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Can emails be considered confidential information, and therefore can come under the obligation to return or destroy?

COURT ORDERS DELETION OF CONFIDENTIAL EMAILS

Pakage Apparel Inc. v. Ellis 2014 BCSC 884 (CanLII)

In this case, the court implied that even though the defendants (who had been principals in the company) had obtained access to emails through the administrator’s password to the company’s email account, the emails had not lost their confidential nature.

Drafters may wish to ensure that the definition of ‘confidential information’ includes information stored or communicated in every medium, and that a clear protocol for the return of confidential information is included in the agreement.

Details of the case:

The plaintiffs applied for an order requiring the defendants to return electronic and paper copies of emails taken from the plaintiffs’ email accounts. The plaintiffs allege that the emails contained confidential and privileged information relevant to ongoing litigation between the parties. The plaintiffs also alleged that the defendants made some of this confidential information available to a competitor in violation of their obligations. The underlying business produced a line of men’s underwear (“MyPakage”). To complicate matters, No Limits, a competitor in the business, alleged that the plaintiffs and defendants in this action used the confidential information of No Limits and/or Saxx in starting the MyPakage business. At issue was whether the information in the emails was confidential, and whether the emails themselves were ‘property’ which could be the subject of an interim order for recovery of property. The court held that electronic correspondence, like paper mail, can be subject to a proprietary interest. The court also held that irreparable harm can flow from continued retention of privileged and confidential information, and ordered its return. The defendants were ordered to delete all copies of the emails from their own electronic devices.

To read the full case on CanLII, click here.

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Does the improper disclosure of confidential information always result in damages?

MISUSE OF CONFIDENTIAL INFORMATION DID NOT RESULT IN DAMAGES

Edac Inc. v. Tullo 1999 CanLII 14868 (ON SC)

Before resigning from his senior management employment position with the plaintiff, an employee disclosed confidential information to a third party during a written job interview. The employee then took an employment position with a former supplier of the plaintiff, and began arranging sales to the plaintiff’s customers. The court held that the employee had both a common law and contractual obligation of confidentiality. However, the improper disclosure of confidential information caused no actual harm, and in the absence of a non-competition restriction, the employee made no improper use of the customer lists.

Drafters acting for a disclosing party need to ensure that specific types of information are defined as confidential (e.g. customer lists), regardless of whether they are marked or treated as confidential. If the confidentiality agreement is ambiguous, the confidentiality of the information may depend on a subsequent finding of fact about whether the information was treated as confidential in a such way that the information was clearly considered to be confidential. Confidentiality restrictions are not sufficient by themselves to prevent an employee from competing with a former employer.

Details of the case:

In Edac Inc. v. Tullo, 1999 CanLII 14868 (ON SC), the plaintiff alleged that the defendant improperly used confidential information in breach of his contractual and common law duties. The employment contract provided that: In the course of your employment, you will become aware of confidential information about the Company that is not available in the public domain. By accepting this offer of employment, you will be bound to keep this information confidential and you will not reveal this information to third parties without the consent of the Company, either during or after your employment with the Company. The employee resigned and began working for a supplier of the employer, selling products to the clients of the former employer. Before resigning, the employee disclosed confidential information to a third party, as part of an unsuccessful employment application. The court held that there had been no damage caused by this breach of confidentiality. As for the client lists, the employee began by selling products not sold by the former employer. It was the clients themselves who requested sales of the same products sold by the former employee. In the absence of a non-competition clause the court held that the employee did not breach the confidentiality clause in the circumstances. The client lists could be discovered by the employee’s new employer, and he had not made improper use of the information.

Much of the court’s attention was focused on whether specific information was in the public domain. The court found that the prices and names of customers were commonly used in the course of business. “It is not clear to me that a company can claim that information is confidential where it is known to one segment of the market and not to others. Once the information has gotten into the public domain in any respect, it seems to me by definition to no longer be capable of being labeled confidential.” The court similarly ruled that the even if the information was confidential, there is no evidence it was used by the defendant. On the common law test for breach of confidence there has to be a misuse of confidential information and there has to be corresponding detriment. The court did not find that there was any detriment from the information that the defendant used. Thus, there was no breach of confidentially according to the court. The plaintiff similarly failed on his other claim for breach of the contractual confidentiality obligation.

To read the full case on CanLII, click here.

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Why is it important to give notice of disclosure required by law?

EXPERT WITNESS DISQUALIFIED DUE TO CONFIDENTIALITY OBLIGATIONS TO OTHER PARTY

Abbott Laboratories v. Canada (Minister of Health) 2006 FC 76 (CanLII)

A motion to retain a proposed expert was dismissed because he had received confidential information from the opposing party in a prior proceeding with issues identical to those in the case at bar. The expert had signed an undertaking by which he agreed not to use any confidential information for any purposes other than for that proceeding. The Federal Court stated that the prejudicial effect to the opposing party would outweigh the interests of the moving party.

Drafters need to ensure that confidentiality agreements entered into with experts require the expert to give notice to the disclosing party if the expert may be called upon to give expert evidence in a proceeding. The purpose is to give the disclosing party an opportunity to oppose the use of the expert as a witness if there is a danger to the preservation of the confidentiality of the disclosing party’s confidential information.

Details of the case:

In Abbott Laboratories v. Canada (Minister of Health) (2006) (FC), the moving party, Pharmascience, sought leave of the court to file additional affidavits of its proposed expert in this proceeding related to the invalidity of a patent. The responding party, Abbott, opposed the motion because the proposed expert, Dr. Rhodes, had received highly sensitive and confidential information from Abbott when he was retained as an expert for them in a prior proceeding with identical issues to the ones at bar. Abbott argued that it would suffer prejudice if Dr. Rhodes were allowed to provide an expert opinion. In addition to participating in confidential discussions related to the ratiopharm proceeding, Dr. Rhodes was privy to confidential discussions related to Abbott’s potential defences to the invalidity claim and other litigation strategies. The Federal Court laid out the approach to be taken in determining whether or not an expert should be disqualified. The court must consider the circumstances of the case, including: (1) whether the expert knew he or she was receiving confidential information; (2) the nature of the confidential information; (3) the risk of that confidential information being disclosed; (4) the risk of prejudice arising to either party; and (5) the interests of justice and public confidence in the judicial process. The court balanced the overall fairness of Pharmascience’s request against Abbott’s interests in protecting its confidential information, which, even if forgotten by Dr. Rhodes, could potentially influence or be inadvertently disclosed in respect to the proceeding. The court also noted that Pharmascience would be able to retain another qualified expert.

To read the full case on CanLII, click here.

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What is the maximum term of an NDA if it is not mentioned in the contract?

Casey Marshall / Flickr 

When signing a non-disclosure agreement, the benefits of including a term clause (i.e., end of the contractual obligations) depend on whether you are more likely to be disclosing or receiving confidential information.

If you are the disclosing party, you want to ensure that your confidential information is kept confidential and there are no potential unauthorized disclosures. This means you want to protect the confidentiality of that information for as long as possible.

If you are the receiving party, you want to limit your obligations in the agreement, which includes what information you have to keep confidential and for how long you have to keep it confidential.

 

You can view and customize a Confidentiality Agreement on Clausehound:

NDA

 

Term of a Confidentiality Agreement

If a term clause is not included in an NDA, the parties can imply that the NDA will be in effect indefinitely. An NDA with no term clause is more common in an agreement where an ongoing relationship is taking place.

Assuming that the NDA contains a termination clause, once a party gives notice to terminate the contract, all of the obligations under the contract will terminate on the termination date unless the NDA includes a survival clause. However, circumstances may vary depending on whether the information is considered a trade secret, where the Ontario Court of Appeal held that disclosing a company’s trade secrets can be considered a restraint on trade.  

Note that after the termination date, the receiving party will no longer be under an obligation of confidentiality for information received after the termination date. This will be true whether or not the confidentiality clause continues to apply to confidential information received before the termination date.

 

Survival Clause

For an example of a contract with a survival clause, follow the image below!

Survival

The exception to all the obligations being terminated on the termination date is where a survival clause has been included. A survival clause explicitly states which obligations will ‘survive’ the life of the agreement. Clauses that survive an agreement usually include the confidentiality clause.

Although a confidentiality clause can ‘survive’ the term of the agreement, the standard term of survival for a confidentiality clause is generally  two to four years after the termination date. Companies that are receiving confidential information will be reluctant to agree to an unlimited term for the confidentiality clause.

To see a standard non-disclosure agreements, visit our Small Business Law Library!

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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The Scope of your Confidential Information: Too Broad, Too Narrow, or Just Right?

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In our office, and no doubt in many others, the non-disclosure agreement (NDA) is considered a stepping stone into the world of contracts because of their straightforwardness. The purpose of an NDA is to protect information you want to keep confidential. Just like how information can exist in many different forms, the NDA can be applied to a variety of contexts, be it between companies, employers and employees, or laypersons.

But with great applicability comes the question of scope—what is appropriate?

Pastor v. Chen (2002) (BCPC) is a good example of where too general of an NDA can open you up to problems. The claimant in this case, Amando Pastor, was just a teenager when he developed the moves for his own version of “La Rueda,” a Cuban salsa dance, by incorporating a complex group element. He copyrighted his version of the dance, which he called “the Wheel of the World,” years later as a dancing instructor in Vancouver.

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Not soon after Pastor began teaching his dance, the defendant, Roger Y. Chen, became his student. Upon reaching a level of proficiency to perform publicly, Pastor made Chen and all his other dancers sign a confidentiality agreement that reads as follows:

“I, Roger Y. Chen, willingly agree to not divulge, publicly perform or teach the artistic work that I have had access to as a performer/student … without the Director Amando Pastor’s, permission … everything I have been taught by him is confidential, and is his property, for which he holds copyrights.”

While at first glance there is nothing wrong with such a succinct NDA, upon a closer look some problematic interpretive gaps make themselves apparent. This agreement lacks a clear definition of what exact “artistic work” Pastor retains the rights to. The intimation that anything he taught his students is his property is an incorrect one, because there are many dance moves that are considered general knowledge. Pastor was even aware of this distinction, as “when asked if he ever told his performers which moves were his, his answer was that he did not make it clear because he wanted to keep them to himself.” For a confidentiality agreement to work, a clear disclosure provision is just as essential as a clear definition of confidential information.

So, when Chen was discovered to be teaching dance routines similar to Pastor’s, he was easily able to use this inconsistency as an argument. He said that the moves he had been teaching were ones already in the public domain, not Pastor’s own. Ultimately the judge found that this was not the case. Regardless, if the definition of confidential information had been more explicit, or even if a non-competition clause had been included to diversify the agreement, the claimant could have better protected his property. To work best for everyone involved, an NDA has to have a clear scope and specificity in outlining what exactly is confidential and how confidentiality should be properly performed.

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On the other hand, being too specific can also be problematic, as can be seen in Minera Aquiline Argentina SA v.

IMA Exploration Inc. and Inversiones Mineras Argentinas S.A. (2006) (BCSC).

The defendant had been scoping out a plot of land to buy in Argentina, and received geological data from the seller during site visits and tours, which required signing a confidentiality agreement. The plot in question was later purchased by the plaintiff, while the defendant used the data received to discover a large metals deposit elsewhere. Whether the data was considered confidential or not was the crux of this case. The definition of confidential information was as follows:

“… financial, operating, technical, geological and other information (the “Confidential Information”) concerning the Project … will include all communications, whether written, electronically stored or delivered, or oral, of any kind, between the Participants relating to the Project, any observations made by Reviewer during site visits or tours, and any and all information, reports, analyses, studies, compilations, forecasts or other materials prepared by Reviewer relating to the Project which contains or otherwise reflects such information.”

This is a much more comprehensive definition of confidential information, but still, the defendant was able to argue that since the data wasn’t explicitly listed, it wasn’t considered confidential. The judge resolved that the data was considered confidential information because the definition included “the words ‘relating to’ and ‘concerning’”. This specific wording cast the net of the definition wide enough to cover unlisted information. So, in a sense, the definition was actually just broad enough to serve its purpose effectively here.

This case is one that shows there is only so much that can be done to cover your bases, so it’s important that your contract can hold up under scrutiny.

One of the most effective steps you can take when drafting an NDA is to be cognizant of covering what is most important to the protection of your business – and define it.

Case Citations:

  • Pastor v. Chen, 2002 BCPC 169 (CanLII)
  • Minera Aquiline Argentina SA v. IMA Exploration Inc. and Inversiones Mineras Argentinas S.A., 2006 BCSC 1102 (CanLII)

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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NDA before Negotiations! Otherwise, Risk a Leak of Confidential Information

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Read the article here.

A party that allowed access to its confidential designs but took no action to protect themselves beyond signing a confidentiality agreement with the company, lost their dispute. This article discusses the case of nClosures, Inc. v. Block and Co., Inc. where nClosures, in their contract negotiations with Block, did not require Block’s engineers to sign any confidentiality agreements. However, when negotiations broke down, Block’s engineers used the information that they had received during the negotiations to redesign a product that was similar to nClosure’s. One of the main reasons for why nClosure lost is that the court found that the disclosing party did not take reasonable efforts to safeguard the information covered by the agreement.  Specifically mentioned as missed opportunities to safeguard were actions including:  1) documents were not kept in a vault with limited access, 2) engineers using the drawings were not required to sign confidentiality agreements, 3) vendors given access to drawings were not required to sign agreements, 4) drawings were not marked “confidential” or with other words showing their proprietary nature.

Read the article here.

 

Take away: 

  • Parties to a business transaction may want to lay out detailed provisions in the NDA to safeguard their confidential information, they may also want to consider the further protection of entering into intellectual property agreements if the material in question is highly sensitive and not protected by copyright or patent. Specific suggestions on further safeguarding are itemized above.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Confidential Information & Name For Your Product

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Read the article here.

Allowing a provision under Toxic Chemical Substances Act to remain intact, allows manufacturers to use a generic name when publicly disclosing an industrial chemical they produce rather than the scientific name that is submitted to EPA (thereby protecting it’s IP, as the name would disclose the compounds involved to make it). This strikes the desired balance between maintaining public confidence in the safety of industrial chemicals, while giving manufacturers the incentive to create newer and greener chemicals without divulging the scientific names for the chemicals to submit to the EPA. This issue is something to be considered in confidentiality agreements as well. If the name of the product exposes information as to its makeup, care should be taken when drafting the ownership of confidential information clause and definition of “confidential information” section in the agreements to use a generic name in reference to the specific product.

Read the article here.

 

Take away:

  • By using a generic name to divulge a product to the public, instead of using the scientific or specific name, it may strike a balance between protecting your company’s intellectual property while appeasing any requests for information by the public or investigative agency.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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When a Confidentiality Agreement Isn’t Enough…

When determining how to protect specific confidential information, it is important to consider whether the terms of the confidentiality agreement offer at least the level of protection available under the common law.

When Will Confidential Information be Protected?

Under the common law, confidential information will be protected if the person claiming the confidentiality of the information can show that they have the sole right to benefit from the use of that information, someone else has wrongfully used it, and damages have been suffered as a result. The courts will also apply a multi-pronged test to determine the confidential nature of the information. This will include for example, the question of whether the information is generally unknown to others, subject to some measure of secrecy or protection, is in some way unique or novel etc.

 

Definition of Confidential Information

Under an NDA, the definition of confidential information can be expanded to provide contractual protection for information not considered confidential under the common law. Drafters beware! The way that confidential information is defined in the NDA could also turn out to be narrower than it would be under the common law.

When drafting the NDA, lay out all the terms that you wish to include, clearly setting out what it is that you are seeking to protect, and compare it to the common law. In some circumstances it will turn out that the common law could have offered better protection for the confidential information. If so, consider including the broader definition of confidential information in the NDA.

This could be especially important in the context of the sale of a business, where there are several bidders. If the confidential information is “defined” too narrowly, the successful bidder may run into the problem where the parties in question are utilizing the confidential/proprietorial information in a way that does not breach the agreement, but goes against the primary intentions of keeping the information out of the hands of the unsuccessful bidders. Ultimately, you may be permitting competitor organizations to use confidential information that was actually intended to remain confidential.

 

Application in Real-Life Cases

A prime example can be found in Novawest Resources inc.

v. Anglo American Exploration (Canada) Ltd. et al. 2006 BCSC 769. The case involved a dispute between a successful bidder for a mining property, and an unsuccessful bidder. The NDA covered confidential information used to stake new claims in “the area of influence”, which was defined to include a 1 kilometer zone. The unsuccessful bidder used the information to stake claims beyond the 1 kilometer zone, claiming that this did not breach the terms of the non-competition clause contained in the NDA.

The court agreed with this interpretation of the agreement, and concluded that the agreement permitted the unsuccessful bidder to stake anywhere outside the “area of influence”. Under the common law, the information was clearly confidential, and the unsuccessful bidder(s) would have been prevented from using the information to stake claims anywhere. Since the parties had voluntarily bound themselves to the terms of this agreement, they were held to the terms of their bargain. The court declined to read in the ‘extra’ restrictions of the common law.

 

Takeaways:

  • the definition of ‘confidential information’ should be drafted broadly to capture all of the information which is to be protected
  • non-competition and non-use provisions should be drafted to include all types of competition and uses which are to be restricted
  • comparing the definitions in the NDA with the protection offered under the common law can reveal any gaps in the NDA

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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