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Civil Laws Enforcing ContractsCivil Laws Enforcing ContractsConfidential materials and information are not the same as trade secrets. While all trade secrets are to be kept in confidence, not all confidential materials are trade secrets. Confidential is a much wider concept. If a document is marketed as "confidential," an employee is expected to handle it carefully and to respect that marking. However, if an employee does not know that a particular bit of information is confidential and has not been told that it is confidential, he or she may not be under a legal obligation to keep it a secret. Because of this, employment, consulting, and independent contractor agreements often provide that those signing agree not to reveal or to use any of the business's trade secrets or confidential information. Contract restrictions dealing with confidential information are growing in popularity for several reasons. Among them are the fact that more businesses are sensitive to the importance of protecting themselves against the leak of confidential information to competitors and that these agreements have historically been relatively easy to enforce. Classic legal protections for sensitive corporate information usually have been found in the areas of nondisclosure agreements. The goal of the agreements is to create a legal obligation on the part of the employee, even after he or she leaves an employer, to protect the employer's competitive position by protecting certain classes of confidential information from disclosure to competitors. In that way, if a third party, such as a competitor, obtains competitively sensitive data by inducing someone to violate a confidentiality obligation, that party risks a lawsuit for inducing a breach of that obligation. That possibility exists whether the obligation of confidentiality is memorialized in a contract or derived from a common law obligation that the person making the disclosure had to the owner of the confidential information. However, such agreements do not provide perfect protection. For example, there is a critical distinction between two different situations:
The first situation raises the legal issues described above. The second situation may actually be legally and even ethically fine, but only so long as the competitor did not have any reason to know that the information it was seeking was subject to a confidentiality obligation. There are additional problems with these contract clauses. For example, what is "confidential" or even a trade secret is a very important issue when using these clauses. Courts have ruled that a company cannot sue former employees to stop them from using trade secrets if these were not actually treated as trade secrets by the company seeking to enforce the clause. By analogy, if a company has not treated information as confidential, then it could be precluded from suing an employee for failing to respect an agreement to keep that same information confidential. Some companies have tried to get around these limitations by asking employees, contractors, and consultants to sign an agreement to bar the "use of any and all information gained" during employment or while a person is under contract. Such broad clauses are usually seen by courts asked to enforce them as unreasonable. For that reason, the courts may not enforce them; to do so could forbid the disclosure of information that is actually common, public knowledge. Thus we can see that legal, particularly contractual, controls over confidential information are also limited in what they can protect and what they can prevent. While seeking to prevent release by having an employee agree to protect the information, they do have an active aspect. That is that their real value ultimately lies in the ability of the company to go to court to prevent the disclosure or to collect financial damages for the violation of these agreements in a civil lawsuit. [2]For a discussion of other legal regimes that might impact CI, see Craig P. Ehrlich, "A Brief CI Compliance Manual," Competitive Intelligence Review 9, no. 1 (January–March 1998), 28–37. [3]For a current list of the states that have adopted the UTSA, check the official Web site of the National Conference of Commissioners on Uniform State Laws, http://www.nccusl.org/nccusl/uniformact_factsheets/uniformacts-fs-utsa.asp. [4]Some of these states may eventually adopt the UTSA as well. At the time this was written, versions of the UTSA were under consideration by two more states. [5]The full text and the official drafting comments can be found in Appendix B of of John J. McGonagle and Carolyn M. Vella, Protecting Your Firm against Competitive Intelligence (Westport, Conn.: Quorum Books, 1998), 121–34. [6]The full text of the EEA is set forth in Appendix B of John J. McGonagle and Carolyn M. Vella, Protecting Your Firm against Competitive Intelligence (Westport, Conn.: Quorum Books, 1998), 121–34. In spite of the fact that the problems addressed by this law were the subject of hearings for several years, the legislative "history" of what the law, as finally adopted, is intended to do is remarkably slender. For that reason, we complied and reprinted the only official section by section analysis of the almost-final version of the act, together with the few comments in the U.S. Senate and House of Representatives debate that bear on the act in that book. [7]"The definition of the term 'trade secret' [in EEA] is based largely on the definition of that term in the Uniform Trade Secrets Act." U.S. House of Representatives, H. Rep. 104–788, "Economic Espionage Act of 1996," 104th Congress, 2d Session, September 16, 1996, p. 16. [8]This is available on-line at http://www.cybercrime.gov/ipmanual/08ipma.htm (May 30, 2002). [9]For a current list of such cases, see http://www.cybercrime.gov/eeapub.htm (May 30, 2002). [10]A very powerful analysis of this issue noted that the Restatement of Torts supports this position. See Richard Horowitz, "The Economic Espionage Act: The Rules Have Not Changed," Competitive Intelligence Review 9, no. 1 (July–September 1998), 30, 33. [11]"With Friends Like These," U.S. News & World Report, 16 June 1997, 46–48. [12]15 U.S.C. § 1681 et seq. All references to the FCRA in this article are to the text version provided by the U.S. Federal Trade Commission (FTC) on its homepage (http://www.ftc.gov/os/statutes/fcra.htm). The FTC is responsible for enforcing the FCRA. [13]FCRA, sec. 603(f). [14]FCRA, sec. 603(d). Section 604 repeats language from the definitions and includes many of the limits on how these reports are handled. It also allows their use for governmental purposes. [15]FCRA sec. 603(e). [16]U.S. Federal Trade Commission, Using Credit Reports: What Employers Need to Know, December 1997. Emphasis in the original. Available on-line at http://www.ftc.gov/bcp/conline/pubs/buspubs/credempl.htm [17]Lawrence C. Winger, Fair Credit Reporting Act Update, September 15, 1998, http://www.kraftwinger.com/fcra.htm (emphasis added). [18]"Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data," Official Journal of the European Communities of 23 November 1995, No L. 281 p. 31 et seq. (Directive). For general information on the Directive, as well as related documents, see http://europa.eu.int/comm/internal_market/en/dataprot/ (accessed May 30, 2002). [19]Directive, Article 3(1). [20]Directive , Article 2(a), (b), and (c). [21]See I. Lloyd, "An Outline of the European Data Protection Directive," Journal of Information, Law and Technology (JILT) (1996). Available on-line at http://elj.warwick.ac.uk/elj/jilt/dp/intros/. [22]European Commission Press Release: IP/95/822, Document Date: July 25, 1995, "Council Definitively Adopts Directive on Protection of Personal Data." [23]This is the official website for the US Department of Commerce dealing with this issue, http://www.export.gov/safeharbor/. 113
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