SDR Valuations Inc.
Intellectual Property

The importance of protecting confidential business information

While many people commonly associate patents, copyright and trade-marks with intellectual property, confidential business information (CBI) can sometimes be overlooked, says Toronto lawyer John Simpson of Shift Law.

“Every company, big or small, established or start-up, has CBI. It can be one of the company’s most valuable assets. But if it isn’t identified and adequately protected, its value will depreciate quickly or, worse, it will simply walk out the door,” he cautions.

CBI doesn’t just include secret recipes or algorithms, says Simpson, but also internal business processes, marketing strategies as well as supplier and customer lists that a company and its employees have acquired over time, through considerable effort and trial and error.

Generally, he explains, information can be CBI if:

(a) it isn’t generally known outside of the company;

(b) time and effort would be needed to find it elsewhere; and

(c) it has commercial value.

Information also doesn't have to be "secret" to be considered CBI, adds Simpson, and can consist almost entirely of non-confidential elements as long as the whole package, such as a marketing plan, is not generally known and can’t otherwise be found in one place.

The very nature of CBI makes it hard to protect, says Simpson, as it is easily shared, extremely portable and impossible to take back once it’s out of a company’s control. Also, he adds, unlike patents, copyright and trade-marks, there is no specific legislation in Canada for protecting CBI.

Identifying and protecting CBI is especially important for entrepreneurs and emerging companies, says Simpson, as so often it is the knowledge and ideas that are “under the hood” of these businesses that can ultimately make them successful. Knowledge and ideas are also difficult if not impossible to protect through patents, copyright or trade-marks.

Therefore, he says, maintaining confidentiality with other companies, employees, independent contractors or consultants may be the only way to prevent others from reaping the benefits of the time, hard work and innovation that went into acquiring it.

The law will only protect a discloser’s rights in confidential information to the extent that a recipient was made aware of its confidentiality, says Simpson. Ultimately, he says, once information has been identified and designated as confidential, all who come into contact with it should be made aware of its confidentiality and become obligated not to disclose it. This includes employees, independent contractors or consultants and other companies with whom a business is engaged in a commercial relationship or negotiation.

“The most effective way to communicate confidentiality and impose a non-disclosure obligation is through some form of written agreement. This can be a confidentiality covenant in an employment agreement, a letter to be signed by another party to a negotiation or a formal non-disclosure agreement,” he explains.
 
Simpson suggests that in the event of a legal dispute involving CBI in a marketing plan or a business process, “a judge will be far more likely to find that information like this is confidential if the owner did something to assemble its elements into one place and to “tie a bow” around it.” One way to do this, he explains, is to have a manual, ideally marked “Confidential,” in which all of a company’s CBI is reduced to writing.


Simpson says he has represented clients in a number cases involving breach of confidence or misappropriation of trade secrets. In every case, he notes, the information at issue was first disclosed in the context of some exciting new project when everyone was getting along perfectly and couldn’t imagine things ever going wrong.

“So don’t think that identifying and protecting CBI is only important when suspicions are first aroused. By that time, it will probably be too late,” he says.

To Read More John Simpson Posts Click Here
Lawyer Directory
Janus ConferencesToronto Lawyers AssociationMKD InternationalFeldstein Family LawInfoware Canada Steve Rastin - 300x125Lawrence ForstnerBales Beall LLP