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Is your confidentiality agreement at risk of being breached?

Thursday, September 21, 2017

Does your business have an efficient confidentiality agreement?

Confidentiality agreements are contracts entered into between two or more parties in which it is agreed that certain types of information will remain confidential. Such agreements are often used when a company or individual has a secret process or a new product that it doesn’t want another company getting a hold of as well as between businesses and prospective purchasers of businesses in Western Australia.

Confidentiality agreements perform several functions:

  1. They protect sensitive technical or commercial information from disclosure to others;

  2. They can prevent the forfeiture of valuable patent rights; and

  3. They define exactly what information can and cannot be disclosed.

Any information that is discussed between parties can be considered confidential, for example data, prototypes, engineering drawings, intellectual property, and test results.

What happens if the confidentiality agreement is breached?

If any of the confidential information is revealed to another individual or company by a party to the confidentiality agreement, the injured party can claim a breach of contract, and seek an injunction from the court to restrain the individual or company from further disclosing or using the confidential information and possibly seek monetary damages to compensate them for any losses incurred.

When confidential information is used by a party to gain an unfair advantage, it is known as the ‘springboard principle’.

The ‘springboard principle’

The ‘springboard principle’ originated from Terrapin Limited v Builder’s Supply Company (Hayes) Limited [1967] RPC 375, a case heard in the United Kingdom. It applies in circumstances where a person misuses information they obtained in confidence, as a ‘springboard’ to gain an unfair head start, having a detrimental effect on the confider. This applies even after the confidential information becomes available to the general public.   

The idea behind this principle is to create equality between a person who comes into possession of the confidential information prior to public disclosure, and a person who comes into possession of the confidential information through public disclosure.

Case example

In APT Technology Pty Ltd v Aladesaye [2014] FCA 966 (5 September 2014), the Federal Court of Australia heard a case in which an employee of a company used confidential information and dealt with clients in order to get a head start in setting up a competing business.

The employee was in a managerial position in a mechanical engineering consultancy business, called APT, since 2011. The employee used APT’s confidential information, intellectual property and clientele, to begin a new business directly competing with APT, called Advanced Vibration & Reliability Engineers (AVRE), in January 2013.

APT argued that the employee had breached his employment contract on the basis that he was obliged to “devote the whole of [his] time, attention and skills to the duties and must not whilst in the company’s employment take on any other employment, engage in any other business activity…unless otherwise agreed with the Directors of the company”.

The employee had also signed a confidentiality agreement which stated that “all inventions, improvements, designs, creations and other developments relating to or deriving from any of the business systems or technology used by the company at any time during [his] employment or within a reasonable time thereafter, shall be the property of the company”.

The judge issued an injunction against the employee to stop him from using confidential information and directly or indirectly dealing with clients obtained from his former place of employment, for the purposes of his new employment, until February 2015.

What does this mean for your business?

The decision in APT Technology Pty Ltd v Aladesaye is now authority for the application of the springboard principle to certain employment situations.

Specifically, a former employee of a company may be restrained from soliciting clients from their former employer by the granting of an injunction against them.

Some of the services we have provided for our clients include reviewing employment contracts and confidentiality agreements. We can add clauses to your existing contract to protect confidential or commercially sensitive information.

We can also provide you with advice on injunctions and commencing litigation.

Disclaimer: This newsletter and any information contained herein are intended for informational purposes only and should not be construed as legal advice. For any legal advice please contact us at info@ahernslawyers.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

AHERNS LAWYERS

Email: info@ahernslawyers.com.au

Web: www.ahernslawyers.com.au

 

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