lead to the inference that the information
was provided for a limited purpose.13

            Liability of Third Parties
The courts have adopted the principle that any person who receives information as a
result of another’s breach of confidence may be restrained form using or disclosing
the information once they have actual or constructive notice of the breach.14 It would
appear that the third party derives their duty from that of the confidant, and hence
           “if the original communication or receipt creates no duty for lack of a reasonable awareness
           of confidentiality on the part of the recipient, then by definition a third-party to whom the



12   Coco v AN Clark (Engineers) Ltd [1969] RPC 41 (UK Ch).
13 Note that the protection of information provided in registration with public authorities is provided
for in art 39 of the TRIPS agreement, though not specifically implemented in Australia. Art 39 states
“... (3) Parties [ie states] when requiring, as a condition of approving the marketing of pharmaceutical
or of agricultural chemical products which utilise different chemical entities, the submission of
undisclosed test or other data, the origination of which involves a considerable effort, shall protect
such data against unfair uncommercial use. In addition, such Parties shall protect such data against
disclosure, except where necessary to protect the public, or unless steps are taken to ensure that the
data are protected against unfair commercial use.”
14   See McKeough & Stewart (1997) 89, citing Fraser v Evans [1969] 1 All ER 8 (UK CofA)


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           information passes in turn will be free to use it even if they are quite aware that
           confidentiality was intended by the confider.” 15

Even innocent third parties can be restrained from disclosing, confidential
information. For example, in Wheatley v Bell [1982] 2 NSWLR 544 (NSW SC), the
defendants could be restrained for breach of confidence not withstanding they were
innocent of any awareness of the obligation of confidence imparted with the
information. “There are no property rights associated with the type of equity
involved here” and hence the analogy with bona fide purchasers for value without
notice was not valid.16 This decision is clearly based on the jurisdictional nature of
the breach of confidence action. If breach of confidence is proprietary in nature then
bona fide purchasers for value without notice should be entitled to retain use of the
information. Alternatively, if the action is based on the relationship of confidence
between the parties, then the circumstances in which the third parties learnt of the
information should not matter, and once they are made aware of the circumstances
the obligation of confidence can be enforced. The innocence of third parties and any
expense or change in position they have incurred prior to knowing about the nature
of the information may, however, be taken into account in framing a remedy.

            Misappropriation or Theft of Confidential Information -
There has only been one case giving rise to an obligation of confidence being
established even though there was no initial communication between the parties. In
Franklin v Giddins [1978] Qd R 72, RR 516, the defendant stole pieces of the
Plaintiff’s nectarine bud-wood. It was held that “[t]he information which the genetic
structure of the wood represented was of substantial commercial value, much time
and effort had been expelled by the male plaintiff in evolving it and it could not be
duplicated by anybody whatsoever.” Stealing a piece of that genetic structure for
the purpose of replicating it was held to be a breach of confidence. An element of
establishing the confidentiality of information was the inability to acquire it except
through improper means.
What constitutes improper means, or misappropriation of the information, depends
on the circumstances of communication. In Malone v Metropolitan Police
Commissioner, [1979] 2 All ER 620, it was held that “[a] person who utters
confidential information must accept the risk of any unknown overhearing that is
inherent in the circumstances of communication”, which included in that case lawful
phone tapping by the police.


At least one judge has suggested that the obligation of confidence is a matter of the
notice given to the recipient of the confidential nature of the information. In



15   McKeough & Stewart (1997) 89
16   Note that this was only an interlocutory decision.


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Attorney-General v Guardian Newspapers (No 2) [1988] 3 All ER 345, RR 518, it was
held that
           a duty of confidence arises when the confidential information comes to the knowledge of a
           person (the confidant) in circumstances where he has notice, or is held to have agreed, that
           the information is confidential, with the effect that it would be just in all the circumstances
           that he should be precluded from disclosing the information to others.

What happens if someone looks at an image on a computer screen, or paper blown
off a desk, or reverse engineers a product? The question remains whether the
circumstances are such as to suggest the information is intended to be kept relatively
secret. But are the courts fashioning the remedy of breach of confidence to overcome
the absence of any privacy protection in Australia?

            Employment relationships
The obligations of confidentiality extend beyond the employment relationship.
However, while employed the employee is under a duty to serve their employer
faithfully, which includes being bound not to damage the employer’s interests by
disclosing or using any information acquired in the course of employment. The only
exception is where information is revealed in the public interest to the proper
authorities.17 After the employment ceases, the courts attempt to balance the
employer’s interest in retaining control over confidential information acquired
during the course of employment with the interests of the individual “to use and
exploit for the purpose of earning his living all the skill, experience and knowledge
which he has at his disposal, including [that] which he has acquired in the course of
previous periods of employment.”18


An ex-employee may make use of material that was properly acquired during the
course of prior employment provided it is not confidential. Some cases19 have
suggested that there is a separate category of trade secrets that can be protected from
disclosure after the employment relationship ceases. However, the better view
appears to be that there is no need to distinguish a special class of confidential
information that can be protected outside the employment relationship. However,
the circumstances of that relationship are used to determine the obligation of
confidence that may arise. Thus while lists of customers that the employee may
have legitimately memorised during employment, and other elements of their
employment ‘know-how’ are generally not confidential and hence can be used by
the employee in subsequent employment, other information like chemical formulae,
or designs or methods, may be protected. Information gained during employment
may be protected as confidential depending on the nature of the information,


17   See for example, the protection afforded to whistleblowers by the Public Service Act 1999 (Cth), s 16.
18   See Faccenda Chicken Ltd v Fowler [1985] FSR 114 (UK ChD) RR 519
19   See Faccenda Chicken Ltd v Fowler [1985] FSR 114 (UK ChD) RR 519


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whether the employer impressed the confidentiality of the information on the
employee, and whether the relevant information can be easily isolated from other
information that the employee was free to use.20

            The Government
The disclosure of information to government bodies can lead to the same equitable
restrictions on the use that information can be put to and confidentiality as with
disclosure to private bodies or individuals.21 There is also various legislation, such as
the Privacy Act 1988 (Cth) and Freedom of Information legislation may have an
impact.22
Where the government is seeking to restrain publication of information previously
within its control a special approach is called for. In Commonwealth of Australia v
John Fairfax & Sons Ltd (1980) 32 ALR 485, Mason J stated that the court will
determine the government’s claim to confidentiality by reference to the public
interest. Thus where it would be:
           inimical to the public interest because national security, relations with foreign countries or the
           ordinary business of government will be prejudiced, disclosure will be restrained. There will
           be cases in which the conflicting considerations will be finely balanced, where it is difficult to
           decide whether the public’s interest in knowing and in expressing its opinion, outweighs the
           need to protect confidentiality.

This may also apply to semi-autonomous public corporations, or privatised
government functions, where “the need is for compelled openness, not for
burgeoning secrecy.”23

[2.2.5] The Need for Detriment
The third element in imposing an obligation of confidence set out in Coco v AN
Clark (Engineers) Ltd [1969] RPC 41 (UK Ch), is the need for there to be an
unauthorised use of that information to the detriment of the party communicating it.
However, even those courts which have insisted on this element have suggested that
it may be easily met, for eg through the plaintiff’s desire to avoid criticism or
embarrassment or the infliction of harm on another person. Theoretically as well as
in practice it may be more satisfactory if the mere perceived need to maintain

20   See generally McKeough & Stewart (1997) 106-110
 See Re: Smith Kline & French Laboratories (Australia) Ltd and Secretary Dept of Community Services and
21

Health (1991) 20 IPR 643 (FC Fed Crt).
22Note that FOI legislation exempts trade secrets and other commercially valuable information and
other confidential information from disclosure. The previous wording has been interpreted as not
allowing discretionary factors that would influence the grant of a remedy in private actions, such as
whether disclosure would be in the public interest, to be considered in an application under the FOI
legislation. See Corrs Pavey Whiting & Byrne v Collector of Customs for the State of Victoria (1987) 74 ALR
428. However, the legislation currently refers to the common law on breach of confidence which
could have narrowed any such exception to disclosure.
23   Esso Australia Resources Ltd v Plowman (Minister for Resources) (1995) 128 ALR 391.


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confidences constitutes a sufficient detriment, and the question of detriment is then
left to be considered in the fashioning of remedies.

[2.2.6] Standing
In Fraser v Evans [1969] 1 All ER 8 (UK CofA) it was held that “[t]he party
complaining must be the person who is entitled to the confidence and to have it
respected. He must be the person to whom the duty of good faith is owed.”
However, this may be extended in some circumstances. For example, in Foster v
Mountford and Rigby Ltd (1977) 14 ALR 71 (NT SC) even though the specific
individuals who had divulged the secrets could no longer be identified, the council
representing the Pitjantjara people had standing as representatives of those specific
individuals as well as in their own capacity of being interested in the confidential
information being protected. In other words, the relationships among the Pitjantjara
people that helped give rise to the initial obligations of confidence should continue
to be protected.

[2.3] Defences, or justifications for breach of confidence
Liability for breach of confidentiality may be avoided where the Defendant has “just
cause and excuse” for disclosing the information.24 However, it is not clear what
circumstances meet this standard.
In Commonwealth of Australia v John Fairfax & Sons Ltd (1980) 32 ALR 485 (HC)
Mason J referred to the acceptance of the so-called common law defence of public
interest applying to disclosure of confidential information. He then went on to refer
to the defence in its application to copyright as only being applicable when
protecting the community from “destruction, damage or harm.”
However, the defence has taken on two different forms:
1) the iniquity rule – this is derived from the statement in Gartside v Outram (1856)
   that “there is no confidence as to the disclosure of an iniquity”, where iniquity
   has seemingly been expanded from Gummow J’s definition of “a crime, civil
   wrong or serious misdeed of public importance”25 to include “any misconduct of
   such nature that it ought in the public interest be disclosed.”26
2) balancing the public interest – UK courts have dispensed with the need for
   misconduct to conduct a balancing test of whether the public interest in
   publication outweighs the public interest in confidentiality. Thus in Lion
   Laboratories v Evans (1984) 3 IPR 276 it was held that information relating to the
   inaccuracies of intoximeters supported by the government could be disclosed

24   Fraser v Evans [1969] 1 QB 349 at 362
25   Corrs Pavey Whiting & Byrne v Collector of Customs for the State of Victoria (1987) 74 ALR 428.
 Initial Services Ltd v Putterill [1968] 1 QB 396, and see Kirby P’s view in Attorney-General (UK) v
26

Heinmann Publishers Australia Pty Ltd (1987) 10 IPR 153 (NSW CofA).


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      without breach of confidence. The danger of wrong convictions and the public
      controversy was sufficient to justify the public interest in disclosure. The nature
      and significance of the information was such to permit disclosure to the public
      generally through the media.
The uncertainty surrounding the extent of any justification for breach of confidence
includes determining what is “in the public interest”, and how the interests of
confidentiality can be reconciled with the need for the free flow of information in
any particular case. As it was suggested in British Steel Corporation v Granada
Television Ltd [1981] 1 All ER 417 at 455, “There is a wide difference between what is
interesting to the public and what is in the public interest to make known.” Thus in
Stephens v Avery and Others (1988) 11 IPR 439, the judge accepted that the law will
not enforce a duty of confidentiality relating to grossly immoral conduct. However,
there was no generally accepted moral code that can be said to exist. Any Defendant
seeking to argue that actions that were so morally shocking as to produce a tendency
towards immoral behaviour could not be confidential also had to deny the hypocrisy
of using such an argument in order to convey the information to others. In this case
such as argument “lies ill in [the defendant’s] mouths, since they themselves have
spread the news of such conduct nationwide for their own personal profit.”


Disclosure to government authorities of wrongdoing may also be subject to
requirements as to motive and the reasonableness of the allegation of wrongdoing.27
It is argued by McKeough & Stewart that justification should be a matter going
solely to the matter of remedy and not to the question of whether or not there has
been a breach of confidence.28

[2.4] Remedies
In Talbot v General Television Corporation Pty Ltd [1980] VR 224 (Vic SC), it was
held that there is jurisdiction to award damages for breach of an equitable obligation
of confidence. The basis of the damages should be:
          [w]hat money compensation would represent the restitution to the plaintiff of the value by
          which his right, which equity recognised, has been depreciated by the defendant’s breach of
          confidence.

The basis of the assessment varies in each case, depending on whether a market
value exists, etc.
Account of profits is rarely awarded under the court’s discretion given the difficulty
in determining the proportions of total profit attributable to the wrongful conduct.




27   See Grofam Pty Ltd v KPMG Peat Marwick (1994) 27 IPR 215 at 222.
28   See McKeough & Stewart (1997) 95.


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