Protecting Confidential Business Information
Ideas are the lifeblood of new business ventures. Good ideas lead to good businesses. But, good ideas can’t always be kept secret. The idea may need to be revealed to others as a regular part of doing business, for instance, in discussions with potential investors. A recent case from the Supreme Court of British Columbia highlights some of the issues that may arise in such a scenario. In this case No Limits Sportswear Inc. v. 0912139 B.C. Ltd. 2015 BCSC 1698 the plaintiffs, No Limits Sportswear Inc. and Saxx Underwear Co. Ltd., had a novel business idea for men’s underwear and created a product called “Saxx Underwear” for men. There was some early success with the product but, in 2009, the business needed more cash to fund operations so they went looking for investors. A group of potential investors were eventually found, information was exchanged and this led to talks of a potential deal. But, that deal never happened. Instead, the potential investors would go on to develop a rival competing product named “MyPackage” underwear. Although there were design differences between the two underwear brands, they directly compete with each other in the men’s underwear market.
Breach of confidence
The misuse of confidential information, in certain circumstances, may give rise to a legal claim referred to as “breach of confidence”. To establish a breach of confidence claim, generally, three elements must be met:
- the information must have a necessary quality of confidence about it;
- the circumstances under which the information was imparted must give rise to an obligation of confidence; and
- the defendant must have made unauthorized use of the information.
1. Quality of confidence
For information to be considered confidential, it must not be public knowledge. It’s possible for confidential information to be a work product that has taken some independent thought to process and assemble. This may include such things as documents, formulas, plans, sketches, etc.
2. Circumstances giving rise to an obligation of confidence
The party getting the information must have an obligation to keep the information confidential. This obligation may arise from an express contract, which states that the information is confidential and not to be disclosed to anyone (i.e., a non disclosure agreement). Or, the obligation may arise as an implied obligation. This, for instance, may come as a result of the type of relationship between the parties. The presence of an implied obligation will depend on the circumstances.
3. Misuse of confidential information
Misuse refers to unpermitted use. The person who has received the confidential information must not use that information for any purpose unless permitted by the person who gave the information.
If a breach of confidence claim is established, there are a number of remedies that may be available. These include an injunction preventing further use, a proprietary trust claim, or a damages award. Overall, the objective of the court will be to put the harmed person in the position it would have been had the breach of confidence not occurred.
The Saxx Underwear Case
In this case, ultimately, No Limits Sportswear Inc. and Saxx Underwear Co. Ltd. were unsuccessful in their breach of confidence claim. One of the sticking points in their case was proving damages. The court highlighted that: “Since the goal of the remedy for breach of confidence is to restore the plaintiff to the position it would have been but for the breach, I conclude that in a case where the only remedy claimed is compensation for the plaintiff’s losses, failure to prove any losses would mean failure to prove entitlement to a remedy.” Thus, there will be no damages awarded in a breach of confidence claim unless there is proof, or an evidentiary basis, for the claimed losses. No Limits Sportswear Inc. and Saxx Underwear Co. Ltd. argued that, as a result of the competition from MyPackage, they suffered lost business opportunity, reduced market share, and reduced market position. They projected damages of approximately $23 million. But, the court was not able to find any credible evidence that these claimed losses actually occurred. Thus, No Limits Sportswear Inc. and Saxx Underwear Co. had no claim for a remedy.
If you are facing an issue relating to the disclosure of confidential information, contact our Dispute Resolution lawyers.