Stealing the secrets goes with the job

Making the theft of confidential information a criminal offence is posing problems for the Law Commission. Grania Langdon-Down investigates

It is a quirk of the law that someone can be prosecuted for stealing a boardroom ashtray but not the boardroom secrets, even though their "theft" could cost the company millions of pounds. The commercial successes of many industries, particularly financial, computer, pharmaceutical and technological companies, depend on the development of new products and processes. But they fear the threat of civil action alone is often not a sufficient deterrent to stop someone stealing their trade secrets.

However, making it a criminal offence poses a number of questions: How do you define clearly what constitutes a trade secret? Should someone be compelled in civil proceedings to reveal something which could be used against them in a criminal trial? What defences should there be?

These difficult issues are currently being studied by the Law Commission, which is due to produce a consultation paper next year on whether there should be criminal liability for the misuse of trade secrets.

Stephen Silber QC, a Law Commissioner, says: "There has been great pressure on us to look at this area of law. Trade secrets have enormous commercial value. However, they do not at present come under the criminal law because they do not fall into the property category required by the Theft Act."

He describes one case in the early 1990s which highlights the problem. "A major pharmaceutical company develops a non-patentable mode of manufacture which enables it to produce the particular drug more potently, more cheaply and more efficiently than anybody else. An ex-employee then sells it for a huge sum of money.

"That trade secret was worth millions. In the event the company got back the money he was paid and they think they stopped him in time. But even if you take everything he has got, it may amount to very little.

"I did a lot of civil trade secret cases when I was at the Commercial Bar and clients would say, 'why shouldn't there be criminal liability when you are talking about the deliberate, unjustified use of trade secrets for commercial gain?'"

The law governing the misuse of trade secrets has grown up through case law, providing an equitable remedy through damages, an account of profits and injunctions.

Robert Anderson, senior partner in Lovell White Durrant's intellectual property group, explains that since the 1967 Seager v Copydex case the duty to keep information confidential depends on "the broad principle of equity that he who has received information in confidence shall not take unfair advantage of it".

He says the problem for the courts in civil confidentiality actions is to balance the interests of employers wanting to protect their secrets against the interests of the employee who wants to work for another company without being hamstrung by onerous restrictions - this means drawing a line between "real" trade secrets worth protecting and other information which requires limited or no protection at all.

In Faccenda Chicken v Fowler in 1985, the court classified information into three categories: information which was trivial or easily accessible; information which the employee had to treat as confidential but, once learned, necessarily remained in his or her head and became part of their own skill and knowledge; and specific trade secrets so confidential they could only lawfully be used for the employer's benefit.

Anderson says: "Confidentiality actions differ from actions to enforce patents and most other intellectual property rights since the scope of the protection is somewhat more nebulous. They can be difficult to answer because the allegations may be framed in wide unspecific terms and also involve a suggestion of dishonesty which may in itself be damaging. So courts tend to scrutinise these cases carefully and require fairly specific details about the information and alleged misuse.

"However, I have a lot of sympathy with the feeling that in some cases there should be criminal sanctions. I do not think civil remedies are always a sufficient deterrent.

"I have been involved in cases where somebody was suspected of offering something for sale but proving that the information was 'confidential' and had been taken can be very difficult. We were lucky in one case though, when we found a box in the miscreant's attic and the first page said 'top secret', but it doesn't usually happen like that."

Anderson believes there should be little difficulty in framing suitable legislation. The necessary criminal intent would include knowledge that the information was confidential and an intent to make unauthorised use or disclosure.

"The top secret report in the attic case is an example of a case where criminal charges might have been made to stick" he says. "The deterrent effect of criminal sanctions would be helpful. The main objective is to effect a mind shift among employees and others. Taking secrets should not be something which is tolerated - or even applauded - if you can get away with it but a serious matter which is condemned by modern technological society."

Anderson points to existing inconsistencies in the law. "We have the Computer Misuse Act which penalises the unauthorised access to computers as a criminal offence. Why is that singled out when gaining access to confidential files is not?

"The courts have had at least one opportunity to extend the offence of theft to cover the dishonest taking of confidential information. A student was prosecuted for stealing the contents of an exam paper - he could not be prosecuted for stealing the paper itself because he intended to return it.

"Although the Theft Act says that property which can be stolen includes 'intangible property', the High Court ruled that this did not include confidential information. Also, and this is probably a better reason for the failure of the prosecution, the student had not intended to deprive the owner permanently of the information - a necessary element of theft.

"In the end, the student got away with a lesser 'conviction' of being labelled a cheat."

Andrew Inglis, head of Olswang's intellectual property group, says some of the most common confidential information claims relate to employees who leave to go to another, similar company. While firms can use restrictive covenants, courts are reluctant to do anything if the information the person has is part of the general store of knowledge relating to his job.

"However, it does seem to be quite clear that confidential information does not have to be information which is totally secret but merely information which is difficult to ascertain or would require some work to bring it up to the form in which it was taken."

Inglis says an example of the sort of information which is readily protectable is an invention. In Seager v Copydex, an inventor had gone to a company and discussed a new method for fixing carpet without any agreement that it was confidential, although he made it apparent it was secret in the context of the meeting. The company told him they were not interested but then went on and produced the product. The court found for the inventor.

Inglis argues it is difficult to see how criminal sanctions are appropriate unless the case effectively involves "industrial espionage".

"In the end, one of the difficulties is, that with confidential information, once the bird has flown, it has flown"